Annual Report 2015

Opportunities and risks profile

As a technology company, technotrans operates in a dynamic market environment in which new opportunities and risks are continually emerging. technotrans conducts opportunity and risk management to assist the company management in achieving the corporate targets. technotrans’ long-term success depends on identifying and seizing opportunities at an early stage. Meanwhile the company is exposed to risks that could hinder the attainment of its short and medium-term targets. technotrans takes risks to mean internal and external events, resulting from uncertainty about future developments, which could adversely affect the attainment of corporate targets. technotrans understands opportunities to mean possible successes over and above the defined targets, which thus promote the development of the business. Risks and opportunities are inseparably linked. The structures and processes of the risk management system as explained in the Risks Report are therefore automatically also an aspect of opportunities management. Based on the recommendations of DRS 20, technotrans categorises its risks according to five risk groups:

General and Industry-Specific Risks

The success of the technotrans Group depends to quite some degree on the macroeconomic developments of its sales markets – specifically the printing press industry, the machine tool industry and the laser industry – along with the sales markets of its customers. In assessing macroeconomic development, among other tools technotrans uses forecasts by widely recognised institutions and economic research institutes. The growing diversification of the technotrans Group reduces its dependence on the business cycles of a single industry, while creating the chance to share in the opportunities offered by various growth markets.

As a systems supplier, technotrans still realises a comparatively high proportion of its revenue from the leading printing press manufacturers worldwide, which are going through a continuing process of restructuring. Economic difficulties for one of these customers or its exit from the market would potentially have a considerable impact on the financial position and financial performance of the company in the short term. However, we do not expect any lasting effects because consolidation would probably not exercise any influence on overall sales of printing presses.

Industry-specific opportunities and risks could also arise for the technotrans Group from technological and competitive changes. technotrans addresses these risks with ongoing initiatives to safeguard and extend its leading technological and innovative position as well as by focusing on customers and markets.

A fundamental cyclical and industry-specific risk naturally remains because the actual economic development of the global economy and the German economy, but particularly of the export-oriented capital goods industry, could differ considerably from the forecasts made. At the time of compiling this report we rate this risk as low. Thanks to its flexible production structures, technotrans is able to adjust capacities swiftly and thus respond to changes in demand.

Corporate Strategy Risks

The strategic direction of the group has centred on investment in growth markets, the expansion of existing markets and the acquisition of further companies in the past few years. The purpose of this investment is to increase the presence in existing markets and to access new end markets that offer attractive growth potential. In order to gain access to further sales markets, we are focusing on our core skills and specifically addressing niche markets where we can succeed as a systems partner to major industrial clients. technotrans works in close partnership with the customer across all business processes.

We place the spotlight of our Research and Development activities on innovations and optimising our technologies, both for the printing industry and for other sales markets. Projects take shape both in the business units and on the initiative of our own development department. New products are created in constant consultation with the customer from the product and applications development stage onward.

In new markets involving new customers, there is fundamentally always the possibility that efforts to launch new products will not succeed. On the other hand the individual risk is lower because of the growing number of customers. Nevertheless, it is impossible to exclude miscalculations with regard to the strategic direction of the group and its market potential, along with a lack of customer acceptance of newly developed products; these could have negative effects on the competitive position and the sales of the group. We tackle this risk by conducting a careful analysis of the underlying conditions before developing new products, and by carrying out a meticulous selection process of prototypes; we therefore rate this risk as low.

The relevant markets are moreover continuously monitored and opportunities for strategic acquisitions that complement organic growth are identified. By making targeted acquisitions, technotrans endeavours to strengthen its position as technology leader, unlock market potential, improve the services it provides for customers and expand the product portfolio.
There are a number of risks involved in taking over companies that could impact our financial performance, financial position and net worth. We limit these risks by often first agreeing a partnership so that we can assess our expectations in practice over a certain period. We also shore up the acquisition’s success by then securing the close involvement of the existing management and offering them the motivation of incentive payments as part of the agreed purchase price. We therefore rate this risk in general as low.

If the expected economic or industry-specific developments or the targets for newly acquired businesses or expectations of newly developed products should prove to be inaccurate, the revenue and therefore also the earnings target could be missed. Attainment of the margin targets depends to a very great degree on the planned revenue performance and on keeping costs strictly under control. Unplanned expenses, e.g. for restructuring measures unexpectedly needed or unforeseeable additional quality problems, could also cause major shortfalls. There is no evidence of either at the time of writing this report and we rate the risk as low. In drawing up our plans for the 2016 financial year we have based our estimates on realistic planning assumptions and can if necessary take swift corrective action to exclude these risks as far as possible, or minimise their impact.

Financial Risks

Financial risks stem first and foremost from liquidity bottlenecks, credit financing and exchange rate fluctuations.

The individual subsidiaries fundamentally finance themselves from their operating profit. Depending on the liquidity situation, technotrans AG also helps with the financing and provides funding if required. To remain in a position to act at all times, the group parent has adequate liquidity reserves. A diversified financing structure, spread across several principal banks, prevents dependence on individual lenders. Nor would a change in the interest rate have any major impact on the financial performance, because ongoing financing involves a mix of fixed-rate and variable-rate financing and interest rate risks are hedged. A significant deterioration in the financial performance, financial position and net worth from the plan figures for the 2016 financial year could render it necessary to draw on these reserves. Based on our plans for 2016, we rate this risk as low.

In view of the company’s structure and markets, exchange rates have only a limited impact on the operating performance of the technotrans Group because the overwhelming portion of its business is settled in euros. Foreign currency risks of the subsidiaries are transferred within the group to the group parent and thus pooled centrally. On the other hand exchange rate movements may be a help or a hindrance to the competitiveness of our customers.

We consider the risk of a major debt default to be low overall, among other things based on the experience of recent years. New customers are always subjected to proper credit checks. Wherever possible, we have insured against default losses on receivables and have thus further limited the risk. All in all, we rate the financial risks as low.

Economic Performance Risks

As well as corporate strategy risks, technotrans is exposed to economic performance risks, in particular in the form of procurement risks and production risks. The purchased materials are fundamentally exposed to the risk of price fluctuations. technotrans limits the price and volume risk through systematic supplier management as well as by creating a group procurement structure in order to create economies of scale in the group’s procurement of the principal categories of materials. No major purchase price increases are expected for 2016.
There is furthermore the risk that customer expectations with regard to punctuality of delivery or quality will not be met. A large number of processes and mechanisms, from supplier management and customer project handling to quality management, are intended to anticipate and eliminate such risks.

A secure and effective IT infrastructure is the basis of the modern working environment. The growing integration of systems and the need for permanent availability place high demands on the information technology used. technotrans addresses possible risks from the failure of computer systems and networks, unauthorised accessing of data and data misuse through a central shared service centre function (in technical and organisational terms) as well as through regular investment measures and checks.

The success of the technotrans Group also depends substantially on the commitment, expertise and integrity of the employees. There exist possible risks mainly in the areas of personnel recruitment and personnel development. Changes to structures or processes harbour the risk of losing employees and their expertise if they are unable to identify with the measures taken and are therefore prompted to move (fluctuation). We tackle this risk through focused training and advancement measures, by spreading individual expertise among teams and by offering commensurate pay. Employees appreciate the positive corporate culture, with the result that all measures combined make technotrans an attractive employer. Overall, we rate the economic performance risks as low.

Legal Risks

Future changes to the law and to regulations, entailing changes to standards, could have a negative effect on the development of the technotrans Group. In addition, legal disputes and obligations to pay compensation could arise from the business operations of technotrans AG and its subsidiaries. While efficient contract and quality management plus a compliance system can minimise this risk, they cannot exclude it altogether. technotrans has adequate insurance cover in place to guard against the risk, and also creates provisions in its accounts.

There are no risks for either technotrans AG or the individual subsidiaries from the outcome of judicial or arbitration proceedings that, according to current estimates, could have a significant detrimental effect on the economic position of the group. Overall, we rate the legal risks as low.