Annual Report 2014

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 31/12/2014 31/12/2013
    € '000 € '000
Hedging instruments and liabilities reported at fair value      
Market value of interest rate swaps 17 193 117
Non-current conditional purchase price 12 836 870
Current conditional purchase price 17 49 931
  1,078 1,918
       
Held-to-maturity investments      
Reinsurance for pensions 8 0 22
       
Loans and receivables      
Rent deposits 4/8 189 177
Partial retirement bankruptcy cover 4 0 11
Trade receivables 6 12,940 10,178
Receivables from suppliers 8 58 66
Other current assets 8 444 457
Cash and cash equivalents 9 17,238 16,723
  30,869 27,612
       
Financial liabilities measured at amortised cost      
Borrowings 11 11,639 14,913
Other financial liabilities 12 14 18
Trade payables 13 2,637 2,644
Debtors with credit balances 17 376 92
Other current liabilities 17 38 72
  14,704 17,739

Net Gains or Losses on Financial Instruments by Measurement Category

  From interest From subsequent measurement From disposal20142013
  At fair value Currency translation Impairment   
  € '000 € '000 € '000 € '000€ '000€ '000€ '000
Hedging instruments and liabilities reported at fair value -82 0 0 00-82-216
Held-to-maturity investments 0 1 0 001-6
Loans and receivables 95 0 162 -187070-196
Fincial liabilities measured at amortised cost -581 0 0 00-581-714
-568 1 162 -1870-592-1,132

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 directly (i.e. as prices) or indirectly (i.e. derived from prices) observable for assets or liabilities
Level 3: Valuation factors for assets and liabilities that are not based on observable market data

  31/12/2014 31/12/2013  
  Carrying amount Fair
Value
Carrying
amoun
Fair
Value
Fair value
hierarchy
  € '000 € '000 € '000 € '000  
Financial liabilities measured
at fair value
       
Market value of interest rate swaps -193 -193 -117 -117 Level 2
Consitional long-term purchase price -836 -836 -869 -869 Level 3
Consitional short-term purchase price -49 -49 -931 -931 Level 3
-1,078 -1,078 -1,917 -1,917  
           
Financial assets and liabilities
not measured at fair value
         
Reinsurance for pensions 0 0 22 22  
Rent deposits 189 189 177 177  
Partial retirement bankruptcy cover 0 0 11 11  
Trade receivables 12,940 12,940 10,178 10,178  
Receivables from suppliers 58 58 66 66  
Other assets 444 444 457 457  
Cash and cash equivalents 17,238 17,238 16,723 16,723  
Borrowings -11,639 -11,928 -14,913 -15,170 Level 2
Other non-current liabilities -14 -14 -19 -19  
Trade payables -2,637 -2,637 -2,644 -2,644  
Debtors with credit balances -376 -376 -92 -92  
Other current liabilities -38 -38 -72 -72  
16,165 15,876 9,894 9,637  
  15,087 14,798 7,977 7,720  
Gains (+) or losses (-) not entered   -289   -257  

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 1.50 percent and 5.11 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 € 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 (average 8.4 percent) and the forecast EBIT margins (average 7.2 percent), discounted with a risk-adjusted interest rate of 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 1 percentage point would lead to a reduction of € 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 € 177 thousand. On the other hand, the consequences of a rise in the input factors would be limited to € 17 thousand because the conditional purchase price remaining is a maximum of € 551 thousand. Changes in the discount rate by 1 percentage point would lead to an increase or decrease of € 8 thousand in the fair value. Based on the 2014 annual financial statements of the KLH companies, the conditional short-term purchase price payment was calculated as € 49 thousand. This portion has already been paid in 2015 at the amount recognised as a liability.

The call/put option with an expiry date of December 31, 2017 for the remaining 49 percent of the shares in gds-Sprachenwelt GmbH amounting to € 302 thousand was discounted at a risk-adjusted interest rate at the balance sheet date and recognised as a liability. Changes in the discount rate may lead to changes in the fair value. A reduction in the discount rate by 1 percentage point would lead to an increase in the call/put option of € 10 thousand.

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, 2013 2,026
Purchases 565
Sales -120
Payments -809
Loss recognised as financial charges  
Change in fair value 130
Interest cost 8
Position at December 31, 2013 / January 1, 2014 1,800
Payments -931
Loss recognised as financial charges  
Interest cost 16
Position at December 31, 2014 885

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 € 30,869 thousand. The trade receivables are to some extent covered by credit insurance; the insured volume at the reporting date was € 4,152 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:

31/12/2014 31/12/2013
  € '000 € '000
By region    
Germany 5,596 3,771
Other eurozone countries 2,965 2,528
Rest of Europe 300 854
North America 1,860 1,246
South America 113 194
Asia and Middle East 2,106 1,585
12,940 10,178
     
By customer group    
OEM 6,988 4,542
End customers 5,952 5,636
12,940 10,178
     
By age structure of receivables (without impairment)    
Carrying amount 12,940 10,178
of which: neither impaired nor overdue 10,179 7,081
of which: not impaired and    
overdue by up to 30 days 1,961 2,071
overdue by between 31 and 60 days 581 425
overdue by between 61 and 90 days 84 208
overdue by more than 90 days 135 393

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 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 (2013: € 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, 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/a3,018
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
           
At December 31, 2013:            
Borrowings 14,913 17,021 2,124 1,598 3,1227,2102,967
Other non-current
liabilities
888 982 n/a n/a 150832n/a
Trade payables 2,644 2,644 2,644 n/a n/an/an/a
Other current liabilities 1,095 1,095 1,095 n/a n/an/an/a
Interest rate swaps 117 117 14 6 212551
19,657 21,859 5,877 1,604 3,2938,0673,018

Market Risks

technotrans pursues the objective of only being exposed to interest rate risks to a limited degree. Financial liabilities of € 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 (€ 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 trade receivables as well as cash and cash equivalents are exposed to foreign currency risks. At December 31, 2014 the trade receivables were denominated for the most part in euros; other noteworthy components were denominated in US dollars (USD 1.7 million, equivalent to € 1.4 million), Chinese renminbi (CNY 4.2 million, equivalent to € 0.6 million) and Sterling (GBP 0.3 million, equivalent to € 0.4 million). At December 31, 2013 there had been foreign-currency receivables mainly comprising USD 1.3 million (€ 0.9 million) and GBP 0.3 million (€ 0.4 million).

Bank credit balances are held predominantly in euros. At December 31, 2014 the group held significant foreign-currency accounts in US dollars (USD 2.5 million, equivalent to € 2.1 million) and Sterling (GBP 0.6 million, equivalent to € 0.8 million). The foreign currency amounts quoted are held essentially by technotrans AG and the local national companies within the group. At December 31, 2013 there had been foreign-currency credit balances of USD 4.6 million (€ 3.3 million) and GBP 2.2 million (€ 2.6 million).

Financial liabilities are denominated predominantly in euros.

Net investments in a foreign business are denominated mainly in Hong Kong dollars and 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, 2014.

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, 2014:
USD 461 46
GBP 76 15
BRL 477 5
     
At December 31, 2013:    
USD 362 63
GBP 70 12
BRL 433 4

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 1 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 Section 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 2,985 703 2.81 3-month EURIBOR Sep. 2018 -29
Payer-Swap 3,000 0 3,000 1.63 3-month EURIBOR Jan. 2020 -72
Payer-Swap 1,500 0 1,500 2.70 3-month EURIBOR Juni 2017 -61
Payer-Swap 1,100 196 904 1.30 3-month EURIBOR Aug. 2020 -31

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 € 193 thousand under the current “Other liabilities” (Section 17). The underlying loan transactions are measured at amortised cost, using the effective interest method.

The deferred tax on the negative market prices of € 23 thousand was netted against the hedging reserve with no effect on income, with the result that the negative balance of the hedging reserve was increased to € 134 thousand.

  € '000
Opening level at January 1, 2013 -136
Additions  
Additions 87
Deferred tax on these not affecting income -26
Reversals in the Income Statement  
 
Reversals -9
Deferred tax on these not affecting income 3
Level at December 31, 2013/January 1, 2014 -81
Additions  
Additions -76
Deferred tax on these not affecting income 23
Closing level at December 31, 2014 -134

33) Future Payment Obligations

  31/12/2014 31/12/2013
  up to 1 year 1 to 5 years over 5 years Total Total
  € '000 € '000 € '000 € '000 € '000
Maintenance agreements 1,106 1,227 723 3,056 3,325
Tenancy and operating lease agreements 1,053 1,740 78 2,871 4,857
Other 100 17 0 117 324
2,259 2,984 801 6,044 8,506

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 € 1,772 thousand (2013: € 1,827 thousand).

34) Personnel Expenses

  2014 2013
  € '000 € '000
Wages and salaries 32,881 30,853
Christmas bonus (Christmas shares) 213 245
Share-based payments 0 29
Social insurance 5,862 5,077
Expenses for retirement benefits and maintenance payments 852 818
39,808 37,022

The item wages and salaries also includes payments made in connection with the termination of employment of € 908 thousand (2013: € 26 thousand).

Social insurance comprises expenditure for defined contribution plans (employer contributions to the compulsory state pension scheme) totalling € 2,034 thousand (2013: € 2,727 thousand).

During the reporting period 22,960 (2013: 33,918) ordinary shares in technotrans AG were distributed to employees by way of a Christmas bonus. No further ordinary shares were distributed in the 2014 financial year in the form of share-based payments (2013: 4,152); all shares had previously been acquired on the market under the share buy-back arrangements. At the time of their issuance, the total fair value of these shares was € 213 thousand (2013: € 274 thousand). This represents a market value of € 9.25 per share on the respective issuance dates.

35) Total Employees, Yearly Average

  2014 2013
Average number of employees 771 763
of which in Germany 609 606
of which abroad 162 157
   
Technicians/skilled workers 480 470
Academic background 169 171
Trainees 68 66
Other 54 56

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

  2014 2013
  € '000 € '000
Board of Management    
Regular payments    
of which fixed 660 657
of which variable 456 355
1,116 1,012
Supervisory Board    
Regular payments    
of which fixed 79 79
of which variable 59 40
138 119

In addition to the remuneration paid in the financial year, the members of the Board of Management are entitled to a profit share of € 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 (2013: € 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
  31/12/2014 31/12/2013
Board of Management    
Henry Brickenkamp 47,037 45,037
Dirk Engel 20,000 10,000
Dr. Christof Soest 18,764 10,764
   
Supervisory Board    
Reinhard Aufderheide 3,347 3,309
Dr. Norbert Bröcker 250 250
Heinz Harling 64,854 64,854
Thomas Poppenberg 554 506
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 2014 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 2, 2015. 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 2014 financial year.

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

  Reported development
Reporting party Threshold value* Date on which exceeded or undercut New interest in voting power Disclosures on attribution
  in % Date in %  
         
Objectif Small Caps Euro, Paris, France >5% 17/05/2010 5.28 Lazard Frères Gestion SAS,
Paris, France
technotrans AG,
Sassenberg
>5% 12/03/2008 5.02
Midlin NV, Maarsbergen, the Netherlands >3% 15/01/2010 3.02 Teslin Capital Management BV,
Maarsbergen, the Netherlands