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Annual Report 2016

VII. Other Particulars

32) Financial Instruments

The financial instruments (financial assets and liabilities) are allocated to the following categories. No offsetting of financial assets and liabilities was performed.

  Section 31/12/2016 31/12/2015
    € '000 € '000
Hedging instruments and liabilities reported at fair value      
Market value of interest rate swaps 17 83 144
Non-current conditional purchase price 12 1,104 346
Current conditional purchase price 17 0 9
1,187 499
Loans and receivables
Rent deposits 4/8 234 284
Trade receivables 6 17,787 11,552
Receivables from suppliers 8 192 19
Other financial assets 8 390 201
Cash and cash equivalents 9 23,929 19,978
42,532 32,034
Financial liabilities measured at amortised cost
Borrowings 11 28,092 8,058
Other non-current financial liabilities 12 7 14
Assumption of debt company acquisition GWK 12/17 496 0
Trade payables 13 4,809 2,433
Loans 17 1,102 0
Debtors with credit balances 17 434 177
Other current financial liabilities 17 764 202
35,704 10,884

Net Gains or Losses on Financial Instruments by Measurement Category

  From interest From subsequent measurement From disposal20162015
  At fair value Currency translation Impairment   
  € '000 € '000 € '000 € '000€ '000€ '000€ '000
Hedging instruments and liabilities reported at fair value -14 180 0 00166136
Loans and receivables 25 0 -21 -2840-280-167
Financial liabilities measured at amortised cost -458 0 0 00-458-433
-447 180 -21 -2840-572-464

Classifications and Fair Values

The following table shows the carrying amounts of financial assets and liabilities, including their levels in the fair value hierarchy. It does not contain any information on the fair value for financial assets and financial liabilities that were not measured at fair value if the carrying amount represents a suitable approximation of the fair value. The various levels are as follows:

Level 1: Quoted prices in active markets for identical assets and liabilities
Level 2: Valuation factors other than quoted market prices that are observable directly (i.e. as prices) or indirectly (i.e. derived from prices) for assets or liabilities
Level 3: Valuation factors for assets and liabilities that are not based on observable market data

  31/12/2016 31/12/2015  
  Carrying amount Fair value Carrying amount Fair value Fair value hierarchy
  € '000 € '000 € '000 € '000  
Financial liabilities measured at fair value          
Market value of interest rate swaps -83 -83 -144 -144 Level 2
Conditional non-current purchase price -1,104 -1,104 -346 -346 Level 3
Conditional current purchase price 0 0 -9 -9 Level 3
-1,187 -1,187 -499 -499
 
Financial assets and liabilities not measured at fair value
Rent deposits 234 234 284 284
Trade receivables 17,787 17,787 11,552 11,552
Receivables from suppliers 192 192 19 19
Other financial assets 390 390 201 201
Cash and cash equivalents 23,929 23,929 19,978 19,978
Borrowings -28,092 -28,202 -8,058 -8,289 Level 2
Other non-current liabilities -7 -7 -14 -14
Assumption of debt company acquisition GWK -496 -496 0 0  
Trade payables -4,809 -4,809 -2,433 -2,433
Loans -1,102 -1,102 0 0  
Debtors with credit balances -434 -434 -177 -177
Other current financial liabilities -764 -764 -202 -202
6,828 6,718 21,150 20,919  
  5,641 5,531 20,651 20,420  
Gains (+) or losses (-) not entered -110 -231  

There were no transfers between the fair value hierarchy levels in the financial year.

The carrying amounts for the financial instruments (for example, cash and cash equivalents, trade receivables and payable as well as other receivables and liabilities) fundamentally reflect their fair values. For receivables with a maturity of up to one year, their nominal value less the reductions for impairment applied provide the most reliable estimate of the fair value. The fair value of receivables with a maturity of over one year is indicated by their discounted cash flows.

The financial liabilities are an exception, because differences exist between the carrying amounts and fair values. The fair value of interest-bearing liabilities is indicated by the discounted cash flows from repayments and interest payments. The current reference interest rates of banks at the balance sheet date were requested and used in determining fair values. In accordance with the term, the reference interest rates were between 0.77 percent and 2.80 percent. An appropriate risk premium was added.

The market values of the interest rate swaps are calculated on the basis of observable expected returns of major German banks on the basis of the expected present value of the future cash flows.

The fair value of the conditional purchase price obligations for the KLH companies amounting to € 166 thousand at the time of acquisition of the remaining shares on November 11, 2016 (December 31, 2015: € 355 thousand) was determined for the last time on the basis of the discounted cash flow method. The valuation model takes account of the present value of the expected payment based on the forecast revenue growth for the years 2016 and 2017 (average 7.3 percent; 2015: 4.0 percent) and the forecast EBIT margins (average 4.6 percent; 2015: 6.1 percent), discounted with a risk-adjusted interest rate of 2 percent (2015: 2 percent). Payment of the conditional purchase price obligation as measured was made in conjunction with the acquisition of the remaining shares in the KLH companies in the 2016 financial year.

The fair value of the put/call options concluded with the minority interests in the context of the corporate acquisition of the majority interest in Ovidius GmbH in the amount of € 1,104 thousand was determined on the basis of the multiples method. The valuation model takes account of the present value of the expected payment to the minority interests based on the forecast average revenue (€ 2,968 thousand) for the years 2017 to 2020 and the average EBIT margins of 6.7 percent, discounted with a risk-adjusted interest rate of 2 percent. Material non-observable factors are the average revenues, the EBIT margins and the discount rate. Due to changes in the factors over time, the fair values may turn out to be higher or lower. A reduction in the EBIT margin of one percentage point would lead to a reduction of € 135 thousand in the fair value of the conditional purchase price payment. An average 10 percent reduction in revenue would lead to a reduction of € 109 thousand. The effects of the increase in the input factors would correspondingly work against the fair value to the same extent. Changes in the discount rate by one percentage point would lead to an increase of € 52 thousand or a decrease of € 55 thousand in the fair value.

Reconciliation of Level 3 Fair Values

The following table shows the reconciliation between the opening and closing amounts for Level 3 fair values.

  Conditional purchase prices
  € '000
Position at January 1, 2015 885
Payments -394
Loss or income recognised as financial charges
Change in fair value -138
Interest costs 2
Position at December 31, 2015 / January 1, 2016 355
Acquisitions 1,090
Payments -175
Loss or income recognised as financial charges
Change in fair value -180
Interest costs 14
Position at December 31, 2016 1,104

Nature and Extent of Risks Associated with Financial Instruments

The credit risk is the risk that one party to a financial instrument will cause a loss for the other party as a result of not meeting its obligations. The market risk is based on the fact that the fair value or future cash flows from a financial instrument fluctuate as a result of changes in the market prices. The market risk assumes a more specific form in interest rate risks and exchange rate risks. The liquidity risk denotes the risk of crystallising difficulties in fulfilling financial obligations, e.g. the risk of being unable to prolong loans or secure new loans to repay loans due.

Credit Risks

A substantial part of the credit risk for technotrans relates to the risk of defaulting on trade receivables and theoretically also the risk of the banks with which technotrans has credit balances declaring bankruptcy. Banks are chosen on the basis of long-standing positive experiences and the banks’ ratings.

There are credit risks equivalent to the reported carrying amounts of € 42,532 thousand. The trade receivables are to some extent covered by credit insurance; the insured volume at the reporting date was € 5,588 thousand.

The bad debt risk includes a degree of risk concentration because OEMs in the various industries account for a substantial portion of receivables. technotrans generates a high revenue share with the world's leading printing press manufacturers. The printing industry continues to undergo a process of consolidation. No significant bad debt losses were incurred in the financial year.

In the case of new customers, technotrans endeavours to limit the bad debt risk by obtaining credit information and monitoring credit limits with IT assistance.

In addition to observing credit limits, technotrans regularly agrees retention of title until goods or services have been paid for in full. technotrans does not usually demand security from customers.

The credit risks from trade receivables can be broken down by region, customer group and age structure as follows:

31/12/2016 31/12/2015
  € '000 € '000
By region
Germany 8,215 4,382
Other eurozone countries 3,182 2,992
Rest of Europe 1,936 580
North America 2,490 1,734
South America 12 110
Asia and Middle East 1,952 1,754
17,787 11,552
 
By customer group
OEM Print 6,268 4,527
OEM (other) 4,033 1,081
End customers 7,486 5,944
17,787 11,552
 
By age structure of receivables (without impairment)
Carrying amount 17,787 11,552
of which: neither impaired nor overdue 14,202 8,347
of which: not impaired and
overdue by up to 30 days 2,719 2,045
overdue by between 31 and 60 days 303 523
overdue by between 61 and 90 days 267 268
overdue by more than 90 days 296 369

With regard to the trade receivables that are neither impaired nor overdue, there is no indication at the balance sheet date that the debtors will not meet their obligations to pay.

Liquidity Risk

technotrans AG uses rolling financial and liquidity planning to determine its liquidity requirements. It ensures that sufficient cash and cash equivalents are available at all times to settle liabilities. The group has an unsecured bank loan which is subject to an obligation to adhere to certain financial indicators (financial covenants). A future breach of those indicators could lead to the loan becoming repayable at an earlier date than indicated in the following table.

The future payment streams for contingent consideration (cf. Note 12) and from the interest rate swaps may differ from the amounts shown in the following table because interest rates or the relevant conditions are subject to change.

Except in the case of these financial liabilities, it is not expected that a payment stream included in the maturity analysis might arise significantly earlier or in a significantly different amount.

The cash and cash equivalents available are kept exclusively with banks with a very good credit rating. Continuing credit facilities amounting to up to € 18.4 million (2015: € 13.5 million) were also in place at the balance sheet date.

The following table shows the contractual due dates of financial liabilities, including any interest payments:

  Due within 
  Carrying amount Contractual/ expected payment 6 months 6-12 months 1-2 years2-5 yearsover 5 years
  € '000 € '000 € '000 € '000 € '000€ '000€ '000
At December 31, 2016            
Borrowings 28,092 30,060 3,436 2,081 4,19312,2838,067
Other non-financial liabilities 1,359 1,359 n/a n/a 2551,1040
Trade payables 4,809 4,809 4,800 9 n/an/an/a
Other financial liabilities 2,548 2,548 2,548 n/a n/an/an/a
Interest rate swaps 83 83 38 24 1830
36,891 38,859 10,822 2,114 4,46613,3908,067
At December 31, 2015
Borrowings 8,058 8,837 1,459 740 2,8852,829924
Other non-financial liabilities 360 360 n/a n/a 1402200
Trade payables 2,433 2,433 2,413 20 n/an/an/a
Other financial liabilities 388 388 388 n/a n/an/an/a
Interest rate swaps 144 144 10 13 49720
11,383 12,162 4,270 773 3,0743,121924

Market Risks

technotrans pursues the objective of only being exposed to interest rate risks to a limited degree. Financial liabilities of € 19,318 thousand (2015: € 2,868 thousand) were therefore raised at a fixed interest rate. Long-term, variable-rate loans are hedged by the use of interest rate swaps, which are not needed in the case of short-term loans. Variable-rate loans amounting to € 4,274 thousand (2015: € 5,190 thousand) within this global loan amount (€ 8,774 thousand; 2015: € 5,190 thousand) are converted into fixed-rate loans by means of interest rate swaps. The group does not report any fixed-rate financial assets and liabilities at fair value through profit or loss, apart from the conditional purchase prices. Derivatives (interest rate swaps) are not intended as hedging instruments for fair values. A change in the interest rate at the reporting date would therefore not influence the gain or loss.

The carrying amounts of the interest rate swaps are equally exposed to an interest rate risk.

The group is exposed to exchange rate risks in the context of its operating activities. At December 31, 2016 the trade receivables as well as the cash and cash equivalents were denominated mainly in euros; other noteworthy components were denominated in US dollars, Chinese renminbi, pounds Sterling and UAE dirhams. The foreign currency holdings quoted are held essentially by technotrans AG and the local national companies within the group.

   31/12/201631/12/2015
   USDCNYGBPAED USDCNYGBP
Trade receivables in thousand2,1074,034342668 1.6064.848283
in € thousand1,999551399173 1.475687385
Cash and cash equivalents in thousand3,3721,5396581.232 3.6522.030822
in € thousand3,199210769319 3.3552871.120

Financial liabilities are denominated predominantly in euros.

Net investments in a foreign business exist exclusively in Brazilian reals. Changes in exchange rates would have an equity effect.

Other foreign currency risks are limited within the technotrans Group by the fact that production takes place principally within the eurozone, and that the currency of production usually corresponds to the currency in which the customer is invoiced. Where significant discrepancies occur, this exchange risk is usually hedged against by means of derivative financial instruments. There were no currency hedging transactions at December 31, 2016.

Sensitivity Analysis

A potential 10 percent appreciation or weakening in the principal foreign-exchange closing rate compared with the euro throughout the group would have had the following effects on equity and profit after tax, assuming that all other variables, and in particular interest rates remain unchanged:

   Effect on
equity 
Effect on profit
after tax 
   
in
€ '000
Increase
 
+10 %
Reduction
 
-10 %
Increase
 
+10 %
Reduction
 
-10 %
At December 31, 2016       
USD -700700 -215215
GBP -7070 -1515
BRL 469-469 8-8
At December 31, 2015
USD -551551 -121121
GBP -8585 -1717
BRL 366-366 6-6

The figures reflect the impact on the period under review of changes in both the closing rate and the average rate, in each case based on a 10 percent change compared with the translation rates applied in the respective consolidated financial statements.

Market risks from interest rate fluctuations exist only for the interest rate swaps. A fall in the interest rate of one percentage point would have only a marginally negative impact on the valuation of the interest rate swap and therefore on equity.

Hedging Instruments

At the balance sheet date, there existed the following derivative financial instruments for hedging against the interest rate risk for variable interest-bearing loans denominated in euros (see Note 11); including these derivative financial instruments, the financial assets and financial liabilities are not exposed to any significant interest rate risk.

  Nominal amount Repaid Balance Fixed Variable Maturity Fair Value
  € '000 € '000 € '000 % p.a.   € '000
Payer-Swap 3,688 3,360 328 2.81 3-month EURIBOR Sep. 2018 -8
Payer-Swap 3,000 1,143 1,857 2.63 3-month EURIBOR Jan. 2020 -42
Payer-Swap 1,500 0 1,500 2.70 3-month EURIBOR June 2017 -15
Payer-Swap 1,100 511 589 3.40 3-month EURIBOR Aug. 2020 -18

The fair values are obtained from the measurement of the outstanding items, disregarding any counter-cyclical trends in value from the positions. The fair values are calculated by major German banks on the basis of discounted cash flows (Level 2 according to IFRS 13.82).

Interest Rate Swap

The nominal amount or principal amount, terms, interest payment dates, interest rate adjustment dates, due dates and currencies of the hedged item and hedging instrument are the same. In cases where a hedge exists for a future transaction, it was accounted for as a hedging relationship only if it was considered very probable that this transaction would occur. The efficiency of the hedge pursuant to IAS 39.88 (b) is high, reaching almost 100 percent. The requirements of IAS 39.88 are moreover satisfied.

The interest rate swaps are recognised as a cash flow hedge at the market price; measurement gains and losses from changes in the market price are recognised in the hedging reserve, under equity, with no effect on income. The fair value of the hedging instruments at the balance sheet date is recognised at € 83 thousand (2015: € 144 thousand) under the current “Other liabilities” (Note 17). The underlying loan transactions are measured at amortised cost, using the effective interest method.

The deferred tax on the negative market prices of € -18 thousand was netted against the hedging reserve in the financial year with no effect on income, with the result that the negative balance of the hedging reserve amounted to € 58 thousand at the reporting date.

  € '000
Opening level at January 1, 2015 -134
Amount transferred to the Income Statement 93
Change of the market values of cash flow hedges -44
Deferred tax on these not affecting income -15
Level at December 31, 2015 / January 1, 2016 -100
Amount transferred to the Income Statement 77
Change of the market values of cash flow hedges -17
Deferred tax on these not affecting income -18
Closing level at December 31, 2016 -58

33) Future Payment Obligations

  31/12/2016 31/12/2015
  up to 1 year 1 to 5 years over 5 years Total Total
  € '000 € '000 € '000 € '000 € '000
Tenancy and operating lease agreements 1,889 3,360 373 5,622 4,883
Maintenance agreements 676 270 0 946 720
Other 7,246 7 0 7,253 108
9,811 3,637 373 13,821 5,711

The future payment obligations are measured at their nominal amount; amounts in foreign currency were measured at the closing rate.

The maintenance agreements relate in the main to the ERP data processing system.

The future obligations from tenancy and lease agreements relate primarily to tenancy obligations for the business premises of subsidiaries and to the vehicle leasing agreements concluded. The expenditure for tenancy and lease agreements (minimum lease payments) in the year under review amounted to € 2,430 thousand (2015: € 1,900 thousand).

By deed of August 16, 2016 GWK Gesellschaft Wärme Kältetechnik mbH acquired the business premises in Meinerzhagen at a purchase price of € 7,150 thousand. The transfer of title and payment of the purchase price are subject to a condition precedent.

34) Personnel Expenses

  2016 2015
  € '000 € '000
Wages and salaries 43,830 34,806
Christmas bonus (Christmas shares) 227 218
Other compensation components (Shares) 35 29
Social insurance 7,961 6,237
Expenses for retirement benefits and maintenance payments 887 871
52,940 42,161

The wages and salaries item also includes payments made in connection with the termination of employment of € 335 thousand (2015: € 115 thousand).

Social insurance comprises expenditure for defined contribution plans (employer contributions to the compulsory state pension scheme) totalling € 3,591 thousand (2015: € 2,373 thousand).

In the reporting period 2,162 (2015: 2,187) ordinary shares were distributed in the form of remuneration components; all shares had previously been acquired on the market under the share buy-back arrangements. Furthermore, 9,254 (2015: 11,967) ordinary shares in technotrans AG were distributed to employees by way of a Christmas bonus. These ordinary shares were acquired on the market in the 2016 financial year prior to issuance.

At the time of their issuance, the total fair value of these shares was € 262 thousand (2015: € 247 thousand). This represents a market value of € 16.34 and € 21.75 per share on the respective issuance dates.

35) Total Employees, Yearly Average

  2016 2015
Average number of employees 990 810
of which in Germany 831 650
of which abroad 159 160
 
Technicians/skilled workers 621 503
Academic background 225 180
Trainees 82 74
Other 62 53

36) Related Parties

“Related parties” include the members of the Board of Management and Supervisory Board of technotrans AG, as well as their close family members.

Since the 2011 financial year the remuneration system for the Board of Management has met the latest standards and the statutory requirements of the Act on the Appropriateness of Management Board Compensation (German VorstAG). Please refer to the “Report on the Remuneration System of the Board of Management” in the Management Report for the group for information on the payment components.

Payments to Members of the Board of Management and Supervisory Board

  2016 2015
  € '000 € '000
Board of Management
Regular payments
of which fixed 717 689
of which variable 726 503
1,443 1,192
Supervisory Board
Regular payments
of which fixed 79 79
of which variable 105 90
184 169

In addition to the remuneration paid in the financial year, the members of the Board of Management are entitled to a profit share of € 416 thousand (2015: € 387 thousand) that is conditional on the attainment of future targets focusing on sustainability.

The regular payments to the Board of Management (fixed) include payments by the company for defined contribution plans totalling € 90 thousand (2015: € 90 thousand).

No employer’s pension commitment has been made towards the members of the Board of Management, nor have loans been granted to them or surety obligations accepted on their behalf.

The members of the Board of Management and Supervisory Board are listed separately in the section “Corporate Bodies”.

Directors’ Holdings (Board of Management and Supervisory Board Members)

  Shares
  31/12/2016 31/12/2015
Board of Management
Henry Brickenkamp 47,037 47,037
Dirk Engel 20,000 20,000
Dr. Christof Soest 10,764 18,764
Supervisory Board
Reinhard Aufderheide 3,380 3,366
Dr. Norbert Bröcker 250 250
Heinz Harling 64,854 64,854
Dr. Wolfgang Höper** 0 0
Thomas Poppenberg 656 610
Helmut Ruwisch* 0 1,500
Dieter Schäfer 0 0
Family members
Marian Harling 500 1,000

37) Corporate Governance

The Board of Management and Supervisory Board submitted the Declaration of Conformity pursuant to Section 161 of German Stock Corporation Act in September 2016 and provided permanent access to it for shareholders and interested parties on the company’s website (www.technotrans.de).

38) Events Occurring after the Balance Sheet Date

The date for release of the annual financial statements by the Board of Management pursuant to IAS 10.17 is March 6, 2017. These Consolidated Financial Statements are subject to approval by the Supervisory Board (Section 171 (2) of German Stock Corporation Act).

No further events of particular significance affecting the financial performance, financial position or net worth of the company occurred after the end of the 2016 financial year.