IV. Notes to the Consolidated Income Statement

Revenue is recognised if the risks and rewards associated with ownership of the products sold have been transferred to the buyer. For deliveries, revenue is therefore realised in accordance with the agreed terms of delivery; for services, it is realised when the service has been performed.

Revenue is shown broken down by division in the segment report. € 176,935 thousand (2016: € 130,408 thousand) is the result of the sale of goods including sales of parts, and € 45,956 thousand (2016: € 21,384 thousand) from the provision of services. The geographical composition of revenue in 2017 was Germany € 110,338 thousand (2016: € 80,006 thousand), Rest of Europe € 48,048 thousand (2016: € 35,660 thousand), America € 23,993 thousand (2016: € 20,884 thousand), Asia € 22,242 thousand (2016: € 14,979 thousand) and Africa € 474 thousand (2016: € 262 thousand).

The cost of sales comprises the cost of traded products and the cost price of merchandise sold. In accordance with IAS 2, it includes both costs which can be directly allocated, such as cost of materials and cost of labour, and also overheads, including pro rata depreciation and amortisation on property, plant and equipment used for production and on intangible assets. The amount for inventories reported as an expense in the period under review broadly corresponds to the costs of materials (raw materials, consumables and changes in inventories of finished goods and work in progress). The costs of the field service and the expense arising in connection with warranty obligations are likewise reported under cost of sales. Other cost of sales is mainly comprised of other building costs.

The distribution costs include costs for the Distribution Department and for in-house services, and also the costs of advertising and logistics. In addition, depreciation and amortisation of the intangible assets recognised in the course of purchase price allocation (customer relationships and brands) is reported under distribution costs. This item also includes sales-related expenditure for commissions and impairment of receivables

The administrative expenses comprise personnel and material costs for management and administration, insofar as not charged to other cost centres as internal services.

KPMG AG WPG has audited the annual financial statements and Consolidated Financial Statements of technotrans AG and conducted various annual accounts audits at subsidiaries. We received tax advice from KPMG AG WPG in connection with advice on international matters.

In the 2017 financial year, the fees for the auditors recorded as an expense pursuant to Section 319 (1) first and second sentences of the German Commercial Code amounted to € 291 thousand (2016: € 326 thousand). The figures for the 2017 financial year include the fees and expenses of the auditors of the Consolidated Financial Statements, KPMG AG WPG, for the auditing of the Consolidated Financial Statements and the auditing of the annual financial statements of technotrans AG, KLH Kältetechnik GmbH and GWK Gesellschaft Wärme Kältetechnik mbH.

No research costs were incurred. Development costs are charged as ongoing expenses until the criteria of IAS 38.57 are satisfied cumulatively. From that point on, development costs are recognised as an intangible asset (see Note 3 “Intangible Assets”).

Reversals of provisions mainly comprise the reversal of the provision for litigation settlements from product liability and warranties in the amount of € 1,018 thousand (cf. Note 15 “Provisions”).

The other income unrelated to the accounting period comprises for example cash receipts from previously impaired receivables, and the other operating income includes development cost contributions from customers. Foreign exchange gains predominantly comprise exchange gains realised through operating activities.

Foreign exchange losses result mainly from unrealised changes in the measurement of bank credit balances in foreign currency as well as the measurement of intragroup assets and liabilities.

The interest income in the amount of € 14 thousand (2016: € 25 thousand) is from interest on bank credit balances. Interest income from the compounding of the corporation tax credit balances for the last time amounted to € 2 thousand in the 2017 financial year (2016: € 5 thousand). In addition, € 65 thousand (2016: € 0 thousand) resulted from the measurement of the long-service obligations existing at the reporting date as well as € 64 thousand from the termination of the conditional purchase price obligation (cf. Note 12 “Other Financial Liabilities”). In the previous year, € 180 thousand was reported for the termination of the conditional purchase price for the KLH companies.

The interest expenses comprise mainly interest charged on the group’s financial liabilities. This item additionally includes interest expenses from compounding as well as from changes to the discount rate in the amount of € 34 thousand.

No borrowing costs were capitalised in the reporting period.

Income tax expense includes corporation income tax and trade earnings tax for the domestic companies, and also comparable taxes on income for the foreign businesses. Other operating taxes are included in other operating expenses.

The deferred tax is attributable to temporally divergent valuations in the companies’ tax balance sheets and the Consolidated Balance Sheet in accordance with the balance sheet liability method.

The reported deferred tax assets also include tax relief claims where it is anticipated that existing tax loss carryforwards will be used in subsequent years. The deferred tax is calculated on the basis of the tax rates applicable or expected at the time of realisation in the individual countries concerned.

The applicable tax rate in Germany of 30.25 percent (2016: 30.26 percent) calculated for the year under review is based on a corporation tax rate of 15.00 percent, a solidarity surcharge of 5.50 percent and an effective trade earnings tax rate of 14.43 percent (2016: 14.44 percent).

The following capitalised deferred tax assets and liabilities relate to recognition and measurement differences for the individual items on the Balance Sheet and to loss carryforwards which can be used in future.

The deferred tax liabilities from non-current assets include deferred tax liabilities totalling € 1,725 thousand (2016: € 2,225 thousand) in respect of the intangible assets recognised from the business combinations.

There are tax loss carryforwards amounting to € 12,760 thousand (2016: € 17,394 thousand) for 2017. Deferred taxes amounting to € 1,009 thousand (2016: € 1,845 thousand) were recognised as an asset on an amount of € 4,041 thousand (2016: € 5,466 thousand) in agreement with IAS 12.34. No deferred tax assets were recognised on the remaining loss carryforwards of € 8,719 thousand (2016: € 11,928 thousand) and on deductible temporary differences of € 983 thousand (2014: € 1,580 thousand). The loss carryforwards may be carried forward for 20 years in the USA (€ 1,617 thousand; 2016: € 4,942 thousand), for nine years in Japan (€ 86 thousand; 2016: € 109 thousand) and for an unlimited period in other cases. In view of negative earnings expectations of the companies in Asia, technotrans américa latina ltda. and technotrans scandinavia AB, no deferred taxes were created on the loss carryforwards.

The following table reconciles the expected tax expense with the actual income tax expense.

In the year under review there were only deferred taxes recognised in other comprehensive income from the change in cash flow hedges in the amount of € -15 thousand (2016: € -18 thousand) and from the change in the pension obligation in the amount of € -10 thousand (2016: € 10 thousand). As in the previous year, exchange rate differences from net investments in a foreign business did not lead to any deferred tax in the 2017 financial year. The total deferred taxes recognised in other comprehensive income (€ 576 thousand; 2016: € 601 thousand) result from net investments in a foreign business in the amount of € 550 thousand (2016: € 550 thousand), from pension obligation in the amount of € 16 thousand (2016: € 26 thousand) and from cash flow hedges in the amount of € 10 thousand (2016: € 25 thousand).

The figure for basic earnings per share is obtained by dividing the share of earnings attributable to the shareholders of technotrans AG by the weighted average number of ordinary shares outstanding in the financial year:

In the 2017 financial year there were once again no stock options that would have had a dilutive effect on earnings per share pursuant to IAS 33.