Annual Report 2014

Opportunities and Risks Report

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.

General and Industry-Specific Risks

The future development of the technotrans Group is influenced by various general parameters such as global economic development, the development of the capital goods industry in general and the development of specifically the printing press industry, the machine tool industry and the laser industry, as well as of other sectors. This growing diversification reduces its dependence on the business cycles of the printing 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 and capacity-shedding. 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. At the time of compiling this report we rate this risk as moderate. By contrast, manufacturers in the machine tool and laser market are approaching 2015 with confidence. Almost all laser and machine tool manufacturers are aiming for further growth in 2015.

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 assess the risk as low and we would moreover be able to adjust the company to changing circumstances at any time at short notice.

Corporate Strategy Risks

Corporate strategy risks exist mainly in the misjudging of the future market and business performance.

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 system partner to major industrial clients. As part of the process of opening up those markets, we exhibit at shows for the relevant target industries, for example. We are for example planning to take part in the following important shows and exhibitions in 2015, among others: the Photonics West (USA), Laser World of Photonics China, Laser World of Photonics Munich, and the World Publishing Expo, the Blechexpo and the Battery Conference in Germany.

The recent business results with customers in the printing industry have confirmed our resolve to press ahead with exploring applications for our core skills in other markets.

We place the spotlight of our Research & 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 under the initiative of our own development department. In addition, our development engineers are in close contact with our customers in an effort to identify immediate needs directly in their everyday production operations, and then to act upon those requirements. All in all, we do not expect any significant increase in research and development spending in 2015.

The more unknowns (market, customer, technology) there are, the greater the possibility that efforts to launch new products will not be a success. 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 it as low.

We are also continually examining suitable opportunities for acquisitions in order to accelerate the pace of growth. In view of the strategic importance of these markets of the future, we are investing considerable resources in developing them. 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 generally 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 2015 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 include above all the liquidity risk, the interest risk, the exchange risk and the credit risk.

A marked deterioration in the financial performance, financial position and net worth compared with the plans for the 2015 financial year could result in our banks dictating corresponding credit clauses for certain financial ratios (covenants) when providing future financing. Based on our plans for 2015, 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. 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 and the reduced volumes. 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.

Market Risks

As well as corporate strategy risks, technotrans is exposed to market risks, in particular in the form of procurement risks and production risks. Price and volume risks are limited by careful management of business processes. No major purchase price increases are expected for 2015.

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 shortcomings.

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.

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 market risks as low.

Legal Risks

The business operations of technotrans AG and its subsidiaries harbour risks from guarantee and product liability claims from customer complaints. While efficient contract and quality management can minimise this risk, this 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.

The overall risk situation has not changed significantly compared with the previous year, and remains moderate and manageable. The Board of Management is not aware of any potential economic or legal threat to it as a going concern.