Annual Report 2015

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 31/12/2015 31/12/2014
    € '000 € '000
Hedging instruments and liabilities reported at fair value      
Market value of interest rate swaps 17 144 193
Non-current conditional purchase price 12 346 836
Current conditional purchase price 17 9 49
499 1,078
Loans and receivables
Rent deposits 4/8 284 189
Trade receivables 6 11,552 12,940
Receivables from suppliers 8 19 58
Other current assets 8 201 444
Cash and cash equivalents 9 19,978 17,238
32,034 30,869
Financial liabilities measured at amortised cost
Borrowings 11 8,058 11,639
Other financial liabilities 12 14 14
Trade payables 13 2,433 2,637
Debtors with credit balances 17 177 376
Other current liabilities 17 202 38
10,884 14,704

Net Gains or Losses on Financial Instruments by Measurement Category

  From
interest
From subsequent measurement From
disposal
20152014
  At fair value Currency translation Impairment   
  € '000 € '000 € '000 € '000€ '000€ '000€ '000
Hedging instruments and liabilities reported at fair value -2 138 0 00136-82
Held-to-maturity investments 0 0 0 0001
Loans and receivables 39 0 78 -2840-16770
Financial liabilities measured at amortised cost -433 0 0 00-433-581
-396 138 78 -2840-464-592

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

  31/12/2015 31/12/2014  
  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 -144 -144 -193 -193 Level 2
Conditional long-term purchase price -346 -346 -836 -836 Level 3
Conditional short-term purchase price -9 -9 -49 -49 Level 3
-499 -499 -1,078 -1,078
Financial assets and liabilities not measured at fair value
Rent deposits 284 284 189 189
Trade receivables 11,552 11,552 12,940 12,940
Receivables from suppliers 19 19 58 58
Other assets 201 201 444 444
Cash and cash equivalents 19,978 19,978 17,238 17,238
Borrowings -8,058 -8,289 -11,639 -11,928 Level 2
Other non-current liabilities -14 -14 -14 -14
Trade payables -2,433 -2,433 -2,637 -2,637
Debtors with credit balances -177 -177 -376 -376
Other current liabilities -202 -202 -38 -38
21,150 20,919 16,165 15,876  
  20,651 20,420 15,087 14,798  
Gains (+) or losses (-) not entered -231 -289  

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 1.00 percent and 2.99 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 € 355 thousand (2014: € 583 thousand) is determined 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 next two years (average 4.0 percent; 2014: 8.4 percent) and the forecast EBIT margins (average 6.1 percent; 2014: 7.2 percent), discounted with a risk-adjusted interest rate of 2 percent (2014: 2 percent). Material non-observable factors are the forecast growth rates for revenue, 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 € 36 thousand (2014: € 99 thousand) in the fair value of the conditional purchase price payment. An average 10 percent reduction in revenue would lead to a reduction of € 52 thousand (2014: € 177 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 or decrease of € 5 thousand (2014: € 8 thousand) in the fair value. Based on the 2015 annual financial statements of the KLH companies, the conditional short-term purchase price payment was calculated as € 9 thousand (2014: € 49 thousand). This portion has already been paid in 2016 at the amount recognised as a liability.

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, 2014 1,800
Payments -931
Loss recognised as financial charges
Interest costs 16
Position at December 31, 2014 / January 1, 2015 885
Payments -394
Loss recognised as financial charges
Change in fair value -138
Interest costs 2
Position at December 31, 2015 355

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 € 32,034 thousand. The trade receivables are to some extent covered by credit insurance; the insured volume at the reporting date was € 3,104 thousand.

The bad debt risk entails a concentration of risk because the major printing press manufacturers worldwide account for a substantial portion of technotrans’ receivables. Significant bad debt losses had been incurred from two printing press manufacturers in the previous years. Corresponding impairment was applied. 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. Here, too, there exists a degree of credit risk because customers operate largely within the printing sector.

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:

31/12/2015 31/12/2014
  € '000 € '000
By region
Germany 4,382 5,596
Other eurozone countries 2,992 2,965
Rest of Europe 580 300
North America 1,734 1,860
South America 110 113
Asia and Middle East 1,754 2,106
11,552 12,940
 
By customer group
OEM 5,608 6,988
End customers 5,944 5,952
11,552 12,940
 
By age structure of receivables (without impairment)
Carrying amount 11,552 12,940
of which: neither impaired nor overdue 8,347 10,179
of which: not impaired and
overdue by up to 30 days 2,045 1,961
overdue by between 31 and 60 days 523 581
overdue by between 61 and 90 days 268 84
overdue by more than 90 days 369 135

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 € 13.5 million (2014: € 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
years
2-5
years
over
5 years
  € '000 € '000 € '000 € '000 € '000€ '000€ '000
At December 31, 2015            
Borrowings 8,058 8,837 1,459 740 2,8852,829924
Other non-current liabilities 360 360 n/a n/a 1402200
Trade payables 2,433 2,433 2,413 20 n/an/an/a
Other current 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
At December 31, 2014
Borrowings 11,639 12,782 1,574 2,044 2,3245,4321,408
Other non-current liabilities 850 947 n/a n/a 3575900
Trade payables 2,637 2,637 2,611 26 n/an/an/a
Other current liabilities 463 463 462 1 n/an/an/a
Interest rate swaps 193 193 11 12 2346101
15,782 17,022 4,658 2,083 2,7046,0681,509

Market Risks

technotrans pursues the objective of only being exposed to interest rate risks to a limited degree. Financial liabilities of € 2,868 thousand (2014: € 5,532 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. All variable-rate loans (€ 5,190 thousand; 2014: € 6,107 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 and 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, 2015 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 and Sterling. The foreign currency holdings quoted are held essentially by technotrans AG and the local national companies within the group.

   31/12/2015 31/12/2014
   USDCNYGBP USDCNYGBP
Trade receivables in thousand1,6064,848283 1,7474,198298
in € thousand1,475687385 1,439557382
Cash and cash equivalents in thousand3,6522,030822 2,5292,918586
in € thousand3,3552871,120 2,083387753

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, 2015.

Sensitivity Analysis

A potential 10 percent appreciation in the euro compared with the principal foreign-exchange closing rates 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
  € '000 € '000
At December 31, 2015    
USD 501 110
GBP 77 15
BRL 333 6
At December 31, 2014
USD 461 46
GBP 76 15
BRL 477 5

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.

A corresponding weakening of the euro would have had the opposite effect.

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
rate
Variable
Interest
Maturity Fair Value
  € '000 € '000 € '000 % p.a.   € '000
Payer-Swap 3,688 3,172 516 2.81 3-month EURIBOR Sep. 2018 -18
Payer-Swap 3,000 572 2,428 2.63 3-month EURIBOR Jan. 2020 -59
Payer-Swap 1,500 0 1,500 2.70 3-month EURIBOR Juni 2017 -42
Payer-Swap 1,100 354 746 3.40 3-month EURIBOR Aug. 2020 -25

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 € 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 € -15 thousand was netted against the hedging reserve with no effect on income, with the result that the negative balance of the hedging reserve amounted to € 100 thousand at the reporting date.

  € '000
Opening level at January 1, 2014 -81
Change of the market values of cash flow hedges -76
Deferred tax on these not affecting income 23
Level at December 31, 2014 / 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
Closing level at December 31, 2015 -100

33) Future Payment Obligations

  31/12/2015 31/12/2014
  up to 1 year 1 to 5 years over 5
years
Total Total
  € '000 € '000 € '000 € '000 € '000
Maintenance agreements 642 78 0 720 3,056
Tenancy and operating lease agreements 1,527 2,860 496 4,883 2,871
Other 101 7 0 108 117
2,270 2,945 496 5,711 6,044

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 € 1,900 thousand (2014: € 1,772 thousand).

34) Personnel Expenses

  2015 2014
  € '000 € '000
Wages and salaries 34,806 32,881
Christmas bonus (Christmas shares) 218 213
Other compensation components (Shares) 29 0
Social insurance 6,237 5,862
Expenses for retirement benefits and maintenance payments 871 852
42,161 39,808

The wages and salaries item also includes payments made in connection with the termination of employment of € 115 thousand (2014: € 908 thousand).

Social insurance comprises expenditure for defined contribution plans (employer contributions to the compulsory state pension scheme) totalling € 2,373 thousand (2014: € 2,034 thousand).

In the reporting period 11,967 (2014: 22,629) ordinary shares in technotrans AG were distributed to employees by way of a Christmas bonus, as well as 2,187 (2014: 0) ordinary shares in the form of compensation components; all shares had previously been acquired on the market under the share buy-back arrangements.

35) Total Employees, Yearly Average

  2015 2014
Average number of employees 810 771
 
of which in Germany 650 609
of which abroad 160 162
 
Technicians/skilled workers 503 480
Academic background 180 169
Trainees 74 68
Other 53 54

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

  2015 2014
  € '000 € '000
Board of Management
Regular payments
of which fixed 689 660
of which variable 503 456
1,192 1,116
Supervisory Board
Regular payments
of which fixed 79 79
of which variable 90 59
169 138

In addition to the remuneration paid in the financial year, the members of the Board of Management are entitled to a profit share of € 387 thousand (2014: € 323 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 (2014: € 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
  31/12/2015 31/12/2014
Board of Management
Henry Brickenkamp 47,037 47,037
Dirk Engel 20,000 20,000
Dr Christof Soest 18,764 18,764
Supervisory Board
Reinhard Aufderheide 3,366 3,347
Dr Norbert Bröcker 250 250
Heinz Harling 64,854 64,854
Thomas Poppenberg 610 554
Helmut Ruwisch 1,500 1,500
Dieter Schäfer 0 0
Family members
Marian Harling 1,000 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 2015 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 February 25, 2016. 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 2015 financial year.

39) Disclosures of Interests Reported Pursuant to Section 21 (1) or (1a) of German Securities Trading Act

Reporting party Reported development
Threshold value* Date on which exceeded or undercut New interest invoting power Disclosures on attribution
in % Date in %  
Lazard Frères Gestion SAS, Paris/France >5% 17.5.2010 5,28 SICAV Objectif Small Caps Euro,
Paris/France
technotrans AG, Sassenberg >5% 12.3.2008 5,02
Teslin Capital Management BV, Maarsbergen/the Netherlands >3% 15.1.2010 3,02 Midlin NV, Maarsbergen/the
Netherlands
Baring Fund Managers Limited, London/Great Britain >3% 28.9.2015 3,00 Baring Asset Managers Limited,
London/Great Britain

As at February 25, 2015 Hauck & Aufhäuser Investment Gesellschaft S.A., Luxembourg, gave notification of a share of voting rights of 5.11 %.