III. Notes to the Balance Sheet

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 were subject to a condition precedent. Upon fulfilment of these conditions in the 2017 financial year, title was transferred to GWK Gesellschaft Wärme Kältetechnik mbH and the purchase price paid. In addition, in the year under review technotrans Grundstücksverwaltungs GmbH acquired a plot of land in Baden-Baden for € 880 thousand, on which the new building for the production plant of Termotek GmbH is to be erected in 2018.

The additions within technical equipment and machinery as well as other assets, plant and other equipment mainly comprise replacement purchases.

As in previous years, no self-constructed assets were capitalised in the 2017 financial year. No write-downs or reversals were performed in the year under review. Property amounting to € 18,106 thousand (2016: € 10,357 thousand) belonging to the group is used as collateral for long-term loans (cf. Note 11 “Financial Liabilities”).

The following table shows the residual carrying values of technotrans goodwill, broken down by segment:

In the 2017 financial year the goodwill arising from the acquisition of the shares of GWK Gesellschaft Wärme Kältetechnik mbH at September 9, 2016 in the amount of € 17,140 thousand was allocated to the cash-generating units in which the principal synergies from this business combination are expected to arise. The sum of € 1,615 thousand was allocated to the Laser Cooling group of cash-generating units and € 2,966 thousand to the Cooling Technology group of cash-generating units, both within the Technology segment. Based on the synergies, goodwill in the amount of € 6,969 thousand was allocated to the Services group of cash-generating units in the Services segment. The remaining pro rata goodwill amounting to € 5,590 thousand was allocated to the Plastics Engineering cash-generating unit within the Technology segment.

All six cash-generating units or groups of cash-generating units were tested for impairment according to IAS 36.10 in the 2017 financial year. For this, the carrying amount of a cash-generating unit is compared with the recoverable amount. The recoverable amount is the higher of the two amounts of the fair value less proceeds of disposal, and the value in use. The fair value measurement was classified as a Level 3 fair value based on the input factors of the measurement technique used.

At technotrans, the recoverable amount corresponds to the value in use. The key assumptions made for this value in use were as follows: the starting point for the cash flow forecasts for goodwill was the budget for 2018 and revenue trends for the 2019 to 2022 financial years of the respective cash-generating units. No separate revenue plans for the cash-generating units in question were drawn up for subsequent financial years; instead, further average and constant revenue growth rates for the cash-generating units (long-term market trend for the respective industry) were assumed. Furthermore, the costs (materials, personnel and other costs) for each cash-generating unit were estimated on the basis of assumptions for the forecasting period; cost increases were suitably taken into account. All assumptions by the Board of Management are based on experience and reflect expectations concerning the relevant customers and industry.

The following table indicates the growth rates applied for the planning period, the average EBIT margins, the cost-of-capital rates used in discounting the forecast cash flows as well as the estimated constant growth rates after the planning period.

The values in use determined on the basis of these assumptions each exceed the carrying amounts of the cash-generating units.

Depreciation and amortisation of € 1,628 thousand (2016: € 1,508 thousand) concerns the intangible assets recognised in the course of purchase price allocation, all with a finite useful life.

Intangible assets arising from development activities are capitalised pursuant to IAS 38 if it is probable that future economic advantage will accrue from the use of the asset and the costs of the asset can be reliably determined. technotrans AG recognised intangible assets created through development in the amount of € 367 thousand in the 2017 financial year. In the previous year, only current development work was conducted and therefore no intangible assets were recognised.

The items capitalised were predominantly development projects for products outside the printing industry. These concern further development work in the spray lubrication application area as well as developments of cooling concepts that are used in the field of rapid charging of batteries in the e-mobility area.

Due to nonfulfilment of the requirements for recognition as stated in IAS 38, development costs amounting to € 7,528 thousand (2016: € 5,534 thousand) were recognised as an expense.

There are no concessions, industrial and similar rights or development expenditure recognised as an intangible asset with an unlimited useful life. The useful life taken as the basis for the amortisation of software and development expenditure recognised as an intangible asset is three to five years.

In the Income Statement, the amortisation of development expenditure recognised as an intangible asset is allocated to the cost of sales using the function of expense method, according to the principle of causation. The amortisation of concessions, industrial and similar rights is allocated to the cost of sales, distribution costs, administrative expenses and development costs by means of cost centre accounting.

Of total inventories, the amount of € 2,715 thousand (2016: € 5,632 thousand) is reported at the fair value, less production costs still to be incurred and distribution costs. Impairment of inventories totalling € 1,670 thousand (2016: € 1,143 thousand) was recognised as an expense in the 2017 financial year. Reversals of € 1,040 thousand (2016: € 946 thousand) in the same period led to an income, as higher net realisable values could be assumed than in the previous year.

In the Technology segment, receivables outstanding are owed mainly by major OEMs, as well as by end customers.

In the year under review, additions to the impairment of receivables totalling € 312 thousand (2016: € 86 thousand) were booked to distribution costs in the Income Statement. Impairment was applied in order to measure the receivables at fair value. This impairment reflects the actual credit risk. Impairment is applied in particular if the debtor is experiencing considerable financial difficulties. The amounts stated for trade receivables are fundamentally adjusted via a value adjustment account. Receivables are only derecognised once the debtor has opened insolvency proceedings or the receivable has become uncollectable.

The following table provides an overview of impairment of receivables:

This mainly comprises ongoing income tax receivable.

Cash and cash equivalents comprise balances with banks and cash on hand. The fair value of cash and cash equivalents corresponds to the carrying amount. There were no marketable securities at the balance sheet date.

The development in cash and cash equivalents is shown in the Cash Flow Statement.

The development in equity is shown in the Statement of Movements in Equity. The equity of the group totalled € 69,750 thousand at December 31, 2017 (2016: € 61,880 thousand). Of this, € 197 thousand (2016: € 118 thousand) is attributable to non-controlling interests.

At December 31, 2017 the issued capital (share capital) of technotrans AG comprised 6,907,665 issued and outstanding no par value registered shares. The shares outstanding are fully paid. Each no par value share represents a nominal amount of € 1 of the share capital. All shares carry identical rights. No special rights or preferences are granted to individual shareholders. The same applies to dividend entitlements.

The Annual General Meeting on May 15, 2014 authorised the Board of Management to raise the share capital, with the consent of the Supervisory Board, by the issuance of new shares on one or more occasions by May 14, 2019, against contributions, by up to a total of € 3,450,000. No use was made of this authorisation in 2017.

At the Annual General Meeting on May 15, 2014 the Board of Management was, with the consent of the Supervisory Board, authorised to issue bearer and/or registered bonds with a term of a maximum of five years on one or more occasions up until May 14, 2019 of an aggregate nominal amount of up to € 10 million and to grant the bearers of bonds conversion options on up to 690,000 no par value registered treasury shares in accordance with the respective terms of the bonds (convertible bond terms).

The conversion options granted to the bearers of the bonds may cover shares in the company representing an amount of up to € 690,000.00 of the share capital. As well as in euros, the convertible bonds may be issued in the legal currency of an OECD country, limited to the corresponding euro countervalue.

The shareholders have a fundamental right to subscribe to bonds. The bonds may also be accepted by a bank or a consortium of banks with the obligation to offer them to the shareholders for subscription. In addition, however, the Board of Management is, with the consent of the Supervisory Board, authorised to exclude the statutory subscription right of the shareholders to the bonds within the limits laid down individually and specifically by the authorisation.

The Board of Management is authorised, with the consent of the Supervisory Board, to specify the further details of the issuance and features of the convertible bonds and their terms itself, meaning in particular the currency, interest rate, issuing amount, term and denomination of the convertible bonds, the conversion price and period, the exchange ratio and payment of the countervalue in money instead of exchange for treasury shares. This authorisation was not used in the 2017 financial year.

The premium from the past share issues from the issuance of shares under conversion options from conditional capital and from the issuance of ordinary shares from authorised capital (capital increase for contribution in kind) was paid into the capital reserve. The costs of the share issues were deducted.

The IFRS capital reserve corresponds to the capital reserve of the parent company according to the German Commercial Code. As a result of the change in 2009 to comply with the German Accounting Law Modernisation Act (BilMoG), in the event of disposal of treasury shares those amounts that would not have been allocated to the capital reserve under a purely IFRS approach must, after the change, likewise be allocated to the German Commercial Code capital reserve (devaluation from the period prior to the change). To maintain the German Commercial Code and IFRS capital reserves at identical levels, appropriate amounts are therefore withdrawn from the retained earnings and allocated to the capital reserve.

The retained earnings include profit carried forward and additional other reserves. Of these, an amount of € 691 thousand (2016: € 691 thousand) relates to the legal reserve of technotrans AG pursuant to Section 150 (2) of German Stock Corporation Act.

Pursuant to Section 268 (8) of the German Commercial Code, an amount of € 6 thousand (2016: € 9 thousand) due to the capitalisation of deferred taxes as well as an amount of € 19 thousand (2016: € 16 thousand) attributable to the difference pursuant to Section 253 (6) of the German Commercial Code from the measurement of the provision for pensions may not be distributed from the other retained earnings of the parent company.

Pursuant to IAS 39, the negative market value of the interest rate swaps used was recognised in the hedging reserve with no income effect, following deduction of deferred taxes (cf. Note 32 “Financial Instruments”). In the 2017 financial year, a gain of € 51 thousand (2016: € 60 thousand) was reported within equity with no effect on income. As in the previous year, no gains were realised. In return, deferred tax of € 15 thousand (2016: € 18 thousand) was booked with no effect on income.

technotrans AG has extended loans to its subsidiaries that are to be regarded as net investments in foreign businesses. Pursuant to IAS 21.32 and IAS 12.61A, the accumulated translation differences up to the balance sheet date and any taxes on these are netted directly within equity. Exchange rate differences are only recognised through profit or loss upon liquidation or partial liquidation of the company.

In the 2017 financial year, currency translation losses from the above loans in the amount of € 358 thousand (2016: € 537 thousand gain) were netted directly within equity; because their liquidation or partial liquidation is not planned for the foreseeable future, as in the previous year no deferred taxes on these exchange rate losses were netted income-neutrally within equity in the financial year.

The exchange differences include differences from the translation of the subsidiaries’ equity to be consolidated at the historical rate and at the rate on the balance sheet date. This item furthermore includes the differences resulting from the translation of the assets and liabilities of the international subsidiaries at the closing rate and from the translation of the expenses and income at the average rate for the year.

At the Annual General Meeting on May 15, 2014 the shareholders authorised the Board of Management to buy back treasury shares in accordance with Section 71 (1) No. 8 of German Stock Corporation Act. The scope of this authorisation is for the buying back of a portion of up to € 690,000.00 of the share capital (690,000 no par value shares, corresponding to 9.98 percent of the share capital at the time of the resolution) and is valid until May 14, 2019. Pursuant to IAS 32.33 the shares bought back are deducted from equity at their cost (including incidental costs). The buy-back is in line with the strategic objectives of the company. No transactions with treasury shares were conducted in the 2017 financial year.

At December 31, 2017 the equity ratio was 55.7 percent (2016: 51.0 percent). One of the most important financial objectives for technotrans AG is to assure its solvency at all times, and increase the long-term value of the group.

The creation of adequate liquidity reserves is very important in this respect. The aim is always to have liquidity reserves amounting to at least 5 percent of annual revenue. This objective is achieved by implementing various measures in order to reduce capital costs and optimise the capital structure, alongside practising effective risk management.

Methodologically, technotrans’ capital management approach is based on financial market oriented indicators, such as the return on sales (long-term target margin for EBIT: 10 percent), the equity ratio (target: > 50 percent) and gearing. technotrans is not subject to capital requirements laid down in the articles of incorporation. A sound capital structure provides technotrans with the stability that serves as the basis for a business model focusing on sustainability, and thus in the long term meets both the requirements of customer and supplier relations and serves the needs of the employees and shareholders.

One unsecured loan carries the obligation to adhere to certain financial indicators (financial covenants). The financial ratios, equity ratio, gearing and EBITDA margin are determined for the Consolidated Financial Statements and were complied with in the 2017 financial year.

Of the decrease in financial liabilities, the amount of € 5,068 thousand is attributable to the scheduled repayment of loans. There were no hedged liabilities at the balance sheet date. Interest rate hedges exist only in the case of financial liabilities.

The secured bank loans are collateralised with land and buildings with a carrying amount of € 9,197 thousand (2016: € 9,775 thousand) and with property, plant and equipment with a carrying amount of € 857 thousand (2016: € 1.101 thousand).

No collateral was furnished for loans amounting to € 527 thousand (2016: € 1,009 thousand).

With regard to the conditional purchase price for Ovidius GmbH, please refer to Note 32 “Financial Instruments”.

With regard to the assumption of liabilities in the context of the corporate acquisition of GWK Gesellschaft Wärme Kältetechnik mbH, please refer to Note 17 “Other Liabilities”.

As a result of business expansion, the portfolio of trade payables increased to € 6,602 thousand (2016: € 4,809 thousand) at the reporting date. All trade payables have a term of up to one year.

The prepayments received originate in the main from project business. They are used for financing the finished goods included in the inventories but from which no revenue has yet been realised. Of the prepayments received, € 3,910 thousand relates to project business of GWK Gesellschaft Wärme Kältetechnik mbH and € 625 thousand to technotrans AG.

The obligations to personnel consist largely of gratuities, bonuses and performance-related pay for employees, as well as time credits. It is in the first instance uncertain when these obligations will have to be met.

There exists a partial retirement employment contract with one employee. The obligation from this partial retirement employment contract was determined actuarially. The calculation is based on an interest rate of 1.4 percent (2016: 1.8 percent). Partial retirement obligations are covered against possible bankruptcy pursuant to Section 8a of the German Partial Retirement Act. To provide cover, cash was paid into a money market fund (Deka Investments) and pledged in favour of the employee. Under IAS 19.7 the assets constitute “plan assets” and are netted with the corresponding provision. Income from the plan assets is netted with the corresponding expenses. No income was realised in the 2016 and 2017 financial years. Cash of € 24 thousand was invested at December 31, 2017 (2016: € 63 thousand).

Provisions for warranties are created for current statutory, contractual and constructive warranty obligations towards third parties. The provisions were measured taking experience as the starting point, incorporating the circumstances at the balance sheet date.

In the course of its general business activities technotrans is involved in court and out-of-court litigation, the outcome of which cannot be predicted with certainty. Litigation may for example arise in connection with product liability cases and warranties. Where such risks arising are not already insured against, provisions are formed if a call is probable and the likely amount of the provision required can be estimated reliably. The provision of € 1,018 thousand reported at the 2016 balance sheet date was released in full to profit or loss as a result of a settlement reached in the 2017 financial year. At the 2017 balance sheet date, no provisions were formed for litigation settlements from product liability and warranties.

The miscellaneous other provisions comprise costs for the preparation of the annual accounts, commission payments and other costs. In this case, too, the factor of uncertainty is principally the amount in question.

A direct pension pledge has been made to employees of the former BVS Beratung Verkauf Service Grafische Technik GmbH. Pensions are already paid for all employees. The “defined benefit obligation” (DBO) for purposes of calculating the provisions for pensions was determined on the basis of an actuarial report, using the 2005 G reference tables published by Prof Dr Klaus Heubeck. The calculation is based on an interest rate of 1.6 percent (2016: 1.0 percent) and a pension trend of 2.0 percent (2016: 2.0 percent). The development in pay levels and employee fluctuation were not taken into account, as those eligible for pensions have since left the company. The interest costs for the DBO in 2017 amount to € 3 thousand (2016: € 5 thousand). The actuarial gain amounts to € 23 thousand (2016: € 33 thousand loss). The actuarial gain was recognised in other comprehensive income. Pension payments amounting to € 11 thousand (2016: € 11 thousand) were made in 2017.

In the year under review, income tax payable relates substantially to technotrans AG and its controlled companies as well as to GWK Gesellschaft Wärme Kältetechnik mbH.

In the context of the corporate acquisition of GWK Gesellschaft Wärme Kältetechnik mbH in the 2016 financial year, an entitlement of the remaining minority shareholder to distribution of a profit share in the amount of € 497 thousand was assumed. The entitlement was recognised as a liability upon first-time consolidation. The distributions are being made in two equal amounts in the 2017 and 2018 financial years. Payment of the amount of € 248 thousand reported in the previous year under other non-current liabilities will be due in April 2018.

The loan of € 1,102 thousand reported in the previous year was in respect of the leasing company of GWK Gesellschaft Wärme Kältetechnik mbH. This loan was repaid in the 2017 financial year with the acquisition of the property.