Annual Report 2014 The BAUER Group is an international construction and machinery manufacturing concern based in Schrobenhausen, Bavaria. The stock market-listed holding company BAUER Aktiengesellschaft is the parent of more than 110 subsidiary businesses across its Construction, Equipment and Resources segments. Bauer is a leader in the execution of complex excavation pits, foundation and vertical seals, as well as in the development and manufacture of related machinery for this dynamic market. The Group also deploys its expertise in the exploration, mining and safeguarding of valuable natural resources. In 2014 the companies of the BAUER Group employed some 10,400 people in around 70 countries and achieved total Group revenues of EUR 1.56 billion.
Passion for progress –
The origins of Bauer date back as far as 1790, and still today the company's success is founded on highly flexible application of the specialist know-how it has built up over those many years. As an innovator and technology leader,
Bauer has played a major role in the advancement of the international specialist foundation engineering industry and related busniess fields. Indeed, today Bauer is also the world market leader in the manufacture of the relevant machinery. It is with just such innovative strength and a keen focus on the challenges of the future that the Group is also developing its recently established Resources segment. The Group at a glance
GROUP KEY FIGURES 2011 – 2014
IFRS in EUR million 2011 2012 2013 ** 2014 Change 2013/2014
Total Group revenues 1,371.8 1,435.8 1,504.2 1,560.2 3.7 % of which Germany 370.3 378.6 410.4 440.2 7.3 %
International 1,001.5 1,057.2 1,093.8 1,120.0 2.4 %
International in % 73.0 73.6 72.7 71.8 n/a of which Construction 606.6 655.2 741.7 713.0 -3.9 %
Equipment 636.5 589.1 628.6 651.8 3.7 %
Resources 211.5 262.8 188.9 252.8 33.9 %
Other/Consolidation -82.8 -71.3 -55.0 -57.4 n/a
Consolidated revenues 1,327.1 1,376.1 1,447.5 1,506.0 4.0 %
Sales revenues 1,219.6 1,344.4 1,402.2 1,375.7 -1.9 %
Orders received 1,506.9 1,470.8 1,484.5 1,557.7 4.9 %
Orders in hand 750.0 785.0 765.2 762.7 -0.3 %
EBITDA 164.5 163.8 124.0 171.0 37.9 %
EBITDA margin in % (of sales revenues) 13.5 12.2 8.8 12.4 n/a
EBIT 82.3 72.0 30.1 76.4 n/a
EBIT margin in % (of sales revenues) 6.7 5.4 2.1 5.6 n/a
Net profit or loss 34.1 25.8 -19.4 15.7 n/a
Capital investment in property, plant and equipment 96.6 96.4 91,9 64.1 -30.3 %
Shareholders’ equity 461.0 462.5 419.8 418.9 -0.2 %
Equity ratio in % 30.9 30.2 26.5 26.6 n/a
Net assets 1,491.1 1,529.4 1,585.8 1,575.1 -0.7 %
Earnings per share 1.86 1.44 -0.99 0.85 n/a
Distribution 8.57 5.14 0.00 2.57* n/a
Dividend per share in EUR 0.50 0.30 0.00 0.15* n/a
Return on equity after tax in % 7.7 5.6 -4.2 3.7 n/a
Employees (on average over the year) 9,646 10,253 10,264 10,405 1.4 % of which Germany 4,065 4,090 4,144 4,158 0.3 %
International 5,581 6,163 6,120 6,247 2.1 %
* Proposed; subject to the consent of the Annual General Meeting to be held on June 25, 2015 ** Previous year adjusted; see notes on page 106
At variance with the consolidated revenues presented in the Group income statement, the total Group revenues presented here include portions of revenues from associated companies as well as revenues of non-consolidated subsidiaries and joint ventures. > > > DEVELOPMENT OF TOTAL GROUP REVENUES BY SEGMENT in EUR million Construction Equipment Resources
2011 1,372
2012 1,436
2013 1,504
2014 1,560
CONSTRUCTION SEGMENT KEY FIGURES in EUR '000 2013 * 2014 Change
Total Group revenues 741,673 713,005 -3.9 % GROUP KEY FIGURES AT A GLANCE Sales revenues 657,456 634,096 -3.6 %
Orders received 727,287 665,244 -8.5 %
Orders in hand 498,701 450,940 -9.6 %
EBIT 21,209 25,068 18.2 %
Net profit or loss 5,472 1,858 -66.0 %
Employees (on average over the year) 5,531 5,675 2.6 %
EQUIPMENT SEGMENT KEY FIGURES in EUR '000 2013 * 2014 Change
Total Group revenues 628,612 651,772 3.7 %
Sales revenues 561,615 545,223 -2.9 %
Orders received 632,053 693,967 9.8 %
Orders in hand 116,525 158,720 36.2 %
EBIT 32,223 36,917 14.6 %
Net profit or loss 5,055 9,513 88.2 %
Employees (on average over the year) 2,998 3,038 1.3 %
RESOURCES SEGMENT KEY FIGURES in EUR '000 2013 * 2014 Change
Total Group revenues 188,861 252,830 33.9 %
Sales revenues 182,579 195,860 7.3 %
Orders received 180,054 255,837 42.1 %
Orders in hand 150,020 153,027 2.0 %
EBIT -23,965 15,932 n/a
Net profit or loss -31,444 4,347 n/a
Employees (on average over the year) 1,449 1,400 -3.4 %
* Previous year adjusted; see notes on page 106 BAUER Aktiengesellschaft Annual Report 2014
2 Management Board of the Company 88 Report of the Supervisory Board
4 Foreword 91 Balance Sheet and Income Statement of BAUER Aktiengesellschaft 6 Milestones in the Company's History in accordance with HGB
8 The World is our Market 95 Consolidated Financial Statements
10 Highlights 2014 in accordance with IFRS
12 Mission and Strategy 180 Assurance by the legal representatives
15 Combined Management Report 181 Auditors' Report
82 The Bauer Share 182 Glossary
84 Corporate Governance Report 184 Imprint 2
Management Board of the Company
PROF. DR.-ING. E.H. DIPL.-KFM. THOMAS BAUER (CHAIRMAN)
Prof. Thomas Bauer (born 1955) heads the Participations in Supervisory Board mandates: Subsidiaries, Financial Reporting, Planning and Controlling • BAUER Spezialtiefbau GmbH, Schrobenhausen functions on the Management Board of BAUER Aktiengesell- (chairman) ¹ schaft. • BAUER Maschinen GmbH, Schrobenhausen (chairman) ¹ After studying business economics at the Ludwig Maximilian • BAUER Resources GmbH, Schrobenhausen ¹ University in Munich, he worked in the USA. He joined the • SCHACHTBAU NORDHAUSEN GmbH, Nordhausen family company in 1982. In 1986 he became sole managing (chairman) ¹ director of BAUER Spezialtiefbau GmbH and since 1994 he • BAUER EGYPT S.A.E., Cairo (chairman) ¹ has been Chairman of the Management Board of BAUER Aktiengesellschaft.
Prof. Thomas Bauer is President of the German Construction Industry Confederation, Vice-President of the Confederation of German Industry (BDI) and Vice-President of the Confed- eration of Bavarian Industry (vbw) − the Bavarian business association. He is an honorary professor of the Technical University in Munich.
¹ Supervisory Board mandate within the Group ² Membership of Supervisory Boards or comparable controlling committees of businesses in Germany and abroad according to Section 285 No. 10 of the German Commercial Code (HGB) MANAGEMENT BOARD OF THE COMPANY 3
DIPL.-BETRIEBSWIRT (FH) HARTMUT BEUTLER DIPL.-ING. HEINZ KALTENECKER
Hartmut Beutler (born 1957) is responsible for the Finance, Heinz Kaltenecker (born 1951) is responsible for Partici- Legal Affairs and Insurance, and Facility Management functions pations in Subsidiaries as well as the Human Resources on the Management Board of BAUER Aktiengesellschaft. and Information Technology functions on the Management Board of BAUER Aktiengesellschaft. He is also the Labor He studied business economics (specializing in the construction Relations Director. industry) at Biberach University of Applied Sciences and joined BAUER Spezialtiefbau GmbH as a trainee in 1983. He later After studying civil engineering at the Technical University became deputy head of the company's Accounting depart- of Karlsruhe, he joined BAUER Spezialtiefbau GmbH in 1978. ment and assistant to the Management Board. After working He has held a number of senior management posts, including as head of IT, Facility Management, Legal Affairs and Insurance being managing director of BAUER Spezialtiefbau GmbH at BAUER Spezialtiefbau GmbH, as well as being a company from 2001 to 2007. Heinz Kaltenecker was managing director "Prokurist" (holder of power of attorney), Hartmut Beutler was of BAUER Resources GmbH from 2007 to 2010. He has appointed to the Management Board of BAUER Aktiengesell- been a member of the Management Board of BAUER Aktien- schaft in 2001. gesellschaft since 1997. Heinz Kaltenecker is a board mem- ber of the German Geotechnical Society and a member of Supervisory Board mandates: the Large Construction Companies subcommittee of the • BAUER Resources GmbH, Schrobenhausen ¹ German Construction Industry Confederation. • Schrobenhausener Bank e.G. (chairman) ² Supervisory Board mandates: • BAUER Spezialtiefbau GmbH, Schrobenhausen ¹ • BAUER Maschinen GmbH, Schrobenhausen ¹ • BAUER Resources GmbH, Schrobenhausen (chairman) ¹ • SCHACHTBAU NORDHAUSEN GmbH, Nordhausen ¹ 4
Foreword
Dear Shareholders, Partners and Friends of our company, Ladies and Gentlemen,
In 2014 despite a great deal of turbulence in our markets, we succeeded in achieving our revenue targets. With total Group revenues of EUR 1.56 billion, we exceeded the previous year's value by 3.7 %. This was not an easy matter, given the numerous disturbances to our business. We are all the more grateful to our employees for their magnificent work which enabled us to meet this target.
Over the past decades, our Group has pursued a strategy of increasing internationalization, thereby creating a significant advantage for itself: we are at home throughout the world. In this way, we can compensate for fluctuations in construction markets, which are frequently volatile, and develop the Group in a steady manner. Unfortunately, it is sometimes the case that problems concentrate in different regions to such an extent that we are excessively impacted for a period of time. In that case, our broad base may also have a detrimental effect temporarily. Nevertheless, we remain totally convinced that our international presence represents a major advantage in the medium and long terms.
What were the turbulent influences last year? First and foremost, we should identify the conflict in Ukraine that has triggered a new misunderstanding between Russia and the Western world. The events in eastern Ukraine, sanctions and counter-sanctions have imposed significant restrictions on business relationships. For our company, that means a severe decline in demand for our machines especially in Russia.
In Syria and Iraq the Islamic State terrorist group has expanded. For a time, it seemed that the Western world would not be able to overcome this threat. This situation triggered uncertainty in the neighboring countries, placing further obstacles in the path of their development. There is no prospect for improvement anytime soon, as a result of which individual markets have been lost as far as our construction activities are concerned.
From mid-2014 onwards, the oil price came under significant pressure. This will pose problems to Germany as an industrial location. Although people will be able to fill their fuel tanks for less money, the growth in consumption thus triggered is unlikely to be able to compensate for expected sales problems to the oil-producing states which are affected by the price drop. The business prospects for German industrial companies such as ours would worsen if fewer investments were made in these countries.
In China, the market for construction machinery has slipped totally out of kilter in recent years. As a result of exaggerated growth expectations for the construction market there, local manufacturers of construction machinery built up enormous surplus capacity. The equipment produced was then dumped on the markets by means of questionable financing solutions. Many construction companies could no longer afford the payments, as a result of which large stocks of returned machines have built up. On the other hand, we were satisfied with our production and sales in China, as we concentrated on large and special machinery.
It is pleasing to see that many markets are still positive, such as the Far East, or have come back again, such as in the Middle East. As a result, we succeeded in increasing our revenues in spite of the difficulties.
However, we were unable to achieve the targets for profit after tax that we set in April 2014. In the USA, we did not succeed in achieving the expected improvement in the major Center Hill Dam project. We had to report significant losses again as a result of further delays. In the Resources segment, we reorganized the structures and some subsidiaries, as well as closing FOREWORD 5
sites and terminating business. This had an additional detrimental effect on our results. In addition to these factors, one of our large subsidiaries was fined by the Federal Cartel Office. All in all, this produced a significantly negative result. By means of a non-operative one-time income, the last predicted profit after tax was able to be achieved nevertheless, with EUR 15.7 million. The one-time income derives from the sale of shares in our subsidiary in Oman that was built up over recent years and is active with long-term projects in the environmental area.
In addition to making significant efforts to deal with all these topics, we also devoted a great deal of work during the past year to preparing the company to face the future even more effectively. A cost-cutting program was implemented in all parts of the company, which will continue to have positive effects in the future as well. All major investments in our plants were able to be completed, as a result of which the full attention of our management team is concentrated on markets, products and commercial processes. This will give us stability for the future in a continuing volatile environment.
The successes of the past year mean that we are looking to the future with confidence. In the area of deep drilling rigs, the engineering contract agreed in May 2014 with Saxon Energy Services Inc. resulted in the order of two 375 ton rigs in December. This will present great opportunities in the future as well. Additionally, a sales contract was signed for two already completed rigs. In the Construction segment, we successfully completed some unique reference projects in the form of the foundation work for what will be the tallest buildings in the world and Europe, as well as a section of the bridge between Hong Kong and Macau. In Equipment, many new and continuing developments are improving our chances of selling machines.
Without doubt, years such as 2013 and 2014 are by no means simple for a company and its workforce. Nevertheless, we are aware of our strengths that will allow us to make significant progress in future. The successes we were able to achieve last year in spite of great turbulence have confirmed our confidence in our plans for the future. Our company is firmly embedded in the market of more than 70 countries in the world. The construction processes, equipment and many other activities are excellently developed, and our company infrastructure has been expanded to a very high level. All stores and service centers worldwide are networked with one another, and with their functions and flexibility they can meet the complex demands of our construction operations and our machine customers with outstanding effectiveness.
The current significant fluctuations in markets are not very pleasant for us. However, we can compensate for them well with our worldwide presence, giving us the opportunity to carry out interesting projects time and time again in diverse regions. Overall, we see many opportunities in the market, as a result we are planning further growth for 2015.
It is important for us to express our thanks to all our employees, shareholders, customers and partners for the loyalty and support they provided during the past year. 2014 was characterized not only by successes but also many disappointments, specifically the development in our share price. We are making intensive efforts to grow the value of the company again. Our employees in about 80 countries of the world and the entire management team are working with total commitment on bringing the full strength of the company to bear again.
Sincerely,
Prof. Thomas Bauer 6
Milestones in the Company's History
1790 1956 - Sebastian Bauer acquires a coppersmith's shop in the - Dr.-Ing. Karlheinz Bauer, a shareholder in the company center of Schrobenhausen; in the 19th century, subse- since 1952, becomes sole managing director; construction quent Bauer generations were engaged in copper work- of a first office building in Wittelsbacherstrasse ing, primarily for breweries and domestic households
Dipl.-Ing. Karl Bauer (left) turned the company into an industrial well builder known throughout Bavaria. Dr.-Ing. Karlheinz Bauer (center) led the company onto 1840 the international stage, taking it into the field of specialist - Copper cladding for the steeple roof of St. Jakob's church foundation engineering and launching equipment manu- in Schrobenhausen facturing operations. Prof. Dr. Dipl.-Kfm. Thomas Bauer shaped the current global Group, with a network of 1900 operations on every continent. - Start of well drilling by Andreas Bauer
1790 – 1948 1956 – 1984
1902 1958 - Drilling of an artesian well for Schrobenhausen railway - Invention of the injection anchor on the construction site of station the Bayrischer Rundfunk building in Munich
1969 - First anchor drilling rig UBW 01
1972 - Construction of the new head office administration block
1975 - First contracts in Libya, Saudi Arabia and the United Arab Emirates 1928 - Dipl.-Ing. Karl Bauer constructs the Schrobenhausen water 1976 supply system; construction of wells and water pipes - First heavy-duty rotary drilling rig BG 7 throughout Bavaria 1984 1948 - Work complex West begins operations; manufacture and - First works on Wittelsbacherstrasse deployment of the first trench cutter MILESTONES IN THE COMPANY'S HISTORY 7
1986 2007 - Prof. Thomas Bauer becomes sole managing director - Founding of BAUER Resources GmbH, entailing a of BAUER Spezialtiefbau GmbH and drives forward the restructuring of the mining and environmental business; international growth of the Group market launch of the three new segments: Construction, Equipment and Resources 1990 - Founding of BAUER und MOURIK Umwelttechnik GmbH 2008 and of SPESA Spezialbau und Sanierung GmbH - Expansion of machinery manufacturing capacities in Aresing and Nordhausen as well as in Tianjin and 1992 Shanghai, China - Takeover of SCHACHTBAU NORDHAUSEN GmbH 2009 - The BAUER Group completed the largest investment program in the company's history: new administration building in Schrobenhausen, Edelshausen plant, machinery manufacturing plant in Conroe, Texas, USA
2011 - The first deep drilling rig is sold to South America; construction of an underwater drilling rig and successful deployment of it for a tidal turbine off the coast of Scotland
1986 – 2006 2007 – 2014
1994 2012 - Founding of BAUER Aktiengesellschaft - During the year, the Group's global workforce topped the 10,000 mark for the first time 1998 - Takeover of KLEMM Bohrtechnik GmbH 2013 - Bauma Innovation Prize for an underwater drilling technique 2001 - BAUER Maschinen GmbH becomes independent company 2014 - Execution of the Schwarzkopf Tunnel bypass railway 2002 project in Lower Franconia, the largest project signed in - Purchase of large machinery manufacturing facility in Aresing Germany to date
2003 – 2005 - Specialist companies in a variety of fields are acquired and integrated into the BAUER Group: FWS Filter- und Wassertechnik GmbH; PRAKLA Bohrtechnik GmbH; TracMec Srl, Imola, Italy; Pileco, Inc., Houston, Texas, USA
2006 - BAUER AG is listed on the stock market 8
The World is our Market
OVER 110 IN MORE THAN 70 GROUP COMPANIES COUNTRIES
EUR 1.56 BILLION TOTAL GROUP REVENUES
10,405 EMPLOYEES FROM 76 NATIONS THE WORLD IS OUR MARKET 9
28 PRODUCTION FACILITIES and many other service centers and construction yards
Construction
Equipment sales
Resources
Equipment production locations 10
Highlights 2014
Schwarzkopf Tunnel bypass for the mining tunnel work, Bauer Harbour-VSL, to manufacture offshore Heigenbrücken/Hain i. Spessart, excavated portal pits and shotcrete bored piles for the Hong Kong Link Germany – In the middle of the walls with a height of up to 30 meters Road, a ten km long section from the Spessart hills, BAUER Spezialtiefbau for a total of ten tunnel entrances and border between China and Hong Kong GmbH worked on its biggest ever con- exits. In addition, there is work such as far as Hong Kong International struction site in Germany from January as soil nailing along the existing tracks Airport. The piles with 2,300 and to December 2014. In a joint venture, or pile foundations for railway embank- 2,500 mm diameter are up to 115 m it carried out the special foundation ments. Several BG 28 and BG 40 rigs, long, and have been embedded into the work for a new section of the railway as well as anchor drilling rigs are being rock to a depth of two to five meters. line between Würzburg and Frankfurt. employed. The main part of Bauer Spezialtiefbau's work will be completed Bauer Hong Kong had to undertake all in fall 2015. the work for the EUR 72 million project from the water – a particular challenge. Longest sea bridge in the world Five BG 40 rotary drilling rigs were used Hong Kong, China – The special – four of them were custom-built with an foundation work subsidiary BAUER extended mast and larger main winches. Hong Kong Ltd. was involved in con- They were transported by ship to steel struction of the Hong Kong-Zhuhai- platforms, each of which is just large Macau bridge from April 2013 to enough for one rig. In addition, there December 2014. It is the world's were pontoons for four bentonite plants, longest bridge over open water, and is 300 ton cranes and accessories. currently being built in the Pearl Delta. As part of this, the existing passage The 50 km long connection between Replacement bore in Coswig through the Schwarzkopf Tunnel is to the cities of Hong Kong, Macau and Coswig, Germany – BAUER Umwelt be replaced. Zhuhai completes the southern ring GmbH carried out a replacement section of a gigantic infrastructure bore for a customer in Coswig near This Schwarzkopf Tunnel is 160 years measure. to Dresden, from November 2013 old, and is showing its age. ICE trains to May 2014. Severe contamination can only pass through it at a maximum Bauer Hong Kong was contracted of the ground and groundwater had speed of 70 km/h. Freight traffic even by the joint venture, Dragages-China been identified on the site of a former requires a second locomotive due to tarpaper factory. the steep gradient. As a result, the line is now being leveled, and this requires The contaminated soil excavated using construction of four new tunnels. the large bore hole method was placed in gas-tight containers for transport The work by Bauer Spezialtiefbau on to the Hirschfeld soil treatment center the order worth about EUR 43 million and to disposal sites. A total of about includes the portion of the tunneling 45,000 tons of soil material were that is not done by mining methods, disposed of. In addition, the water but using the open construction pumped out was treated in a specially method in several sections over a installed water treatment plant. length of 2,800 m. In order to prepare HIGHLIGHTS 2014 11
BG's and the ValueLine by the bestsell- deep drilling, signed an agreement with er BG 26 as well as by a new BG 11 H. Saxon Energy Services Inc. in Decem- With its compact dimensions and low ber 2014 for the manufacture and sale weight, it permits easy transport which of two ATD 750 deep drilling rigs. makes it particularly appealing for the oil and gas industry. Bauer Maschinen Saxon Energy Services Inc. is an presented its 100th MC duty-cycle international drilling company and is a crane in the form of the MC 96 – in fully owned subsidiary of Schlumberger, combination with a massive Leffer the world's largest oilfield service com- VRM 3000 casing oscillator. The sub- sidiaries were also represented by many interesting innovations. A BG 40 rig with a large bore diameter of 2,000 mm was used. More than 400 In the "Old Welding Shop", visitors bores were drilled down to a drilling were able to find out about further depth of 17 m. offers and services. The live presenta- tions on the plant premises in Aresing The large bore hole method is practically proved to be a particular draw. It was vibration-free, which means it can be possible to observe tried-and-tested employed in the immediate vicinity of machine technology and new develop- sensitive buildings. This fact, combined ments in application. Once again on with the short construction period, pany. The rigs are the result of a joint offered the advantage that production development process for a new series by the company on site as well as of deep drilling rigs, which began in May at neighboring companies was only 2014 on the basis of an engineering inconvenienced to a minor extent. contract signed at the time.
In-house exhibition 2014 Additionally, a sales contract was signed Schrobenhausen, Germany – The for the two already completed TBA in-house exhibition held from 10 to 300/440 M1 and TBA 440 M2 deep 13 May in Schrobenhausen proved to drilling rigs. Already in 2009, BAUER be a veritable highlight. Over four days, Maschinen GmbH decided to open more than 1,700 guests from over up a new business area with the deep 70 countries visited the event to find this occasion, the Bavarian evening drilling division. In 2011, the first TBA out about the innovations and equip- proved to be a highlight and has been 300 deep drilling rig was delivered to a ment from BAUER Maschinen GmbH appreciated by customers from far-off customer in Venezuela. This product and its subsidiaries. countries for several years now. range has already been expanded with several developments. The large machines were presented Deep drilling rigs sold in the courtyard of the head office: the Edelshausen, Germany – BAUER Deep More information: PremiumLine of the heavy-duty rotary Drilling GmbH, the subsidiary of the http://www.bauer.de/ drilling rigs was represented by three BAUER Group that is specialized in en/bauer_group/world 12
Mission and Strategy
OUR MISSION
>>> SERVICES, EQUIPMENT AND PRODUCTS DEALING WITH GROUND AND GROUNDWATER
>>> Target: ~ 40 percent of total Group revenues >>> Market leader in specialist foundation engineering machinery and equipment >>> New products for mining, deep drilling and offshore drilling >>> 80 percent of sales generated outside of Germany >>> Multi-branding strategy MISSION AND STRATEGY 13
OUR STRATEGY
>>> The world is our market >>> Optimization of worldwide organizational structures >>> W orld market leadership in specialist foundation and of the Group's self-managed business units technologies >>> Annual growth from 3 to 8 percent >>> Powerful development of drilling techniques and applications for related markets such as environment, water and natural resources
>>> Target: ~ 20 percent of total Group revenues >>> Activities in environmental technology, mining, deep drilling, well construction, materials
>>> Target: ~ 40 percent of total Group revenues >>> Global provider of specialist foundation engineering services >>> Specialist construction services >>> Focus on complex international projects
15
Combined Management Report
17 I. The Group 17 Group structure 17 Corporate Governance and control system
19 II. Business Report 19 Macro-economic trend 23 Course of business
29 III. Trend by Segment 29 Construction segment 33 Equipment segment 37 Resources segment 40 Other/Consolidation segments
45 IV. Earnings, financial and net asset position 45 Trend in orders 46 Group earnings position 49 Group financial and net asset position
54 V. Financial Statements of BAUER Aktiengesellschaft
55 VI. Sustainability 55 Sustainability within the BAUER Group 55 Employees 57 Capital Investments 58 Research and Development 60 Health Safety Environment (HSE) 60 Quality
61 VII. Legal disclosures 61 Remuneration Report 63 Statutory disclosures regarding takeovers
65 VIII. Follow-up Report
67 IX. Risk and Opportunity Report 67 Risk Report 74 Opportunity Report
77 X. Forecast Report
In Abu Dhabi, BAUER Spezialtiefbau GmbH carried out the foundation work for an offi ce and commercial building. A 1 m thick diaphragm wall was built and piles with diameters of 750 mm and 900 mm were drilled.
17
Combined Management Report
I. THE GROUP
GROUP STRUCTURE CORPORATE GOVERNANCE AND CONTROL SYSTEM The products and services of the BAUER Group, based The principal task of the Management Board of BAUER AG in the Bavarian town of Schrobenhausen, are focused on is the strategic management of a global group of companies. the ground and groundwater fields. The Group’s three seg- As part of central strategies, goals and regulations, the main ments – Construction, Equipment and Resources – operate companies in the three operating segments – Construction, more than 110 subsidiary companies in some 70 countries Equipment and Resources – develop their own detailed worldwide. strategies which are converged at holding company level and integrated into the strategic corporate planning process. The Construction segment carries out all the established methods and techniques of specialist foundation engineering The development and implementation of a self-managing all over the world. These include creating complex excavation organizational structure with decentralized business units pits, foundations for large infrastructure projects and buildings, unburdened by complex decision-making hierarchies is the cut-off walls and ground improvements. It also carries out primary characteristic of corporate governance within the other specialist construction activities, including civil engi- BAUER Group. The managers of those Group companies neering and remediation works. operate under their own responsibility, and are provided with a large degree of independence within the framework of the The Equipment segment develops and produces equipment, corporate strategy in determining how their business units tools and machines for specialist foundation engineering and progress. other underground drilling operations, such as mines, wells, geothermal energy, oil and gas. In addition to its headquarters The autonomous management of the individual operating in Schrobenhausen, the Equipment segment operates a global business units is constrained by framework guidelines and distribution network, as well as additional production facilities standards laid down in the Group and subsidiary Corporate in Germany, China (Shanghai and Tianjin), Malaysia, Russia Management Manuals. The principles of proper conduct, (at two locations), Italy, Turkey and the USA, among other including adherence to our ethical and moral standards, locations. With exports accounting for around 80 percent of are defined by an ethics management and values program its total sales, BAUER Maschinen GmbH is the world market covering all the companies of the BAUER Group, backed by leader in specialist foundation engineering equipment. corporate management guidelines and a code of conduct imposed on our employees, among other measures. The Resources segment is focused on products and services in the areas of water, environment and natural resources. Systems and departments handling central functions assist BAUER Resources GmbH is the holding company of the in implementing standard processes and support the work business segment, under the umbrella of which the subsidiaries of the operating units by providing the necessary backup operate as full-service providers with their focus on environ- services. The self-managing structure is linked to a central- mental technology, water and natural resources for industrial ized system of risk management and control, and to a central customers. Group accounting function. Internal auditing systems monitor compliance with laws and standards across the Group. BAUER Aktiengesellschaft is the holding company of the Group, and is listed on the Frankfurt Stock Exchange. Statements regarding the role of the Management Board and BAUER AG provides central management and service Supervisory Board and in relation to other issues of corporate functions for its affiliates. These specifically include human governance are set out in the Declaration on Corporate Gover- resources, accounting, finance, legal and tax affairs, IT, facility nance on pages 84 to 87 of this Annual Report, which is management, and health, safety and environment (HSE). published on the Internet at http://www.bauer.de/en/inves-
In the middle of the Spessart region, BAUER Spezialtiefbau GmbH will be working on its largest German construction site so far – the Schwarzkopf Tunnel bypass – until autumn 2015. Several BG 28 and BG 40 rigs, as well as anchor drilling rigs are being employed. COMBINED MANAGEMENT REPORT 18 The Group
tor_relations/reports in the Investor Relations section under integrated within the scope of internal Group management Reports & Accounts. activities. They primarily comprise balance sheet and income statement figures and indicators of capital structure, profitability Financial performance indicators and liquidity derived from them. The trend in total Group revenues is used as the fundamental and significant key financial performance indicator for the Non-financial performance indicators management of the Group. The total Group revenues As part of a comprehensive reporting system, many non- represent the revenues of all the companies forming part of financial indicators are measured in assessing the performance our Group. The difference between the consolidated revenues of the Group which individually, in terms of internal controls and and the total Group revenues is derived from the revenues beyond that scope, have no material significance. The reporting of the associated companies, from our subcontractor shares on trends in those performance indicators in the “Sustainability” in joint ventures, and from the revenues of non-consolidated section is primarily intended to convey an overall picture of the companies. The trend in total Group revenues and the operations of the BAUER Group. contributions to them by the various segments are depicted in the Business Report and in the “Trend by Segment” section. The indicators included originate, among other sources, from the Human Resources function, such as workforce Alongside total Group revenues, earnings before interest and numbers – categorized by segment, employment type and taxes (EBIT) and the net profit or loss for the period are used as region. Furthermore, continuing and further education indica- key financial performance indicators for internal management. tors are included in the reporting, such as the budget applied, The Business Report and the “Trend by Segment” section the number of employees attending the seminars offered, detail the trends in EBIT and net profit or loss for the period and the number of seminars and conferences held. Reporting and trends in the various segments. also covers performance indicators from the Research and Development function. They include the number of registered A wide range of other financial performance indicators, patents, expenditure on research and development, and the which are of comparatively minor significance to the medium- number of staff employed in those areas. and long-term development of the Group, are collated and COMBINED MANAGEMENT REPORT 19 Business Report
II. BUSINESS REPORT
MACRO-ECONOMIC TREND of the countries in the region are sticking to their construction Germany is doing well – to judge from the raw data. Tax projects, something which represents a positive sign. revenues are booming, the economy is growing and the government is not planning to assume any new borrowing. • At first sight, it appears logical to draw the conclusion that However, a less cursory glance at the situation reveals that the drop in the oil price will have a positive effect on the there are many problems in the world, the dark clouds of German economy. Thanks to the lower price of fuel, the which are casting their shadow over Germany as well. general public will have more money to spend on other consumer goods. However, this upside will by no means The repercussions of the financial crisis and the credit crunch compensate for the drop in orders placed with German suffered by many European countries mean that the overall companies. Although the order books of construction system still cannot settle on an even keel. Germany is part of firms in the Arab world are currently full, it remains unclear this system, and due to its presumed strength has to bear a which projects might be delayed as a result of the low oil considerable share of the burden. price. And it is not only Arab countries that are affected. Malaysia, Mexico, Brazil, Russia, Angola, Venezuela In addition to the familiar problem areas, new crisis hot-spots and Azerbaijan are dependent on oil. This also affects have also arisen; these will also have significant effects on the conglomerates that earn their money with oil. As a result, economic development of countries and regions in the world. the situation cannot be said to be positive.
• Russia and Ukraine are not regarded as the most impor- • Over recent years, China has acted as a powerhouse for tant countries for Germany’s export business. This fact the global economy, but is now displaying some weak- perhaps made it easier for the politicians to impose sanc- nesses. Many companies nowadays are heavily dependent tions on Russia in the wake of the events in the Crimea – on the market there. These include the major German car in the hope of inducing a change of policy. Unfortunately, companies as well as their components suppliers and past experience shows that punitive measures such as many capital goods manufacturers. In the engineering these take a long time to bear fruit, and can even lead to business, we can already see what problems can arise in a hardening of attitudes and tit-for-tat countermeasures. this country. The construction equipment business in China The conflict is lodged in a spiral of this kind, while hopes grew many times over, on the back of the building boom. for a rapid resolution are evanescent. This will have a It was clear that the bubble in the sector would burst greater impact on the German economy than many people once the construction market had normalized. Chinese appreciate. Russia is highly important for Germany – more machinery manufacturers did not see this coming, as a so than is indicated by the raw data. result of which the factories’ production is going straight to stock, and the majority of the equipment is being dumped • Scarcely anyone would have imagined that a group of on the market through reckless financing models. Now, extremists could have taken over and terrorized large however, these machines are being returned because areas of Iraq and Syria within a matter of weeks. For some many construction companies overextended themselves months, it seemed that the western world was incapable with these investments. Our strategy of concentrating on of reversing the advance of the Islamic State, at least to large and special machines in China does add up, on the a certain extent. At present, it appears that the threat other hand. We are satisfied with our success. posed to the Arab world will continue for some time yet. Economically, it is spreading great uncertainty. Neighbor- • The countries in the eurozone are making strenuous efforts ing countries such as Jordan, Lebanon and Turkey will to get a grip on their economic problems, but there is thus have more limited opportunities to develop their not yet any prospect of achieving stability any time soon. economies on a stable basis. This fragile situation could Many companies are no longer able to compensate for deteriorate at any time, and this is noticeably curtailing the volatility in the foreign exchange markets. What is needed opportunities offered to western companies. At least many is a reliable policy in order to return to a steady course of COMBINED MANAGEMENT REPORT 20 Business Report
development. However, there is no sign of this happening to major problems. A business such as the BAUER Group, at the moment. however, which operates on a very large number of markets, must expect to face a multitude of problems in volatile times. The considerable number of crises and problematic areas Nevertheless, a global presence does mean that there will will represent threats for years to come. Rarely has there always be rising markets available. We regard our strategy been such an accumulation of issues facing the world as as the biggest advantage in terms of our ongoing develop- is the case today. Fortunately, there have also been some ment in that respect. As well as confronting country-specific very positive developments. The most important of these is, problems, this also means that strategic options regularly without doubt, the upswing in the US economy. The United open up, providing us with the opportunity to grow. States has once again assumed its role as the driving force in the global economy. Many countries of the Far East are Against the background of this economic situation in the also enjoying highly dynamic growth, such as Indonesia, construction sector, we are convinced that the BAUER Malaysia and the Philippines. What is more, many markets Group will again be able to achieve increasing orders so as are highly stable and are well placed to face the future. to sustain healthy growth in the years ahead, in spite of the disruptions. The construction sector in Germany is one such market that is developing very well. Sustained low interest rates and the Sales of construction machinery are linked directly to the positive economic situation are inducing people to invest in situation on construction markets, so healthy selling oppor- real estate. Also, the government is finally setting about making tunities are also to be expected in that sector over the years good the huge deficiencies in Germany’s infrastructure. For ahead. Deep drilling markets will also grow again, as future this reason, the favorable situation is set to continue for a oil and gas exploration drilling will need to be carried out at few years more. ever shorter intervals, so entailing a rise in drilling capacity.
Construction statistics Germany – Change 2014/2013 In parallel with the general trends, future trends on construc-
in % Germany West East tion markets in the various regions around the world will vary overall Germany Germany in some cases: Sales 4.4 5.0 2.1 Hours worked 4.6 5.2 2.8 Germany Employees 1.1 1.5 -0.1 The German construction market will continue to see positive Orders received -0.5 -0.6 -0.1 growth over the coming years. Residential construction is
Source: Central Federation of the German Construction Industry being buoyed up, above all because of the low interest rates. Public-sector construction is benefiting from an enormous There is also a very pressing necessity and demand for backlog of infrastructure work, something which governments construction activities internationally. Everywhere, there now have much more money at their disposal to pay for. are huge deficiencies when it comes to refurbishing infra- The development of commercial construction will depend structure and constructing new transport arteries and supply on industry’s future prospects. systems. Also, commercial companies and residential building operations have a great demand for construction services. The widely anticipated positive effects of the reversal of Once again, the crises and problems existing in the world energy policy in Germany to favor renewable energies have represent the greatest stumbling block, however. not been realized, however. Only the onshore wind power sector is still generating strong order flow. The necessary Under such circumstances, it may be better for construction north-to-south power transfer lines are not currently being companies to operate on only a small number of markets implemented, and the development of offshore wind power as and when they are on an upswing. As soon as those has largely come to a standstill. Even the urgently required markets decline again, such a strategy can very quickly lead growth in conventional power station capacity is not yet COMBINED MANAGEMENT REPORT 21 Business Report
happening due to a lack of clear policy framing. Those sector to a halt. The neighboring states such as Jordan and statements do contain a positive aspect: once the works Lebanon are also hamstrung by the situation, as a result of start, they will have to be completed rapidly. which economic development has significantly abated there.
Europe Further developments in the Arab countries, which were We predict that growth on construction markets in Western characterized by revolutionary political upheavals in the Europe will be modest over the coming years. Many countries past years, remain uncertain. Many clashes are still taking have had to impose strict budget constraints which will place in Libya and Egypt, with repeated incidents of rioting. hamper the further development of their infrastructure. There Nevertheless, the construction sector in Egypt is currently are nonetheless a number of opportunities for us in Europe, experiencing an astonishing upturn. The expansion to the especially in Switzerland. In France, a new circular metro Suez Canal that got underway within an extremely short time line is being built around Paris, and is requiring extensive will require considerable building activities. In Cairo, work will construction activities. Other cities are also planning to get underway within the next few years to expand the metro upgrade their infrastructure. network. Our local subsidiary has already landed considerable orders, and will be able to increase its sales significantly Smaller markets in Eastern Europe largely collapsed as a given this market situation. result of the financial crisis. There have recently been signs of a slight upturn, though at a very low level. Asia-Pacific, Far East & Australia Construction markets in the Far East remain pleasingly The crisis embroiling Russia and Ukraine is currently imposing stable. Almost every country in the region is undertaking an enormous burden on these countries’ development. major infrastructure projects. In Hong Kong, construction Ukraine is practically no longer capable of maintaining a sector capacities are being well utilized by extensive rail and construction sector – due to lack of funds. Although Russia road construction works. The same is true in Singapore and is attempting to keep finance flowing into its building sector, Malaysia. For example, new underground railway lines and the financial deficits brought about by sanctions and the low urban motorways are being constructed in Singapore. The oil price are forcing the country to pursue a policy of extreme port – one of the most important and biggest in the world – frugality. Commercial construction has almost shut down is being relocated. Economies such as Indonesia and the entirely. It can be assumed that Russia will suffer from the Philippines are also seeing healthy growth. By contrast, consequences of the crisis for years to come – even if the the Australian economy is no longer developing quite so conflict were to be resolved rapidly. As a result, the equip- positively. Trends in this construction market are somewhat ment sales business will also decline significantly. slower.
Middle East & Central Asia Americas The oil-rich and gas-rich countries of the Middle East, The USA’s economy is returning to its role as the driver such as Abu Dhabi, Saudi Arabia and Qatar, have lots of of global growth. A very high level of backlog demand large-scale construction projects in the pipeline and being has arisen in many infrastructure areas, due to a lack of carried out. Metro systems are being constructed in Doha adequate investment over recent decades. Major efforts will and in Riyadh, while intensive extensions to railway lines be made over the coming years to make good this deficit, are in progress throughout the entire region. The football and a positive side effect of this commitment will be a further World Cup in Qatar will trigger additional building volumes. boost to the economy. Overall, we regard the situation as Construction has also bounced back in Dubai in a big way. stable, and offering good opportunities for further growth in both our Construction and Equipment segments. Trends Conditions are highly problematic in Iraq and in Syria, however. in the Canadian construction market are likewise favorable. Armed conflict with the Islamic State has almost brought Interesting projects are regularly seen in Central America. economic development and specifically the construction COMBINED MANAGEMENT REPORT 22 Business Report
Africa same commitment as they were just a few years ago, when In Africa, it will be worthwhile actively pursuing new business, environmental issues were seen as the major risk to global even though the economic weakness of the countries con- economic development. Dialog with major polluters, such as cerned means the business generated will not make a major China, must be intensified. The financial burdens we face in contribution to our total Group revenues. Some countries dealing with this over the years ahead will be substantial. On have very good chances of improving their prosperity based the other hand, it does of course offer major opportunities for on their enormous raw material resources. companies operating in the relevant fields.
As a result of the described political risks and economic These issues are opening up wide-ranging new opportunities issues, a number of vitally important challenges which also for us too. In operation for several years now, our Resources need to be met have been pushed into the background. In segment is focused on matters relating to the environment, Germany and many other countries, demographic trends are water and natural resources. We have already achieved posing major economic challenges. Environmental problems, success in many countries around the world, and we believe particularly air pollution, are rising. In this context, too, neces- that demand for these products and services will continue sary policies are currently no longer being pursued with the to grow strongly.
> The north of Munich will be getting a significantly new look with the “Schwabinger Tor” project. BAUER Spezialtiefbau GmbH excavated the up to 12 m deep pit, which has an area of 35,000 m². COMBINED MANAGEMENT REPORT 23 Business Report
Global economic trends will stabilize again in the medium excellent lines; consequently, in early 2014, we assumed it term. The current causes of destabilization will fall away would be possible to conduct the remainder of the project again over coming years. The currently still enormous cost on a much better basis. Unfortunately, this expectation differences and imbalances in many countries will likewise turned out to be over-optimistic. During the second cutting reduce significantly. After all, people in China are also aware of the wall in the dam area, drilling progress returned to a of the value of professional work in other countries, and lower level. The concrete mixture used proved to be exces- will demand the same standards for themselves. There are sively hard for the planned progress to be achieved. Also, already several signs of this happening: good equipment many other procedures on the site, such as permanent operators in most countries now have similar pay levels monitoring of quality, took longer than planned, as a to those in the old-established industrial nations for example. result of which the construction time and thus the costs This will impact on all businesses, including our competitors. significantly exceeded the expected amounts. This meant the project delivered a loss in 2014, which reached the low The outcome of the global changes will be much larger double digit million range. The project will be completed in markets, on which orders will again need to be fought for the second quarter of 2015 with an outstanding technical against a background of similar conditions. German companies achievement. will be able to focus on their specialties and enjoy healthy revenues on the larger market. The BAUER Group, too, will Business in Russia, Egypt, Indonesia, Hong Kong and maintain that focus. Thailand was very pleasing. In Hong Kong, the major project involving foundation works for a section of the new bridge COURSE OF BUSINESS between Hong Kong and Macau was completed in early In 2014, the BAUER Group was hit by some problems with 2015. a major financial impact and also faced some difficult market conditions. On the other hand, we have also achieved some The Equipment segment had to cope with significant market pleasing successes. Overall, however, we were only able to upheavals once again during the reporting period. The post a positive profit after tax by means of a one-time income greatest problems were the behavior of Chinese manufacturers item. which continued to produce with significant overcapacity, and the methods they employed of dumping their equipment In the Construction segment, we are well established in all onto the market via risky financing schemes. Our European international markets. Specifically in Germany, our specialist competitors were also affected by the situation. Our strategy foundation engineering business was able to contribute with of concentrating on special equipment of the highest quality a positive development. The numerous disturbances in the and providing perfect customer support meant that we were world meant it was necessary to respond to changes quickly. able to expand our sales further in spite of the significant Nevertheless, our business was effectively distributed over the competition. In 2014, we succeeded in selling more large regions of the world. Revenues declined slightly compared machines once again. to the previous year because a relatively large number of very large projects were carried out the year before. During Developments in Russia and Ukraine proved problematical the year under review, it was rather the small and medium for us. In Russia, orders tailed off almost entirely as a result projects which characterized our revenues. of the sanctions and the economic problems these triggered towards the end of the year. This represents the loss of The factor which affected us most was the development in an important market for our companies. In 2014, we had our dam remediation project at Center Hill dam in the USA. planned sales of about EUR 80 million for the Group in We had already been obliged to post a loss in the previous Russia and Ukraine, but we were only able to achieve about year. Significant problems arose during the site mobilization half of this figure. We are expecting even lower sales in future. and the technical preparation work for the project, leading As a result, we need to look to compensate for this, a task to a considerable delay. However, from the end of 2013 which will not be easy. onwards, the diaphragm walling works proceeded along COMBINED MANAGEMENT REPORT 24 Business Report
Geographical breakdown of total Group revenues generated by selling 21 percent of the shares in this in EUR million company. Total 1.560 The companies in the segment which manufacture well Germany 440 (28 %) engineering materials were reorganized following a difficult Africa 62 (4 %) previous year. Once again, a loss was reported in 2014. Americas 172 (11 %) We are confident that business will now develop better. The year was highly unsatisfactory for our exploration Asia-Pacific, Far East & companies. Following the end of the major project in Jordan, Australia 377 (24 %) we had hoped it would be possible to relocate the capacity becoming available to other regions without interruption. However, weakness in the mining market during the previous year meant that exploration drilling ceased almost entirely. As a result of political upheavals in the region, it also proved impossible to attract an adequate number of orders for other work. Consequently, we had to accept significant losses resulting from the overcapacities.
Europe (other) 125 (8 %) Middle East & Central Asia Many re-organizational measures were undertaken in the 232 (15 %) Resources segment. Activities were merged or, in some cases, EU (excl. Germany) terminated. We have withdrawn from many regions. All of 152 (10 %) these issues led to a financial cost. Consequently, a loss in the segment could only be avoided by one-time income from Our deep drilling business achieved very satisfactory the sale of shares mentioned previously. development in 2014. In May, the agreement was signed to develop a new deep drilling rig for Saxon Energy Services 2014 was an extremely challenging year. We had to deal Inc. Following joint development work, we received the order with markets changing at breakneck pace, at the same to manufacture two rigs at the end of the year. Additionally, time as correcting our own mistakes and aligning internal a sales contract was signed in December for two already structures better to face the future again. The cost reduction completed deep drilling rigs. program amounting to about EUR 20 million was implemented successfully in order to safeguard overall profits, and will be In the Resources segment, the environmental business continued in the coming year as well. The positive effects will continued to develop very well. There were many attrac- bear fruit for years to come. tive projects, especially in Germany. Our subsidiary in Oman enjoyed a successful year, with many appealing Another important goal for the year was to comply with new opportunities for the future. One-time income was the financial covenants of our financing agreements with
Forecast/actual comparison 2014
in EUR million Forecasts Actual 2014 11.04.2014 14.08.2014 14.11.2014
Total Group revenues ~ 1,550 ~ 1,550 ~ 1,550 1,560 EBIT ~ 75 ~ 75 ~ 75 76.4 Net profit or loss ~ 20 - 25 ~ 15 - 20 ~ 15 - 20 15.7 COMBINED MANAGEMENT REPORT 25 Business Report
slightly increased revenue. Furthermore, we aim to achieve a regard to total Group revenues and EBIT. At the 2014 long-term improvement in key financial figures. Although we year-end, this is expected to be towards the bottom end of still have some work to do to achieve this, we were able to the range from about EUR 15 to 20 million. meet the target. The net debt to EBITDA ratio has returned below 4.0. The EBITDA to net interest coverage ratio was The final results for 2014 are now as follows: total Group also improved. revenues rose by 3.7 percent to EUR 1.56 billion. Sales revenues fell slightly by 1.9 percent to EUR 1.38 billion. As a result of the aforementioned problems, we were regret- EBIT came to EUR 76.4 million (previous year: EUR tably forced to adjust our forecast downwards once in the 30.1 million). The net profit for the period was EUR course of 2014. In our 2013 Annual Report we predicted total 15.7 million (previous year: EUR -19.4 million). Group revenues of about EUR 1.55 billion, EBIT around EUR 75 million, and profit after tax of about EUR 20 to 25 million. Summary All in all, we cannot be satisfied with our results for 2014. As a result of special effects, including above all our dam We were only able to achieve a positive result due to the project in USA which burdened us with a significant loss, we one-time income from the sale of shares in Oman. We regard were obliged to adjust our forecast for profit after tax in the the business trend as continuing positive, because even in half-year report to about EUR 15 to 20 million. tricky circumstances we once again succeeded in increasing total Group revenues slightly. The financial year 2015 will In the nine-month interim report, the forecast for the profit build on that foundation. after tax was concretized, with an unchanged outlook with
Geographical breakdown of total Group revenues
in EUR million (segments after deducting Other/Consolidation) Total 1,560
1,600
Resources 1,400 249
1,200
1,000 Equipment 612 800
600 Construction international 400 510
200 Construction Germany 189 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
COMBINED MANAGEMENT REPORT 27 Business Report
Breakdown of total Group revenues by subsegment
in EUR million 2013 2014 Share Change against Orders Revenues * Revenues Year 2014 previous year in hand
BAUER Spezialtiefbau GmbH (BST) BST, Germany 119.4 133.2 8.6 % 11.6 % + Subsidiaries, Germany 24.0 16.7 1.1 % -30.4 % + BST, international 67.3 98.9 6.3 % 47.0 % • Subsidiaries, international 547.3 502.5 32.2 % -8.2 % • BST Group total 758.0 751.3 48.2 % -0.9 % • Construction SCHACHTBAU NORDHAUSEN GmbH Subsidiaries (SBN) 73.9 66.1 4.2 % -10.6 % • less intra-Group revenues and IFRS adjustments -90.2 -104.4 -6.7 % Construction total 741.7 713.0 45.7 % -3.9 % • BAUER Maschinen GmbH (BMA) 391.7 383.3 24.6 % -2.1 % • Equipment subsidiaries 453.3 468.7 30.0 % 3.4 % • BMA Group total 845.0 852.0 54.6 % 0.8 % • SBN 62.3 62.0 4.0 % -0.5 % •
Equipment less intra-Group revenues and IFRS adjustments -278.7 -262.2 -16.8 % Equipment total 628.6 651.8 41.8 % 3.7 % • BAUER Resources GmbH (BRE) 9.6 29.5 1.9 % n/a Resources subsidiaries 193.2 231.1 14.8 % 19.6 % - BRE Group total 202.8 260.6 16.7 % 28.5 % - SBN 19.8 33.9 2.2 % 71.2 % ++
Resources less intra-Group revenues and IFRS adjustments -33.7 -41.7 -2.7 % Resources total 188.9 252.8 16.2 % 33.9 % • BAUER Aktiengesellschaft (BAG) 37.0 37.1 2.4 % 0.3 % Other subsidiaries 2.3 2.3 0.1 % Other Total Other/services 39.3 39.4 2.5 % 0.3 % less intra-Group revenues and IFRS adjustments -94.3 -96.8 -6.2 % Group total (including non-controlling interests) 1,504.2 1,560.2 100.0 % 3.7 % • of which: Germany 410,4 440,2 28.2 % 7.3 % International 1,093.8 1,120.0 71.8 % 2.4 %
Notes on the table: List also includes non-consolidated holdings Breakdown Germany/international according to country in Evaluation of orders in hand in relation to planned revenues: which accounting figures were allocated. For reasons of -- weak; - slightly weak; • adequate; + well adequate; ++ very well adequate; complexity the figures are not absolutely precise. Percentages and totals are calculated on the basis of unrounded starting values
* Previous year adjusted; see notes on page 106
Our customer Ammico Contracting Co. W.L.L. was involved in the construction of a large commercial complex on the artifi cial island “The Pearl”, which is just off the east coast of Qatar. A cut-off wall up to 700 m long and 8 m deep was built using the cutter- soil-mixing-method. They used a BG 28 with a BCM 5 mixing head.
COMBINED MANAGEMENT REPORT 29 Trend by Segment
III. TREND BY SEGMENT
CONSTRUCTION SEGMENT
Construction key figures in EUR '000 2013 * 2014 Change Total Group revenues 741,673 713,005 -3.9 % Sales revenues 657,456 634,096 -3.6 % Orders received 727,287 665,244 -8.5 % Orders in hand 498,701 450,940 -9.6 % EBIT 21,209 25,068 18.2 % Net profit or loss 5,472 1.858 -66.0 % Employees (on average over the year) 5,531 5,675 2.6 %
* Previous year adjusted; see notes on page 106
In the 2014 business year, the Construction segment earned West Region, however, failed to achieve its targets, attracting total Group revenues of EUR 713.0 million, down slightly on only a few orders. However, the planned earnings and the the previous year’s value of EUR 741.7 million by -3.9 percent. planned revenues were well surpassed. The reason for this is that more major projects were handled in the year before than in 2014 itself. Segment EBIT of EUR The major project at the Schwarzkopf Tunnel should be 25.1 million was slightly up on the previous year’s level of highlighted in particular. This involves extensive special EUR 21.2 million. The net profit for the period decreased foundation engineering for the bypass rail link between Hanau markedly from EUR 5.5 million to EUR 1.9 million. The decline and Nantenbach, with a total volume of above EUR 40 million. in the net profit for the period is chiefly due to economic We still have significant work to accomplish on the project problems with our dam project at Center Hill in Tennessee, until autumn 2015. In addition to this, the major project at the USA. It was not possible to offset the loss incurred in the Zerben lock was completed successfully in November. project against any deferred tax assets, as a result of which the income tax expense increased significantly compared to Next year, we are expecting a decline in revenues for the the previous year. German specialist foundation engineering business, because there are fewer major projects on the market overall. 2014 was characterized by good conditions overall in the world construction market, which proved to have a positive SCHACHTBAU NORDHAUSEN GmbH, which operates effect on our companies in Germany and the Far East above primarily in Germany, works on behalf of all three of the all. Furthermore, the markets in the Middle East once again Group’s segments. The company and its subsidiaries showed significant signs of life. The business situation was increased total revenues against the previous year’s good on the whole, but was negatively affected by the figure, but earnings were down against planned levels. problems with the Center Hill dam project to such an extent An improvement is expected in 2015. As the company that we failed to achieve our earnings targets markedly. operates in all three segments, the effects of the individual divisions are detailed in the respective segment reports. The Germany Construction division achieved revenues on the same level As in the previous years, our German construction business as the previous year. The Environmental Technology division, performed better than expected once again. Revenues and operating primarily in the biogas field and in the construction results were significantly above expectations. The contracts of treatment plants, is likewise assigned to the Construction procured were spread very unevenly around the various segment. Although it was able to increase revenues, the regions however. Capacities in the South region were very negative result remained at the previous year’s level. SPESA well utilized, and well utilized in the North East region. The Spezialbau und Sanierung GmbH, which is allocated to
In Jeddah, Saudi Arabia, what will soon be the tallest building in the world is under construction – the Kingdom Tower. Bauer drilled 70 piles – with up to 109 m they are extremely long – with diameters of 1,500 and 1,800 mm. Another 200 piles with lengths up to 90 m were also installed. COMBINED MANAGEMENT REPORT 30 Trend by Segment
Geographical breakdown of total Group revenues We are expecting the business situation to be significantly Construction segment less favorable in 2015 because of sanctions. in EUR million (after deduction of Consolidation)
Total 699 The situation in the markets of Western Europe was also highly differentiated. Our subsidiary in the Netherlands failed to meet Germany 189 (27 %) expectations in terms of revenues and earnings. Last year Africa 49 (7 %) was very poor in the UK. Following major underground railway Americas 68 (10 %) orders in previous years, there were scarcely any projects on the market in the business year just finished. Consequently, the Asia-Pacific, Far East & planned revenue target was missed by a wide mark, and the Australia 199 (29 %) result is negative. There are signs of an improvement in 2015. In Switzerland, revenues increased thanks to a good market position. Our subsidiary in Austria failed to meet its targets because of a dearth of projects in the summer months. On the whole, markets in Southern Europe remain weak.
Middle East & Central Asia Following political unrest in the markets of the Middle East over recent years, the construction sector once again Europe (other) 64 (9 %) Middle East & Central Asia enjoyed a significant upswing in the course of 2014. Our 94 (13 %) companies in the United Arab Emirates, above all Abu Dhabi EU (excl. Germany) and Dubai, are once again operating at full capacity and 36 (5 %) were able to increase revenues and earnings significantly; the situation is similar in Qatar where work started on several Schachtbau in the organizational structure, succeeded in orders particularly in the second half of 2014. Our subsidiary improving its result during the reporting year although with a in Lebanon was also largely on target in terms of revenues slight decline in revenues. and earnings.
The holding Wöhr + Bauer GmbH, which develops and Revenues declined in Saudi Arabia, above all because of builds urban real estate such as office buildings and parking the completion of the major project at the Kingdom Tower, garages, was able to complete a large number of relatively involving the foundation work for what will be in future the large projects during the reporting year, as well as starting tallest building in the world. Order books remain buoyant new ones. here, and upcoming major projects – especially for the metro system in the capital city Riyadh – mean that prospects are Europe bright. Overall, we believe the region is once again on an Trends on European construction markets remain regionally upward trend. very variable. In Eastern Europe, revenues in Hungary, Georgia and Bulgaria increased, while Romania underper- Asia-Pacific, Far East & Australia formed slightly. Overall, perspectives have improved again The construction sector in the markets of the Far East somewhat following a few weak years. Azerbaijan is also continues to deliver pleasing performance. Our subsidiaries in offering us good opportunities for new projects. In Russia, Indonesia and Thailand benefited from very full order books work was completed on the Lakhta Tower in St. Petersburg, with pleasing results. Prospects remain highly positive. Hong which is set to be Europe’s tallest building; subsequent Kong was characterized by the foundation works for a section to this, we carried out some add-on and follow-up order. of the Hong Kong-Zhuhai-Macau bridge that were completed Revenues and earnings were on a good level overall. in early 2015. The project was able to be concluded suc- cessfully. COMBINED MANAGEMENT REPORT 31 Trend by Segment
In Malaysia, there were somewhat fewer orders than the Dominican Republic. We are expecting the situation to expected, as a result of which revenues were somewhat improve in the region during the current year. lower than planned even though they attained a very high level in total. In the Philippines, project delays represented Africa somewhat of a hindrance to revenues, although the situation Once again in 2014, the performance of our holding in Egypt with orders in hand is good on the whole. The market in was more than pleasing. In the difficult prevailing conditions, Vietnam is displaying the first signs of a recovery following it succeeded in closing the financial year with revenues up on weakness during previous years. the previous year and healthy earnings. Order levels continue to be very high, because numerous construction projects In 2014, extensive diaphragm walling works were constructed are being carried out. For example, extensive work is being for several dams in Bhutan as well as on Mauritius. The work conducted on the metro system in Cairo. We assume that will continue into the current business year as well. The we will be able to increase our revenues further in the current projects are proceeding very pleasingly. The market in year. There are individual project opportunities available from Australia in 2014 was very slow. We expect this to continue time to time in other countries as well. in 2015 as well. Outlook Overall, we are expecting continued good development for Revenues in the Construction segment declined slightly during the region in the current business year. the completed business year. Above all, this was because some major projects were processed and concluded during Americas the previous year. In some regions, we merged capacities to Our subsidiary in the USA was kept busy through 2014 a greater extent and ceased our activities in some countries primarily by the large-scale Center Hill dam project. The – such as Algeria. The trend in the segment was positive, difficulties getting the project off the ground led to a backlog apart from the losses incurred by the major project at Center of work. At the start of the year, we had expected to make Hill dam, representing a significant negative influence. good this deficit, at least in part, by increasing performance. Unfortunately, this proved to be impossible because of Overall, the regions of the world continue to perform positively, further delays and problems that arose during the course in spite of all the existing political and economic disruptions. of the year, as a result of which a significant loss was once Our global presence provides us with an excellent opportunity again incurred. From a technical perspective, the project has to exploit opportunities in regions with a favorable trend in been carried out to an excellent standard. The work will be their construction sectors, thereby making up for weaker concluded in the second quarter of 2015. As well as this, a markets. Overall, orders in hand have declined in relation larger number of different specialist foundation engineering to the previous year, this being due to the situation that there orders were handled in the USA. There were only a few are currently more small and medium projects available on the orders available on the Canadian market during the year, as market. The major projects have been completed during the a result of which revenues declined here. The prospects are past two years. looking brighter again for the current year. We are expecting our revenues to be slightly higher than those In Latin America, we are focusing our activities on Panama of the previous year in 2015. As far as EBIT is concerned, above all else. Our subsidiary’s performance was somewhat we are expecting a slight improvement, while the improvement below expectations during the past business year. Individual in profit after tax should be considerable. orders are being carried out in the other markets – such as
COMBINED MANAGEMENT REPORT 33 Trend by Segment
EQUIPMENT SEGMENT
Equipment key figures in EUR '000 2013 2014 Change Total Group revenues 628,612 651.772 3.7 % Sales revenues 561,615 545,223 -2.9 % Orders received 632,053 693,967 9.8 % Orders in hand 116,525 158,720 36.2 % EBIT 32,223 36.917 14.6 % Net profit or loss 5,055 9,513 88.2 % Employees (on average over the year) 2,998 3,038 1.3 %
In the past business year, total Group revenues in the Paris. We were also able to achieve good sales in the Baltic Equipment segment increased slightly by 3.7 percent, from states, although the markets in Eastern Europe continue to EUR 628.6 million to EUR 651.8 million. Sales revenues, on be at a low level. There is a lack of funding for major invest- the other hand, fell back by 2.9 percent from EUR 561.6 mil- ments. Spain and Portugal continued to perform weakly. lion to EUR 545.2 million. Segment EBIT increased sharply by 14.6 percent from EUR 32.2 million to EUR 36.9 million. In Russia, sales up to the middle of 2014 were completely ac- The net profit for the period increased markedly from cording to plan. During the second half of the year, however, EUR 5.1 million to EUR 9.5 million. first sanctions and then the significant decline in the value of the ruble exerted an influence on the market. At the start In 2014, in spite of fierce competition, we succeeded in of the embargo, it was questionable whether we would be maintaining sales volume at approximately the same level as able to deliver several items of machinery to Russia, although the previous year. The markets of the Middle and Far East the situation was resolved within a few weeks. However, enjoyed particularly positive development, as did sales of demand collapsed markedly in the second half of the year. In large machinery and cutters. This led to an increased result, the current business year, we are expecting to see a further and further benefited from the trend in the US dollar. The noticeable decline in sales volume compared to 2014. still too low capacity utilization of the plants and losses at individual subsidiaries hampered a greater increase. Middle East & Central Asia The markets of the Middle East developed significantly better Germany & Europe than in the year before. In spite of continuing uncertainties Sales in Germany were slightly below the previous year, in in the region, demand increased noticeably because of a line with our expectations. In 2014, like in the previous year, greater number of infrastructure projects being implemented. the plants at our headquarters in Schrobenhausen had Our sales were significantly above the planned targets, adequate capacity utilization. We are expecting an improve- delivering a pleasing contribution to earnings. In the United ment during the current year because of production of two Arab Emirates, including Dubai, there was a reinvigoration deep drilling rigs for Saxon Energy Services Inc. of the construction market. Numerous infrastructure projects got under way in Qatar. In Saudi Arabia, additional Sales volumes in Western and Southern Europe were above machinery was required in particular for the expansion of the planned values. Alongside good market conditions in Italy, Holy Mosque in Mecca. Sales in Iraq, however, were weak. we were above all able to sell some machinery to France, Overall, the perspectives for the markets in the region are including several cutters for the expansion of the metro in once again good.
A highlight was the in-house exhibition, which took place in Schrobenhausen in May 2014. Over four days, more than 1,700 guests from over 70 countries visited the event to fi nd out about the innovations and equipment from BAUER Maschinen GmbH and its subsidiaries. COMBINED MANAGEMENT REPORT 34 Trend by Segment
Geographical breakdown of total Group revenues relocation to the new plant in Tianjin contributed to this, and Equipment segment was completed by October 2013. The new plant’s capacity in EUR million (after deduction of Consolidation) was already utilized to a significant extent in 2014, with Total 612 scope for further growth.
Germany 118 (19 %) The market in Japan was satisfactory overall. There are once Africa 9 (1 %) again major infrastructure projects in the pipeline, which Americas 96 (16 %) represent interesting opportunities. Australia proved to be rather weak, this being a corollary of the weak demand from Asia-Pacific, Far East & the mining industry. Australia 177 (29 %) Americas Although the market situation in the USA improved in 2014, we were unable to meet our targets entirely despite achiev- ing slight improvements in sales and earnings compared to the previous year. In the USA, the business is predominantly characterized by renting equipment to customers. We took an important step in setting the course for the future by merging locations of BAUER-Pileco Inc. and BAUER Europe (other) 56 (9 %) Middle East & Central Asia Manufacturing Inc. at our site in Conroe, near to Houston. 60 (10 %) We are expecting this to deliver synergy effects which will EU (excl. Germany) lead to significant cost savings. We were also able to reduce 96 (16 %) our rental fleet by selling equipment. Production capacity in Conroe was not yet adequately utilized in 2014, as a result of As a result of delays in major projects, we suffered a decline in which we still recorded a relatively small loss. sales compared to the previous year in Turkey and Azerbaijan. The other countries of Central Asia such as Kazakhstan were In South America, our sales volumes were at a similar level to influenced by the uncertainty generated by the Russia/Ukraine those of the previous year. The market in Brazil continued to crisis. Here, our sales were below the expected levels. As in perform weakly. Many projects have been postponed here. the previous years, the Indian market was weak. Africa Asia-Pacific, Far East & Australia In Africa, we were not quite able to match our sales in the Markets in the Far East continued to be very positive. We previous year. Egypt enjoyed positive development because were able to increase our sales volumes somewhat once of the growth in the construction market. The remaining again, achieving a good contribution to earnings. Hong Kong countries of Africa, however, were weak. There was signifi- has become an excellent market for our duty-cycle crane cant reluctance to invest in West Africa, as a result of Ebola, series. We were also able to achieve good sales volumes in and the mining industry displayed hardly any demand for Malaysia, as in Singapore. Here, we were able to sell some equipment. Production in Botswana, where our joint venture machines in particular which will be used in the extensive manufactures blast-hole drilling rigs and well drilling rigs for expansion of Changi Airport. The Philippines and Indonesia Southern Africa, failed to meet our expectations in 2014 continue to develop along positive lines. because of weak markets.
As before, the Chinese market is characterized by significant Parts & Service overcapacity, meaning that the competitive situation remains The Parts & Service business has continued to develop tight. In spite of these difficult conditions, we succeeded in steadily over recent years, delivering a good contribution to achieving a satisfactory contribution to earnings. The smooth revenues and earnings in the past business year. The spare COMBINED MANAGEMENT REPORT 35 Trend by Segment
parts business continues to be positive, whereas demand applications. During 2014, an increasing volume of large for drilling tools and add-on units was somewhat weaker. machine sales was achieved, as well as better sales of Consequently, revenues and earnings were somewhat down cutters, leading to increased earnings for the segment. on the previous year. Some subsidiaries delivered unsatisfactory performance Deep drilling in the past financial year. PRAKLA Bohrtechnik GmbH, a In May 2014, BAUER Deep Drilling GmbH and Saxon specialist for well drilling rigs, was confronted by very weak Energy Services Inc. concluded an engineering contract for demand, leading to a significant decline in revenues and a development and manufacturing of onshore deep drilling negative result. MAT Mischanlagentechnik GmbH, a manu- rigs with a hook load of 375 metric tons. Saxon Energy facturer of products for mixing and separating technology, Services Inc. is a subsidiary of Schlumberger, the worlds's also recorded a negative result due to poor demand. largest oilfield service company. Following joint develop- ment work, the order for production and sale of two rigs, In contrast, a good business year with very positive results designation ATD 750, was signed in December. These will was experienced by RTG Rammtechnik GmbH, with its pile- be manufactured in the BAUER Maschinen GmbH plants drivers and piling leaders, SPANTEC Spann- & Ankertechnik in Germany and also partially assembled in the US plant GmbH, which makes anchor products for foundation engi- in Conroe, near Houston. As a result, we are expecting neering applications and EURODRILL GmbH, which makes that capacity utilization, in particular of the plants at our rotary drives and hydraulic hammers. KLEMM Bohrtechnik Schrobenhausen headquarters, will be increased during GmbH, a manufacturer of anchor drilling technology, once the current year. again slightly increased its revenues in 2014.
Additionally, a sales contract was signed at the end of Outlook 2014 for the two already completed TBA 300/440 M1 and Overall, the Equipment segment was able to perform TBA 440 M2 rigs. A 100 metric ton rig will also be delivered positively in 2014 amongst conditions characterized by to China in 2015. fierce competition and some difficult markets. The nearly stable sales volume with an increase in earnings as well as As a result, the Deep Drilling business has taken a major the trends in Deep Drilling were very pleasing. On the other step forward. Work is in progress towards certification by hand, the results recorded by some subsidiaries as well the American Petroleum Institute (API), and is expected as capacity utilization at the plants, which is still too low, to be completed in 2015. This would open up new sales imposed a burden. opportunities. The business remains significantly affected by short-term Products & subsidiaries customer orders, representing a major challenge for produc- BAUER Maschinen GmbH manufactures rotary drilling tion planning which has to look many months ahead as a rigs (the BG series), duty-cycle cranes (the MC series) and result of delivery lead times for purchasing. The markets in cutters (the BC series) at a number of plants. The BG series the Middle East should post a continued rising trend and is the most important and extensive machine range, and is increased demand, whereas the Russian market will tail off divided in two product lines: the ValueLine rigs are optimized markedly. For 2015, we are expecting that revenues, EBIT for kelly drilling, while the PremiumLine rigs are multifunction and profit after tax will be slightly up on the previous year. units for a wide variety of specialist foundation engineering
COMBINED MANAGEMENT REPORT 37 Trend by Segment
RESOURCES SEGMENT
Resources key figures in EUR '000 2013 * 2014 Change Total Group revenues 188,861 252,830 33.9 % Sales revenues 182,579 195,860 7.3 % Orders received 180,054 255,837 42.1 % Orders in hand 150,020 153,027 2.0 % EBIT -23,965 15,932 n/a Net profit or loss -31,444 4,347 n/a Employees (on average over the year) 1,449 1,400 -3.4 %
* Previous year adjusted; see notes on page 106
Total Group revenues in the Resources segment grew levels in the areas of environment and water treatment. significantly by 33.9 percent from EUR 188.9 million to Reorganization of the Resources segment proceeded EUR 252.8 million. Sales revenues grew by 7.3 percent intensively in 2014. The previous split into the business areas from EUR 182.6 million to EUR 195.9 million. Segment Materials, Exploration & Mining Services and Environment EBIT was once again significantly positive following the has been replaced by a regional sales organization which is loss made during the previous year (EUR -24.0 million), functionally supported by competence centers. In the regions at EUR 15.9 million. The net profit for the period was of America, Europe and Africa as well as the Middle East & EUR 4.3 million (previous year: EUR -31.4 million). Asia, the subsidiaries now operate as full-line providers of all products and services offered by the Resources segment. The key results of the segment were significantly influenced The competence centers of Water Treatment, Process and by a one-time income. The increase in total Group revenues Biotechnology, Environmental Rehabilitation and Waste contains an income item from sale and consolidation Management, Drilling Technologies as well as Well Drilling and amounting to EUR 36.5 million resulting from the sale of Geothermal pool their expertise and support the subsidiaries 21 percent of the shares in our subsidiary BAUER Nimr LLC in carrying out projects. in Oman. The shareholding up to that point was 70 percent. The company’s principal activity involves operating the large- Germany & Europe scale reed-bed treatment plant under an operating contract The GWE Group offers solutions for well-drilling and geother- set to last a further 15 years. Without sale of these shares, mal, for which purpose it manufactures products for devel- the EBIT and the net profit for the period would have been opment, delivery and distribution of water and geothermal in the red as a result of negative earnings contributions – energy. Following weak performance in the previous year, specifically from the subsidiaries in the area of exploration some restructuring measures were initiated and are still in and mining services – and as a result of expenditure for the progress. These measures, as well as stagnating markets in reorganization of the segment. Europe, had an impact on results which remained negative. Above all because of growth in Germany, Austria, Swit- The Resources segment is undergoing reorganization and zerland and new customers in the energy sector, it proved adjustment to the changed market situation following the possible to increase revenues slightly. Business improved on loss it suffered in 2013. The loss was above all due to a the whole, but work is continuing on optimizing costs. major project in Jordan, as well as weak demand for well construction materials and from the mining area. The signifi- The Polish subsidiary, which produces and sells well cant increase in revenues during 2014, even without taking construction materials, was able to increase revenues slightly account of the sale of shares, is above all due to good order year-on-year despite operating in a stagnating market
BAUER Umwelt GmbH conducted replacement drilling for a customer in Coswig, near Dresden. A total of about 45,000 t of soil material were disposed of. A BG 40 rig with a large bore diameter of 2,000 mm was used. More than 400 bores were drilled down to a drilling depth of 17 m. COMBINED MANAGEMENT REPORT 38 Trend by Segment
Geographical breakdown of total Group revenues recent years, it has been possible to expand projects with Resources segment customers from the automotive industry in particular, which in EUR million (after deduction of Consolidation) were handled successfully. There are still good prospects for Total 249 the future here.
Germany 133 (54 %) In 2014, Esau & Hueber GmbH, a specialist for brewery, Africa 4 (2 %) beverage and biotechnology, achieved revenues which were Americas 8 (3 %) both above target and higher than the previous year thanks to good demand for brewery technology and systems for the Asia-Pacific, Far East & pharmaceuticals industry. The result was also significantly Australia 1 (0 %) improved. An expansion to capacity has already been com- Middle East & pleted, and will result in further improvements in production. Central Asia 78 (31 %) The order books of our foreign subsidiaries reveal a highly diverse situation. In Italy, revenues were at the level of the previous year in spite of project delays. The result improved. Two Resources companies in Spain were merged. There has been a slight uptick in the market for environment and water there. Some activities, including those in Hungary, will not be continued as a result of unsatisfactory developments.
Europe (other) 5 (2 %) FORALITH Drilling Support AG, a specialist for deep and extended-reach exploration drilling based in Switzerland, EU (excl. Germany) 20 (8 %) was able to carry out some projects successfully in Europe during the past business year; as a result, it improved its environment, and consequently also improved its result. In revenues and earnings. BAUER Foralith GmbH had to Hungary, revenues and earnings were on target, at the level absorb significant burdens due to drilling rigs with underused of the previous year. The sales company in France increased capacity. In future, the activities of both companies will be its revenues and earnings despite a difficult market situation, more closely meshed, so that synergy and cost effects can but nevertheless failed to meet its targets. be leveraged more effectively.
BAUER Umwelt GmbH is a central provider of products and The Resources segment also incorporates the Mining division services for environmental technology in Germany. In 2014, of SCHACHTBAU NORDHAUSEN GmbH. It proved possible it was able to increase its revenues significantly, thereby to increase revenues once again as a result of the very vigorous exceeding the planned goals. The result was also improved, market. Alongside many projects in Germany, a considerable with a healthy positive performance. It was possible to carry order is being handled in Kazakhstan. In spite of a fine that out numerous projects, above all in the areas of remediation imposed a significant burden on the area, it was possible to of polluted sites and waste mangement. Orders in hand report a positive result. continued to be at a high level, as a result of which further positive development is expected. Middle East & Asia The Site Group for Services and Well Drilling Ltd. Co. in BAUER Water GmbH plans, builds and installs water treat- Jordan is still undergoing reorganization following the loss ment plants for customers all over the world. Following a incurred during the major Disi-Amman project in 2013. weak first half of 2014, revenues were significantly increased Following completion of this project, it did not prove possible in the second half. The result improved markedly following a to find another use for the drilling rigs used there because loss in the previous year, and is now showing a surplus. Over the decisions on some very interesting projects were post- COMBINED MANAGEMENT REPORT 39 Trend by Segment
poned due to the political situation in the region. As a result, subsidiary in Ghana was able to increase its revenues revenues and earnings were significantly below the planned year-on-year; it also improved its result. targets. We are expecting new projects and better capacity utilization for the current year. Americas Our subsidiary, which produces and sells well construction The subsidiary in the United Arab Emirates is active above materials in Chile, suffered from weak demand from the all in the environmental sector. It developed pleasingly and mining sector. Revenues were down on the previous year, is handling an increased number of projects for the oil and and the result was slightly negative. gas industries. Revenues were up on the previous year. In Saudi-Arabia, activities are still at the beginning, but this Activities in Peru were terminated and the subsidiaries in market does offer good opportunities. Drilling activities in Canada closed. Australia have been brought to a close. Reorganization The operative business of BAUER Nimr LLC in Oman The reorganization of the segment that was started in 2014 focused primarily on operation of the large-scale reed-bed entailed some fundamental changes. In future, we will treatment plant which processes water contaminated with pursue the strategy of concentrating even more on core oil for the local oil company. Following an expansion last competences at the same time as focusing on the greatest year, 115,000 m3 of water is being purified there every day. potential markets. This goes hand-in-hand with a consolida- At the end of 2014, 21 percent of the shares in the BAUER tion and cessation of some businesses and subsidiaries. Nimr LLC subsidiary in Oman were sold. This led to a high The restructured regional sales organization – supported by one-off income for the Resources segment in the Group's competence centers described above – is intended to push consolidated financial statements. ahead with this strategy rapidly.
Africa By the time the reorganization is finished, Resources The mining markets have been weak for quite a long time, should have become a full-service provider focusing on and there has been little demand for exploration work; environmental technology, water and natural resources for as a result of this, 2014 was unsatisfactory for our drilling industrial customers, predominantly from the oil, gas and companies. A slight upturn only became apparent at the mining industries. end of the year. In Africa, as a result, our activities were restructured and a new strategy was initiated for operating Outlook in the markets. The extensive reorganization of the segment will continue until the end of 2015. We are expecting the situation to In Morocco, our subsidiary has specialized in undertaking improve for our drilling companies during the current year. irrigation projects which allowed it to improve its revenues We continue to see significant opportunities in the environ- year-on-year. Further opportunities are apparent in this area. mental field, as well as in water treatment. For 2015, we are Earnings failed to meet expectations. assuming that revenues will be well above the level of the previous year. The absence of the one-off income for 2014 In South Africa, revenues were significantly down on the deriving from the sale of shares as well as charges incurred previous year, and earnings were negative as a result. In during the reorganization mean that the EBIT should be future, activities in Senegal will be looked after from Ghana. slightly in the positive area, whereas it is currently expected As a result of favorable orders at the end of the year, our that the profit after tax will be slightly negative. COMBINED MANAGEMENT REPORT 40 Trend by Segment
OTHER/CONSOLIDATION SEGMENTS
The Other and Consolidation segments bundle the revenues profit for the period of EUR 4.9 million (previous year: and earnings of the Group which cannot be allocated to the EUR 6.0 million) includes EUR 1.6 million comprising the operating segments. The Other segment essentially comprises net profit of BAUER AG disregarding the aforementioned the revenues of the parent company BAUER AG itself, payments. The segment’s revenues are especially generated generated from a wide variety of administrative services by intra-Group charges. provided to Group subsidiaries. The Consolidation segment reflects the consolidation The Other segment reports EBIT of EUR 3.3 million (pre- within the Group. The negative EBIT of EUR -4.8 million vious year: EUR 5.1 million). This includes EUR 5.0 million (previous year: EUR -4.5 million) largely matches the of dividend payments by Group subsidiaries to the parent EUR 5.0 million of dividend payments by Group sub- company. Part of the fine resulting from proceedings against sidiaries to BAUER AG. The net loss for the period was one of our companies has also been posted here. The net EUR -4.9 million (previous year: EUR -4.5 million).
> SPESA Spezialbau und Sanierung GmbH did remediation work on a ski jump in Oberhof in Thuringia for the first time. To secure the slope of the main jump against sliding, a shotcrete plate was installed at an inclination of approximately 37 degrees and deep-anchored with 36 soil nails. COMBINED MANAGEMENT REPORT 41 Trend by Segment
Breakdown of total Group revenues across the companies of the BAUER Group Shareholdings < 50 % are listed with their revenue share in EUR million 2013 * 2014 BAUER Spezialtiefbau GmbH - Group BAUER Spezialtiefbau GmbH, Schrobenhausen, Germany (BST) 186.7 232.1 Wöhr + Bauer GmbH, Munich, Germany (33 % share) – (sub-group consolidated financial statements) 17.5 14.5 BAUER Funderingstechniek B.V., Mijdrecht, Netherlands 4.8 4.7 BAUER Technologies Limited, Bishops Stortford, UK 43.2 2.6 BAUER Spezialtiefbau Schweiz AG, Baden-Dättwil, Switzerland 15.2 28.6 TERRABAUER, S.L., Madrid, Spain (30 % share) 1.0 0.4 BAUER Magyarország Speciális Mélyépítö Kft., Budapest, Hungary 6.0 7.7 BAUER ROMANIA S.R.L., Bucarest, Rumania 1.9 2.1 BAUER BULGARIA EOOD, Sofia, Bulgaria 1.8 4.5 BAUER SPEZIALTIEFBAU Gesellschaft m.b.H., Vienna, Austria 15.0 14.4 OOO BAUER Technologie, Moscow, Russian Federation 36.7 31.3 BAUER EGYPT S.A.E. Specialised Foundation Contractors, Cairo, Egypt 20.8 22.9 BAUER LEBANON FOUNDATION SPECIALIST S.a.r.l., Beirut, Lebanon 11.3 16.5 BAUER Georgia Foundation Specialists LCC, Batumi, Georgia 3.0 3.3 BAUER International FZE, Dubai, United Arab Emirates 35.5 37.0 BAUER Geotechnical Specialized Foundation LLC, Abu Dhabi, United Arab Emirates 8.3 20.7 BAUER International Qatar LLC, Doha, Qatar 8.0 13.8 Saudi BAUER Foundation Contractors Ltd., Jeddah, Saudi Arabia 25.3 10.8 BAUER (MALAYSIA) SDN. BHD., Petaling Jaya, Malaysia - (sub-group consolidated financial statements) 95.4 84.7 BAUER Hong Kong Limited, Hong Kong, People’s Republic of China 41.6 45.3 BAUER Vietnam Ltd., Ho Chi Minh City, Vietnam 3.1 2.9 BAUER Foundations Philippines, Inc., Quezon City, Philippines 15.9 10.2 P.T. BAUER Pratama Indonesia, Jakarta, Indonesia 26.0 30.2 Thai BAUER Co. Ltd., Bangkok, Thailand 17.6 21.2 BAUER Foundation Australia Pty Ltd., Brisbane, Australia 13.8 6.7 BAUER FOUNDATION CORP., Odessa, Florida, USA 48.9 42.2 BAUER Foundations Canada Inc., Calgary, Canada 19.1 9.1 BAUER FUNDACIONES PANAMÁ S.A., Panama City, Panama 11.9 11.7 Other BST shareholdings 16.3 17.2 Joint ventures, Germany - (BST share only) 6.4 2.0 Intra-Group sales -84.3 -93.9 BST Group total 673.7 657.4 SCHACHTBAU NORDHAUSEN GmbH - Group SCHACHTBAU NORDHAUSEN GmbH, Nordhausen, Germany (SBN) 102.1 107.3 SBN participations 30.1 33.8 Joint ventures SCHACHTBAU NORDHAUSEN GmbH - (SBN share only) 1.7 0.0 SPESA Spezialbau und Sanierung GmbH, Schrobenhausen, Germany 17.0 14.2 Joint ventures SPESA - (SPESA share only) 5.1 6.7 Intra-Group sales -61.3 -59.0 SBN Group total 94.7 103.0 BAUER Maschinen GmbH - Group BAUER Maschinen GmbH, Schrobenhausen, Germany (BMA) 391.7 383.3 KLEMM Bohrtechnik GmbH, Drolshagen, Germany 39.9 42.9 EURODRILL GmbH, Drolshagen, Germany 13.1 12.4 RTG Rammtechnik GmbH, Schrobenhausen, Germany 28.4 26.4
Compared to the breakdown of total Group revenues by segment, in the breakdown of total Group revenues by company the total of the individual groups is shown after consolidation.
* Previous year adjusted; see notes on page 106
COMBINED MANAGEMENT REPORT 43 Trend by Segment
Continued: Breakdown of total Group revenues across the companies of the BAUER Group Shareholdings < 50 % are listed with their revenue share
in EUR million 2013 * 2014 BAUER Maschinen GmbH - Group MAT Mischanlagentechnik GmbH, Immenstadt, Germany 12.3 11.8 PRAKLA Bohrtechnik GmbH, Peine, Germany 27.9 13.0 Olbersdorfer Guß GmbH, Olbersdorf, Germany 7.4 7.9 SPANTEC Spann- & Ankertechnik GmbH, Schrobenhausen, Germany 18.5 21.5 BAUER Deep Drilling GmbH, Schrobenhausen, Germany 0.0 1.3 TracMec Srl, Mordano, Italy 12.1 11.4 BAUER EQUIPMENT UK LIMITED Rotherham, UK 7.9 7.4 BAUER Macchine Italia Srl, Mordano, Italy 8.3 13.1 OOO BAUER Maschinen Russland, Moscow, Russian Federation 15.5 7.8 OOO BAUER Maschinen - Kurgan, Kurgan, Russian Federation 7.8 5.6 OOO BG-TOOLS-MSI, Lyubertsy, Russian Federation 2.9 1.6 BAUER Equipment Gulf FZE, Dubai, United Arab Emirates 5.5 8.4 BAUER Casings Makina Sanayi ve Ticaret Limited Sirketi, Ankara, Turkey 5.5 3.9 BAUER-DE WET EQUIPMENT (PROPRIETARY) LIMITED, Rasesa, Botswana 2.6 2.1 BAUER Technologies Far East Pte. Ltd., Singapore, Singapore - (sub-group consolidated financial statements) 120.9 152.9 NIPPON BAUER Y.K., Tokyo, Japan 7.9 7.3 BAUER-Pileco Inc., Conroe, Texas, United States of America 68.9 76.3 BAUER Manufacturing Inc., Conroe, United States of America 22.9 22.2 Other BMA participations 17.1 11.5 Intra-Group sales -229.2 -220.5 BMA Group total 615.8 631.5 BAUER Resources GmbH - Group BAUER Resources GmbH, Schrobenhausen, Germany (BRE) 9.6 29.6 GWE pumpenboese GmbH, Peine, Germany 51.0 56.0 GWE Prakla Services GmbH - merged with GWE pumpenboese GmbH 2.2 0,0 BAUER Umwelt GmbH, Schrobenhausen, Germany (BMU) 42.7 54.8 BAUER Water GmbH, Dunningen, Germany 13.5 13.5 Esau & Hueber GmbH, Schrobenhausen, Germany 11.5 15.4 BAUER Foralith GmbH, Schrobenhausen, Germany 5.9 5.1 GWE POL-Bud Sp.z.o.o, Lodz, Poland 2.9 3.1 FORALITH Drilling Support AG, St. Gallen, Switzerland 2.9 5.1 BAUER Ambiente S.r.l., Milan, Italy 1.4 1.4 GWE Budafilter Kft., Mezöfalva, Hungary 3.1 3.2 BAUER Resources GmbH / Jordan Ltd. Co., Amman, Jordan - (sub-group consolidated financial statements) 20.7 29.9 BAUER Nimr LLC, Maskat-Al Mina, Sultanate of Oman 11.8 17.4 BAUER Emirates Environment Technologies & Services LLC, Abu Dhabi, United Arab Emirates 3.3 4.8 BAUER Technologies South Africa (PTY) Ltd., Johannesburg, South Africa - 4.2 2.4 (sub-group consolidated financial statements) BAUER RESOURCES GHANA LIMITED, Accra, Ghana 1.4 2.5 GWE Tubomin S.A., City of Santiago, Chile 3.5 3.3 BAUER Resources Canada Ltd., Edmonton, Canada - (sub-group financial statements) 3.1 1.2 Other participations of BRE 8.1 7.3 Joint ventures BAUER Umwelt GmbH - (BMU share only) 0.0 4.6 Intra-Group sales -27.9 -34.9 BRE Group total 174.9 225.7 BAUER Aktiengesellschaft, Schrobenhausen, Germany (BAG) 37.0 37.1 Other participations of BAG 2.3 2.3 Intra-Group sales -94.2 -96.8 GROUP TOTAL 1,504.2 1,560.2
* Previous year adjusted; see notes on page 106
The Magdeburg Waterway Construction Authority is conducting remediation work on the Zerben lock on the Mittelland Canal. Since March 2013, Bauer has carried out 10,000 m² of diaphragm wall, 20,000 m² of sheet pile walls, 930 buoyancy piles and 505 ground anchors as part of a joint venture. The work was concluded in November 2014.
COMBINED MANAGEMENT REPORT 45 Earnings, fi nancial and net asset position
IV. EARNINGS, FINANCIAL AND NET ASSET POSITION
Orders in hand/orders received by segment in EUR '000 2013 2014 Backlog of orders in hand in months in relation to total In hand Received In hand Received Group revenues 2014 Construction 498,701 727,287 450,940 665,244 7.6 Equipment 116,525 632,053 158,720 693,967 2.9 Resources 150,020 180,054 153,027 255,837 7.3
Intra-Group revenues and IFRS adjustments 0 -54,915 0 -57,387 ---
Total 765,246 1,484,479 762,687 1,557,661 5.9
TREND IN ORDERS Orders in hand in the international specialist foundation At the end of 2014, the BAUER Group held orders in hand engineering business fell by 24.8 percent to EUR 271.0 totaling EUR 762.7 million, which is approximately at the million owing to the completion of large-scale projects. The previous year’s level of EUR 765.2 million. On the whole, foundations of the bridge between Hong Kong and Macau, orders in hand remain at a good level overall but some and further work on the building complexes adjoining what events in 2014 have also had a negative effect on this. There will soon be Europe’s tallest building, the Lakhta Tower in would have been more orders in hand by the end of the year St. Petersburg, Russia, have been completed successfully. had it not been for the crisis involving Russia and Ukraine, The diaphragm walling works on the Center Hill dam in uncertainties in Iraq resulting from the Islamic State terror the USA will be completed in the second quarter of 2015. organization and the drop in the oil price. A major diaphragm walling project on Mauritius has reached a very advanced stage, and it will be possible to complete The Construction segment had orders of big projects on it towards the middle of 2015. A particularly positive aspect its books last year. These have now been finished. Conse- is the situation of our subsidiary in Egypt which, despite quently, orders in hand declined significantly by 9.6 percent the difficult situation in the country, has been able to attract from EUR 498.7 million to EUR 450.9 million. In 2014, there some very interesting, large-scale projects, enabling us to were hardly any major orders on the market, whereas many predict an increase in its revenues. small and medium projects were picked up in all regions of the world. The homogeneous regional distribution over the The Construction and Environmental Technology divisions of world is positive, and so this represents a good basis for SCHACHTBAU NORDHAUSEN GmbH have orders in hand reaching the objectives for 2015. totaling EUR 47.5 million, 10.5 percent up on the previous year’s level. Business operations are currently benefiting from In Germany, specialist foundation engineering business the generally favorable development in the construction market has experienced a significant decline in its orders in hand in Germany. following processing of the major project for the bypass rail link between Hanau and Nantenbach. At present, there are Orders in hand in the Equipment segment of EUR 158.7 mil- hardly any major projects on the market even in Germany. lion are 36.2 percent up on the previous year’s level of EUR Nevertheless, the overall environment continues to be 116.5 million. BAUER Maschinen GmbH itself produces and positive, as a result of which it has been possible to occupy sells large machines, and delivered a large proportion of its capacity with a large number of small and medium projects. orders by the end of the year; orders in hand fell from EUR Total orders in hand in this area have fallen by 34.5 percent 50.1 million to EUR 37.2 million in consequence of this. The to EUR 62.2 million. business remains very short-term in nature. The majority of
Our customer Bachy Soletanche sunk piles with a diameter of 1,050 mm to a depth of over 20 m using a BG 46 in double-head mode for the Puddington Mill London train station. COMBINED MANAGEMENT REPORT 46 Earnings, fi nancial and net asset position
machines are delivered within one month of being ordered. With regard to the Group as a whole, orders in hand are in As a result, it is necessary to keep a stock of machines line with our forecast for slight growth in the current year. available, so as to meet customers’ expectations for rapid delivery. GROUP EARNINGS POSITION The Group earnings position in 2014 was influenced by However, the subsidiaries in the segment recorded significant contradictory developments compared to the previous year. growth. BAUER Deep Drilling GmbH sells deep drilling rigs Our construction subsidiary, BAUER Foundation Corp. in the and succeeded in growing its orders in hand by EUR 53.7 mil- USA, recorded significant losses amounting to EUR 19.0 mil- lion thanks to orders received in December. It is very pleasing lion. These arose from the major Center Hill dam project that we have managed to make a significant breakthrough and due to the lack of capacity utilization, because that here. In spite of turbulence in the oil markets, we are assuming project meant it was not possible to process sufficient other that we will be able to build on this success in coming years. orders. Furthermore, weak order levels in the UK as well as Overall, the many efforts by our company to improve and inadequate utilization of our drilling capacity in the Resources specialize products and services are being welcomed by our segment – especially in Jordan – negatively influenced the customers, so we are confident of achieving the necessary earnings position. Furthermore, our worldwide activities were order intake for the current year. burdened by restructuring measures in many areas. How- ever, there were also many positive developments, especially In the Resources segment, orders in hand increased the construction business in Germany, Russia, the United slightly, by 2.0 percent, from EUR 150.0 million to EUR Arab Emirates, Saudi Arabia, Indonesia and Thailand. In the 153.0 million. Of that total, a significant proportion – worth Equipment segment, we were able to achieve better margins EUR 40.9 million – was held by the Mining division of once again due to increased sales of large and special rigs. SCHACHTBAU NORDHAUSEN GmbH. We have interesting The Environment area was also highly positive. projects, in both Kazakhstan and Germany, which can provide us with work for years to come. Overall, the positive overall result could only be posted because we compensated for special losses during the The orders in hand of the BAUER Resources Group itself year by means of a one-off income item amounting to EUR have increased by 7.3 percent to EUR 112.1 million. In 36.5 million. The one-off income item was derived from the Environmental Technology, in particular, our levels of orders sale of 21 percent of the shares in our subsidiary in Oman. in hand are very healthy. We are still involved in our large- As a result of the sale, our holding fell to 49 percent; this scale project of operating the reed-bed treatment plant in triggered de-consolidation and the investment therefore had Oman, and it will provide us with plenty of work for years to to be posted at the year end at-equity in relation to the fair come. Our capacities are also being well utilized in Germany. value. The company had undergone excellent development Conversely, the well-engineering materials business is very in recent years, and its future prospects are very bright. short-term in nature, so there are never high levels of orders The reduction to a 49 percent shareholding is a sensible in hand. We expect these levels to remain consistent. The measure, because majority locally owned companies in exploration and mining business for our customers remains Oman have better chances of winning orders. problematic in many different countries around the world. Mine operators are faced with economic problems, as a As a result of the one-off income item, it was possible to im- result of which very few contracts are being awarded. That prove the results figures compared to 2013. In consequence, business accounts for only a very small proportion of our the net profit for the period increased compared to the total revenues however. Major projects are continually arising previous year from EUR -19.4 million to EUR 15.7 million. around the world for the Resources segment to target. We therefore remain convinced that this business especially will EBIT increased from EUR 30.1 million to EUR 76.4 million. continue to provide us with interesting opportunities in future. EBITDA increased by 37.9 percent from EUR 124.0 million COMBINED MANAGEMENT REPORT 47 Earnings, fi nancial and net asset position
to EUR 171.0 million, representing 11.4 percent (previous Other income rose very significantly against the previous year: 8.6 percent) of consolidated revenues. year, from EUR 30.6 million to EUR 89.0 million. The main change in other income is due to the overall effect of selling The pre-tax return on equity as the ratio of pre-tax profit 21 percent of the shares in BAUER Nimr LLC amounting to to shareholders’ equity (equity at the start of the period) EUR 36.5 million and the associated fair-value reporting of improved against the previous year from -1.3 percent to the remaining shares. Other key changes to this item related 9.0 percent. The return on equity after tax was 3.7 percent to realized and unrealized foreign currency gains as well as (previous year: -4.2 percent). The return on sales after tax gains from foreign exchange forward contracts, which overall (relative to the consolidated income statement revenues) increased by EUR 23.1 million to EUR 34.6 million compared improved from -1.3 percent to 1.0 percent year-on-year. to the previous year. Realized and unrealized foreign We expect to be able to improve our returns further in the currency gains and losses as well as gains and losses from coming years. foreign exchange forward contracts result from our currency hedge management activities. Fluctuations in hedged and There have been substantial changes to some income unhedged currencies can cause the corresponding income statement items in the year under review. This is largely a statement items to vary widely over the years depending on consequence of the negative result in the previous year and trends. The unbalanced statement of exchange rate shifts the special influences in the financial year. results from the situation that exchange rate hedging cannot always be set exactly against the underlying transactions, The individual income statement items are summarized in even though in operational reality they are aligned as closely the following. as possible to each other. The Group’s objective is to under- take exchange rate hedging which rules out the possibility Consolidated revenues rose by 4.0 percent against the of foreign currency gains or losses as far as possible. The previous year (EUR 1,447.5 million) to EUR 1,506.0 million. countering item in an amount of EUR 29.8 million (realized This includes a sale and consolidation income from the at- and unrealized foreign currency losses and losses from equity balancing of BAUER Nimr LLC in Oman with EUR 36.5 foreign exchange forward contracts) is entered under “Other million. Without this special effect, consolidated revenues operating expenses”. The difference between the gains and would have grown by 1.5 percent. losses shows that we experienced overall foreign currency gains of EUR 4.8 million in the year under review. The Sales revenues were down slightly by 1.9 percent considerable fluctuations in exchange rates towards the end compared to the previous year (EUR 1,402.2 million) at of the year were the main cause of this positive result. The EUR 1,375.7 million. other major items under “Other income” are income from insurance refunds (EUR 1.8 million), book profits on asset The other capitalized goods and services for own disposals (EUR 5.4 million) and other operating income account item decreased by 23.4 percent from EUR distributed amongst the companies. 19.2 million to EUR 14.7 million. The reduction is due to our restrained investment policy in 2014.
Trend in total Group revenues by quarter in EUR million Q1 2014 Q2 2014 Q3 2014 Q4 2014 Full year 2014 BAUER Group 378.076 371.139 413.948 397.057 1,560.220 Construction 176.504 174.944 181.805 179.752 713.005 Equipment 165.806 155.534 186.148 144.284 651.772 Resources 48.409 52.547 59.615 92.259 252.830 Other/Consolidation -12.643 -11.886 -13.620 -19.238 -57.387 COMBINED MANAGEMENT REPORT 48 Earnings, fi nancial and net asset position
Costs of materials hardly changed during the year under described under “Other income”, which contributed to an review at EUR 749.2 million. Costs of materials on projects increase in the item at EUR 8.6 million. in the Construction segment vary widely, so comparisons between individual years are only possible to a very limited Financial income fell by 8.2 percent from EUR 7.7 million extent. to EUR 7.1 million. Financial expenses fell by 0.9 percent from EUR 45.5 million to EUR 45.1 million. The slightly higher Personnel expenses increased by 3.6 percent to EUR conditions from the syndicated loan concluded in April 2014 355.3 million – a slightly lower rate than the consolidated were able to be compensated by slightly lower utilization of revenues. The rise is largely explained by higher personnel the other lines during the course of the year, as well as by expenses for our major projects in Hong Kong, the USA and some interest rate reductions. Switzerland. The share of the profit or loss of associated companies The decline in depreciation of fixed assets by 1.2 percent accounted for using the equity method is EUR 2.3 mil- to EUR 78.8 million is due to the absence of write-downs of lion below the previous year at EUR -0.6 million, largely due goodwill and a slight increase in write-downs of development to a write-down of the investment in Spain (EUR -2.3 million). costs and properties and buildings. Income tax expense of EUR 22.1 million was EUR 8.6 mil- Write-downs of inventories due to use reflect the use of lion above the previous year’s level. The main reason for rental equipment made available to our customers. This equip- the significant rise is a consequence of the loss incurred on ment does not form part of the fixed assets, but is recognized the Center Hill dam project in the USA. In this case, it was under inventories. The reason for this approach is that most of not possible to report corresponding deferred tax assets, this equipment remains within the company only for a relatively because from the current perspective there is no reason to short time. The aim of the rental operation is to subsequently expect that the loss can be compensated within a reason- sell the equipment under a rental-purchase agreement. As able period of time by profits earned locally. Negative result the equipment has to be financed correspondingly on the contributions from subsidiaries in individual countries only Equity and Liabilities side of the balance sheet, its depreciation have the effect of reducing the tax burden on the Group if forms part of the company’s EBITDA. As a consequence of it has been possible to establish deferred tax assets on the the changes in the market following the financial crisis, our basis of positive tax-related earnings planning. In future, we customers are increasingly entering into these rental transac- once again expect an income tax burden of between 30 and tions. The write-downs due to use increased by 11.2 percent 40 percent. to EUR 15.8 million during the year under review. The non-controlling interests in profit/loss item was EUR Other operating expenses rose by 2.5 percent to EUR 1.2 million (previous year: EUR -2.5 million). The companies in 230.5 million. The many individual components of this item Oman and Egypt contributed significantly. develop in very different ways depending on the course of business and the mix of the order portfolio. This item The profit attributable to BAUER AG shareholders was includes the realized and unrealized foreign currency losses EUR 14.5 million.
EBIT trend by quarter
in EUR million Q1 2014 Q2 2014 Q3 2014 Q4 2014 Full year 2014 BAUER Group 4.919 8.684 24.689 38.134 76.426 Construction 1.418 6.000 12.900 4.750 25.068 Equipment 5.647 7.527 12.720 11.023 36.917 Resources -2.118 -1.163 -2.378 21.591 15.932 Other/Consolidation -0.028 -3.680 1.447 0.770 -1.491 COMBINED MANAGEMENT REPORT 49 Earnings, fi nancial and net asset position
GROUP FINANCIAL AND NET ASSET POSITION require financing across the Group’s many construction With consolidated revenues up 4.0 percent on the previous sites corresponding to roughly three months’ sales of year, the Group’s net assets fell 0.7 percent from EUR the Construction segment. So we are always billing after 1,585.8 million to EUR 1,575.1 million. The equity ratio of carrying out the works. Moreover, we also have to finance 26.6 percent was slightly up on the previous year (25.5 per- retentions of payment as safety. cent). The loss in 2013 meant that the equity ratio fell below 30 percent in the previous year. The significant effects from The situation in the Equipment segment is similar. Produc- the interest-related increase in defined benefit plans impacted tion lead times for our specialist machinery are around equity and meant we were unable to increase our equity 12 months. Since customers usually only order equipment ratio further in 2014. We are aiming to achieve a value in once they have an actual contract to fulfil, and so expect excess of 30 percent in coming years. All investment and short delivery lead times from us, we are forced to hold growth plans of the business are aligned to this target. stocks of finished machinery. And since we also offer a very wide product range – as is likewise demanded by the The net debt of our business decreased by 3.9 percent in market – our financing needs are increased correspondingly. the year under review. In the coming years, we will continue The working capital also covers the machines we rent out to work intensively on reducing net debt in relation to net to customers, or which are only bought by customers after assets. We must stress, however, that in view of the nature a certain rental period based on a rental-purchase agree- of our business and the current economic climate, that ment. With worldwide inventories now extending to several is only possible to a certain extent. The reasons for the thousand Bauer machines, many of our locations have to considerable rise over recent years following the financial hold considerable stocks of spare parts in order to provide crisis are detailed below: customers with the necessary service backup.
The level of net debt within the Group depends essentially Nevertheless, we judge that the working capital of the on the working capital, as the intangible assets as well BAUER Group is currently too high in relation to our busi- as the property, plant and equipment and the investment ness volumes. Our levels of inventories, finished goods and property are very largely covered by the shareholders’ receivables have increased beyond the normal bounds. equity and defined benefit plans. The working capital This is not good, but on the other hand is explainable, of our businesses is inevitably relatively high due to the because we are aware of the reasons why it is so: they nature of our business model and the special market in reflect market trends as well as a number of special effects. which we operate. Our construction projects run for only Furthermore, substantial amounts are imposing a burden, comparatively short periods of time. As opposed to build- as claims in respect of supplementary work on completed ing construction contractors, who work on longer-running international construction projects are having to be asserted projects, we only sometimes receive advance payments for by legal action. Even though the amounts are recognized the construction project in question to generate a positive with due commercial caution in the accounts, they are cash flow over the term of the project. Short-running nevertheless imposing a burden in terms of the indebted- construction contracts – such as we mostly carry out – ness of the business.
Exchange rate trend 2014
1 EUR corresponds to Average rate Q1 2014 Q2 2014 Q3 2014 Q4 2014 Average rate 2013 2014
USD 1.3301 1.3782 1.3692 1.2632 1.2166 1.3219 GBP 0.8497 0.8266 0.8008 0.7792 0.7818 0.8028 RUB 42.5912 48.4270 46.5654 50.0110 67.5895 51.5000 CNY 8.1686 8.5735 8.4918 7.7596 7.5550 8.1575 COMBINED MANAGEMENT REPORT 50 Earnings, fi nancial and net asset position
We are aware that the Group’s higher financing requirements On the Assets side: place greater weight on the question of our in-house financing • Intangible assets declined by EUR 0.9 million. At the capabilities. Following the loss made in 2013, the equity ratio same time, concessions and industrial property rights fell has fallen too low, so it will have to be increased again in the by EUR 0.9 million. years ahead. It would be much higher if the hidden reserves were included. Since changing over to IFRS we have used • Land, land rights and buildings declined by EUR the historical cost model to value land and buildings. With a 5.0 million to EUR 206.6 million. Only small building carrying amount for the land and buildings of EUR 206.6 million, projects were undertaken during the financial year. In there is a considerable reserve here. the USA, the premises of BAUER-Pileco Inc. were sold and the company relocated to the works of BAUER The net debt to EBITDA and EBITDA to net interest coverage Manufacturing Inc. in Conroe near Houston. A hall and an ratios agreed with lenders as covenants have worsened office were set up there for this purpose. since the financial crisis, and especially as a result of the loss made in the 2013 financial year. In 2014, it was possible to • Payments on account and assets in course of move the net debt to EBITDA ratio to an acceptable level construction increased by EUR 2.9 million. The increase at 3.78, representing a significant improvement compared should be seen in connection with the land, land rights to the previous year (5.42). The two other agreed covenant and buildings item, because some of the structures had ratios – EBITDA to net interest coverage and equity ratio – not been finished at the year-end. are adequately within the agreed thresholds. The Group has entered into covenants in respect of a number of long-term • Technical equipment and machinery decreased loans, which were valued as per the 2014 year-end at EUR by EUR 8.3 million to EUR 206.2 million. This is a 156.0 million. The covenants on them stipulate net debt to consequence of the cautious investment strategy we are EBITDA ratio thresholds between 4.0 and 5.0. currently pursuing. Basically, however, the shift in demand on international construction markets means that our Covenants trend construction works require increasingly large machinery
2013 2014 and equipment. Consequently, small equipment is Net debt/EBITDA 5.42 3.78 increasingly being replaced by much larger machinery, EBITDA/net interest coverage 3.28 4.49 leading to a general increase in fixed assets. They were Equity ratio in % 26.5 26.6 nevertheless reduced in the past financial year.
In April 2014, we agreed a three-year syndicated loan with a • Other equipment, factory and office equipment consortium of the company's main banks providing a EUR decreased by EUR 2.2 million to EUR 25.1 million. 450 million credit facility. This also includes threshold values for the net debt to EBITDA and the EBITDA to net interest Property, plant and equipment and investment coverage ratios and for the equity ratio. This provided the property were reduced overall by EUR 12.6 million to firm a new financing structure which will form the basis for EUR 446.9 million. planning going forward. The syndicated loan also replaced loans affected by the breaking of covenants in the previous • Investments accounted for using the equity method year. The new financing structure imposes slightly higher increased by EUR 29.7 million to EUR 42.9 million. The financing costs on the Group. main changes involved the increase in investments in joint ventures by EUR 0.9 million, the write-down on a With regard to the individual items on the balance sheet, the Spanish investment amounting to EUR 2.3 million and the following material changes should be noted: new at-equity balancing of BAUER Nimr LLC in Oman at EUR 31.1 million. COMBINED MANAGEMENT REPORT 51 Earnings, fi nancial and net asset position
Assets Equity and liabilities
Non-current assets Shareholders’ equity EUR 594.8 million (37.8 %) EUR 418.9 million (26.6 %) (2013: EUR 587.8 million (37.1 %)) (2013: EUR 419.8 million (26.5 %))
Current assets Non-current liabilities EUR 938.5 million (59.6 %) EUR 523.3 million (33.2 %) (2013: EUR 940.8 million (59.3 %)) (2013: EUR 382.5 million (24.1 %))
Liquid funds Current liabilities EUR 41.8 million (2.6 %) EUR 632.9 million (40.2 %) (2013: EUR 57.2 million (3.6 %)) (2013: EUR 783.5 million (49.4 %))
EUR 1,575.1 million EUR 1,575.1 million
• Deferred tax assets increased by EUR 4.7 million to segment, due among other factors to a somewhat weaker EUR 31.0 million. The greatest change in this context year-end business in the Equipment segment. However, arose from the interest-related revaluation of defined we will continue to work diligently on reducing this item. benefit plans, leading to additional deferred tax assets amounting to EUR 9.0 million. • Receivables from construction contracts (PoC) de- creased by EUR 11.0 million to EUR 132.2 million. Changes • Receivables from concession arrangements have in this item result from the percentage of completion of our been omitted due to the explained sale of shares in projects at the year-end closing date. BAUER Nimr LLC as at 31 December 2014. • Trade receivables increased by EUR 8.9 million to • Other non-current financial assets increased by EUR EUR 311.4 million. 23.0 million to EUR 28.4 million. The main change here concerns a loan by BAUER Resources GmbH to BAUER • Other current assets decreased by EUR 2.1 million to Nimr LLC amounting to EUR 9.4 million for financing the EUR 28.6 million. water treatment plant in Oman as well as the outstanding purchase price receivable from the sale of the shares in • Other current financial assets increased by EUR BAUER Nimr LLC amounting to EUR 13.3 million. 0.5 million to EUR 20.1 million.
• Raw materials and supplies increased 5.9 percent • Cash and cash equivalents decreased by EUR 15.4 mil- compared to the previous year, by EUR 8.7 million to lion to EUR 41.8 million. Attempts are made to minimize EUR 155.3 million. Around 40 percent of this item relates this figure at the year-end by appropriate liquidity manage- to the Construction and Resources segments. ment.
• Work in progress and finished goods and merchan- In assessing the Assets side of the consolidated balance dise increased 4.1 percent from EUR 272.7 million to sheet, it is important to note that this is composed of a EUR 283.9 million. During the financial year, it was not Construction element (relating to the Construction and possible to reduce inventories further in the Equipment Resources segments) and an Equipment element (relating to COMBINED MANAGEMENT REPORT 52 Earnings, fi nancial and net asset position
machinery manufacturing operations). Some specific items netted against the associated deferred tax assets (EUR relate primarily to the Construction element, while others, in -23.2 million). contrast, relate to the Equipment element. The main items of such kinds are listed in the following: • Non-controlling interests decreased by EUR 3.2 million to EUR 19.6 million, chiefly due to the de-consolidation of • Within property, plant and equipment, well over two BAUER Nimr LLC. thirds of the land, land rights and buildings item relates to the Equipment segment. On the other hand, about three • The non-current portion of liabilities to banks in- quarters of the technical equipment and machinery item is creased from EUR 247.8 million to EUR 364.8 million. attributable to the Construction segment. The increase is largely due to drawings on the agreed syndicated loan. • Some 60 percent of the raw materials and supplies item is linked to the machinery manufacturing operations • Non-current defined benefit plans increased by EUR of the Equipment segment. 34.7 million to EUR 116.4 million. The increase is largely due to the lower discount rate, which is now 2.0 percent. • Some 90 percent of the work in progress and finished The annual injection from ongoing pension commitments goods and merchandise item relates to the Equipment only contributed to the increase to a small extent. Overall, segment, with a small percentage attributable to the this has a negative effect on the equity ratio. Construction and Resources segments. In the Equipment segment, it is essential to successful selling operations • Deferred tax liabilities decreased by EUR 1.8 million. to maintain stocks of rental equipment as part of current assets, so that customers can try out the machinery • The current portion of liabilities to banks declined before making their final purchasing decision. Equipment from EUR 427.6 million to EUR 266.5 million as a result can also be drawn from the pool to cover short-term of the increase in non-current financing and the lower capacity bottlenecks on construction sites. The machinery utilization of financing overall. Financing decreased in production at the balance sheet date also represents a by EUR 44.1 million overall in terms of current and very substantial capital tie-up. non-current liabilities to banks. Taking into account the decrease in the “Cash and cash equivalents” item (EUR • Receivables from construction contracts (PoC) are 15.4 million), the decrease was EUR 28.7 million. It was attributable to the Construction and Resources segments. possible to reduce indebtedness in spite of the difficult The trade receivables item is broken down according to market environment. the respective segments’ shares of total Group revenues. • Liabilities from construction contracts relate primarily These different weightings are barely relevant to inter-period to construction projects on which the payments received balance sheet comparisons when the rate of growth – either surpass the work carried out. They increased by EUR positive or negative – of the business areas is roughly the 15.6 million to EUR 48.5 million. same. • Trade payables decreased by EUR 25.5 million to EUR On the Equity and Liabilities side: 169.0 million. By this practice we are able to make use of • Shareholders’ equity decreased slightly by EUR all discounting opportunities. 0.9 million to EUR 418.9 million. Factors contributing to this change were the net profit for the period (EUR • Other current liabilities decreased by EUR 1.2 million to 15.7 million), currency fluctuations (EUR 10.5 million) and EUR 68.6 million. the interest-related adaptation in defined benefit plans COMBINED MANAGEMENT REPORT 53 Earnings, fi nancial and net asset position
• Other current financial liabilities increased by EUR • The decrease in trade receivables and in receivables 13.6 million to EUR 25.7 million. This is chiefly due to from construction contracts resulted in a release of funds liabilities from forward exchange transactions, an increas- totaling EUR 44.9 million in contrast to a capital tie-up of ing number of which were concluded at the year-end as a EUR 87.3 million in total in the previous year. result of currency fluctuations. • The increase in inventories impacted on operating cash The ratio of net assets to consolidated revenues decreased flow in the amount of EUR 37.3 million. from 109.6 percent to 104.6 percent. Cash flow from investment activities totaled EUR -47.5 mil- Net cash from operating activities shown in the cash flow lion, decreasing by EUR 19.7 million below last year’s figure, statement increased substantially from EUR 38.4 million to especially due to the reduced investment activity. EUR 115.4 million. The following factors contributed to this change: The outflow of funds from financing activities was EUR -86.9 million. The main factors influencing this were loan • Owing to the effects set out under “Earnings”, a pre-tax repayments amounting to EUR 237.8 million and interest profit of EUR 37.8 million was made compared to a loss of payments of EUR 43.0 as well as new indebtedness to EUR 6.0 million in the previous year. banks in the amount of EUR 202.3 million.
• Depreciation on fixed assets decreased slightly by EUR 0.9 million, and contributed EUR 78.8 million to the inflow of funds from ongoing business activity. COMBINED MANAGEMENT REPORT 54 Financial Statements of BAUER Aktiengesellschaft
V. FINANCIAL STATEMENTS OF BAUER AKTIENGESELLSCHAFT
The annual report combines the Group management report • The operating result improved by EUR 0.5 million to and the management report of BAUER AG as the parent EUR -0.2 million. company. Consequently, notes on the balance sheet and income statement of BAUER AG (acc. to German Commer- • The net profit for the year is EUR 5.9 million, EUR cial Code, HGB) are presented at this point. They changed 0.8 million up on the previous year. No dividend was paid materially in the following items in the past financial year in the 2014 financial year, as a result of which the net relative to the previous year. earnings available for distribution increased significantly from EUR 27.4 million to EUR 33.3 million. Main changes to the balance sheet: • Receivables and other assets increased by EUR The payment of dividends to shareholders is based on the 31.9 million. This is primarily down to the EUR 32.0 million net earnings of BAUER AG as the parent company, taking increase in receivables from affiliated companies, which into account the Group’s consolidated earnings. The divi- results from the issue of more loans to subsidiaries. dend policy of BAUER AG is one of continuity, meaning that in principle a dividend should be paid even in difficult years, • Shareholders’ equity increased from EUR 155.3 million where financially justifiable. As the Group’s holding company, to EUR 161.2 million. The reason for this was the net BAUER AG is dependent on the earnings of its subsidiaries, earnings available for distribution, being EUR 5.9 million and additionally provides financing to them. higher than in the previous year. Following a difficult financial year, the planned after-tax result • Liabilities increased from EUR 137.1 million to EUR in the Group could only be achieved by means of a one-off 161.9 million. The main factor responsible for this was the income. We believe it is appropriate to allow our sharehold- growth in liabilities to banks by EUR 43.5 million, which ers to participate in this, so we intend to pay a small dividend chiefly resulted from the new syndicated loan. On the again. At the same time, we are still intensively pursuing the other hand, liabilities to affiliated companies declined by objective of improving the equity ratio. The Management EUR 18.9 million. Board will therefore recommend to the Supervisory Board that it propose to the Annual General Meeting that a dividend Main changes to the income statement: of EUR 0.15 be paid to shareholders on the net earnings • Sales revenues, primarily related to charging of adminis- available for distribution totaling EUR 33,349,700.22. trative services to subsidiaries, decreased slightly by EUR An amount of EUR 30,780,050.22 should therefore be 0.5 million. On the other hand, other income increased carried forward. markedly by EUR 3.6 million, chiefly due to income from forward exchange transactions. As the Group’s holding company, BAUER AG receives earnings in particular from its subsidiaries. In 2015, dividend • Other operating expenses rose by EUR 2.9 million. payments from the subsidiaries will be somewhat lower Significantly higher expenses were incurred during the than in the year under review. The intention is to reduce the financial year in currency management. In addition, there burden on the subsidiaries’ capital base. For this reason, were special expenses as a result of the syndicated loan. the result in the financial statements for BAUER AG will be somewhat decreased. COMBINED MANAGEMENT REPORT 55 Sustainability
VI. SUSTAINABILITY
SUSTAINABILITY WITHIN THE BAUER GROUP of the holding companies have the main responsibility for the The BAUER Group has combined its most important action long-term development of the company as well as its direc- areas under the maxim “BAUER’s Triple A”. The slogan is tion with regard to quality, safety, health and environmental based on the highest grade given by rating agencies when protection. These topics are also discussed during monthly evaluating the strength of a company. It is used to reflect group meetings. the areas of utmost concern with the Group. The first of these is Health, Safety and Environment, which has grown At the meeting of the Corporate Social Responsibility (CSR) significantly in recent years through various measures and Committee, the Executive Board and representatives of should continue to be expanded. The second area is Quality Human Resources, HSE, Training and Corporate Commu- and Ethics. We want to offer our customers the highest nications departments of BAUER AG come together once a quality possible and treat our stakeholders with fairness. The year to discuss current developments and define actions and third A stands for performance thus the company’s financial goals. The annually published Sustainability Report, which success. The goal is to earn the highest grades – all A’s – since 2011 meets the requirements of the Global Reporting in each area. Initiative (GRI), provides in-depth information about these actions and goals.
EMPLOYEES Every single employee is extremely important in reaching the common goals of the BAUER Group. Thanks to their commitment and experience, in 2015 we can look back on Performance a successful history that spans 225 years. That’s precisely Health Safety why developing and supporting our staff is our top priority. Environment Employee-related data The actions areas defined under BAUER’s Triple A also The companies of the BAUER Group worldwide employed represent the core aspects of sustainability management. 10,405 people (previous year: 10,264) on average over the The Group Management Board and the Managing Directors year. They are broken down as follows:
Value added 2014 in EUR million Value added Other expenses Depreciation and amortization Cost of materials 439 231 95 749
Minority interests Public purse 1 22
Profit Share- Interest Employees (in the holders expenses 355 company) 2 45 14 COMBINED MANAGEMENT REPORT 56 Sustainability
Construction segment: 5,675 (previous year: 5,531) workforce of the companies in Germany decreased slightly. Equipment segment: 3,038 (previous year: 2,998) One of our key goals is to retain the loyalty of our core Resources segment: 1,400 (previous year: 1,449) permanent workforce, which we again succeeded in doing in BAUER AG and subsidiaries: 292 (previous year: 286) the past year.
The trend in workforce numbers within the Group was in line The workforce of the Resources segment was reduced with our expectations. Changes to subsidiaries’ workforce due to some restructuring measures, the reorganization and numbers were primarily recorded outside of Germany, linked as a result of weakness in the mining sector. The subsidiaries to international construction projects. Individual contracts in Jordan (35 employees) and South Africa (30 employees) often facilitate major changes. played a significant part in the reduction during the year under review. By the nature of its operations, the workforce of the Con- struction segment is subject to the greatest fluctuation Education dependent on the number of major projects being handled At Bauer, we care about inspiring young people to work in specific countries. Consequently, the biggest growth was for our company and maximize their potential. That’s why achieved by the subsidiaries in Egypt (124 employees), we offer a variety of opportunities for getting to know the Indonesia (104 employees) and the United Arab Emirates company better as a potential employer and gaining insight (44 employees). In some countries, such as Malaysia or into our business activities. In 2014, Bauer employed 248 Algeria, fewer people were employed in the year under apprentices in Germany. Most of them were learning to review than in the previous year owing to the weaker state become industrial mechanics, construction machinery of the market. The good overall level of orders in hand operators, or clerical staff. led to a slight increase in workforce in Construction, while the growth above all related to staff recruited for specific For higher education students, we offer dual-study courses projects. in engineering and information technology in cooperation with the Hochschule Ingolstadt technical college. Students Workforce numbers in the Equipment segment increased can also establish initial links with our business through only slightly. Most of the small rise was attributable to recruit- internships or by undertaking their Bachelor’s or Master’s ment of new staff at the production facilities in the Far East thesis with us. (17 employees) and Botswana (12 employees). In total, the
Employees by segment Employees by employment type
12,000 12,000
10,253 10,264 10,405 10,253 10,264 10,405 10,000 9,646 269 286 292 10,000 9,646 239 240 248 251 1,578 1,449 1,400 248 1,367 3,664 3,835 3,948 8,000 8,000 3,371 2,952 2,998 3,038 2,915 6,000 6,000
4,000 4,000 6,027 6,350 6,189 6,209 5,113 5,454 5,531 5,675 2,000 2,000
0 0 2011 2012 2013 2014 2011 2012 2013 2014
Construction Equipment Resources Others Industrial Salaried staff Apprentices COMBINED MANAGEMENT REPORT 57 Sustainability
Training and development personality and skills-based assessment. With this in mind, The BAUER Training Center GmbH is the Group’s in-house we work specifically to attract more young women and girls training facility, providing specially tailored courses both for to technical professions and promote their advancement in our own staff and for external target groups. Its extensive this area. program of seminars and courses in a wide variety of fields covers many different subjects. In 2014 the BAUER Training In 2014, approximately 11 percent of the Group’s workforce Center GmbH had a budget of around EUR 2.1 million were women – a figure which essentially reflects the techni- (previous year: EUR 2.3 million) for employee training and cal nature of our business and the small numbers of women development. Almost 2,717 in-house staff (previous year: who apply for such careers. 2,948) attended the seminars. A total of 475 (previous year: 599) internal and external seminars and external conferences CAPITAL INVESTMENTS were attended. In view of the general economic climate, we reduced our capital investments compared to previous years in 2014. We support our employees’ career development through a For the first time in years, they were once again below system of reviews, coaching sessions and various mentoring the level of amortizations. This was possible thanks to programs. We also conduct international training courses. extensive investments made in our plants over previous years. The pace of technological progress in our business Diversity has become faster, however, so it will only be possible to In 2014, the BAUER Group employed people from 76 dif- improve performance in the future by increasing invest- ferent nations. Our presence on worldwide markets has ments again. brought together people from a wide variety of cultures as part of our company. Our cooperation is characterized by For Equipment, our US plant in Conroe near Houston was mutual respect. Discrimination, particularly on grounds of expanded in 2014 to allow our subsidiary BAUER-Pileco Inc. religion, age, gender, race or sexual orientation, has no place to move there with all its activities in the areas of service, in our company. That’s why promoting diversity is an integral sales and spare parts supply. The old site in Houston was part of our corporate culture. sold, thereby allowing the new construction to be financed from the proceeds of the sale. Furthermore, the production We offer all our employees the same opportunities. In capacity for our anchor production in Edelshausen was both hiring and development, we place great emphasis on expanded in response to the urgent need for greater capac- ity as a result of very good development in the business. All further investments were chiefly channeled into modernizing Employees by region the equipment available to the production sites.
12,000 Investments in the Resources segment in 2014 were also 10,253 10,264 10,405 at a low level. A small hall was built in Schrobenhausen for 10,000 9,646 950 1,018 965 stainless steel production to be used in water treatment 924 542 612 586 478 8,000 and brewery systems. Further investments went into the 2,061 2,212 2,290 1,891 modernization of existing production systems. 6,000 1,658 1,869 1,584 1,601
4,000 630 726 762 752 Further investments were made in equipment, specifically in the Construction segment, in order to meet the market 2,000 4,065 4,090 4,144 4,158 demand for ever more powerful machinery to handle special- ist projects. We have for years now been seeing a trend 0 2011 2012 2013 2014 towards ever larger volumes in international infrastructure Germany Europe (other) Middle East & Central Asia projects, and we are increasingly needing ever larger Far East & Australia Americas Africa COMBINED MANAGEMENT REPORT 58 Sustainability
machinery to carry out the associated specialist foundation effects are derived with regard to their further development. engineering works. This demands higher levels of individual These central components include the hydraulics and drive investment, but also opens up new market opportunities for technology, electronics and machine software as well as us. gearboxes. Basic research work is also situated in the central development department. In financial 2014 the BAUER Group invested a total of EUR 72.7 million (previous year: EUR 103.4 million) in intangible Development work at the subsidiaries of BAUER Maschinen assets and property, plant and equipment. Depreciation of GmbH comes under the described system, in which case fixed assets across the Group totaled EUR 78.8 million each subsidiary is individually responsible for its specific (previous year: EUR 79.7 million). Write-downs of inventories product group. Our international production sites also have due to use Group-wide totaled EUR 15.8 million (previous development areas which concentrate on the needs of our year: EUR 14.2 million). customers locally, as well as on special machines that are manufactured in that location. A development office in India Additions to the property, plant and equipment assets of provides support for all development groups if required. BAUER AG in the 2014 financial year totaled EUR 2.3 million (previous year: EUR 3.5 million), against depreciation of EUR Our construction areas also have their own development 2.9 million (previous year: EUR 3.3 million). capacities. Specifically, BAUER Spezialtiefbau GmbH operates a department for construction technology which Ongoing capital investments were funded primarily by cash develops new methods and conducts fundamental research. and cash equivalents from business operations and from financing. In 2015 too, we will keep investments in balance With regard to research activities that might be of Group- with amortizations. wide importance, internal and external orders are placed for research work via the BAUER Forschungsgemeinschaft RESEARCH AND DEVELOPMENT (research community). This gives a chance for blue-skies The BAUER Group invested substantial sums in developing thinking to be investigated with regard to its practical new construction methods and machinery in financial 2014. applicability. Sometimes, this gives rise to outstanding new Key areas of focus were heavy-duty rotary drilling rigs, cranes techniques that help our companies to achieve technological for specialist foundation engineering applications, drilling tool advances. technology, small boring equipment in the field of anchoring and high-pressure injection, diaphragm wall technology, This type of overall organization for research and develop- deep drilling, underwater drilling, and measuring technology ment work has proven highly effective. Rapid decisions and for quality control purposes. Many electronic applications great flexibility allow all products to be kept at the cutting and techniques have been created or enhanced in order edge, while new ideas and market requirements can be to optimize on-site processes. implemented quickly.
Research and development work in the BAUER Group is There were some outstanding development projects in 2014 organized on a decentralized basis. In the companies that as well. For example, Deep Drilling developed a completely belong to BAUER Maschinen GmbH, there is a separate new deep drilling rig in the 375 metric ton class together with development area in each major product group which our client, Saxon Energy Services Inc. Two rigs were ordered concentrates entirely on the corresponding equipment such at the end of the year. Our underwater drilling machines for as rotary drilling rigs or cranes. The central development the foundations of wind turbines and underwater turbines department develops the technologies and components of also underwent intensive further development. Unfortunately, a machine that are used in several product groups. Thus, on we are still waiting for orders to be placed for equipment of the one hand, the greatest level of standardization amongst this kind because of sluggish development in the projects components is achieved, while on the other hand synergy in question. However, we are convinced that the significant COMBINED MANAGEMENT REPORT 59 Sustainability
advantages offered by our machines, particularly with regard variety of methods, and to produce modern materials for use to noise emissions and their ability to work under the influence in geotechnical applications. A state-of-the-art system of of powerful currents, mean they have excellent chances. innovation management is practiced with great intensity by all Group units. In the area of Premium and ValueLine drilling rigs, parts of the equipment range have been relaunched and a new uppercar- In the Equipment segment we invest a good 3.8 percent riage platform developed. Consistent modularization of the (including internal and project-related expenditure) of the products meant that significant advantages were achieved corresponding portion of total Group revenues in research with regard to production, scheduling and streamlined global and development. A staff of 183 people are involved in this spare parts stocking. field, as well as outside consulting engineers and interns. Research and development activities are routinely reviewed Insights gained from a research project bore fruit during the and maintained at a high level to keep pace with the ever previous year in an optional energy efficiency package for increasing rate of change in market demands. We are also our rotary drilling rigs which reached market readiness. This continuing to expand our development departments outside is highly appreciated by customers all over the world. of Germany, such as in India and China. This will enable us to benefit from the large numbers of highly trained engineers Further developments during the year concerned new well available on local labor markets. drilling rigs, components for deep drilling rigs, improvements to diaphragm wall machines, machines and processes Research and development expenditure in the Construction for soil remediation work with restricted overhead height, segment is 0.4 percent of total Group revenues, and in the improvements to the duty-cycle cranes to reduce noise levels Resources segment 0.8 percent. We invest further significant and a hydraulic hammer for ramming in piles with increased resources in the preparation and design of construction sites. frequency. Profitable construction contracts are very often obtained on the basis of special proposals on the market. Drawing For many years now, our products and services have up such special proposals is development work, and also extended well beyond the bounds of specialist foundation provides a competitive edge for future projects on which engineering. The BAUER Group today is a machinery manu- the costs cannot be recorded separately from the general facturer and service provider in all fields dealing with ground construction works. and groundwater. Pursuing that strategy, many units within the Group have been undertaking additional development work, Of the total research and development costs for 2014 of EUR such as to design new pipes for underground engineering 27.9 million, an amount of EUR 6.2 million was capitalized installations, to advance water purification based on a wide (capitalization rate: 22.2 percent). Depreciation of capitalized development costs and patents totaled EUR 6.5 million.
Research and development in the BAUER Group
2013 2014
Construction Equipment Resources BAUER Construction Equipment Resources BAUER Group Group
Total Group Revenues (in EUR million) 717.3 590.5 196.4 1,504.2 699.0 612.6 248.6 1,560.2 Expenses for R&D (in EUR million) 3.1 26.0 3.7 32.8 2.9 23.1 1.9 27.9 as % of total Group revenues 0.4 4.4 1.9 2.2 0.4 3.8 0.8 1.8 Group employees 5,531 2,998 1,449 10,264 5,675 3,038 1,400 10,405 R&D employees 45 190 33 268 41 183 22 246 Patent series - - - 259 - - - 260 Patent applications, registered patents, etc. - - - 1,473 - - - 1,480 COMBINED MANAGEMENT REPORT 60 Sustainability
Our expenditure on research and development is reflected BAUER Spezialtiefbau GmbH was the first member of the in 244 (previous year: 259) current patent series, including BAUER Group to participate in the “Umweltpakt Bayern” 1,392 (previous year: 1,473) patent applications, registered eco-pact, an environmental initiative between the Bavarian patents and utility models worldwide. state government and businesses in the state.
HEALTH SAFETY ENVIRONMENT (HSE) QUALITY For the BAUER Group, HSE is an integral element of Quality is one of the fundamental concerns of top management everything we do in creating and developing all our products, in our companies. We must do everything in our power to specialist services, and business processes. In 2011, we maintain and, where possible, further develop our customers’ introduced global standards in the area of Health, Safety & trust in our companies and the quality of our products, services Environment (HSE), thus creating a uniform HSE management and equipment, earned over many years. We work hard to system for all companies of the BAUER Group. By constantly understand the needs and expectations of our customers so reviewing our performance and comparing it against our set we can then meet them quickly, reliably and cost-effectively. goals and parameters, we seek to continuously improve our Ethics, health and safety, environmental friendliness, efficiency HSE system and thus consistently minimize our accident and and sustainability are all very important factors in meeting these damage rates. The managerial staff is primarily responsible for needs. compliance and execution of the guidelines. Bauer has had a traditional staff suggestion system in place We take great care to educate our staff on the topic of for decades. Recently, an intensively expanded system in the workplace safety. That’s why we conduct regular training on Continuous Improvement Process (CIP) has also been a HSE. Weekly safety meetings are held at our construction source of new ideas. sites and all our production facilities. This ensures a better understanding and greater acceptance of safety guidelines Our quality management system is based on ISO 9001 as among our staff. well other applicable government and industry standards. We conduct regular audits and benchmark reviews to Regular reviews and audits confirm the consistent implemen- make sure we are meeting our planned quality goals. The tation of our safety standards. Through certifications such findings from these audits and reviews are incorporated as OHRIS, OHSAS, AMS-Bau and SCC, we ensure that our into our regular training programs. We motivate our staff by safety policies meet the requirements of the International demonstrating our own commitment to quality, setting chal- Labour Organization (ILO). We are working on obtaining lenging goals for them, giving them adequate responsibility certification for other companies in the Group. and recognizing good performance. Active cooperation is essential to meeting our goals in a timely manner. Environmental management is integrated within the overarching HSE policy. Here, standards and guidelines have been defined Our policy is to implement other management systems in the which apply to all companies in the Group; we continuously various Group companies alongside quality management to check that they are being implemented and complied with. ISO 9001. We aim to assure customer satisfaction, in new business fields especially, by implementing industry-specific Some Group locations and companies – including the home management systems, such as in conformance to API stan- base Schrobenhausen – already operate environmental dards for companies with customers operating in the gas and management systems certified to standards such as EMAS. oil sector. COMBINED MANAGEMENT REPORT 61 Legal disclosures
VII. LEGAL DISCLOSURES
REMUNERATION REPORT performance is exceptionally good, the said levels may be The Remuneration Report sets forth the system of remuner- surpassed by up to 1.8 times. ation paid to the members of the Management Board and the total amounts paid to them, and explains the underlying The short-term criteria applied in setting the variable principles and amount with regard to the remuneration paid remuneration elements are the performance of the respective to the Supervisory Board. Management Board members in the past financial year and the economic position of the Group in respect of attainment Remuneration of the Management Board of budget targets in the year under review, particularly the The Management Board of BAUER AG, as previously, attainment of profit and revenue targets, taking into account comprised three members in the year under review. The general economic trends. Supervisory Board sets the overall levels of remuneration paid to the individual members of the Management Board based The long-term criteria applied in setting the variable on proposals submitted by the Presidial and Personnel Com- remuneration elements are the success and future prospects mittee. The plenary Supervisory Board reviews and approves of the Group and the performance of the Management the remuneration system for the members of the Management Board in respect of these criteria. This assessment judges Board following prior consultations in the Presidial and Person- the decision-making of the Management Board in terms nel Committee. of sustainable business development over the past three financial years and the effects of this decision-making in The system of remuneration paid to the members of the achieving long-term stability for the business. Criteria applied Management Board did not change from the previous year. here are long-term profit and revenue prospects, sustainable The overall levels of remuneration paid to the individual personnel development in accordance with the future members are set on the basis of a performance assessment. prospects of the Group, the development of the corporate This process assures that the overall remuneration is appropri- culture, the development of intra-Group collaboration, the ate to the duties and performance of the Management Board safeguarding of corporate harmony, strategic market and member concerned and to the situation of the company. The product development, risk and security management, remuneration paid to each Management Board member is long-term financial stability, and the quality of key financial composed of non-performance-related components, chiefly indicators relative to the prevailing economic conditions. a fixed basic salary, paid in equal monthly installments, and a performance-related component in the form of a variable In assessing the appropriateness of the remuneration paid to annual bonus. This is set by the Supervisory Board on the the Management Board, the variable remuneration is set and basis of short and long-term evaluation criteria, in which case compared in proportion to the fixed basic salary. Further- the short-term evaluation criteria are equally weighted with the more, the fixed and variable portions respectively, and the long-term ones when setting the variable remuneration. overall remuneration paid, are compared against the normal levels of remuneration received by management board The criteria for setting the fixed remuneration to members members of other stock market quoted companies, and of the Management Board are the assignment of duties, the other companies operating in the same sector, or companies performance of the respective Management Board member, similar in other ways, in Germany (horizontal comparison). the economic position of the Group and its profitability and A vertical comparison is carried out on two levels: firstly, the ongoing future prospects. salaries of the Management Board members are compared against those of the directors of the major BAUER Group Maximum limits are imposed on the total remuneration subsidiaries; secondly, they are assessed relative to salary paid. The variable remuneration paid to each member of grade A VIII stipulated in the collective pay agreement ap- the Management Board is limited by an individually defined plicable within the Group within the industry-wide framework maximum bonus level. This maximum is the upper limit of of salary and training remuneration to salaried staff and potential bonus payment in the normal course of business, foremen in the construction sector. and is paid in full if all set goals are attained. If business COMBINED MANAGEMENT REPORT 62 Legal disclosures
The remuneration is further set so as to remain competitive Remuneration of the Supervisory Board with that generally paid to highly qualified management staff The Supervisory Board of BAUER AG comprises 12 mem- on the market as a whole. bers. Calculation of the remuneration paid to the members of the Supervisory Board is specified in detail in the Articles of The Annual General Meeting held on June 30, 2011 resolved Association of BAUER AG. Each member of the Supervisory that the BAUER AG financial statements and the Group Board receives a basic annual fee of EUR 18 thousand, pay- consolidated financial statements for the financial years 2011 able in December of each financial year, plus reimbursement to 2015 would contain no disclosures of the remuneration of out-of-pocket expenses and any sales tax (VAT) liability paid to individual Management Board members, thereby incurred in performing the duties of a Supervisory Board applying the legal authority assigned to it by section 286, member. The Chairman of the Supervisory Board receives subsection 5 and section 314, subsection 2 of the German twice that amount of remuneration, and the Deputy Chair- Commercial Code (HGB). man 1.5 times the amount. The basic remuneration amounts are increased by 10 percent for each membership of a The total remuneration paid to members of the Management Supervisory Board committee, provided that the committee Board in the year under review, excluding allocations to in question was convened at least twice in the financial year. provisions for defined benefit plans, was EUR 1,150 thousand Membership of the Mediation Committee is excluded from (previous year: EUR 1,361 thousand). Of that total, EUR these remuneration provisions. Changes to the Supervisory 1,090 thousand (previous year: 1,056 thousand) was not Board and/or its committees are taken into account in the performance-related and EUR 60 thousand (previous year: remuneration proportionate to the respective member’s time 305 thousand) was performance-related. The total remunera- in office, and rounded up or down to full months based on tion includes benefits in kind arising from the private use of the standard commercial rule. The members of the Supervi- a company car and reimbursement of expenses for each sory Board receive no performance-related pay. member of the Management Board, as well as group accident insurance premiums and employer’s liability insurance associa- The net remuneration paid to all the members of the tion contributions. Supervisory Board in the 2014 financial year totaled EUR 254 thousand (previous year: EUR 254 thousand). The company pension scheme for Management Board members incurred pension service costs totaling EUR Other 159 thousand (previous year: EUR 118 thousand). The No loans or advances were paid to members of executive baseline salary defined for calculating retirement benefits bodies of the company in the year under review, nor were is significantly lower in all contracts than the basic salary. any liabilities entered into in their favor. As a matter of Calculated in accordance with IAS 19, the defined benefit principle, no securities-oriented incentive systems exist for obligation entailed by all pension commitments to members members of the Management Board or Supervisory Board of the Management Board at the year-end was EUR 5,531 of BAUER AG, or for Group employees in Germany. BAUER thousand (previous year: EUR 3,868 thousand). AG provides D&O (Directors and Officers) group insurance cover in respect of liability for economic loss to the members The contracts of Management Board members include of executive bodies of BAUER AG and of all affiliates in individual severance clauses regulating the specific terms Germany and internationally in which a majority share is of premature termination, with settlements oriented to held. The D&O policy includes an appropriate excess for the length of service of the Management Board member the insured parties. For the members of the Management concerned and gauged so as not to exceed an amount of Board, the minimum excess stipulated by law of 10 percent two years’ remuneration for any one Management Board of the loss up to at least an amount representing one and a member. No provisions for compensation in the event of half times the fixed annual remuneration of the Management a takeover offer being made have been agreed with the Board member concerned was agreed in the D&O insurance members of the Management Board. policy in the year under review. COMBINED MANAGEMENT REPORT 63 Legal disclosures
Remuneration Supervisory Board (not including sales tax proportion and reimbursement of expenses) in EUR '000 2013 2014 Chairman Dr. Klaus Reinhardt 38 38 Deputy chairman Robert Feiger 27 27 Employer representatives Dr.-Ing. Johannes Bauer 20 20 Dipl.-Ing. (FH) Rainer Schuster 18 18 Dipl.-Ing. (FH) Elisabeth Teschemacher 18 18 Gerardus N. G. Wirken 20 20 Prof. Dr. Manfred Nussbaumer 20 20 Employee representatives Dipl.-Volkswirt Norbert Ewald 20 20 Dipl.-Kfm. (FH) Stefan Reindl 918 Regina Andel 18 18 Dipl.-Ing. Gerold Schwab 20 20 Dipl.-Ing. (FH) Walter Sigl 90 Reinhard Irrenhauser 18 18 Total * 254 254
* As a result of rounding to EUR thousands, there was a rounding difference of EUR thousand in 2013 and 2014.
The members of the Management Board are required to Composition of subscribed capital limit the extent to which they take on Supervisory Board The subscribed capital (share capital) of BAUER AG remains mandates and other administrative or voluntary functions unchanged at EUR 73,001,420.45 and is divided into outside of the company. The members of the Management 17,131,000 no-nominal-value bearer shares, representing Board may not, without the consent of the Supervisory a pro rata amount of approximately EUR 4.26 per share Board, carry out any trade or business or conduct, on their of the total share capital. Each share entails equal rights, own or a third-party’s account, any dealings in the sector and entitles the holder to one vote at the Annual General in which the company operates. Further, they may not, Meeting, with the exception of share categories precluded without the consent of the Supervisory Board, become a from voting by law pursuant to section 136 of the German management board member, director or personally liable Stock Corporation Act (AktG) and section 28 of the German shareholder of any other trading company. This ensures that Securities Trading Act (WpHG). no conflict arises with the assigned duties of the Manage- ment Board member either in relation to time commitment or As in the previous year, 51.81 percent of the shares were to remuneration received. No separate remuneration is paid in free float. The members of the Bauer family and the for the assumption of executive or supervisory mandates on BAUER Stiftung, Schrobenhausen, own a total of 8,256,246 the boards of Group companies. no-nominal-value shares in BAUER AG on the basis of a pool agreement, representing a 48.19 percent share in the STATUTORY DISCLOSURES REGARDING TAKEOVERS company. The pool agreement provisions include binding The following disclosures are made pursuant to section 315, voting commitments as well as restrictions on the transfer- subsection 4 and section 289, subsection 4 of the German ability of pool members’ shares. No other direct or indirect Commercial Code (HGB) as per December 31, 2014. holdings of BAUER AG share capital exceeding 10 percent COMBINED MANAGEMENT REPORT 64 Legal disclosures
of the voting rights are known to the company. None of the stock market, the acquisition price (excluding ancillary costs) shareholders have special rights entailing controlling powers. may be no more than 10 percent above or 20 percent below Nor does any voting rights control exist on the part of the the price determined by the opening auction on the trading employees holding shares in the capital. day for shares in the company in Xetra trading (or a compa- rable successor system) on the Frankfurt Stock Exchange. Authority of the Management Board to issue or buy If the acquisition is effected by means of a public tender back shares offer, the purchase price or the limits of the purchase price Article 4, paragraph 4 of the company’s Articles of Association span per share (excluding ancillary costs) may be no more Board states that the Man-agement Board is authorized, with than 10 percent above or 20 percent below the average of the consent of the Supervisory Board, to increase the share the closing prices per share in the company in Xetra trading capital once or more than once up to June 27, 2017 by up (or a comparable successor system) on the three trading to a total of EUR 7.3 million by the issue of new no-nominal- days prior to the day of issue of the public tender offer. If not value bearer shares against cash and/or non-cash contribu- insignificant variations of the decisive share price occur after tions. To that end, the Management Board is authorized, the day of issue of the public tender offer, the purchase price with the consent of the Supervisory Board, to exclude the may be adjusted. legal subscription rights of shareholders in the following cases: The Management Board shall be authorized to appropriate shares in the company acquired pursuant to the above au- • in the event of capital increases against non-cash contri- thorizations for all legally admissible purposes. Consequently, butions, the acquired shares may also in particular be sold by means other than by way of the stock market or by means of an • in the event of capital increases against cash contributions offer to the shareholders, if the shares are sold for cash at a where the issue amount of the new shares issued is not price (excluding ancillary costs) not materially below the stock materially below the market price of the already quoted market price of shares of the company carrying the same shares at the time of definitive setting of the issue price rights at the time of the sale in Xetra trading (or a comparable and the shares issued excluding shareholders’ subscrip- successor system). The shares may also be sold in return for tion rights pursuant to section 186, subsection 3, clause non-cash payment, provided this is done for the purpose of 4 AktG do not in total exceed 10 percent of the existing effecting company mergers or acquiring companies, parts share capital either at the time this authority takes effect or of companies, shareholdings in companies or other assets. at the time of exercising this authority. Shares which have The aforementioned shares may be redeemed without need been or are to be sold or issued in direct or corresponding of a further Annual General Meeting in order to approve the application of section 186, subsection 3, clause 4 AktG redemption or its execution. With regard to use of the bought- while this authority is in place until such time as it is exer- back shares, the authorization provides, in specific cases, for cised, pursuant to other authorities, excluding subscription legal rights of subscription of shareholders to be excluded. The rights, are to be set off against the said 10 percent limit, facility to acquire treasury stock has not been utilized to date.
• to balance out fractional amounts. Appointment and termination of appointment of Management Board members, amendments of the By resolution of the Ordinary Annual General Meeting held Articles of Association on June 26, 2014, the company was authorized to acquire The appointment and termination of appointment of treasury stock, over a limited period up to June 25, 2019, members of the Management Board of BAUER AG is representing up to a total of 10 percent of the company’s regulated by sections 84 and 85 of the German Stock share capital at the time the resolution was passed. The Corporation Act (AktG) and sections 30 ff. of the German shares shall be acquired at the discretion of the Manage- Co-determination Act (MitbestG) in conjunction with Articles ment Board by means of a public tender offer or by way of 5 and 6 of the company’s Articles of Association. Pursuant the stock market. If the acquisition is effected by way of the to the company’s Articles of Association, the Management COMBINED MANAGEMENT REPORT 65 Follow-up Report
Board comprises at least two persons, who are appointed lender to terminate its loan commitments in the event of a by the Supervisory Board for a maximum term of office of change of control or if control is gained by a third party. As five years. At present the Management Board comprises defined by this syndicated loan agreement, a change of three members appointed by the Supervisory Board and control is defined as a situation in which the total sharehold- a Chairman of the Management Board, as well as a Labor ing held by the pooled members of the Bauer family directly Director. It is permissible to re-appoint or extend the appoint- amounts to less than 40 percent of the capital shares or ment of a member of the Management Board for a further voting rights in BAUER AG. A third party gains control if, maximum term of office of five years. Any appointment overall, more than 50 percent of the capital shares or voting or re-appointment requires a decision by the Supervisory rights in BAUER AG is held directly or indirectly by one or Board, which may be taken no earlier than one year prior to more persons acting jointly (with the exception of the pooled the end of the relevant term of office. The Supervisory Board members of the Bauer family). may rescind an appointment to the Management Board or an appointment as Chairman for good cause. The Presidial Furthermore, several long-term loans with balances totaling and Personnel Committee of the Supervisory Board prepares EUR 146.0 million as per the balance sheet date, agreed the Supervisory Board’s decisions on the appointment and by BAUER AG together with other Group companies as the termination of appointment of Management Board members borrower and guarantor, provide for a right of termination and concerns itself with the long-term planning of successor for cause by the lender in the event of a change of control members for appointment to the Management Board. in BAUER AG. A change of control is considered to have taken place where a third party, not forming part of the circle In accordance with section 119, subsection 1 clause 5 and of existing main shareholders, directly or indirectly acquires with section 179 AktG, the amendment of the Articles of control of at least 30 percent or the majority of voting shares Association is passed by the Annual General Meeting with in BAUER AG. Any loaned amounts would have to be repaid a majority of at least three quarters of the share capital in the event of termination. The terminated credit line would represented at the vote. Pursuant to Article 12 of the Articles no longer be available for new borrowing. of Association, the Supervisory Board is authorized to pass amendments to the Articles of Association which relate only Additional short- and long-term loan agreements also exist to its wording. The Supervisory Board is further authorized to within the Group which provide for a right of termination for adapt the wording of Article 4 of the Articles of Association cause, at market terms, in the event of a change of control. (amount and division of the share capital) following full or partial execution of the increase in share capital or on expira- tion of the authorization period according to the respective utilization of the authorized capital.
Change of control VIII. FOLLOW-UP REPORT BAUER AG, together with other Group companies, has concluded a syndicated loan agreement providing a credit No matters of special note occurred after the end of the line of up to EUR 450 million; this contains provision for the financial year.
COMBINED MANAGEMENT REPORT 67 Risk and Opportunity Report
IX. RISK AND OPPORTUNITY REPORT
RISK REPORT
BASIC PRINCIPLE OF RISK MANAGEMENT improve its efficacy. Moreover, our auditors review on an As part of our business activities, we are exposed to risks annual basis the extent to which our existential risk early- inherent to our operations. Running a business requires warning system is fit for purpose. Their suggestions are taking risks. True risks result from unforeseeable events incorporated in order to improve the system. The process that can bring both hazards and opportunities along steps involved in risk management are: identification, as- with them. Therefore, at Bauer, risk management means sessment, control of measures and monitoring. not just reducing the hazards but also knowing how to take advantage of the opportunities. The purpose of risk For the identification of risk, risk categories are defined management is to protect our business objectives, increase and assigned to specific areas of risk. This defines areas of the value of our company and reduce the costs of risk. Risk focus. Risk categories defined by the BAUER Group are: management involves identifying, analyzing, evaluation and strategic risks; market risks; financial market risks; political monitoring existing and anticipated risks along the entire and legal risks; organizational and governance risks; risks value chain and devising actions to deal with them. This arising from the value creation chain; and risks of the sup- involves assessing external risks potentially impacting on our porting processes. These risks are grouped as latent risks businesses, as well as risks arising internally. Our system of and managed in a unified process within the framework of risk management is based on a fundamentally risk-averse our risk management system. Conversely, project risks are approach, meaning that we aim primarily to safeguard managed according to their nature and significance by an against impending risks rather than to exploit opportunities additional, independent process. for short-term gain. As a general rule, we do not take risks that threaten the existence of the company. The process of identifying and assessing latent risks is reviewed once yearly at management meetings within the Risk management system relevant Group companies, and is implemented jointly by Our risk management system is based on the risk policy departmental and central function heads as well as through defined by the Management Board, and regulates the individual specialists. This process ensures that potential handling of risks within the BAUER Group. It defines a unified new risks and opportunities are submitted for review at methodology applicable to all segments and their member management level, and are included in follow-up reporting if companies. It is continually reviewed and adjusted as considered relevant. Structured risk identification is followed required. by risk assessment based on a scale of relevance.
Our risk management system is an integral element of our Relevant risks above a certain threshold value are quantified overall management system and, like all our management based on scenarios. Planning risks are estimated on the systems, serves as an instrument of value- and success- basis of empirical values, applying standard deviations. Risks oriented corporate governance. Audits routinely verify its from within the subgroups are consolidated at Group level. implementation, and management reviews continuously
Relevance scale of the BAUER Group
Relevance Extent of losses Definition Identified risks (in EUR '000)
1 up to 8,000 Insignificant to low risk Risks with this relevance are identified 2 up to 20,000 Medium risk in our business 3 up to 50,000 Significant risk We do not see risks with this relevance 4 up to 100,000 Serious risk in our business 5 above 100,000 Critical risk
Our customer Jafec – Japan Foundation Engineering Co., Ltd. – produced 120 piles for the construction of a 14-story hospital with two basement levels. A BG 28 and a BG 30 were used for the work. COMBINED MANAGEMENT REPORT 68 Risk and Opportunity Report
Following assessment, risk-specific management measures class. Secondly, it is based on potential harm identified in are defined. Where possible and useful, we have taken out relation to the project, with the worst-case outcome serving as appropriate insurance cover in respect of potential damage the decisive factor. The risk classes defined by this process and liability risk, in order to reduce our risk exposure and are taken into account at fixed cost surcharges to cover the avoid, or at least minimize, potential losses. Responsibility identified risks. for monitoring risk lies with the risk managers. The system has been developed over a number of years The effects of individual risks are aggregated in the context across the corporate units faced by the relevant project risks of corporate planning by means of risk simulation. This and expanded to apply to the relevant operations. means that the income statement for a given financial year is played through several thousand times in indepen- Risks dent simulations based on random figures (Monte Carlo In the following we set forth risks which may have a significant simulation). impact on our financial and earnings position and on our reputation, and assess the relevance to our business. The Risk analysis is conducted on at least a yearly basis. Yearly breakdown follows the same risk categories as we apply reports are submitted to the Management Board and in our risk management system. The areas of risk are Supervisory Board. The system is continually being updated aggregated. Unless otherwise specified, all risks set out and continuously improved both qualitatively and structurally in the following relate to all our segments. in terms of the integration of more Group companies. To communicate acute risks, the routine risk analysis is supple- STRATEGIC RISKS mented by immediate reporting. Our risk management Segmental structure system covers both risks and opportunities. We counter the strategic risks arising from the segmental structure of the Group by dividing it into separate Construc- Handling of project risks tion, Equipment and Resources segments, thereby pursuing Project risks are the principal performance risks, and thus the aim of greater independence from the economic cycles are an integral element in the work of the Construction and of the construction industry. Resources segments, wherever construction work or plant assembly is carried out on the customer’s premises. Associ- Frequent acquisitions and new company start-ups in ated risks, such as in relation to the ground and resulting the Resources segment entail the risk of misjudgment of from the individual character of each individual project – partners as well as difficulties in integrating the companies including contract, timetable and damage risks – can thus concerned into the BAUER Group. We counter this risk by accumulate detrimentally in specific cases in such a way employing thorough due diligence and intensive monitoring that they may threaten the existence, if not of the Group as during the integration phase. a whole, at least potentially of smaller subsidiary companies. In respect of all relevant projects above low threshold The Equipment segment’s move into deep drilling and the values, prior to submission of quotes all conceivable risks manufacture of machinery for mining applications will also and opportunities are systematically identified, analyzed further reduce its dependence on the Construction segment. and assessed, and appropriate measures are defined to We class the risks associated with the structure of our minimize risks and track opportunities. business as medium.
Each project is assigned to a risk class and organizationally Strategy development and implementation escalated according to its risk class, and is thus subject to The goals for the various strategic areas of action and the a strict approval process. Risk classification is based, firstly, implementation of the resultant measures are reviewed at on defined checklists applying the K.O. principle, in order to regular intervals. Consequently, we regard the risks relating prevent inadvertent assignment to an inappropriately low risk to strategy development and implementation as low. COMBINED MANAGEMENT REPORT 69 Risk and Opportunity Report
MARKET RISKS Despite the overcapacity and associated pressure on Selling market risks margins in China, we have been able to maintain our It has always been one of our key strategic principles market position based on the recognized high quality and to counter risks on our selling markets by means of a still clear technical edge of our machinery. The lack of multi-segment organization. Whereas our machinery market experience of Chinese manufacturers, combined manufacturing business is still heavily influenced – if at a with the facts that the quality of their products remains delay – by economic trends in the construction sector, the significantly lower and their after-sales service is generally establishment of the Resources segment has enabled us to of a less developed nature, has to date impeded exports isolate part of our business from the effects of construction of Chinese construction machinery on a grand scale to the cycles much more effectively. Our strategy of spreading markets of relevance to us. A number of smaller Chinese business in each segment across a large number of mar- competitors have already been forced out of market as kets worldwide further reduces the overall risk, so that no a result. This risk is rated as low in the short term, but serious risk is posed to the Group as a whole in the event medium in the medium term. of any weakening or collapse of individual regional markets. Moreover, in the event of a regional market downturn our Macro-economic risks network strategy in the Construction segment enables us High levels of public sector debt in the USA, as well as in to relocate our capacities rapidly to another country and some EU member-states, significant interventions by some continue operations at the new location. This strategy has central banks as well as uncertainty as to the stability of proven effective during various regional crisis situations in markets in specific countries and the phases of significant the past, in which it compensated for or cushioned nega- downturn on the market in China and the other BRIC nations tive impacts on the overall result. Our Resources segment influence our appraisals of the macro-economic situation. has also already expanded on a broad international scale. Ongoing political unrest in the Middle East is impeding We rate risks associated with our selling markets as willingness to invest in the countries immediately affected, medium. and often beyond.
Competitive environment The significant drop in the oil price may well be easing In the Equipment segment especially, we operate in highly pressure on importing countries’ balances of trade, but competitive, price-sensitive markets. The Chinese construc- in the long term it will restrict the purchasing power and tion market – and to an even greater extent in its wake, the investment appetite of the oil producing countries in the Chinese construction machinery market – have seen highly Middle East and Russia. If the oil price remains low for a long dynamic growth in the past as a result of government policy. period, this could have a negative effect on demand for deep As a consequence, major production capacities for construc- drilling rigs and services for the oil industry. As a result of the tion machinery were created. The repeated stagnation of the significantly reduced oil price and the tense situation in the Chinese construction market since 2012 has seen demand for east of Ukraine, leading to sanctions against Russia, there new machinery decline, in some cases disproportionately dra- was a significant drop in value of the Russian ruble against matically. The resultant overcapacity in the country has placed the euro towards the end of 2014. This creates obstacles prices and margins under heavy pressure at times. We have for our equipment sales business to Russia, and is currently implemented intensive cost-cutting measures in order to regarded as a medium risk. lastingly improve our competitiveness in China. For example, production above all as well as sourcing has been localized to These issues entail both exchange rate risks and demand- a significant extent, and the level of professionalism increased related risks in the markets concerned. By contrast, the while retaining the familiar high quality standards. Furthermore, overall positive macro-economic situation in the Far East is the after-sales service has been expanded further in all creating a structurally greater dependence of the Group on markets as a stabilizing factor for new business. that region. COMBINED MANAGEMENT REPORT 70 Risk and Opportunity Report
The Group Management Board and the directors of the three Interest rate risks operating segments routinely consider projections based We reduce the risks arising from fluctuations in interest rates on specific scenarios of the impact of any given risks on to a low level by fixing rates and rate derivatives for as long the company in question and on the Group as a whole. Any as possible. necessary and relevant measures are derived from these analyses and implemented in full. However, we rate the Foreign exchange risks overall macro-economic risks as low. Where possible and available, we counter foreign exchange risks by financing our international holdings in their respective Procurement market risks local currency. Transaction risks (foreign currency risks arising We counter fluctuations on the procurement market by enter- from the current cash flow) are minimized in all business ing into long-term contracts. This risk is rated as insignificant. divisions by means of suitable rate hedging instruments. The remaining currency risks are evaluated as low. FINANCIAL MARKET RISKS Covenant risks POLITICAL AND LEGAL RISKS Several long-term loans are covered by covenants linked to Compliance pre-determined financial variables. These are primarily the For the BAUER Group, acting responsibly and in keeping ratio of net debt to EBITDA, the ratio of EBITDA to net inter- with the law is a fundamental principle underpinning our est coverage, and the equity ratio. The key figures agreed for commercial success, the quality of our products and services the promissory notes and the syndicated loan concluded in and our sustainable ongoing development. We place the 2014 were met by the year end. utmost value in upholding social conventions and in comply- ing with applicable laws and business standards, so as to In addition to the earnings situation of the Group as a whole, minimize the risk of non-compliance. For us, compliance higher financing requirements in particular may pose an means observing all applicable laws, rules and regulations. increased covenant risk. This applies, for example, to changes Legally compliant, ethical and socially sustainable action is in inventories in the Equipment segment. In order to reduce the cornerstone of our values management system. This that risk, active selling of surplus stocks is initiated and will be applied to ensure staff are aware of our fundamental production volumes are reduced as necessary. A high level of values as soon as they are hired. Special training courses outstanding receivables can likewise result in the inability to enable them to extend their knowledge. A special software meet agreed covenants. program ensures that we do not do business with any companies cited on an EU or US sanctions list. Based on forward-thinking planning and sound financial controlling, we are making every effort to keep within the In summary, we are of the opinion that our existing values agreed limits. This risk is classed as medium. management system provides us with an efficient means of keeping our compliance risk to a low level. Financial stability and liquidity The risk of financial instability and supply shortages on Political and legal environment international financial markets was countered last year by However, owing to the broad spread of the Group’s opera- concluding a syndicated loan agreement. This agreement, tions, and its restraint in investing in potentially unstable with a three-year term, ensures the medium-term liquidity countries, the political risks in individual countries pose little supply for the Group of companies, and is an important tool risk to the Group as a whole. We therefore rate the risk as for alleviating major risks on the financial markets. low. COMBINED MANAGEMENT REPORT 71 Risk and Opportunity Report
Contract risks Production and order fulfillment Our Construction and Resources segments primarily provide Technical failures arising from design errors or miscalcula- construction, drilling and environmental services. The under- tions of statics in the project business can result in significant lying projects are almost always prototypes executed in each delays, both on the company’s own construction projects case on the basis of customized contracts. The resultant and on our customers’ projects. In the BAUER Group, the risks are subject to stringent management routines, and risks resulting from this represent an inherent component so can be rated as low. of our project business. Consequently, designs and statics are predominantly produced in our own design bureaus by Current legal cases experienced employees. Consequently, we can assess the Legal disputes arise almost exclusively from our provision risks resulting from this as low. of services, in particular in the project business. Judicial disputes exist with regard to clients, suppliers and business A further risk in order fulfillment is entailed by the selection partners, and in the majority of cases relate to remuneration, and application of drilling techniques. Misjudging ground claimed deficiencies in performance or delays in completing conditions can likewise result in increased risk costs. a project. By their very nature, it is impossible to say for Disturbances to the project timetable must be identified certain how the court or arbitration proceedings we are by the project manager and communicated at an early involved in will turn out. Nevertheless, following careful stage. The management is aware of these risks, and relies examination, we assume that adequate provision has been on experienced project and production managers in all made in the balance sheet for all legal disputes. segments. All the listed risks are subjected to a threat and opportunity analysis at project level in the Construction and VALUE CREATION RISKS Resources segments. Research and development risks As a technology leader, particularly in our Equipment segment, A further risk in relation to production and order fulfillment is we counter any possible weakening of our market position by the rising cost of production in China, resulting among other means of continuous research and development. Although factors from increasing rates of pay. The new plant in Tianjin the booming markets in the Far East and the resultant new is intended to generate synergies in production and optimize competitors are sharpening the innovative pressures, we have machine capacity utilization in future. The risks in production to date succeeded in maintaining the necessary edge as a and order fulfillment are rated as medium. technology leader. Project risks Nevertheless, we are well aware that these pressures will Project risks are essentially the principal performance risks continue to grow. That is one reason why we are also in the Construction and Resources segments, especially as increasingly utilizing low-cost local development resources each project has its own individual characteristics. Although in India and China to provide a rapid, cost-effective boost we work on the assumption that our projects are costed to our rate of innovation. with due diligence, the possibility cannot be definitively ruled out that, on finally billing the customer, lower earnings will Moreover, there is a risk of incurring additional costs in this ultimately be generated. As a result of the trend for projects context due to development and design mistakes necessitating to increase in size and complexity, the resulting risks must be modifications. This risk is minimized by a structured, multi- evaluated as of a medium level. stage product creation process. Supplements and claims management Thanks to our great innovative strength and transparent Especially in respect of complex construction works, we product creation process, we rate the risks in relation to are increasingly seeing parties resort to legal action when research and development as being currently medium. disputes arise in relation to contract interpretation as well as COMBINED MANAGEMENT REPORT 72 Risk and Opportunity Report
additional works and supplements. Clients’ representatives Personnel development and structure; key personnel are increasingly rarely authorized to resolve conflicts by Our procedures for providing assistance and support mutual consent. As a result, final project settlement is to our employees, from the selection and recruitment increasingly being delayed by legal action, and additional stage, through induction, qualification and training, and costs are being incurred. We manage this risk by profes- incorporating ongoing support in personal development, sional management of supplemental requirements in the have been continuously improved. Fluctuation rates have course of the construction project, and based on full been very low for many years, and represent an affirmation documentation of the work carried out. Despite all efforts, of our personnel policy. We rate risks relating to personnel the outcomes of some negotiations on supplemental require- as insignificant. ments pose a residual risk to the company. The risks arising from supplemental requirements are rated as medium. IT Security to prevent data loss or unauthorized access, as Acquisition, sales and contract negotiations well as to safeguard system and data availability, is ensured The risks of miscalculating quotations and of warranting by means of state-of-the-art hardware and software and technical characteristics which cannot be fulfilled are mini- building services technology, so IT risks are classed as mized by the strict application of the dual-control principle, insignificant. and can basically be regarded as low. Accounting-related system of internal controls and Materials management and procurement risk management Thanks to our long-standing and successful policy in our Consolidated accounting risks comprise risks in respect of machinery manufacturing operations of planning well ahead accounting, valuation and recognition. To counteract them, to safeguard supplies of components which may be subject the accounting functions for the major subsidiaries in Ger- to bottlenecks, and based on additional measures we have many are mainly managed centrally at Group headquarters taken and on our ability to have time-critical components in Schrobenhausen. This permits specialization in certain made within the Group in the event of a bottleneck, the risks kinds of business operations, such as joint ventures, and in terms of procurement currently remain classed as low. means that transactions are all treated uniformly.
RISKS OF SUPPORTING PROCESSES The accounting functions for the other subsidiaries – Debtor management practically all international subsidiary companies outside of To limit our exposure to risk of payment default, in Germany Germany and the main German subsidiaries – are usually we have at our disposal a tried and tested system compris- managed by decentralized in-house commercial depart- ing credit insurance, payment default guarantees, advance ments. In this, our international subsidiaries are assisted payments and – in special cases – also guarantees as security by external accountants and auditors as well as by our in respect of contracted works, so we rate this risk as low. investment controllers, so as to ensure properly qualified financial reporting in accordance with local laws or conform- Quality risks ing to International Financial Reporting Standards (IFRS). Great attention is paid to the quality of work done in all The financial statements of the major Group companies are areas of the business. This is safeguarded by employing additionally audited in accordance with IFRS. Audits are well-trained staff and by means of a long-established conducted in accordance with the International Standards quality management system, which has been in place for on Auditing (ISA). many years. All major Group companies are certified, and are audited on a regular basis. We therefore rate quality The procedures for monthly Group reporting, preparation of risks as low. quarterly and annual financial statements and consolidation COMBINED MANAGEMENT REPORT 73 Risk and Opportunity Report
of the individual financial statements in accordance with non-conformance to plan is implemented promptly by the IFRS are implemented using a Group-wide accounting managers of the units concerned. guideline on the basis of a unified schedule of accounts by the subsidiaries, and by the Group Accounting function for the The major Group company annual financial statements and consolidated financial statements. Appropriate adjustments the year-end consolidated financial statements are audited are made to adapt local accounts to IFRS. by auditors in accordance with the applicable legal require- ments and standards, and are reviewed by the Supervisory At the major Group companies, the success of each individual Boards established in the various business units as part department is mapped as a central management instrument of their duty of supervision. The key figures and related by means of an expense distribution sheet. This reveals information reports are submitted to the Management Board any non-conformance to annual budgets. At project level, and the Supervisory Board of BAUER AG from the central a monthly reconciliation is carried out to cross-check the accounting function on a monthly basis. actual figures against the cost accounting and site manage- ment budgets. Our judgment and experience tells us that The IT systems employed in these procedures are protected self-monitoring allied to mutual monitoring are the effective by appropriate security systems against unauthorized elements of our system of internal controls. access and data loss. Based on the systematic multi- segment structuring of the Group’s accounting process, with The individual Group companies and departments are its redundant control instances, we are able to classify the monitored and controlled on a monthly basis by the central resultant risks as low. commercial departments in the respective segments and are then reviewed by Group Accounting further reducing the OVERALL RISK accounting, valuation and reporting risks. At present, no individual or aggregated risks can be detected that could threaten the existence of the BAUER Group in the The consolidated figures are in turn checked on a monthly 2015 financial year. The management sees no change in the basis against the figures from the annual Group-wide overall risk situation, in view of future business prospects planning process and analyzed on the basis of Group key among other factors. performance indicators (KPIs). Any necessary correction of COMBINED MANAGEMENT REPORT 74 Risk and Opportunity Report
OPPORTUNITY REPORT
The opportunities arising are classified in parallel with the expanded its portfolio with deep drilling rigs capable of detailing of risks. In this context, too, the areas of opportunity operating down to depths of 6,000 meters for geothermal have been aggregated. Unless otherwise specified, all op- energy, oil and gas exploration and for production drilling. portunities set out in the following relate to all our segments. Opportunities in Deep Drilling have improved further with the STRATEGIC OPPORTUNITIES signature of the contract between our subsidiary BAUER Over the years, our Group has repeatedly worked on single Deep Drilling GmbH and Saxon Energy Services Inc. for projects in marginal markets. This has led to the establishment delivery of two 375 metric ton rigs. There is an opportunity of independently operating business units. One example of for Deep Drilling to make an important overall positive contri- this is in our activities relating to environmental technology bution to our results in future. We are capable of successfully which, having begun over 20 years ago, have grown to carrying out exploration and production drilling for water, become an international business area forming part of our oil and gas, as well as for coal-gas and geothermal energy. Resources segment. Extensive areas across Australia, Africa and Indonesia are being staked out as claims for the extraction of coal-gas. A similar development grew out of the first deployment of Their seriousness in terms of mass extraction is being specialist foundation engineering equipment for diamond reinforced by the planning and construction of large gas exploration, which has since become the competence center liquefaction plants. Drilling Technologies within the Resources segment. The nuclear accident in Fukushima sparked a new debate Together with the 2007 acquisition of the GWE Group, on energy production which is bringing about far-reaching specializing in the development, manufacture and sale changes to energy policy. The most suitable future-proof of high-grade well engineering products and in close-to- alternatives to nuclear power are currently being sought. the-surface geothermal energy extraction, we were able The BAUER Group has been contributing to this search by to merge the three businesses to create the Resources developing underwater drilling rigs that can be operated from segment. This core business unit, established in 2007, is on-board a ship, to sink foundations for tidal or wind tur- focused on areas relating to water, environment and natural bines. This opens up an entirely new product area, with great resources – some of the major issues of the 21st century. prospects for long-term success, for both our Construction Moreover, the Resources segment is less dependent on and Equipment segments. the economic cycles of our traditional Construction and Equipment segments. By establishing new subsidiaries in the Resources segment, our environmental business has succeeded in moving out In order to bring about a rapid internationalization of the of its traditional, and limited, sphere of pollution remediation Resources segment, we are utilizing the experience of our into industrial process water treatment, and thus into the oil long-standing organizational units in the other two segments. and gas industry. The large quantities of industrial process waters occurring in oil production, against a background of MARKET OPPORTUNITIES ever more stringent environmental standards, offer additional Thanks to the rapid growth being seen in some emerging outstanding market opportunities for our environmental economies, and the expected increase in oil and gas extraction business. based on new techniques such as fracking, a trend can be observed for even difficult-to-access deposits, demanding Dam remediations are much in demand worldwide, due to intensive drilling operations, to be exploited. This is a trend the fact that dam structures have been neglected for years. that will continue, even if it is exposed to the influences of oil Our depth of experience in this area, which we have been price fluctuations over and over again. Demand for modern able to acquire in various dam remediation projects, means deep drilling rigs will thus continue to rise in the medium that we regard this as an outstanding market opportunity for and long-term. Consequently, the Equipment segment has our Construction segment. COMBINED MANAGEMENT REPORT 75 Risk and Opportunity Report
VALUE CREATION OPPORTUNITIES Supplements and claims management Development and innovation The assertion of requirements and supplements does not Development and innovation are systematically integrated only entails risks, but also the opportunity to achieve better into many standard processes within the Group. Their earnings than originally specified in the contract based on efficiency is monitored as part of the quality management changes to the ordered construction services or supple- system and by way of the corporate controlling function. It is mental work ordered by the client. On projects involving high also ensured that customers’ wishes are understood as be- potential for changes, this can result in a substantial improve- ing opportunities, and are translated into innovations for our ment in earnings. We attempt to exploit such opportunities products and services in a timely manner. The capacities of by professional management of supplemental requirements our engineering offices are systematically being strengthened in the course of the construction project. by resources from countries with high levels of education allied to low labor costs, such as India. OPPORTUNITIES BASED ON SUPPORTING PROCESSES The Group has initiated a worldwide cost-cutting program Innovation is possible at practically every point within our in response to the displeasing loss recorded at the end business processes. Our employees are best placed to of 2013. As well as abandoning some smaller, financially know where improvements are achievable in their particular problematical businesses in 2014, this included in particular sphere of work. In order to collate and make use of the the sustained implementation of numerous individual projects many good suggestions which our employees submit, we such as reducing personnel costs by process optimization, have devised a system for the unbureaucratic recording, reducing material costs by specific negotiations with A-sup- evaluation, implementation and rewarding of suggested pliers, reducing wear costs by technical improvements and improvements, which has been in turn rewarded by a cost reductions through changes of rules and behavior. The number of good ideas. projects are defined in the course of planning and subjected to monthly checks. The object of the cost-cutting program is Project opportunities to lastingly improve the cost structures of the BAUER Group Regardless of national and global market cycles, projects and so improve the contribution margin. often arise in otherwise weak markets which we as a corporation are extremely well equipped to handle thanks to OVERALL OPPORTUNITIES the mix of our products and services portfolio. Examples of We are seeing a steady improvement in our opportunities this are processes for retrofitting of core seals in earthwork on global markets as our Resources segment becomes dams, or for the long-term, environmentally compatible increasingly well established. This is also being boosted treatment and disposal of industrial process water from the by new, innovative products. Our strategy of systematically oil industry. interlinking our mainly small and medium-sized globally operat- ing units to create efficient networks is enabling us more and The resultant projects in some cases entail very large lot units. more effectively to generate speed and cost benefits from When contracted, we are able to manage them successfully the associated economies of scale. All in all, we see the by converging our global resources and based on our many opportunities for our Group’s worldwide business increasing years of experience in handling large-scale projects. further in 2015.
COMBINED MANAGEMENT REPORT 77 Forecast Report
X. FORECAST REPORT
A number of factors are of key importance to our companies The competitive situation in the machinery business has and their future development, as detailed in the following. changed significantly over the past ten years. The enormous growth in construction in China made that country’s market Markets more important than all the others in the world put together As set out at the beginning in the Business Report, the for a number of years. Many Chinese companies started markets for specialist foundation engineering services and manufacturing specialist foundation engineering equipment, the associated machinery can generally be rated as positive. creating capacities to fully serve the needs of the Chinese There is substantial backlog demand for construction works market. Once the growth of the Chinese construction market all over the world. The infrastructure, especially, must be had come to an end, machinery markets fell back dramati- updated to meet the new needs of people and the demands cally too. As a consequence, competition has intensified of a globalized industrial society. Increasing urbanization in markedly. Other European manufacturers of construction many countries is necessitating major efforts to upgrade city machinery are now also coming under pressure in their transport infrastructures. Underground construction, especially, standard equipment sales, and so are trying to make up for provides a solution to the challenges we face. Many inquiries them in the specialist foundation engineering business. This is from all markets, and our healthy levels of orders in hand in the not feasible, because the market is not big enough. However, Construction segment in the regions of the world, affirm that the trend will additionally impact on the competitive situation judgment. to which our business is subject for some time to come.
The work of our Resources segment meets the essential In this new competitive situation, our business will only be needs of our world, for which issues surrounding the environ- able to maintain its leading position by providing high-quality ment and water will become key over the decades ahead. products and outstanding services. Concerted efforts have The availability of resources essential to industry will likewise enabled us to build further on our competitive edge in that remain a permanent and pressing challenge. respect over recent years, as the increased revenues for 2014 demonstrate. We are convinced that we will continue Competition in future to achieve success and growth. We will also be in Competition in the construction industry has changed little a position to improve our margins again, which will also be overall in recent years. The construction market is, and will based on improved capacity utilization. remain, a market with very large numbers of players. Our worldwide companies have established themselves firmly Bauer has to date played only a minor role on markets for within that competitive environment, and on some markets – deep drilling rigs. We have nevertheless succeeded in arous- such as in Egypt – we have attained an outstanding position. ing customers’ interest with our fully hydraulic rigs featuring On some markets, conversely, other construction companies state-of-the-art electronic control. The successes achieved play a predominant role. We regard this mix as positive, in 2014 deliver precisely the confirmation we are looking for because it provides us with the opportunity to respond stra- with regard to the efforts we have made. tegically to changes. Very many companies – including in the specialist foundation engineering sector – have withdrawn from In the Resources segment, we have numerous competitors the German market over the last two decades. As a result, on the various markets. We regard it as a major advantage there are today relatively few specialist foundation engineering that we are the only company offering a full portfolio relating contractors capable of handling large-scale projects. This to water and other resources bundled within one business opens up additional opportunities for our business in Germany. segment, meaning that we are able to offer our customers a very wide range of products and services. This will pay off in future.
Bauer drilled 252 diaphragm panels over a stretch of 1.6 km to a depth of 19.5 m for the port's 26.5 km² cargo handling facilities in Doha, Qatar. A MC 64 was used for this purpose. COMBINED MANAGEMENT REPORT 78 Forecast Report
Products the dynamic process of product development. We have By concentrating on products and services relating to ground intensively utilized the possibilities of state-of-the-art elec- and groundwater, we have the capability to be a technology tronic control to make our equipment even more versatile leader in both our Construction and Equipment segments. and reliable. Specifically, we have made great efforts to The interaction between construction and machinery manu- provide comprehensive performance verification based on facture – the application of high-tech construction engineering the acquisition and evaluation of large volumes of data. techniques on the one hand, and the design and manufacture of high-grade machinery with state-of-the-art technology on The product of machinery business is not just the machine the other – allows us to exploit wide-ranging synergies in our itself. For our customers, supplies of replacement and development work. This enables us to assume a pioneering wearing parts, and service backup for their equipment, are of role with our methods and techniques. increasing importance. We have greatly expanded our offer in those areas through wide-ranging measures. All our worldwide We have had to commit major efforts to our Equipment seg- warehouse facilities are electronically linked, allowing us to ment in recent years in response to changes on the market. achieve a high level of parts availability. We have established The decentralized organization of our development activities service centers in all regions of the world. The rapid-response close to the plant floor has enabled us to considerably boost backup they ensure is much appreciated by our customers.
> Demler Spezialtiefbau located in Netphen in North Rhine-Westphalia sunk 158 foundation piles and a piled wall in Halle with three different drilling rigs in an extremely restricted space. COMBINED MANAGEMENT REPORT 79 Forecast Report
The excellent sales successes we have recorded despite detailed preliminary ground surveys, some factors which difficult market conditions are strongly linked to these efforts. were not detectable will occur on a regular basis. They can We are convinced that we have an outstanding product offer, impede construction works in a wide variety of ways, and and that it provides us with a sound basis for future success in some cases also cause significant financial losses. We on the market. are working hard to optimize even further our behavior with regard to risk, in order to avoid issues such as we have In our Resources segment, we have repeatedly demonstrat- encountered in the last two years in future. ed over recent years that we offer a portfolio which attracts great interest on the market. Our environmental technology Of course, an opportunity can also arise if the ground has solutions especially, such as the reed-bed treatment plant been assessed too negatively prior to starting construction for the treatment of oil-contaminated water in Oman, have works. Our construction sites can then also generate ad- attracted widespread public acclaim. ditional profit.
Once again, 2015 will be a year with many challenges. The Achieving success within a major corporation is also heavily world’s construction markets are fundamentally on course linked to its basic organizational structure. We have been for growth. We are also expecting the Chinese competitors working hard on that aspect in recent years, and we are of our Equipment segment to behave more reasonably than convinced that we are now very well positioned. We have in the past, since they will also be obliged to fall in line with focused closely on international networking, so that today the rules of the market. almost all subsidiaries worldwide are interconnected via a centralized IT network and share software platforms. This In spite of the overall positive expectations, the risks posed provides us with close control, delivering massive benefits in the markets should not be overlooked. They can influence in terms of logistics and parts supply especially. All major our companies to differing extents, depending on how the locations are equipped with state-of-the-art videoconferencing issues pan out. This includes the current problems in Russia systems, saving on travel expenses. We have also made and Ukraine as well as the Islamic State terror organization great progress with regard to our management systems. in Syria and in Iraq. It is also very difficult to predict whether Lots of positive changes have been made in relation to HSE the efforts made to achieve political stability in the countries (Health, Safety & Environment), and thanks to the global IT of North Africa will bear fruit, or if new unrest will confront network, our efforts to internationalize the company have the markets with further challenges. The economic problems been successful. facing some countries, such as Greece, are by no means resolved either. All in all, we therefore believe that we are well set to meet the challenges of the future. We are continuing to work hard on In view of the general conditions, it is our opinion that our our cost-cutting program, and cost ratios will also improve business model will prove robust in 2015 as well. In our as our capacity utilization grows. Although we still have some planning, we have attempted to evaluate all known threats overcapacity, we need it in order to drive the new business and opportunities, thinking through both positive and nega- fields in deep drilling and underwater drilling forward. In those tive scenarios as effectively as possible. Ultimately, we are areas especially, we will soon be in a position to provide a convinced that our planning for 2015 is realistic. This applies good contribution to future growth. to all segments and to the Group overall. We see no need to change our strategic objectives at Nevertheless, we are obliged to point out that specialist present. The strategy comprising the Construction, Equip- foundation engineering and our other businesses are exposed ment and Resources segments will continue to dictate to greater risk than the business activities undertaken by most the direction of the Group over the coming years. We are other companies. Our activity always contains a factor that not planning any major acquisitions at present, as we are cannot be perfectly analyzed in advance – the subsoil or the intending to strengthen our capital base especially over the ground itself. Even after conducting the most extensive and years ahead. COMBINED MANAGEMENT REPORT 80 Forecast Report
Based on the information available to us at the time of following quarters. The trend over the full year will thus be in completing this report, we forecast that total Group line with patterns in our business seen in earlier times. The revenues for the 2015 financial year will be around EUR reason for this is that fewer machines can be invoiced at 1.6 billion. We forecast profit after tax of around EUR the start of the year, because customers do not start buying 18 to 23 million. In accounting terms, this will mean EBIT equipment until the construction season gets underway. of around EUR 75 million. In the Construction segment, despite the good weather conditions in some countries, the winter period has a heavy Comparison: 2014 actual/2015 forecast impact on a number of our markets.
in EUR million Actual 2014 Forecast 2015
Total Group revenues 1,560 ~ 1,600 Our balance sheet ratios have changed markedly over recent EBIT 76.4 ~ 75 years. This is illustrated most clearly by the increase in working Net profit or loss 15.7 ~ 18 - 23 capital, which also resulted in a substantial increase in net debt. This trend was largely attributable to the normalization of our machinery business, in which inventories increased We still expect to make a loss in the first quarter, in line with significantly due to the return of shorter lead times. No seasonal norms, though it will be balanced out over the significant change to the balance sheet structure is to be
> In the Kingdom of Bhutan, approximately 80 km east of the capital city Thimphu, a 1.200 MW diversion hydroelectric power plant, the “Punatsangchhu-I” is being built. To lower the water level, Bauer is sealing the upstream cofferdam with a cut diaphragm wall that is up to 90 m deep. COMBINED MANAGEMENT REPORT 81 Forecast Report
expected in the coming year, as our business model is tied could only be achieved by means of a one-time income, we to high levels of up-front financing. With stronger demand for nevertheless intend for our shareholders to participate in this. machinery, however, the ratios will improve again. Over the As a result, we would like to pay a dividend again – although coming years, we will be making great efforts to increase our admittedly at a low level. In the medium term, the dividend equity ratio back to more than 30 percent. quota should be about 25 to 30 percent of the reported profit after tax. We expect the Group to enjoy positive development through 2015 and 2016. We are planning for growth of between We do not see any existential risk or relevant risk to future 3 and 8 percent, in line with our long-term plans. We also progress in our trading environment. The global economy predict that we can achieve an increase in earnings. The remains marked by great change, however, which may also Group has largely adjusted to the changed market condi- have a negative impact on our situation again. We should tions, meaning it is able to return to a positive trend overall. point out that future forecasts are based on assumptions and estimates of the company management. Such assump- The Management Board will recommend to the Supervisory tions and estimates always entail a degree of uncertainty and Board that it propose to the Annual General Meeting that risk, which may mean that actual performance differs from a dividend of EUR 0.15 per share should be paid for the that forecast. 2014 financial year. Despite the fact that the result in 2014
Schrobenhausen, 31 March 2015 BAUER Aktiengesellschaft
Prof. Thomas Bauer Chairman of the Management Board Dipl.-Betriebswirt (FH) Hartmut Beutler Dipl.-Ing. Heinz Kaltenecker 82
The Bauer Share
Falling interests rates and new crisis areas probable that the definitive outcomes of these developments Although many problems remain in 2014 – the situation will only come to light in 2015. in Spain, Portugal or Greece has hardly changed – the Eurozone economy did return to slight growth with 0.8 %. The Bauer Share lost significantly in value The Bauer share underwent a marked drop in value in 2014. The European Central Bank cut its key interest rate, first in Whereas the benchmark indexes, the DAX (+5.1 %) and June 2014 from 0.25 % to 0.15 % and then again in Septem- SDAX (+4.3 %), grew, the Bauer share lost 28.8 % of its ber to a mere 0.05 %, in an effort to stave off deflation. The value by the end of the year. ECB introduced penalty interest rates on bank deposits in order to motivate the banks to increase lending. This policy The first days of trading in 2014 were positive, and saw the boosted in particular the stock markets in 2014. In January share increase from its opening price of EUR 18.81 to its 2015, the ECB decided to purchase government bonds high-point for the year in mid-January, at EUR 20.04. As the (quantitative easing) as a further measure against the low first quarter continued, the share price continued relatively inflation rate. unchanged in line with the German indexes, with slight upward and downward movements. Overall, the global economy improved in 2014. The gross domestic product of the USA grew by 2.2 %. China, on the Following publication of the annual report on April 11 as well other hand, missed its own growth target with 7.4 %. as the interim report on the first quarter on May 14, the share price dropped to EUR 18.12, while the markets recorded The German economy managed growth of 1.4 %. The good modest growth. level of employment, growth in incomes and low inflation meant that economic growth was promoted by domestic The Bauer share was able to recover slightly by the end demand in particular. of June before dropping markedly in relation to the slightly downward trend of the stock markets. An initial interim low However, problematic areas also developed in 2014 again. point was reached on August 8, at EUR 14.44. In spring, the Russia/Ukraine conflict intensified. Europe introduced sanctions which had an effect on the European The Bauer share came under significant pressure following and the Russian economies. The ruble lost one third of its publication of the first half-year’s figures on August 14 with value against the euro over the course of the year. In addition, the associated slight downgrade to the earnings forecast the oil price collapsed by about 50 % during the year. It is for the complete year, combined with further stock market
Performance of the Bauer Share 2014 in % Bauer DAX MDAX SDAX
40
30
20
10
0
(10)
(20)
(30)
(40) 01.01.2014 01.04.2014 01.07.2014 01.10.2014 31.12.2014 31.03.2015 THE BAUER SHARE 83
weakness; by October 16, it had reached the low for the year Share information at EUR 11.75. ISIN / WKN DE0005168108 / 516810 Trading symbol B5A As the markets recovered, the price rose slightly and topped Trading segment Frankfurt, Prime Standard the EUR 14 mark for a period in November. On the last Share indexes SDAX, CDAX, GEX, DAXPlus Family trading day of the year, the share price was EUR 13.35. Classic All Share, Prime All Share Class of share No-nominal-value individual bearer shares During the first quarter of 2015, the share price increased Share capital EUR 73,001,420.45 significantly, reaching EUR 17.91 by the end of March. Number of shares 17,131,000 Shareholder structure Bauer family 48.19 %, free float 51.81 % Continuous dialog with shareholders It is the objective of the Management Board and Investor Rela- Dividend policy tions to keep shareholders comprehensively and continuously Our dividend strategy is fundamentally oriented to the informed about the course of business. In addition to the goals of providing shareholders with an appropriate and fair financial reports, the BAUERcompact newsletter offers news participation in the success of the business, maintaining and topics relating to the BAUER Group. With the BAUER continuity, and safeguarding the equity ratio. app, it is possible to call up all messages, the share price and much else besides on a mobile device. Following a difficult financial year, the planned after-tax result could only be achieved by means of a one-off gain. The Management Board uses roadshows in Scandinavia, We believe it is appropriate to allow our shareholders to the USA or Germany as well as participating in capital participate in this, so we intend to pay a small dividend market conferences to inform German and international again. At the same time, we are still intensively pursuing investors alike about the position of the business. the objective of improving the equity ratio.
Furthermore, there is an intensive exchange with analysts. Consequently, the Management Board and Supervisory Overall, seven analysts reported on BAUER AG in 2014 with Board will propose to the Annual General Meeting on their research. At the end of the year, there were six neutral June 25, 2015 that a dividend of EUR 0.15 should be and one negative share recommendations. The average paid per share. target share price quoted was EUR 14.36.
The Annual General Meeting in June was attended by about More information: 450 shareholders and guests who came to the headquarters http://ir.bauer.de in Schrobenhausen to be informed by Prof. Bauer about the course of business.
KEY FIGURES 2011 2012 2013 2014 Earnings per share (in EUR) 1.86 1.44 -0.99 0.85 Dividend per share (in EUR) 0.50 0.30 0 0.15 * Dividend total (in EUR ’000) 8,566 5,139 0 2,570 * Year-end price (in EUR) 21.10 19.32 18.81 13.35 Annual high (in EUR) 38.49 26.50 23.05 20.04 Annual low (in EUR) 16.04 16.13 17.33 11.75 Market capitalization at year-end (in EUR ’000) 361,464 330,971 322,234 228,699 Average daily trading volume (units) 65,885 48,584 39,017 26,984
* Proposed; subject to the consent of the Annual General Meeting to be held on June 25, 2015 84
Corporate Governance Report
AND DECLARATION ON CORPORATE GOVERNANCE
The Management Board, also on behalf of the Supervisory 3. The individualized disclosures of the benefits, the remuner- Board, submits the following report on the company’s ation and the pension benefits awarded to each member Corporate Governance in accordance with Article 3.10 of of the Management Board are not individualized for each the German Corporate Governance Code. The Corporate member of the Management Board in the remuneration Governance Report also includes the Declaration on report as the General Meeting dated June 30, 2011 Corporate Governance pursuant to Article 289a of the resolved on the omission of the disclosures according to German Commercial Code (HGB), which forms part of section 285, no. 9, letter a, sentences 5 to 8, section 315a the Management Report for the 2014 financial year. subsection 1 and section 314, subsection 1, no. 6, letter a, sentences 5 to 8 of the German Commercial Code (HGB) Declaration of Conformity 2014 and therefore the disclosures required under Article 4.2.5 In the year under review, based on preliminary work by the would contradict such Shareholder resolution. Presidial and Personnel Committee, the Management Board and Supervisory Board reviewed the company’s compliance 4. Contrary to Articles 5.1.2 and 5.4.1, no age limit is specified with the German Corporate Governance Code. On Decem- for members of the Management Board or Supervisory ber 5, 2014 the Management Board and Supervisory Board Board. Expertise and performance cannot be determined passed the following declaration of conformity: on the basis of rigid age limits. Upon the appointment of new Management Board and Supervisory Board members, “Since the last declaration in December 2013 the company the persons who bear responsibility for selecting suitable has complied with, and currently complies with, each of members will take account of the age of the chosen person the recommendations of the “Government Commission of when reaching their decision, alongside assessing their the German Corporate Governance Code” as published by skills. If a Management Board or Supervisory Board member the German Federal Ministry of Justice in the official section should become no longer sufficiently capable of holding of the electronic version of the German Federal Gazette office on the grounds of age during their term of office, the (“Bundesanzeiger”), with the following exceptions: common sense of the persons involved is to be trusted.
1. Contrary to Article 3.8 an excess of at least 10 percent of 5. Contrary to Article 7.1.2, the consolidated financial the loss up to at least an amount representing one and a half statements at December 31, 2013 were made public within times the fixed annual remuneration of Supervisory Board 101 days rather than 90 days of the end of the financial members is not agreed for D&O insurance for the Supervisory year. As a result of the international structure of the Group, Board. As a result of the moderate remuneration provisions the completion and consolidation of the separate financial for the Supervisory Board in the Articles of Association, statements takes a considerable amount of time. In the a corresponding excess for the Supervisory Board is not interests of conscientious accounting processes, efforts to approved. Even without a corresponding excess, the Super- improve the accounting procedures continue. visory Board members will perform their duties responsibly. BAUER AG already conforms largely to the suggestions of the 2. Contrary to Article 4.1.5, Article 5.1.2 and Article 5.4.1 German Corporate Governance Code Commission.” there is no appropriate inclusion or participation of women arranged for in the filling of management positions or Roles of the Management Board and Supervisory Board in the composition of the Management Board and the German company law prescribes a dual system of manage- Supervisory Board. In particular, the introduction of a ment for BAUER AG, characterized by a strict separation of quota for women is not supported in order to ensure personnel between the Management Board as the executive equal opportunities. These positions should be filled management body and the Supervisory Board as the super- regardless of gender so that neither the female gender vising body. Moreover, the company’s Articles of Association nor the male gender is favored or discriminated against. In and the rules of procedure governing the work of the Super- addition, a candidate should not suffer any disadvantage visory Board and of the Management Board also lay down on the grounds of racial or ethnic origin, religion or belief. the basic structures of their collaboration. CORPORATE GOVERNANCE REPORT 85
The Management Board of BAUER AG currently comprises appropriation of net earnings available for distribution. The three members. They are assigned independent responsibility Chairman of the Supervisory Board coordinates the work of for managing the company. The members of the Management the Supervisory Board, chairs its meetings and represents the Board work together on a collegiate basis. Notwithstanding Supervisory Board externally. The Supervisory Board regularly the joint overall responsibility of the Management Board, each reviews the efficacy of its activities. member of the Board Management acts on his or her own responsibility within his or her assigned portfolio of functions. Composition of the Supervisory Board Measures and transactions of a division of the Management The Supervisory Board of BAUER AG comprises a total Board that are of extraordinary importance for the company or of 12 members. Six of its members are elected by the a business unit, or which are associated with an extraordinary employees at the Group’s locations in Germany, with the financial risk, require the prior approval of the entire Manage- other six members being elected by the Annual General ment Board. The Chairman of the Management Board Meeting to represent the shareholders. The Supervisory coordinates the work of the Management Board. The Man- Board includes a sufficient number of independent members agement Board members report on a regular basis to the who have no business or personal links to the company, to Chairman of the Management Board in respect of all material its executive bodies, to any controlling shareholder or to any matters and on the course of business within their assigned company associated with any such shareholder which may functions. A member of the Management Board has been give grounds for a material and not merely temporary conflict appointed Labor Director, and is responsible to an increased of interests. Moreover, all members of the Supervisory Board extent for human resources and social policy topics in the are obligated to immediately disclose to the Supervisory company. The Management Board defines the corporate Board any conflicts of interest as and when they arise. No strategy, agrees it in consultation with the Supervisory Board, conflicts of interest were disclosed to the Supervisory Board and ensures that it is implemented. The Management Board by any of its members during the year under review. provides the Supervisory Board and its subcommittees with regular, detailed information, in written form by way of monthly Objectives of the Supervisory Board with regard to its reports, by conference calls and at routine meetings, as well composition as at extraordinary meetings held as and when required, in The following objectives must be taken into account by the respect of all matters of planning, business development, Nominations Committee and by the Supervisory Board when finance and earnings, risk, risk management, internal auditing proposing candidates for election to the Supervisory Board and compliance of relevance to the company. at the Annual General Meeting:
The Supervisory Board appoints the Management Board. • The Supervisory Board shall be composed such that In doing so, it considers not only the relevant professional its members collectively possess the necessary skills, qualification of its members but also – given the international knowledge and professional experience to carry out its nature of the business – the diversity of its composition. The assigned role in a correct and proper manner. Supervisory Board also sets the overall level of remuneration paid to the Management Board, regularly reviews remuner- • The appointment of shareholders’ representatives to the ation levels, and specifies the remuneration paid to individual Supervisory Board shall take due account of the Group’s members of the Management Board. It appoints, supervises fundamental character as a family business, giving due and advises the Management Board, and participates in consideration to the implications of that character in terms decisions of fundamental significance to the company. The of the corporate culture, whereby two members shall be company’s Articles of Association stipulate relevant trans- appointed from the Bauer family, provided the candidates actions and undertakings which require the consent of the are suitable. Supervisory Board. Duties of the Supervisory Board include reviewing the annual financial statements of the company, the • At least two of the shareholders’ representatives on the consolidated financial statements and the parent company Supervisory Board shall have substantial experience in and Group Management Report, as well as proposals for the 86 CORPORATE GOVERNANCE REPORT
the management of construction and/or construction system for the Management Board in general, as well as machinery manufacturing companies. responsibility for establishing, amending and terminating service contracts with the members of the Management • At least one of the shareholders’ representatives on the Board. Furthermore, it deals with questions of corporate Supervisory Board shall possess specialist skills and ex- governance and is authorized to pass amendments to the perience in the application of financial reporting standards Articles of Association which relate only to its wording. and the implementation of internal control procedures. The Audit Committee comprises three members elected by • The employees’ representatives on the Supervisory Board the Supervisory Board by a majority of the votes cast, with two will be elected in accordance with the provisions of the members proposed by the Supervisory Board members of the German Employees’ Co-determination Act. shareholders and one member proposed by the Supervisory Board member of the employees. The Chairman of the Audit • The Supervisory Board shall include not more than four Committee is elected by the Supervisory Board at the sug- members in total who have business or personal links gestion of the shareholders’ representatives. The Chairman of to BAUER AG, to its executive bodies, to any controlling this committee possesses specific knowledge and experience shareholder or to any company associated with any such in the application of accounting policies and internal control shareholder which may give grounds for a material and not procedures, and is neither a former member of the company’s merely temporary conflict of interests. Management Board nor the Chairman of the Supervisory Board. The role of the Audit Committee is in particular to monitor • Supervisory Board posts shall be filled on merit, regardless accounting procedures and to review the efficiency of the of gender so that neither men nor women are preferred or system of internal controls, the risk management system and disadvantaged. Moreover, when appointments are made to the internal auditing system including compliance. The Audit the Supervisory Board, a candidate shall not be disadvan- Committee prepares the proposal of the Supervisory Board to taged for reason of race, ethnic origin, religion or world view. the Annual General Meeting concerning the appointment of auditors, obtaining an Independence Confirmation from the au- The objectives are fully embodied in the current composition ditors in advance of each Annual General Meeting. It undertakes of the Supervisory Board. a preliminary review of the annual financial statements of the parent company and the consolidated financial statements of Composition and roles of the subcommittees the Group together with the Combined Management Report, as The Supervisory Board has established four standing well as preparing the proposal on appropriation of net earnings committees constituted from among its members in order to available for distribution and consulting on the audit reports with support its plenary work. The Supervisory Board subcom- the auditors. It also reviews the quarterly financial reports. mittees and their roles and procedures are laid down in the rules of procedure governing the Supervisory Board. The The Nominations Committee comprises three shareholder committee chairmen report to the plenary Supervisory Board representative members of the Supervisory Board. The Chair- on a regular basis with regard to the work of their respective man and the Deputy Chairman of the Nominations Committee committees, and prepare the way for plenary Supervisory are proposed and elected by the Supervisory Board members Board decisions within their specific remits. of the shareholders. The task of the Nominations Committee is to submit to the Supervisory Board proposals of suitable The Presidial and Personnel Committee comprises the candidates to be put forward to the Annual General Meeting Chairman of the Supervisory Board as well as one Supervisory for election to the Supervisory Board. Board member elected by the shareholder representatives and one by the employee representatives respectively. Its role The Mediation Committee, constituted pursuant to the includes preparing the way for Supervisory Board decisions German Co-determination Act, comprises two shareholder relating to the setting of overall remuneration to individual representative and two employee representative members Management Board members and to the remuneration CORPORATE GOVERNANCE REPORT 87
respectively. The Mediation Committee is only convened SHAREHOLDERS AND TRANSPARENCY if a proposed candidate for appointment as a member of All documents and information resources relating to the the Management Board has not obtained the majority vote Annual General Meeting are made available to shareholders required by the German Co-determination Act. on the company’s website well in advance. The shareholders were assisted in exercising their voting rights by the facility to In his report to the Annual General Meeting, the Chairman assign power of attorney to nominees and by the appointment of the Supervisory Board summarizes the work of the of a company proxy to vote in accordance with the sharehold- Supervisory Board and its subcommittees over the past ers’ instructions. An electronic transfer facility is also provided financial year. The Report of the Supervisory Board for the for the submission of powers of attorney. No company share 2014 financial year is published in the company’s Annual option schemes or similar stock incentive programs existed Report on pages 88 to 89. This report is thereby quoted by during the past financial year. way of reference. The company provides regular and timely information relating Corporate Governance and Compliance to the position of the company and in respect of material The company’s system of corporate governance is based changes to the business. Extensive documentation and infor- on German law, specifically on legislation governing public mation resources are provided on the company’s website. limited companies, corporate co-determination and capital In addition, electronic distribution systems and the electronic markets, as well as on the company’s Articles of Associa- version of the German Federal Gazette (“Bundesanzeiger”) are tion. The company’s Articles of Association are published used to ensure timely communication with our shareholders on the company website at www.bauer.de, in the “Investor and with the public at large. Relations” section under “Corporate Governance”. The Man- agement Board employs the Corporate Management Manual Four times a year, BAUER AG publishes updates on the implemented throughout the Group as its central instrument of course of its business in the form of quarterly interim financial management. The Corporate Management Manual also sets reports, the half-year interim financial report and the annual out framework policy guidelines covering the entire Group, financial statements. Notifications relating to voting rights and lays down the principles of corporate governance and as well as items of insider information relating directly to the program of basic values which dictate the ethical and the company are disclosed by the Management Board moral conduct of the company’s employees in carrying out immediately. The Annual General Meeting passed a resolution, the business of the company. A Code of Conduct defining with the necessary three-quarters majority, stipulating that correct behavior of employees in the BAUER Group, dealing the remuneration paid to members of the Management in particular with the topics of anti-corruption, competition Board shall not be disclosed individually. Consequently, as and cartel law, health, safety & environment (HSE) as well has been the policy to date, only the remuneration paid as dealing with business partners, has additionally been to the Management Board in total and the structure of the published on the company’s website. remuneration system are disclosed in the Remuneration Report on pages 61 to 63 of the company’s Annual Report. An appropriate system of risk management and of internal controls is established within the company. The essential SHAREHOLDINGS OF THE MANAGEMENT BOARD features of the risk management and control system are set AND SUPERVISORY BOARD out in the Risk Report forming part of the Combined Man- Members of the Management Board at the year-end held agement Report. The established risk management system a total of 1,742,022 (previous year: 1,741,022) shares in the supports Group-wide control and monitoring procedures. company as per December 31, 2014. This corresponded Internal auditing systems monitor compliance with laws to 10.17 % (previous year: 10.16 %) of the share capital of and standards across the Group. The Management Board BAUER AG. At the same date members of the Supervisory regularly updates the Supervisory Board on existing risks Board held a total of 1,310,531 (previous year: 1,310,431) and risk trends, as well as on internal auditing procedures. Bauer shares, corresponding to 7.65 % (previous year: 7.65 %) of the company’s share capital. 88
Report of the Supervisory Board 2014
The Supervisory Board regularly monitored the work of the Supervisory Board reviewed the actions of the Management Management Board during the 2014 financial year on the Board in dealing with the aforementioned issues as well basis of the detailed reports provided by the Management as the strategy being pursued by the Group, providing the Board in written and verbal form, and provided support Management Board with advice and support to ensure that an in the form of advice. The Management Board discharged appropriate approach was employed. The current business its duties to provide the Supervisory Board with regular, development in the Construction, Equipment and Resources prompt and comprehensive information about all questions of segments was discussed in all Supervisory Board meetings. strategy, planning, company development, risk development and compliance that are relevant to the company and the At the annual accounts review meeting in April relating to Group. Between the meetings, the Management Board the annual parent company and Group consolidated finan- submitted monthly written reports on all important business cial statements for the 2013 financial year, also attended transactions and financial indicators of the Group and the by the auditors, a detailed review was undertaken of the company. The Chairman of the Supervisory Board was respective financial statements and associated management also in regular contact with the Management Board, and and audit reports, taking into due consideration the report gathered information as appropriate relating to the course from the Audit Committee, and the proposal of the Manage- of business and key transactions. ment Board with regard to the appropriation of earnings. Furthermore, the Supervisory Board dealt with compliance In their subcommittees and plenary sessions, the Supervisory with the financing covenants in this meeting, as well as the Board members always had the opportunity to scrutinize preparations for a syndicated loan. Current legal cases, the reports and proposals submitted by the Management the remuneration of the Management Board and extension Board and to set forth their own suggestions. In particular, of the term in office for the member of Management Board the Supervisory Board intensively discussed all business Heinz Kaltenecker were discussed transactions important for the company on the basis of written and verbal reports from the Management Board, In the second meeting of the financial year, the Supervisory and examined them with regard to plausibility. Board dealt with, amongst other matters, the interim report for the first quarter of 2014, the Group’s financing situation There were no indications of conflicts of interest among including the cost-cutting program and the segments’ order members of the Management Board or Supervisory Board situation. requiring immediate notification of the Supervisory Board and disclosure to the Annual General Meeting. There were no In conjunction with the September meeting, the Super- changes of personnel on the Supervisory Board in the past visory Board obtained information about the handling of a financial year. construction site at a major project. The meeting focused on the expected development of earnings, the liquidity required Main focus of consultations in Supervisory Board in major projects, the debt situation in the Group as well as meetings compliance topics. It also approved the medium-term plan Four regular plenary meetings were held during the reporting with regard to the consolidated balance sheet. year. Apart from two meetings at which one member was absent in each instance, the meetings of the Supervisory In the last meeting of the Supervisory Board in December Board were attended by all members. of the year under review, the expected development of earnings and planning for the 2015 financial year were The Supervisory Board reviewed performance trends on discussed in particular. An updated declaration of conformity large-scale projects on several occasions in the course of to the German Corporate Governance Code was passed, the past year, and also gave consideration to the status of a and approval was given to the employee bonus framework. cost-cutting program and assessed the liquidity planning. The REPORT OF THE SUPERVISORY BOARD 89
Work carried out by the subcommittees the Supervisory Board, PricewaterhouseCoopers AG und In the 2014 financial year there were four committees of Wirtschaftsprüfungsgesellschaft, Stuttgart. The accounts the Supervisory Board. The Mediation Committee and the were certified by the auditors without reservation. The Audit Nominations Committee were not required to convene. The Committee subjected the audit documentation and reports chairpersons submitted regular reports on the main content to thorough scrutiny. The Committee reported on its review of the subcommittee meetings to the plenary Supervisory to the Supervisory Board. The auditors attended the relevant Board meetings. The meetings of the various subcommittees meetings of the Audit Committee as well as the annual of the Supervisory Board in the financial year were attended financial review meeting of the plenary Supervisory Board. by all the respective members. The audit documentation and reports from the auditors Two meetings of the Presidial and Personnel Committee were provided to all members of the Supervisory Board in were convened. At those meetings, preparations were good time for scrutiny. The Supervisory Board duly noted made for the decision of the Supervisory Board relating to and concurred with the findings of the auditors’ review the setting of the salaries and performance bonuses of the of the parent company and Group consolidated financial members of the Management Board and to the structuring of statements and the Combined Management Report. On its remuneration system, as well as to the performance bonus conclusion of the Supervisory Board’s review, no objections framework. Consideration was also given to the declaration were raised. The financial statements of BAUER AG and the of conformity to the German Corporate Governance Code, consolidated financial statements of the Group were approved as well as to the extension of the contract of service of by the Supervisory Board at its annual review meeting on Management Board member Heinz Kaltenecker. April 8, 2015. The annual financial statements of BAUER AG were thereby confirmed. Following prior consultations by the The Audit Committee held one conference call and four Audit Committee, the Supervisory Board concurred with the meetings in the financial year. The committee reviewed proposal of the Management Board regarding the appropria- the audit of the interim reports and, in the presence of the tion of net profit available for distribution. auditors, the audit of the annual financial statements of the parent company and the consolidated financial statements On behalf of the Supervisory Board, I would like to thank of the Group. It also prepared the appointment of the auditor, the members of the Management Board, all the Group’s taking account of the examination into the latter’s impartiality. employees and the employee representatives within all Furthermore, the forecast reporting, liquidity commitment Group companies for their great commitment throughout and enforcement of supplements in major projects were the past financial year. examined, as were the financing of the Group of companies and the sale of a participation. A dedicated meeting reviewed the risk management system’s compliance with Schrobenhausen, April 2015 applicable laws and standards, as well as the audit activities The Supervisory Board of the Internal Auditing function.
Auditing of 2014 annual and consolidated financial statements Dr. Klaus Reinhardt The annual financial statements of BAUER AG to December 31, Chairman of the Supervisory Board 2014 and the consolidated financial statements of the Group, as well as the Combined Management Report, including the Group accounts, were audited by the auditors elected by the Annual General Meeting and duly appointed by
91
Balance Sheet and Income Statement of BAUER Aktiengesellschaft in accordance with HGB
92 Income Statement of BAUER Aktiengesellschaft
93 Balance sheet of BAUER Aktiengesellschaft as at December 31, 2014 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED 2014
Our customer Stefanutti Stocks Geotechnical employed a BG 28 in the construction work on the Simon Vermooten Bridge in Pretoria, South Africa. Drilling cased piles with a diameter of 1,250 mm were produced in depths of up to 30 m, including 3 m rock socketing. 92
Income Statement of BAUER Aktiengesellschaft
in EUR '000 01.01. - 31.12.2013 01.01. - 31.12.2014 1. Sales revenues 30,495 30,046 2. Other capitalized goods and services for own account 0 8 3. Other operating income 2,124 5,749 32,619 35,803 4. Cost of materials -1,733 -1,052 5. Staff costs -14,613 -15,450 6. Amortization of intangible assets and depreciation of property, plant and equipment -3,191 -2,874 7. Other operating expenses -13,776 -16,667 -33,313 -36,043 Operating result -694 -240
8. Income from participations 4,356 4,950 9. Other interest and similar income 7,029 7,950 10. Interest and similar expenses -4,804 -5,914 Financial result 6,581 6,986
Result from operating activities 5,887 6,746 11. Extraordinary expenses -141 -141 12. Income tax expense -609 -666 13. Other taxes -17 -18 14. Net profit for the year 5,120 5,921
15. Profit carryforward 22,309 27,429 16. Net earnings available for distribution 27,429 33,350 93
Balance sheet of BAUER Aktiengesellschaft as at December 31, 2014
Assets in EUR '000 31.12.2013 31.12.2014 A. Fixed assets I. Intangible assets 2,982 2,616 II. Property, plant and equipment 3,822 3,557 III. Financial assets 115,696 116,646 122,500 122,819 B. Current assets
I. Inventories Raw materials and supplies 74 71
II. Receivables and other assets 174,049 205,920 (of which receivables from affiliated companies) (172,622) (204,598)
III. Cash at banks 1,517 960 175,640 206,951 C. Prepayments and deferred charges 586 641 D. Deferred tax assets 352 603 299,078 331,014 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED 2014 Equity and liabilities in EUR '000 31.12.2013 31.12.2014 A. Shareholders’ equity I. Subscribed capital 73,001 73,001 II. Capital reserve 39,781 39,781 III. Revenue reserves 15,100 15,100
IV. Net earnings available for distribution (off which profit carryforward EUR 27,429 thousand; previous year EUR 22,309 thousand) 27,429 33,350
155,311 161,232
B. Provisions 6,716 7,841 (of which provisions for defined benefit plans) (5,575) (6,600)
C. Liabilities 137,051 161,941 (of which liabilities payable to affiliated companies) (53,830) (34,942)
299,078 331,014
95
Consolidated Financial Statements in accordance with IFRS
96 Consolidated statement of profit or loss
96 Consolidated statement of comprehensive income
97 Consolidated cash flow statement
98 Consolidated balance sheet as at December 31, 2014
100 Consolidated statement of chances in equity
101 Notes of the consolidated financial statement
180 Assurance by the Legal Representatives
181 Auditor’s Report CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED 2014
After over 375 years, the Paulaner Brauerei in Munich left its brewery facility at Nockherberg and dug new wells on the outskirts of the city near Langwied. GWE Pumpenboese GmbH supplied materials for this. 96
Consolidated statement of profit or loss and Consolidated statement of comprehensive income
Income Statement
in EUR '000 Appendix 01.01. - 31.12.2013 * 01.01. - 31.12.2014 1. Sales revenues (6) 1,402,173 1,375,679 2. Changes in inventories -4,423 26,622 3. Other capitalized goods and services for own account (7) 19,196 14,696 4. Other income (8) 30,579 89,022 CONSOLIDATED REVENUES 1,447,525 1,506,019 5. Cost of materials (9) -755,906 -749,247 6. Staff costs (10) -342,815 -355,250
7. Depreciation and amortization a) Depreciation of fixed assets (11) -79,696 -78,781
b) Write-downs of inventories due to use (12) -14,196 -15,789 8. Other operating expenses (13) -224,827 -230,526 OPERATING RESULT 30,085 76,426 9. Financial income (14) 7,729 7,096 10. Financial expenses (15) -45,541 -45,149 11. Share of the profit or loss of associated companies accounted for using the equity method 1,770 -572 PROFIT BEFORE TAX -5,957 37,801 12. Income tax expense (16) -13,474 -22,075 NET PROFIT OR LOSS -19,431 15,726 of which attributable to shareholders of BAUER AG -16,927 14,481 of which attributable to non-controlling interests -2,504 1,245
in EUR 01.01. - 31.12.2013 01.01. - 31.12.2014 Basic earnings per share (17) -0.99 0.85 Diluted earnings per share (17) -0.99 0.85 Average number of shares in circulation (basic) 17,131,000 17,131,000 Average number of shares in circulation (diluted) 17,131,000 17,131,000
Statement of Comprehensive Income
in EUR '000 01.01. - 31.12.2013 01.01. - 31.12.2014 Net profit or loss -19,431 15,726 Income and expenses which will not be subsequently reclassified to profit and loss 970 -32,264 Revaluation of commitments arising from employee benefits after termination of employment Deferred taxes on that revaluation with no effect on profit and loss -226 9,046 Income and expenses which will not be subsequently reclassified to profit and loss Market valuation of derivative financial instruments 2,094 -5,323 Included in profit and loss -310 6,497 Deferred taxes on financial instruments with no effect on profit and loss -642 54 Differences from currency translation -15,678 10,545 Other result after tax -13,792 -11,445 Total Comprehensive income for the year -33,223 4,281 of which attributable to shareholders of BAUER AG -28,924 2,360 of which attributable to non-controlling interests -4,299 1,921
* Previous year adjusted; see notes on page 106 97
Consolidated cash flow statement
in EUR '000 01.01. - 31.12.2013 * 01.01. - 31.12.2014 Cash flows from operational activities: Profit before tax -5,957 37,801 Depreciation of fixed assets 79,696 78,781 Write-downs of inventories due to use 14,196 15,789 Financial income received -4,610 -4,463 Financial expenses paid 39,358 40,567 Other non-cash transactions 6,088 -49,476 Dividends received 2,951 450 Result from the disposal of fixed assets -3,175 -4,773 Change in provisions -3,029 314 Change in trade receivables -55,342 20,634 Change in receivables from construction contracts -31,950 24,309 Change in receivables from concession arrangements 2,279 2,309 Change in other assets and in prepayments and deferred charges 7,717 -10,506 Change in inventories -22,687 -37,316
Change in trade payables 20,451 -21,114 FINANCIAL STATEMENTS CONSOLIDATED Change in liabilities from construction contracts 4,424 18,551 Change in other current and non-current liabilities -4,968 22,776 2014 Cash and cash equivalents generated from day-to-day business operations 45,442 134,633 Income tax paid -7,026 -19,235 Net cash from operating activities 38,416 115,398
Cash flows from investment activities: Acquisition of property, plant and equipment and intangible assets -89,240 -69,119 Proceeds from sale of fixed assets 22,053 26,854 Consolidation scope-related change in financial resources 34 -5,187 Net cash used in investing activities -67,153 -47,452
Cash flows from financing activities: Raising of loans and liabilities to banks 111,650 202,306 Repayment of loans and liabilities to banks -17,317 -237,761 Repayment of liabilities from finance lease agreements -11,012 -11,074 Dividends paid -6,589 -2,872 Interest paid -39,342 -42,952 Interest received 6,186 5,462 Net cash used in financing activities 43,576 -86,891
Changes in liquid funds affecting payments 14,839 -18,945 Influence of exchange rate movements on cash -2,854 3,563 Total change in liquid funds 11,985 -15,382
Cash and cash equivalents at beginning of reporting period 45,232 57,217 Cash and cash equivalents at end of reporting period 57,217 41,835 Change in cash and cash equivalents 11,985 -15,382
* Previous year adjusted; see notes on page 106 98
Consolidated balance sheet as at December 31, 2014
Assets
in EUR '000 Appendix 31.12.2013 * 31.12.2014 A. NON-CURRENT ASSETS I. Intangible assets (18)
1. Concessions, industrial property rights and similar rights and values as well as licenses to such rights and values 11,038 10,156
2. Capitalized software costs 90 39 3. Capitalized development costs 24,260 24,245 35,388 34,440 II. Property, plant and equipment and investment property (18) 1. Land, land rights and buildings 211,577 206,576 2. Investment property 863 804 3. Technical equipment and machinery 214,496 206,209 4. Other equipment, factory and office equipment 27,319 25,107 5. Payments on account and assets in course of construction 5,282 8,213 459,537 446,909 III. Investments accounted for using the equity method 13,249 42,906 IV. Participations 3,613 3,613 V. Deferred tax assets (19) 26,299 30,973 VI. Receivables from concession arrangements (20) 36,762 0 VII. Other non-current assets (21) 7,564 7,492 VIII. Other non-current financial assets (22) 5,420 28,420 587,832 594,753 B. CURRENT ASSETS I. Inventories (23) 1. Raw materials and supplies 146,666 155,334 2. Finished goods and work in progress and stock for trade 272,686 283,850 419,352 439,184 II. Receivables and other assets (24) 1. Receivables from construction contracts (PoC) 143,234 132,159 2. Trade receivables 320,301 311,417 3. Receivables from enterprises in which the company has participating interests 444 67 4. Payments on account 3,725 4,304 5. Other current assets 30,695 28,603 6. Other current financial assets 19,551 20,100 517,950 496,650 III. Effective income tax refund claims 3,437 2,661 IV. Cash and cash equivalents (25) 57,217 41,835 997,956 980,330 1,585,788 1,575,083 99
Equity and liabilities in EUR '000 Appendix 31.12.2013 * 31.12.2014 A. SHAREHOLDERS’ EQUITY (26) I. Subscribed capital 73,001 73,001 II. Capital reserve 38,404 38,404 III. Other revenue reserves and net earnings available for distribution 285,601 287,903 Equity of BAUER AG shareholders 397,006 399,308 IV. Non-controlling interests 22,809 19,617 419,815 418,925 B. NON-CURRENT LIABILITIES (27) I. Liabilities to banks 247,775 364,771 II. Liabilities from finance lease agreements 17,265 13,032 III. Defined benefit plans (28) 81,637 116,358 IV. Other non-current liabilities 6,483 5,959 V. Other non-current financial liabilities 14,397 10,013 VI. Deferred tax liabilities (19) 14,954 13,123 382,511 523,256
C. CURRENT LIABILITIES (29) FINANCIAL STATEMENTS CONSOLIDATED I. Liabilities 1. Liabilities to banks 427,589 266,533 2014 2. Liabilities from finance lease agreements 10,185 7,453 3. Advances received for orders 9,801 19,579 4. Liabilities from construction contracts (PoC) 32,839 48,471 5. Trade payables 194,471 168,974 6. Receivables from enterprises in which the company has participating interests 219 205 7. Other current liabilities 69,873 68,632 8. Other current financial liabilities 12,102 25,712 757,079 605,559 II. Provisions 1. Effective income tax obligations 9,606 9,317 2. Provisions (30) 14,809 15,880 3. Current portion of defined benefit plans (28) 1,968 2,146 26,383 27,343 783,462 632,902 1,585,788 1,575,083
* Previous year adjusted; see notes on page 106 100
Consolidated statement of chances in equity
Other revenue reserves and net earnings in EUR '000 available for distribution Currency Reconciling Hedging Non- Subscribed Capital Revenue translation item, transactions controlling capital reserve reserves reserve IFRS reserve interests Total As at 01.01.2013 73,001 38,404 303,892 7,373 10,387 -3,722 33,205 462,540 Net profit or loss 0 0 -16,927 0 0 0 -2,504 -19,431
Differences from currency translation 0 0 0 -13,865 0 0 -1,813 -15,678
Revaluation of commitments arising from employee benefits after termination of employ- ment 0 0 964 0 0 0 6 970
Market valuation of derivative financial instruments 0 0 0 0 0 1,767 17 1,784
Deferred taxes with no effect on profit and loss 0 0 -225 0 0 -638 -5 -868
Total Comprehensive income for the year 0 0 -16,188 -13,865 0 1,129 -4,299 -33,223
Changes in scope of consolidation 0 0 -2,887 0 0 0 0 -2,887 Dividend payments 0 0 -5,139 0 0 0 -1,450 -6,589 Other changes * 0 0 4,621 0 0 0 -4,647 -26 As at 31.12.2013 73,001 38,404 284,299 -6,492 10,387 -2,593 22,809 419,815 As at 01.01.2014 73,001 38,404 284,299 -6,492 10,387 -2,593 22,809 419,815 Net profit or loss 0 0 14,481 0 0 0 1,245 15,726
Differences from currency translation 0 0 0 9,641 0 0 904 10,545
Revaluation of commitments arising from employee benefits after termination of employ- ment 0 0 -31,956 0 0 0 -308 -32,264
Market valuation of derivative financial instruments 0 0 0 0 0 1,184 -10 1,174
Deferred taxes with no effect on profit and loss 0 0 8,959 0 0 51 90 9,100
Total Comprehensive income for the year 0 0 -8,516 9,641 0 1,235 1,921 4,281
Changes in scope of consolidation 0 0 0 0 0 0 -3,199 -3,199 Dividend payments 0 0 0 0 0 0 -2,872 -2,872 Other changes 0 0 -58 0 0 0 958 900 As at 31.12.2014 73,001 38,404 275,725 3,149 10,387 -1,358 19,617 418,925
* Previous year adjusted; there was a non-signifi cant change in value in the course of calculating the share of joint ventures according to IFRS 11 and the retrospectively changed balance sheet disclosure (see page 106) 101
Notes of the consolidated financial statement
GENERAL NOTES
GENERAL INFORMATION ABOUT THE GROUP BAUER Aktiengesellschaft, Schrobenhausen (referred to in the following as BAUER AG) is a stock corporation under German law. Its registered office is at BAUER-Strasse in Schrobenhausen, and the company is entered in the Register of Companies of Ingolstadt under file reference (HRB 101375).
The BAUER Group is a provider of services, equipment and products dealing with ground and groundwater. The Group markets its products and services all over the world. The operations of the Group are divided into three segments: Construction, Equipment and Resources. BAUER AG has been listed on the SDAX stock market index since September 2006. Between September 2008 and September 2010, BAUER AG was also listed on the MDAX index.
1. BASES FOR COMPILING THE CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements of BAUER AG were prepared applying section 315a of the German Commercial Code (HGB) in accordance with International Financial Reporting Standards (IFRS), as applicable in the EU. The consolidated financial statements were prepared on the basis of historical cost, limited by the market-value valuation of available-for-sale financial assets and by the fair-value valuation of financial assets and liabilities (including derivative financial instruments) affecting net income. The previous year’s figures have been determined according to the same principles.
The BAUER Group’s financial year is the calendar year. FINANCIAL STATEMENTS CONSOLIDATED The consolidated financial statements were prepared in euros. Unless otherwise specified, all amounts are quoted in thousands of euros (EUR '000). 2014
The income statement was prepared according to the nature of expenses method.
2. SCOPE OF CONSOLIDATION AND CONSOLIDATION PRINCIPLES Scope of consolidation The scope of consolidation includes BAUER AG and all major subsidiaries. Subsidiaries are all companies over which the parent has control in terms of financial and corporate policy. This is routinely accompanied by a voting share of over 50 %. When assessing whether control is exerted, the existence and effect of potential voting rights currently exercisable or convertible are considered.
The consolidated financial statements 2014 include 120 companies (previous year: 122). Of these, 0 (previous year: 3) were included in the scope of consolidation for the first time. Since the start of 2014, 4 (previous year: 2) companies have been removed from the scope of consolidation due to merger and sale. Consortia have not been included in the number of companies included in the scope of consolidation, because of the short-term nature of the projects involved. Also, non-significant joint ventures have not been considered in the stated number of included companies. 102 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
The following overview shows the number of subsidiaries broken down by segment:
Head- Main business Number of Number of Number of Total quarters wholly-owned non-wholly-owned associated subsidiaries subsidiaries companies
31.12. 31.12. 31.12. 31.12. 31.12. 31.12. 31.12. 31.12. 2013 2014 2013 2014 2013 2014 2013 2014
Construction Special foundation engineering, Worldwide 30 30 5 5 11 12 46 47 segment mining, project development
Equipment Machine manufacturing Worldwide 26 25 8 9 1 1 35 35 segment and sale
Resources Environment and Worldwide 28 26 9 7 1 2 38 35 segment environmental technology
‘Other’ Central services Worldwide 3 3 0 0 0 0 3 3 segment
Total 87 84 22 21 13 15 122 120
Subsidiary companies are not included in the consolidated financial statements if they are not material from the viewpoint of an operating segment or of the Group based on the following assessment: If the sum of all subsidiaries not included in the consolidated financial statements accounts for more than 1 % of the Group’s total net assets, consolidated revenues or net profit for the period, an assessment is undertaken as to which company should be included in the consolidated financial statements taking into account sustainability and consolidation effects. The as- sessment criteria for materiality in respect of associated companies are restricted to annual earnings. Alongside quantitative criteria, qualitative criteria are also applied in assessing the materiality of a company with regard to its inclusion in the scope of consolidation. Consequently, the non-inclusion of any one company must not result in material changes to segment or Group annual earnings, nor must it mask any other materially relevant trends. In a small number of cases, companies are fully consolidated into the financial statements of BAUER AG even though that company holds less than 50 % of their voting rights. This is the result of state restrictions which stipulate that foreign investors may not hold more than 50 % of the voting rights in domestic companies. In such cases BAUER AG makes use of so-called agency constructions, whereby more than 50 % of the voting rights are commercially held in the company concerned, thus allowing for full consolidation.
Subsidiaries are included in the consolidated financial statements (fully consolidated) from the point at which control is transferred to the Group. They are de-consolidated at the point when control ends. Companies of which BAUER AG is able, directly or indirectly, to exercise a significant influence on the said companies’ financial and operating policy decisions (associated companies) are consolidated according to the equity method. 16 (previous year: 15) companies were affected by this as at 31 December. The consolidated subgroup of Wöhr + Bauer GmbH was disclosed as one company in the previous year. All companies of the subgroup were listed in the financial year. The previous year’s figure was changed accordingly. Joint ventures were also consolidated according to the equity method. The main subgroups and companies included in the consolidated financial statements are listed in the Major Participations section. The disclosures in accordance with Section 313, Subsection 2 HGB are grouped in a separate list of holdings. This will be published as part of the Notes to the financial statements of BAUER Aktiengesellschaft in the electronic version of the official Gazette (“Bundesanzeiger”) of the Federal Republic of Germany. Subsidiaries with differing balance sheet dates compile interim financial statements as per the consolidated balance sheet date. NuBa Equipment Ltd., Canada, prepares its annual financial statements as at 30 September, because Nuna Logistics Limited, Edmonton, Canada, as another share- holder, also prepares its annual financial statements as at 30 September. BAUER Corporate Services Private Limited, India, prepares its financial statements as at 31 March due to local statutory requirements. NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 103
Changes at subsidiaries Equipment segment Purchases With effect from April 30, 2014, Celler Brunnenbau Holding GmbH, Celle, contributed assets with a fair value of EUR 900 thousand to PRAKLA Bohrtechnik GmbH as part of an asset deal. The fair value was certified by an external auditor. In return, linked to a capital increase by PRAKLA Bohrtechnik GmbH, Peine, a capital share (10 %, or EUR 114 thousand) determined by the DCF method was allotted. The asset deal also entailed a premium of EUR 786 thousand.
The assets contributed are linked to the business unit involved in the production of drilling rigs, casing oscillators and grip heads, as well as spare parts in particular for water extraction, subgrade and constructional engineering works, and geologi- cal drilling and exploration.
Amounts recorded at time of acquisition: in EUR '000 Cash and cash equivalents 0 Equity portions 900
Total acquisition cost 900 FINANCIAL STATEMENTS CONSOLIDATED Non-current assets 900 Current assets 0 2014 Assets 900 Non-current liabilities 0 Current liabilities 0 Equity and liabilities 0 Net worth 900 Non-controlling interests 900
As this is a change in equity at a subsidiary as a result of which the Group’s share in equity is reduced or increased without loss of control, the change is recognized as a transaction between equity investors not affecting profit and loss.
No goodwill was created by the asset deal.
Resources segment Mergers On August 25, 2014, GWE Prakla Services GmbH, Peine, Germany and on August 29, 2014, GWE GF-Tec GmbH, Rödermark, Germany were merged into GWE pumpenboese GmbH, Peine, Germany retrospectively with effect from January 1, 2014.
On October 30, 2014, PESA ENGINEERING S.A., Madrid, Spain and BAUER Ingeneria Medioambiental S.A., Madrid, Spain were merged and the company name changed to BAUER RESOURCES SPAIN S.A., Madrid, Spain. 104 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
Divestments BAUER Resources GmbH sold 21 % of its shares in BAUER Nimr LLC on November 19, 2014. The effects of the divestment are presented below:
a) Consideration received
in EUR '000 19.11.2014 Consideration received 13,324
b) Assets and liabilities disposed of due to the loss of control
in EUR '000 19.11.2014 Non-current assets Intangible assets 11 Property, plant and equipment and investment property 2,042 Receivables from concession arrangements 38,290 Other non-current assets 11 Current assets Receivables and other assets 7.997 Cash and cash equivalents 5,187 Non-current liabilities Liabilities to banks −24,103 Other non-current liabilities −435 Other non-current financial liabilities −12,290 Deferred tax liabilities −200 Current liabilities Liabilities to banks 0 Liabilities from construction contracts (PoC) −2,046 Trade payables −2,937 Other current liabilities −265 Effective income tax obligations −181 Divested net assets 11,081
c) Overall effect of the proportional sale of BAUER Nimr LLC
in EUR '000 19.11.2014 Considerations received 13,324 Relinquished net assets −11,081 Non-controlling interests 3,199 Fair value of retained at-equity interest of 49 % 31,089 Overall effect of the proportional sale 36,531
The overall effect is included in Other income and is stated separately in item 8. NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 105
d) Net cash outflow from the proportional sale of BAUER Nimr LLC in EUR '000 19.11.2014 Selling price settled with cash and cash equivalents 0 Net of cash or cash equivalents divested as part of the transaction -5,187 The net cash outflow from the sale -5,187
The retained at-equity interest was valued at its fair value as a result of the proportional sale of BAUER Nimr LLC. The fair value was calculated from the discounted transaction price for the sold shares at the time of the divestment. This procedure falls within Level 3 of the IFRS 13 measurement hierarchy. The complete effect of this measurement is explained on page 104.
Consolidation principles The assets and liabilities of the German and foreign companies included in the consolidated financial statements are stated according to the uniform accounting and valuation methods applicable throughout the BAUER Group. Mutual receivables and liabilities as well as expenses and income between consolidated companies are eliminated. Consolidated inventories and fixed assets are adjusted by existing intra-Group balances. Consolidation affecting net income is subject to deferral of taxes, with deferred tax assets and liabilities being offset against each other provided the payment period and tax creditor are the same. In respect of subsidiaries consolidated for the first time, the identifiable assets, liabilities and contingent liabilities of FINANCIAL STATEMENTS CONSOLIDATED the acquired companies were recorded at their applicable fair values at the time of acquisition. Goodwill occurring on initial consolidation is capitalized and subjected to a yearly impairment test; an excess of the net fair value of the acquired net 2014 assets over cost is recognized in the income statement immediately at the time of initial consolidation in accordance with IFRS 3. Consolidation according to the equity method is subject to the same principles. If the pro rata loss in an associated company is equal to or greater than the carrying amount of the participating interest, no further losses are recognized, unless a consolidated Group company has entered into obligations or made payments on behalf of the associated company.
Non-controlling interests represent the proportion of the result and the net worth which is not to be attributed to the Group. The result attributable to these interests is stated in the income statement as follows, separately from the proportion of the result to be allocated to the shareholders of the parent company. It is stated in the balance sheet within shareholders’ equity, separately from the shareholders’ equity attributable to shareholders of the parent company. The purchase of non-controlling investments and changes in the investment quota of the parent company in a subsidiary which do not lead to a loss of control are stated in the balance sheet as equity transactions.
3. KEY ASSUMPTIONS AND ESTIMATES In the consolidated financial statements, assumptions and estimates must be made which influence the amounts and recognition of assets and liabilities, income and expenses recorded, as well as contingent liabilities. The main areas of application of assumptions and estimates are in specifying the useful lives of fixed assets, determining discounted cash flows within the framework of impairment tests, assessing the realizability of deferred tax assets and the collectability of receivables, estimating the percentage of completion of construction contracts, establishing the fair value of some financial instruments and in creating provisions for legal actions, pensions and other benefit commitments, taxes, warranties and guarantees. The actual values may differ from the estimates made. 106 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
4. GENERAL ACCOUNTING AND VALUATION METHODS 4.1. General changes to accounting and valuation methods Application of the following standards and interpretations was mandatory for the first time in the financial year:
• IFRS 10 – Consolidated Financial Statements IFRS 10 modifies the term “control” such that the same criteria are applied to all entities in assessing a control relationship. This definition is backed by wide-ranging application examples illustrating various kinds of control. The effects of IFRS 10 do not have any significant influence on the consolidated financial statements of BAUER AG.
• IFRS 11 – Joint Arrangements As a result of the changes to definitions in IFRS 11, there are now two kinds of joint arrangement: joint operation and joint venture. Moreover, the option of proportionate consolidation of jointly controlled entities has been abolished. Parties to a joint venture are obligated to recognize their share on the balance sheet applying the equity method in accordance with IAS 28, “Investments in Associates and Joint Ventures”. Parties to a joint operation recognize their shares proportionate to their share of the assets and liabilities of the joint operation. Consequently, a party to a joint operation includes the following items in its consolidated financial statements: - Its assets, including its share in jointly held assets - Its liabilities, including its share in jointly incurred liabilities - Its income from the sale of its share in the products of the joint operation - Its share in income from the sale of products by the joint operation - Its expenses, including its share in any jointly incurred expenses
The Accounting and Auditing Board of the Institute of German Certified Public Accountants (IDW) takes the view that the typical German construction consortium meets the preconditions for classification as a joint venture.
As previously mentioned, IFRS 11 stipulates that shares in joint ventures are to be valued according to the equity method. In the BAUER Group, the changes relate to the statement in the balance sheet and the income statement. Proportionate results are no longer stated under receivables from joint ventures and sales revenues with consortia as used to be the case, but under investments accounted for using the equity method as well as in the result from investments accounted for using the equity method. The previous year’s figures have been adjusted for greater comparability.
The effects of IFRS 11 do not have any significant influence on the consolidated financial statements of BAUER AG, with the exception of changes in recognition of items.
• IFRS 12 – Disclosure of Interests in Other Entities IFRS 12 requires disclosures which enable readers of financial statements to assess the nature, risks and financial effects linked to interests in subsidiaries, associated companies, joint arrangements and non-consolidated structured entities (special-purpose entities). The effects of IFRS 12 are presented in the notes to the consolidated financial statements of BAUER AG.
• IAS 27 – financial statements (revised 2011) The new regulations included in IFRS 10, consolidated financial statements, have replaced the consolidation guidelines contained in the former IAS 27, consolidated and financial statements, as well as SIC-12, consolidation – special purpose NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 107
vehicles. Now, IAS 27 only contains the regulations that are to be applied to separate financial statements, as a result of which the standard has been renamed as IAS 27, financial statements (revised 2011). The effects of IAS 27 (revised 2011) do not have any significant influence on the consolidated financial statements of BAUER AG.
• IAS 28 – Investments in Associates and Joint Ventures This amendment replaces IAS 28 - Investments in Associates - and stipulates the preconditions for application of the equity method by associates and joint ventures.
• IAS 32 – Financial Instruments: Representation The amendment essentially involves clarification of a number of rules for the offsetting of financial assets and liabilities. A financial asset may only be set off against a financial liability if the claim is current - that is to say, it must not be depend- ent on a future event. Additionally, the amendments clarify that gross offsetting mechanisms (such as through clearing), which both eliminate credit and liquidity risks and process receivables and liabilities in a single accounting process, must be treated as equivalent to net offsetting. The effects of IAS 32 do not have any significant influence on the consolidated financial statements of BAUER AG.
• IAS 36 – Impairment of Assets FINANCIAL STATEMENTS CONSOLIDATED Pursuant to the amendment to IFRS 13 Fair Value Measurement, a number of disclosure rules in IAS 36 Impairment of Assets regarding measurement of the achievable amount of asset impairment have been changed. 2014 The effects of IAS 36 do not have any significant influence on the consolidated financial statements of BAUER AG.
• IFRS 39 – Financial Instruments: Recognition and Measurement With the amendment to IAS 39, it is possible to retain hedge accounting for derivatives if the contract party changes. This possibility is only allowable under certain preconditions. The effects of IAS 39 do not have any significant influence on the consolidated financial statements of BAUER AG.
• Amendments to IFRS 10, IFRS 12 and IAS 27 The IASB project resulting in the amendments to IFRS 10, IFRS 12 and IAS 27 emerged from the consultation process relating to the publication of IFRS 10 Consolidated Financial Statements. The effects of this do not have any significant influence on the consolidated financial statements of BAUER AG.
• Amendments to IFRS 10, IFRS 11 and IFRS 12 The collective amendment to IFRS 10, IFRS 11 and IFRS 12 clarifies their transitional provisions. Early adoption is allowable only in respect of all standards together.
• IFRIC 21 – Levies IFRIC 21 regulates accounting for government levies not covered by IAS 12. It stipulates when such an obligation is to be recognized as a liability. The effects of IFRIC 21 do not have any significant influence on the consolidated financial statements of BAUER AG.
Moreover, the IASB and the IFRIC have adopted further standards, interpretations and amendments, as listed below, which were not yet bindingly applicable, or had not yet been recognized by the EU, in financial 2014. The BAUER Group had not implemented early application of these standards by December 31, 2014. 108 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
Initial application of the standards is planned as from the point they are recognized and adopted by the EU.
Standard/interpretation/amendments Applicable Adoption from the by EU financial year
Amendment to IAS 19, defined benefit plans: employee contributions 2015 Yes Annual improvements in IFRS (cycle 2010 - 2012) 2015 Yes Annual improvements in IFRS (cycle 2011 - 2013) 2015 Yes Amendment to IFRS 11, purchase of interests in a joint activity 2016 No Amendment to IAS 16 and IAS 38, clarification of acceptable depreciation methods 2016 No Amendment to IAS 16 and IAS 41, agriculture: producing plants 2016 No IFRS 15, sales revenues from customer contracts 2017 No Amendment to IAS 27, financial statements (equity method) 2016 No
Amendment to IFRS 10 and IAS 28, disposal of an investor’s assets in or application to the investor’s associated company or joint venture 2016 No
Annual improvements in IFRS (cycle 2012-2014) - No
Amendment to IFRS 10, IFRS 12 and IAS 28, investment companies − application of the consolidation exception 2016 No
Amendment to IAS 1, disclosure initiative 2016 No
IFRS 14, regulatory deferrals and accruals 2016 No
IFRS 9, financial instruments 2018 No
Possible effects of the first use of IFRS 15, sales revenues from customer contracts, cannot be ultimately assessed at the present time. BAUER AG does not expect any significant effect on the consolidated financial statements to result from any of the other standards.
4.2. Accounting and valuation methods within the Group Currency translation reserve Currency translation reserve are translated in the financial statements of BAUER AG and the consolidated subsidiaries at the rates applying on the dates of the transactions. The financial statements of the foreign companies belonging to the BAUER Group are translated into euros according to the functional currency concept. Accordingly, assets and liabilities are translated at the rate applying on the balance sheet date and the income statement items at the average rate. The differences arising from currency translation are recognized in the currency translation reserve as part of the shareholders’ equity, without affecting net income. NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 109
The rates used for translation are based on the following table:
1 EUR corresponds to Yearly average value Balance sheet date
2013 2014 2013 2014 Singapore SGD 1.6661 1.6778 1.7392 1.6074 Thailand THB 41.0558 42.9860 45.2177 40.0245 Mexico MXP 17.1181 17.6560 18.0282 17.9234 Chile CLP 664.3491 757.8911 724.4884 736.1344 Argentina ARS 7.3833 10.8648 8.9744 10.4039 Peru PEN 3.6211 3.7598 3.8506 3.6351 Japan JPY 130.3063 140.5059 144.5122 145,2439 United States of America USD 1.3301 1.3219 1.3767 1.2166 South Africa ZAR 12.9709 14.3577 14.5035 14.0575 UK GBP 0.8497 0.8028 0.8331 0.7818 Malaysia MYR 4.2178 4.3329 4.5204 4.2622 Saudi Arabia SAR 4.9982 4.9585 5.1632 4.5653 Lebanon LBP 2,005.2622 1,995.3273 2,068.4917 1,838.8153
Egypt EGP 9.1766 9.3713 9.5661 8.6984 FINANCIAL STATEMENTS CONSOLIDATED Indonesia IDR 14,047.7904 15,669.6389 16,754.4389 15,139.9647 Hungary HUF 298.0405 309.9893 297.0230 314.9587
Romania RON 4.4164 4.4386 4.4739 4.4845 2014 United Arab Emirates AED 4.8855 4.8553 5.0565 4.4685 Philippines PHP 56.7348 58.7377 61.1186 54.4041 New Zealand NZD 1.6295 1.6001 1.6747 1.5506 Taiwan TWD 39.6265 40.1344 41.0539 38.5999 Hong Kong HKD 10.3173 10.2525 10.6753 9.4373 China CNY 8.1686 8.1575 8.3314 7.5550 Switzerland CHF 1.2288 1.2124 1.2267 1.2024 Australia AUD 1.3937 1.4708 1.5396 1.4841 Canada CAD 1.3759 1.4634 1.4636 1.4117 Russia RUB 42.5912 51.5000 45.2582 67.5895 India INR 78.5205 80.7777 85.2246 77.4729 Bulgaria BGL 1.9558 1.9559 1.9560 1.9559 Sweden SEK 8.6664 9.1184 8.8263 9.4275 Poland PLN 4.2159 4.1955 4.1508 4.2902 Panama PAB 1.3301 1.3219 1.3767 1.2166 Qatar QAR 4.8418 4.8133 5.0133 4.4307 Turkey TRY 2.5646 2.8937 2.9450 2.8327 Vietnam VND 27,999.3993 28,039.4804 29,062.1368 26,031.7369 Jordan JOD 0.9421 0.9357 0.9753 0.8611 Oman OMR 0.5121 0.5090 0.5301 0.4684 Ghana GHS 2.7791 4.0594 3.2559 3.9112 Georgia GEL 2.2134 2.3352 2.3887 2.2604 110 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
Intangible assets Intangible assets are capitalized at cost and amortized according to the straight-line method over the projected useful life of 3 to 10 years. Assets which have an indefinite useful life, such as goodwill, are not subjected to scheduled amortization but are impairment- tested each year, or when relevant indications arise. The goodwill is the amount by which the acquisition cost of the acquisi- tion exceeds the fair value of the Group’s shares in the net assets of the acquired entity at the date of acquisition. Goodwill created by acquisition is recognized under “Intangible assets”. Goodwill resulting from the acquisition of an associated company is included in the carrying amount of investments in associated companies and consequently is not impairment- tested separately, but within the overall carrying amount. The recognized goodwill is subjected to an annual value retention test and valued at its original acquisition cost less cumulative impairment. Value recovery adjustments are not permitted. Gains and losses from the disposal of an entity include the carrying amount of the goodwill assigned to the entity being sold. Assets which are subject to scheduled amortization are impairment-tested if relevant events or changes in circumstances indicate that the carrying amount may no longer be attainable.
Impairment in the amount of the carrying amount exceeding the attainable amount is recognized. The attainable amount is the higher amount of the applicable fair value of the asset less selling costs and the value in use. For the impairment test, assets are grouped at the lowest level for which cash flows can be separately identified (cash-generating units). With the exception of goodwill, a test is performed on each balance sheet date in respect of non-cash assets for which in the past an impairment was recognized as to whether a value recovery adjustment is required. Research and development costs are generally charged as expenditure in the financial year in which they occurred, in accord- ance with IAS 38. Exceptions to this are certain development costs which are capitalized where it is probable that a future economic benefit will be drawn from the development project and the costs incurred can be measured reliably. In addition, the following criteria in accordance with IAS 38.57 must be met:
• Technical feasibility of completion of the intangible asset so that it will be available for use or sale • Intention to complete the intangible asset and to use or sell it • Ability to use or sell the intangible asset • Evidence of how the intangible asset will generate probable future economic benefits • The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset • The ability to measure reliably the expenditure attributable to the intangible asset during its development
The cost of manufacture includes all costs directly attributable to the development process as well as appropriate portions of development-related overheads. The assets in development are subjected to an annual impairment test and valued at their original cost less cumulative depreciation. Amortization is undertaken according to the straight-line method as from start of production over the intended term of the developed models. The projected useful life is between 3 and 6 years. Impairment losses on intangible assets are recognized to the higher of the value in use or net realizable value. If the preconditions for an impairment no longer exist, reversals of impairment – except for goodwill – are undertaken. NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 111
Property, plant and equipment According to IAS 16, property, plant and equipment is valued at cost, less scheduled straight-line depreciation based on the pro rata temporis method, unless in exceptional cases some other method of depreciation more effectively reflects the usage. The following table provides an overview of the useful lives:
Asset object Economic life Buildings and other structures 3 to 60 years Technical equipment and machinery 3 to 21 years Other equipment, factory and office equipment 2 to 21 years
Impairment losses on property, plant and equipment are recognized in accordance with IAS 36 where the value in use or fair value less cost to sell of the asset concerned has fallen below the carrying amount. If the reasons for an impairment recognized in previous years no longer exist, a corresponding reversal of impairment is applied.
Both impairment losses and scheduled depreciation are recognized under the “Depreciation of fixed assets” item. The level of impairment losses is explained in accordance with IAS 36 under “Non-current assets”.
Leasing FINANCIAL STATEMENTS CONSOLIDATED The BAUER Group acts as both a lessee and a lessor. Leasing relationships are classified according to IAS 17 based on the distribution of opportunity and risk between the lessor and lessee. 2014 Leasing relationships in which most of the opportunity and risk linked to ownership of the leased item remains with the lessor are classified as operating leases. Where the lessee has most of the opportunity and risk, the agreement is classified as a finance lease. a) Accounting for lessee transactions Payments made in connection with an operating lease (net after taking into account incentive payments by the lessor) are recognized in the income statement by straight-line depreciation over the term of the lease. Assets from finance leases are capitalized at the start of the lease term at the lower of the fair value of the leased item and the present value of the minimum lease payments. A leasing liability is recognized under “Current and non-current liabilities”. Each lease installment is split into an interest and a repayment portion, so that the leasing liability is subject to a consistent interest rate. The interest portion of the lease installment is recognized as affecting expenditure in the income statement. The property, plant and equipment asset held under a finance lease is written down over the shorter of the economic life of the asset or the lease term. b) Accounting for lessor transactions A lease is an agreement whereby the lessor assigns to the lessee the right to use an asset for a specific period of time against a payment or series of payments. Assets leased by the customer in the form of operating leases are assigned on the balance sheet according to their nature. Income from leases is recognized by the straight-line method over the term of the agreement. In the BAUER Group, mainly operating leases are entered into as the lessor. 112 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
Government grants Government grants for assets including non-monetary benefits at fair value are recognized on the balance sheet as accruals on the Equity and Liabilities side (Investment allowance) or, on determining the carrying amount of the asset, are deducted from the Assets side (Invest subsidy).
Business combinations Acquisitions of subsidiaries are accounted for in accordance with IFRS 3 based on the acquisition method. The cost of the acquisition corresponds to the fair value of the assets contributed, the equity instruments issued and the liabilities created and/or transferred at the transaction date. Assets, liabilities and contingent liabilities identifiable in the course of a business combination are measured on initial consolidation at their fair values at the acquisition date. The amount by which the acquisi- tion cost exceeds the Group’s share of the net assets measured at their fair value is stated as goodwill. The non-controlling interests are valued either at cost (Partial Goodwill method) or at fair value (Full Goodwill method). The available option can be exercised on a case-by-case basis. BAUER Group policy is to apply the Partial Goodwill method. If the acquisition cost is less than the net assets of the acquired subsidiary measured at their fair value, the difference is recognized directly in the income statement. Transaction costs directly linked to a business combination are recognized in the income statement. In the event of successive acquisitions, the differences between the carrying amount and the applicable fair value of the shares previously held are recognized as affecting net income at the time of acquisition. Existing contracts with the acquired entity at the time of acquisition, except those under the terms of IAS 17 and IFRIC 4, are analyzed and reclassified where appropriate.
Borrowing costs Borrowing costs linked directly to the acquisition, construction or production of qualifying assets in accordance with IAS 23 are included in the cost of the asset in question for the period until start of use of the asset. No borrowing costs were capitalized in the financial year. The finance cost rate in the previous year was between 6.76 and 8.0 percent. Testing as to whether an asset is a qualifying asset is carried out according to internally stipulated materiality limits for projects and installations. If the said materiality limits are exceeded, borrowing costs for qualified assets are capitalized. Other financing costs are recognized as ongoing expenditure under “Financial expenses”.
Investment property Land and buildings maintained in order to generate rental income are accounted for at amortized cost in accordance with IAS 40, with the useful lives applied for depreciation (straight-line according to the pro rata temporis method) corresponding to those of the property, plant and equipment used by the company itself. The valuation takes place by deriving current market prices of comparable real estate. This procedure falls within Level 2 of the IFRS 13 measurement hierarchy.
Investments accounted for using the equity method Associated companies According to IAS 28, an associated company is any entity over which the investor has significant influence, though not control. This routinely means voting shares of between 20 and 50 percent. Shares in associated companies are valued at-equity and recognized initially at cost. The Group’s shares in associated companies include the goodwill created by the acquisition (less cumulative impairment). The Group’s share in the profits and losses of associated companies is reported in the income statement as from the time of acquisition. The share in changes in reserves is recorded in the Group reserves. The cumulative changes after acquisition are set off against the carrying amount of the investment. If the Group’s share in the losses of an associated company is equal to or more than the Group’s shareholding in the said associate, including other unsecured claims, the Group recognizes no additional losses, unless it has entered into obligations or made payments on behalf of the associated company. NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 113
Non-realized gains from transactions between Group companies and associated companies are eliminated according to the Group’s share in the associated company. Non-realized losses are likewise eliminated, unless the transaction implies an impairment of the transferred asset.
Joint ventures Joint ventures are joint arrangements in which the parties with shared controlling interests hold rights to the net assets of the agreement. Joint control is the contractually agreed, jointly exercised management of the agreement. This is only provided if decisions relating to significant activities require the unanimous approval of the parties involved in the joint control. Joint ventures stated in the balance sheet using the at-equity method also include the consortia which are typical features of the German economy, in which case provision consortia should be distinguished from umbrella consortia.
In provision consortia, assets are provided to the consortium in the form of personnel, material or equipment, and are invoiced. Results earned by the consortium are stated according to the equity method in accordance with IAS 28. Accordingly, this is disclosed in the balance sheet under investments accounted for using the equity method and in the income statement under the share of the profit or loss of associated companies accounted for using the equity method.
The BAUER Group accounts for consortia in compliance with IFRS 11 as follows: BAUER as a partner in a consortium accounts for the assets at its disposal and the liabilities it itself incurs, as well as its own expenditures, and recognizes the FINANCIAL STATEMENTS CONSOLIDATED income from such activities on a pro rata basis in its sales revenues. The umbrella consortium, on the other hand, always operates without effect on net income. The remuneration claims between the umbrella consortium and the client are identical 2014 to the remuneration claims of the individual lots towards the umbrella consortium. All payments received from the client are passed onto the individual lots in full by the umbrella consortium.
Current settlements of and towards consortia are stated under the receivable from or liabilities to consortia.
Joint operations Joint operations are joint arrangements in which the parties exercising joint control possess rights to the assets and liabilities for the debts of the arrangement. Joint control is the contractually agreed, jointly exercised control of the arrangement. This is only provided if decisions relating to significant activities require the unanimous approval of the parties involved in the joint control.
If the BAUER Group carries out activities in the course of a joint operation, the Group discloses the following items as a joint operator in conjunction with its share of the joint operation:
- Its assets, including its share in jointly held assets - Its liabilities, including its share in jointly incurred liabilities - Its income from the sale of its share in the products or services of the joint operation - Its share of the income from the sale of the products or services of the joint operation and - Its expenses, including its share in any expenses jointly entered into
In transactions such as the purchase of assets by a Group company, profits and losses are stated to the extent of the Group’s share in the joint operation only when assets are sold on to third parties. 114 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
Financial instruments a) Primary financial instruments In the BAUER Group, primary financial instruments are assigned as financial assets to the following categories: • Loans and Receivables (LaR) • Available-for-Sale (AfS)
The “Loans and Receivables” category includes current and non-current financial assets. The “Available-for-Sale” category includes marketable securities as well as equity portions which are not consolidated or not recognized by the equity method. For those equity portions there is no active market, and no fair value can be reliably determined for them, so the shares are valued at cost. We have no intention of selling them. Available-for-sale financial assets are non-derivative financial assets which are classified as available for sale and are not al- located to one of the other categories of financial asset specified. They are recognized at fair value both when initially entered and in the subsequent periods. Assets classified as held for sale are impairment-tested at each balance sheet date in relation to objective criteria (such as significant financial difficulties of the debtor, high probability of insolvency proceedings being initiated against the debtor, loss of an active market in the financial assets). Any impairment expenditure incurred because a fair value is less than the carrying amount is recognized affecting net income. Where impairment of the fair values of assets held for sale was previously stated not affecting net profit in the shareholders’ equity, it must be eliminated from the shareholders’ equity up to the amount of the measured impairment and recognized in the income statement. If subsequent valuation reveals that the fair value has objectively increased due to events occurring after entry, the impairment is reversed in the corresponding amount. Recovery in the value of debt instruments is recognized in the income statement. Impairment affecting equity instruments held for sale and recognized at cost must not be reversed.
Primary financial instruments as financial liabilities are assigned to the following category: • Financial Liabilities Measured at Amortized Cost (FLAC) or Other Financial Liabilities
The “Financial Liabilities Measured at Amortized Cost” category includes liabilities to banks, trade payables as well as other current and non-current liabilities and current and non-current financial liabilities.
Receivables and liabilities in the “Financial Liabilities Measured at Amortized Cost” and “Loans and Receivables” categories are initially recognized at the applicable fair value, including transaction costs directly attributable to acquisition of the financial asset or incurring of the financial liability, and subsequently measured at amortized cost, applying the effective interest rate method. The amortized cost of a financial asset or liability is calculated, applying the effective interest rate method, from the historical cost less the repayments made, plus or less the cumulative amortization of any difference between the original amount and the amount repayable at the final due date, and also less depreciation and impairment or plus appreciation and value recovery adjustment. NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 115
In the case of current receivables and liabilities, the amortized cost always corresponds to the nominal amount, or the amount repayable. Cash and cash equivalents comprise credit balances with banks as well as petty cash stocks, and are valued at amortized cost. In the case of financial assets or liabilities recognized in the income statement at fair value, the initial fair value valuation ex- cludes the transaction costs. Financial liabilities are derecognized when they are repaid or if the obligation has expired. Items are initially recorded on the performance date. In the case of financial assets, derecognition of potential default risks is effected by value adjustments in separate value adjustment accounts. Financial assets are derecognized if the rights to payments from the financial assets have expired or been transferred, and the Group has essentially transferred all risks and opportunities associated with ownership, or the essential opportunities and risks have neither been transferred nor retained, but right of disposal has been transferred. If there are doubts as to the collectability of receivables, they are valued at amortized cost less appropriate single valuation allowances or a flat-rate allowance. Impairment of trade receivables is recognized when there are objective signs (such as disputed contract variations, missed payments or insolvencies) indicating that the amounts due will not be collectable in full. The impairment is recognized in the income statement by way of a value adjustment account. All other impairments are written off directly and likewise recognized in the income statement. Group directives stipulate that impairment of receivables must always be recorded in separate value adjustment accounts. They are derecognized at the same time as the corresponding impaired receivable. The fair value option provided by IAS 39 was not exercised.
b) Derivative financial instruments FINANCIAL STATEMENTS CONSOLIDATED A derivative is a financial instrument or a contract in the area of application of IAS 39 which cumulatively fulfills the following three criteria: 2014 • which varies in value based on changes in a specific interest rate, price of a financial instrument, commodity price, exchange rate, price or interest rate index, credit rating or credit index, or some similar variable, provided in the case of a non-financial variable the variable is not specific to one party to the contract; • which requires no payment in return for acquisition, or one which, compared to other forms of contract expected to react similarly to changes in market conditions, is lower; • or which is settled at a later date.
In the BAUER Group, free-standing derivative financial instruments are assigned as financial assets to the following category: • Financial Assets Held for Trading (FAHfT) Free-standing derivative financial instruments as financial liabilities are assigned to the following category: • Financial Liabilities Held for Trading (FLHfT)
Changes in value of derivatives not forming part of a cash flow hedge are stated under other operating income or expenses in the case of foreign exchange forward contracts or options or, in the case of interest rate swaps, are recognized in the income statement under financial expenses or income. The applicable fair values of the level 2 financial instruments are calculated on the basis of the conditions prevailing at the balance sheet date, such as interest or exchange rates, and applying recognized models, such as discount cash flow or option price models. 116 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
The free-standing derivative financial instruments of the “Financial Assets Held for Trading” and “Financial Liabilities Held for Trading” categories include fair values of interest rate swaps, foreign exchange options, cross-currency swaps and foreign exchange forward contracts not included in hedge accounting or not meeting the hedge accounting conditions.
In the BAUER Group, derivative financial instruments (interest rate swaps, foreign exchange options, cross-currency swaps and foreign exchange forward contracts) are entered into solely to hedge against interest rate and currency risks. No deals are made without an underlying transaction.
In the case of derivatives included in hedge accounting, when hedging expected future transactions (cash flow hedges) the effective portion of the gain or loss from a hedging instrument is initially recognized in the shareholders’ equity, taking into account deferred taxes, and is only recognized in the income statement when the underlying hedged transaction is realized. The ineffective portion of the hedge transaction is recognized in the income statement immediately. The derivative financial instruments are stated at their fair values as assets or liabilities. The fair values of the foreign exchange forward contracts are defined on the basis of current reference prices, taking into account forward premiums and discounts. The fair values of the interest rate swaps are determined on the basis of discounted future payment flows, applying the market interest rates ap- plicable to the respective residual terms of the derivatives. Items are initially recorded on the trading date. Hedge accounting was applied in financial 2014.
Inventories Inventories of finished goods and work in progress as well as merchandise and raw materials and supplies, are measured at acquisition cost or cost of manufacture or at the lower net realizable value on the balance sheet date, in accordance with IAS 2. The net realizable value is the estimated achievable selling price in the ordinary course of business less the estimated costs through to completion and the estimated necessary selling costs. Raw materials and supplies are valued mainly at floating average cost. Where the machinery and accessories classified as finished goods and stock for trade and primarily held for sale, are hired out for a short period as a secondary sales promotion measure, the following factors are considered in determining their net realizable values: • Hire period • Useful life of the machines • Damage and inoperability Where the net realizable value of previously written-down inventories has increased, corresponding value recovery adjust- ments are made. The cost of manufacture includes all direct costs of the manufacturing process. The level of impairment losses on inventories is explained in accordance with IAS 2 under “Inventories”.
Construction contracts Construction contracts are accounted for by the percentage of completion method in accordance with IAS 11. The sales are recognized according to the progress of work based on the percentage of completion method. The applicable percentage of completion is determined according to the costs incurred (cost-to-cost method). Where the cumulative return (contract costs and pro rata result) exceeds the payments on account in individual cases, the construction contracts are recognized as assets under “Receivables from construction contracts (PoC)”. If a negative balance remains after deduction of the payments on account, it is recognized as a liability under “Liabilities from construction contracts (PoC)”. Expected losses on a contract are accounted for in full at the time they are identified, by adjustments to the valuation of any existing receivables or by the creation of a provision. Construction contracts undertaken in joint ventures are valued according to the percentage of completion method. NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 117
Receivables from joint ventures also include the pro rata result from the contract. Expected losses are covered by write- downs or liabilities as appropriate, and are taken into account in the contract result.
Service concession arrangements Service concession arrangements entailing an unconditional contractual right to receive a payment in accordance with IFRIC 12 are recognized separately under “Receivables from concession arrangements”. The short-term portions of the receivables from concession arrangements are stated under “Other current financial assets”. The receivables are allocated to the “Loans and Receivables” category and recognized at the present value of the remuneration payable. The annual interest due according to the effective interest rate method is recorded in the financial income.
Cash and cash equivalents Cash and cash equivalents comprise cash and sight deposits with an original term of no more than three months.
Deferred taxes In accordance with IAS 12, deferred taxes are taken into account in respect of variations between the valuations of assets and liabilities according to IFRS and their corresponding tax bases in the amount of the projected future tax charge or relief. In addition, deferred tax assets are recognized for future advantages arising from tax losses carryforward, provided it is probable that they will be realized. FINANCIAL STATEMENTS CONSOLIDATED Deferred taxes arising from temporary differences in connection with investments in subsidiaries and associated companies are recognized, unless the date of reversal of the temporary differences can be determined by the Group and it is likely that 2014 the temporary differences will not be reversed again in the foreseeable future because of this effect. According to IAS 12.74, deferred tax assets and liabilities are to be offset if a legally enforceable right to set off current tax assets against current tax liabilities exists. Offsetting should also be carried out if the deferred tax assets and liabilities relate to income taxes levied by the same tax authority in respect of: • either the same taxable entity or • different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. The tax expenditure for the period comprises current and deferred taxes. Taxes are reported in the income statement, unless they relate to items recognized directly in the shareholders’ equity or in the other result. In this case; the taxes are likewise recognized in the shareholders’ equity or in the other result.
In Germany, deferred taxes are stated on the basis of corporation tax, the “solidarity surcharge” and trade tax, in a range of 27.82 to 30.92 % (previous year: 27.82 % and 30.92 %). Outside Germany, tax rates of between 0.00 % and 38.15 % are applied (previous year: 0.00 % and 39.00 %).
Provisions a) Defined benefit plans The BAUER Group operates a number of defined benefit plans in Germany and internationally. Typically, such plans define an amount of pension benefit which employees will receive on retirement and which is normally dependent on one or more factors (such as age, years of service and salary). 118 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
The provision for defined benefit plans on the balance sheet corresponds to the cash value of the defined benefit obligation (DBO) at the balance sheet date, less the fair value of the plan assets. The DBO is calculated annually by an independent actuary applying the projected unit credit method. The cash value of the DBO is calculated by discounting the expected future inflow of funds at the interest rate of industrial bonds of the highest credit rating. The industrial bonds are denominated in the currency of the disbursements and allocate corresponding terms to the pension commitments. In countries where the market in such bonds is insufficiently developed, government bonds are applied.
Actuarial gains and losses based on experience-related adjustments to actuarial assumptions are recognized in the “Other result” in the shareholders’ equity in the period in which they occur. Post-employment expenditure is recognized in the staff costs, and the interest expenses of the allocation to provisions in the financial expenses.
Under the contribution-based defined benefit plans, the entity concerned makes payments to pension institutions which are stated in the staff costs.
b) Provisions for tax purposes Tax provisions include liabilities from current income taxes. Income tax provisions are balanced against corresponding tax refund claims, provided they arise in the same tax territory and are identical in nature and in terms of due date.
c) Other provisions The other provisions are created in accordance with IAS 37 where a present obligation arises from a past event, a relevant claim is more likely than unlikely, and the amount of the claim can be reliably estimated. The provisions are stated at their performance amount, and are not netted against profit contributions. Long-term provisions are recognized at present value. Provisions are created only for legal or constructive obligations to third parties.
Income and expenses Sales revenues and other incomes are realized in accordance with IAS 18 on performance of the supply or service or on transfer of risk to the customer, as appropriate. Dividend income is recognized at the date on which the right to receipt of payment is created. Dividends received are recognized as income from operating investments under “Financial income”. Operating expenses are recognized as affecting net income when the supply or service is claimed or at the time they are caused, as appropriate. Financial income and expenses are recognized when incurred. Income from service contracts is recognized according to the degree of completion.
5. CONSOLIDATED SEGMENT REPORTING Reporting on the segments of the BAUER Group was implemented in accordance with IFRS 8, as in the previous year. The internal organizational and management structure and the internal system of reporting to the Management Board and Supervisory Board dictate the segmentation employed by the BAUER Group.
The BAUER Group comprises the Construction, Equipment and Resources segments. Transactions between the segments are conducted at market prices. SCHACHTBAU NORDHAUSEN GmbH is the only Group company to operate in all three segments. The assets and liabilities and income statement items of SCHACHTBAU NORDHAUSEN GmbH are assigned to the relevant segments. NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 119
Construction The core business of the Construction segment is specialist foundation engineering. Complete excavation pits and foundation works, often in difficult subgrade conditions, are carried out for major infrastructure projects and buildings. In order to offer customers a full range of services, the companies of the BAUER Group additionally offer other construction services, often involving a major specialist foundation engineering element. Examples of this include bridges, environmental engineering, remediation and building renovation projects. The Construction segment is founded on the close interlinking of all construction activities.
Equipment In the Equipment segment, machinery for all specialist foundation engineering processes and for deep drilling is developed and manufactured for worldwide distribution. The specialist foundation engineering equipment can be employed to produce large-diameter and small-diameter bores for piles, diaphragm walls, anchors, injections and wells. The deep drilling equipment can be employed to drill for geothermal energy, oil and gas. Equipment for ramming and ground improvement is also manufactured. The range is supplemented by a wide selection of add-on units and ancillary equipment, covering all the processes involved in specialist foundation engineering.
Resources The Resources segment brings together all the Group companies providing products and services relating to the remediation and extraction of natural resources essential to human life. They include environmental technology companies involved in the FINANCIAL STATEMENTS CONSOLIDATED treatment of ground and groundwater as well as companies involved in exploratory drilling and mining of raw materials and drilling of wells and geothermal energy sources. This segment also includes companies which manufacture and sell materials 2014 for the engineering of bore holes, specifically for wells and geothermal energy sources.
Other The Other segment comprises the central services (accounting, human resources, IT etc.) provided by BAUER AG to the Group companies as well as other units not assignable to the separately listed segments, providing services such as in-house and external education and training and centralized research and development.
Consolidation The intersegmental consolidation effects are grouped here under Consolidation. This includes offsetting of intra-Group sales between the segments as well as income and expenses and interim results. The intersegmental consolidation effects are adjusted within the respective segments. The segment result for the period reflects the financial income and expenses as well as the net earnings of shares valued at- equity and the income tax expenditure. The segments’ assets and liabilities incorporate all the assets and liabilities of the Group. The non-current assets stated in the segment report by region comprise intangible assets, property, plant and equipment and investment property.
Total Group revenues, consolidated revenues and sales revenues with third parties The consolidated revenues reflect the performance of all the companies included in the scope of consolidation. The total Group revenues represent the revenues of all the companies forming part of our Group. The difference between the consolidated revenues and the total Group revenues is derived from the revenues of the associated companies, from our subcontractor shares in joint ventures, and from the revenues of non-consolidated companies.
The sales revenues with third parties are allocated to the business segments according to the customer’s location. No one customer accounts for more than 10 % of total sales.
No breakdown of sales revenues by product and service, or by groups of comparable products and services, was available as per the balance sheet date. 120
Consolidated segment reporting
SEGMENT REPORT BY BUSINESS SEGMENTS Construction Equipment
in EUR '000 2013 * 2014 2013 2014 Total revenues (Group) 741,673 713,005 628,612 651,772 Sales revenues with third parties 657,456 634,096 561,615 545,223 Sales revenues between business segments 15,660 16,327 47,928 42,831 Changes in inventories -172 -105 -4,184 27,898 Other capitalized goods and services for own account 486 407 6,955 6,234 Other income 16,809 24,861 10,117 21.724 CONSOLIDATED REVENUES 690,239 675,586 622,431 643,910
OPERATING RESULT 21,209 25,068 32,223 36,917 Financial income 2,989 2,993 2,562 1,882 Financial expenses -13,389 -15,875 -22,196 -21,153
Share of the profit or loss of associated companies accounted for using the equity method 1,132 -1,330 1 -57
Income tax expense -6,469 -8,998 -7,535 -8,076 NET PROFIT OR LOSS 5,472 1,858 5,055 9,513
ADDITIONAL INFORMATION ON THE INCOME STATEMENT Depreciation and amortization Depreciation of fixed assets -47,504 -46,098 -17,266 -19,259 of which impairment losses on fixed assets -526 0 -996 -1,768 Write-downs of inventories due to use 0 0 -14,196 -15,789 Major non-cash segment items Impairment losses on financial assets -40 -631 0 -9 Impairment losses on inventories -112 -282 -3,808 -8,052 Allocation of impairment of receivables -26,876 -10,597 -4,671 -4,611 Reversal of impairment of receivables 31,227 14,726 3,396 3,881
ADDITIONAL INFORMATION ON THE BALANCE SHEET SEGMENT ASSETS 31.12. 566,816 577,401 803,467 768,487
of which shares in associated companies accounted for using the equity method 10,898 10,687 99 42
of which investments in fixed assets 48,168 40,837 40,166 20,904 SEGMENT LIABILITIES 31.12. 444,775 450,582 579,077 551,054
SEGMENT REPORT BY REGIONS Germany Europe (other) Europe excluding EU
in EUR '000 2013 * 2014 2013 * 2014 2013 2014 Total revenues (Group) 410,390 440,205 167,830 151,958 155,028 124,886 Sales revenues with third parties 355,289 367,779 163,143 140,534 145,381 127,782 Non-current assets 31.12. 255,613 244,151 21,414 18,132 19,578 16,383
* Previous year adjusted; see notes on page 106 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 121
Resources Other Consolidation Group
2013 * 2014 2013 2014 2013 2014 2013 * 2014 188,861 252,830 39,319 39,407 -94,234 -96,794 1,504,231 1,560,220 182,579 195,860 523 500 0 0 1,402,173 1,375,679 2,413 3,141 31,146 30,729 -97,147 -93,028 0 0 -67 -1,171 0 0 0 0 -4,423 26,622 1,548 1,606 0 9 10,207 6,440 19,196 14,696 2,910 41,968 6,624 7,028 -5,881 -6,559 30,579 89,022 189,383 241,404 38,293 38,266 -92,821 -93,147 1,447,525 1,506,019
-23,965 15,932 5,117 3,326 -4,499 -4,817 30,085 76,426 2,268 2,159 7,044 13,702 -7,134 -13,640 7,729 7,096 -11,885 -10,518 -5,205 -11,243 7,134 13,640 -45,541 -45,149
637 815 0 0 0 0 1,770 -572
1,501 -4,041 -961 -886 -10 -74 -13,474 -22,075 -31,444 4,347 5,995 4,899 -4,509 -4,891 -19,431 15,726 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED 2014 -11,940 -10,885 -3,371 -3,023 385 484 -79,696 -78,781 -2,191 -7 0 0 0 0 -3,713 -1,775 0 0 0 0 0 0 -14,196 -15,789
-2,546 -65 0 0 0 0 -2,586 -705 -4,329 -263 0 0 0 0 -8,249 -8,597 -6,651 -5,360 0 0 0 0 -38,198 -20,568 495 950 0 0 0 0 35,118 19,557
265,633 264,276 303,121 338,993 -353,249 -374,074 1,585,788 1,575,083
2,252 32,177 0 0 0 0 13,249 42,906
11,539 8,885 13,552 2,555 -10,000 -485 103,425 72,696 226,675 226,217 149,980 182,939 -234,700 -254,634 1,165,807 1,156,158
Middle East Asia-Pacific America Africa Group and Central Asia Far East and Australia
2013 2014 2013 2014 2013 2014 2013 2014 2013 * 2014 163,036 232,037 363,305 376,645 186,392 172,288 58,250 62,201 1,504,231 1,560,220 158,749 180,313 356,877 337,587 170,648 158,411 52,086 63,273 1,402,173 1,375,679 52,630 56,025 82,364 86,106 56,751 53,259 6,575 7,293 494,925 481,349 122 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
NOTES ON THE CONSOLIDATED STATEMENT OF PROFIT OR LOSS
6. SALES REVENUES The sales revenue totaling EUR 1,375,679 thousand (previous year: 1,402,173 thousand) include revenues based on applica- tion of the percentage of completion method, trade revenues from consortia, as well as pro rata earnings from consortia and revenues from the sale and hire of equipment and accessories Sales revenues based on application of the percentage of completion method in the financial year totaled EUR 649,625 thousand (previous year: 680,963 thousand). Sales revenues from the hire of equipment and accessories in the financial year totaled EUR 29,428 thousand (previous year: 26,031 thousand).
With regard to the presentation and breakdown of sales revenues by operating segment and region, please refer to the notes on segment reporting (see item 5).
The sales revenues include a net value adjustment of EUR 5,381 thousand (previous year: 7,393 thousand). The net value adjustment is attributable to the Construction segment, where final invoices, for example, may include supplementary items which have not yet been finally negotiated with the customer and ordered. These may prove uncertain. Value adjustments (reductions for impairment) are made in respect of uncertain receivables and recorded under “Sales revenues”. If the uncertain receivable is realized, the reduction for impairment is reversed. The reversal is likewise recorded under “Sales revenues”. The net balance of the application and reversal of reductions for impairment in respect of uncertain receivables produces the aforementioned net value adjustment. The application and reversal of reductions for impairment by the other segments is stated under “Other operating expenses”.
7. OTHER CAPITALIZED GOODS AND SERVICES FOR OWN ACCOUNT
in EUR '000 2013 2014 Income from other capitalized goods and services for own account 19,196 14,696
8. OTHER INCOME
in EUR '000 2013 2014 Income from disposal of property, plant and equipment 4,435 5,447 Realized and unrealized foreign currency gains 8,682 32,097 Income from insurance refunds 2,958 1,849 Other income from rentals 373 272 Income from changes in fair values of foreign exchange forward contracts 2,818 2,548 Overall effect of the proportional sale 0 36,531 Other operating income 11,313 10,278 Total 30,579 89,022
The realized and unrealized foreign currency gains as well as gains from foreign exchange forward contracts stated under “Other income” totaling EUR 34,645 thousand (previous year: 11,500 thousand) arose in connection with the global currency hedging strategy and the underlying currency postings. In this context, the income is countered by realized and unrealized foreign currency losses as well as losses from foreign exchange forward contracts totaling EUR 29,767 thousand (previous year: 21,194 thousand), stated under “Other operating expenses”. Additionally, the other operating income mainly comprises income from benefits in money’s worth, other reimbursements of expenditure as well as other income spread across the consolidated companies which is of minor importance in the individual instances. NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 123
9. COST OF MATERIALS in EUR '000 2013 2014 Expenses for raw materials and supplies and purchased goods 511,419 504,877 Expenses for purchased services 244,487 244,370 Total 755,906 749,247
10. STAFF COSTS The expenses for retirement benefits include the expenditure on benefits as well as the allocations to provisions for defined benefit plans excluding the interest portion, which is stated under “Interest and similar expenses”. in EUR '000 2013 2014 Wages and salaries 289,944 299,785 Social security contributions 47,654 49,632 Expenses for retirement benefits 5,217 5,833 Total 342,815 355,250
The employer’s pension contributions in the financial year totaled EUR 20,653 thousand (previous year: 18,926 thousand). FINANCIAL STATEMENTS CONSOLIDATED These are contribution-based schemes, as explained under 4.2 Accounting and valuation methods in the consolidated financial statements. Of that total, EUR 17,411 thousand (previous year: 16,801 thousand) relate to Germany and 2014 EUR 3,242 thousand (previous year: 2,125 thousand) to Group companies outside of Germany. The wages and salaries include severance payments in the amount of EUR 735 thousand (previous year: 1,019 thousand).
11. DEPRECIATION OF FIXED ASSETS The depreciation is broken down as follows:
in EUR '000 2013 2014 Depreciation of intangible assets 11,290 9,956 Depreciation of property, plant and equipment 68,406 68,825 Total 79,696 78,781
The impairment losses on fixed assets are explained under item 18.2, Property, plant and equipment and investment property.
12. WRITE-DOWNS OF INVENTORIES DUE TO USE Write-downs of inventories due to use Group-wide totaled EUR 15,789 thousand in the financial year (previous year: 14,196 thousand). This related to write-downs of used machinery temporarily hired out to customers as sales promotion measures. Write-downs of used machinery disposed of in the 2014 financial year are included in these figures. 124 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
13. OTHER OPERATING EXPENSES
in EUR '000 2013 2014 Losses from disposal of property, plant and equipment 1,260 675 Rents and leases 18,187 21,360 Energy, heating, water 8,295 6,291 Vehicle costs 6,360 6,755 Property, motor and transport insurance 9,658 10,096 Other operating expenses 34,675 35,766 Administrative expenses 40,991 41,513 Distribution costs 37,221 33,304 Other employee-related expenses 17,396 17,208 Realized and unrealized foreign currency losses 18,941 19,948 Impairment of receivables -794 6,392 Bank charges 2,827 3,284 Duties 3,930 3,411 Additional other operating expenses 25,880 24,523 Total 224,827 230,526
The “Additional other operating expenses” mainly comprise allocations to and reversal of provisions affecting net income, losses from foreign exchange forward contracts as well as additional other operating expenses spread across the consoli- dated companies which are of minor importance in the individual instances. The other employee-related expenses include education and training costs, grants and gifts, travel and relocation expenses, and other project-specific personnel costs.
FINANCIAL RESULT
14. FINANCIAL INCOME The financial income is broken down as follows:
in EUR '000 2013 2014 Income from operating investments 26 14 Other interest and similar income 5,418 5,287 Income from changes in fair values of interest rate swaps 2,285 1,795 Total 7,729 7,096 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 125
15. FINANCIAL EXPENSES The financial expenses are broken down as follows: in EUR '000 2013 2014 Interest and similar expenses 41,944 41,273 Losses from changes in fair values of interest rate swaps 656 796 Interest portions of allocations to provisions for defined benefit plans and similar obligations 2,941 3,080 Total 45,541 45,149
The interest from finance leases included under “Interest and similar expenses” in the financial year totaled EUR 988 thousand (previous year: 1,122 thousand). The financial result includes interest income from financial assets in an amount of EUR 5,278 thousand (previous year: 5,410 thousand) and interest expenses from financial liabilities in an amount of EUR 40,285 thousand (previous year: 40,822 thousand) which were not measured at fair value affecting profit and loss. The interest and similar expenses include impairment losses on financial assets held for sale in an amount of EUR 705 thousand (previous year: 2,586 thousand). Of that total, EUR 631 thousand (previous year: 40 thousand) is attributable to the Construction segment, EUR 9 thousand (previous year: 0) to the Equipment segment and EUR 65 thousand (previous year: 2,546 thousand) to the Resources segment. CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED
16. INCOME TAX EXPENSE The income tax expense is broken down as follows: 2014 in EUR '000 2013 2014 Actual taxes 15,705 19,721 Deferred taxes -2,231 2,354 Total 13,474 22,075
The theoretical tax rate is 28.08 % (previous year: 28.08 %).
Reconciliation from expected to actual income tax expenditure The expected tax expenditure is below (previous year: below) the recorded tax expenditure. The reasons for the difference between the expected and recorded tax expenditure are as follows: in EUR '000 2013 2014 Profit before income tax -5,957 37,801 Theoretical tax expenditure 28.08 % (previous year: 28.08 %) -1,673 10,615 Differences in tax rate 714 -1,534 Taxation effects of non-deductible expenses and tax-free income 10,022 -4,869 Effects of variations in the tax calculation base 2,054 2,000 At-equity valuation of associated companies -63 160 Out-of-period tax payments/refunds for previous years -273 -68 Effects of deferred tax assets in respect of losses carryforward and temporary differences 2,675 15,701 Other 18 70 Income tax expense 13,474 22,075 126 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
Internal disbursements result in taxation effects after December 31, 2014 totaling EUR 39 thousand (previous year: 34 thousand).
17. EARNINGS PER SHARE The earnings per share are calculated by dividing the profit attributable to the shareholders of BAUER AG by the weighted average number of ordinary shares outstanding. The earnings per share amount to the following values:
2013 2014 Profit attributable to the shareholders of BAUER AG, in EUR '000 -16,927 14,481 Number of shares from 01.01. to 31.12. 17,131,000 17,131,000 Weighted average number of shares in circulation in financial year (basic) 17,131,000 17,131,000 Weighted average number of shares in circulation in financial year (diluted) 17,131,000 17,131,000 Basic earnings per share in EUR -0.99 0.85 Diluted earnings per share in EUR -0.99 0.85 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 127
NOTES ON THE CONSOLIDATED BALANCE SHEET
The breakdown of the fixed asset items summarized on the balance sheet and their development is presented in the fixed asset movement schedule on the following pages.
NON-CURRENT ASSETS
18. FIXED ASSETS 18.1 Intangible assets in EUR '000 Internally generated intangible assets Licenses, software and similar rights Capitalized Capitalized Cost of purchase/cost of manufacturing and values Goodwill software costs development costs Total
01.01.2013 * 30,725 2,203 589 30,148 63,665 Change in scope of consolidation 220 0 0 377 597 Additions 3,124 0 0 8,395 11,519 Disposals 453 0 232 72 757 Transfers -9 0 0 516 507
Currency adjustment -529 -17 0 -10 -556 FINANCIAL STATEMENTS CONSOLIDATED 31.12.2013 33,078 2,186 357 39,354 74,975 2014 in EUR '000 Internally generated intangible assets Licenses, software and similar rights Capitalized Capitalized Accumulated depreciation and values Goodwill software costs development costs Total
01.01.2013 * 18,474 0 415 10,209 29,098 Change in scope of consolidation 100 0 0 14 114 Additions 4,046 2,186 84 4,974 11,290 Disposals 442 0 232 72 746 Transfers 21 0 0 -21 0 Currency adjustment -159 0 0 -10 -169 31.12.2013 22,040 2,186 267 15,094 39,587 Carrying amount 31.12.2013 11,038 0 90 24,260 35,388
in EUR '000 Internally generated intangible assets Licenses, software and similar rights Capitalized Capitalized Cost of purchase/cost of manufacturing and values Goodwill software costs development costs Total
01.01.2014 33,078 2,186 357 39,354 74,975 Change in scope of consolidation -17000-17 Additions 2,422 0 0 6,186 8,608 Disposals 2,392 0 68 0 2,460 Transfers -6 0 0 22 16 Currency adjustment 452006458 31.12.2014 33,537 2,186 289 45,568 81,580
* Previous year’s fi gures changed; this involves a correction to the balances carryforward due to the system 128 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
in EUR '000 Internally generated intangible assets Licenses, software and similar rights Capitalized Capitalized Accumulated depreciation and values Goodwill software costs development costs Total
01.01.2014 22,040 2,186 267 15,094 39,587 Change in scope of consolidation -6000-6 Additions 3,681 0 51 6,224 9,956 Disposals 2,619 0 68 0 2,687 Transfers 40004 Currency adjustment 281005286 31.12.2014 23,381 2,186 250 21,323 47,140 Carrying amount 31.12.2014 10,156 0 39 24,245 34,440
Of the total research and development costs and patent costs incurred in 2014, EUR 6,247 thousand (previous year: 8,594 thousand) met the IFRS capitalization criteria. The following amounts were recognized in net income:
in EUR '000 2013 2014 Research costs and uncapitalized development costs 20,900 18,567 Amortization of development costs and patents 5,212 6,473 Research and development costs recognized in net income 26,202 25,040 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 129
18.2 Property, plant and equipment and investment property in EUR '000 Other Payments on Technical equipment, account and Cost of purchase/ Land and Investment equipment and factory and assets in course cost of manufacturing buildings property machinery office equipment of construction Total
01.01.2013 * 287,311 1,882 468,428 68,995 23,014 849,630 Change in scope of consolidation 0 0 9,689 376 42 10,107 Additions 3,179 13 65,050 10,565 13,099 91,906 Disposals 2,853 118 41,512 5,248 557 50,288 Transfers 17,692 0 11,319 142 -29,661 -508 Currency adjustment -3,045 -14 -24,119 -1,798 -655 -29,631 31.12.2013 302,284 1,763 488,855 73,032 5,282 871,216
in EUR '000 Other Payments on Technical equipment, account and Land and Investment equipment and factory and assets in course Accumulated depreciation buildings property machinery office equipment of construction Total
01.01.2013 * 84,396 921 257,736 41,261 0 384,314 Change in scope of consolidation 0 0 4,235 225 0 4,460 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED Additions 9,080 40 49,440 9,846 0 68,406 Disposals 2,399 54 22,491 4,372 0 29,316
Transfers 0 0 -11 11 0 0 2014 Currency adjustment -370 -7 -14,550 -1,258 0 -16,185 31.12.2013 90,707 900 274,359 45,713 0 411,679 Carrying amount 31.12.2013 211,577 863 214,496 27,319 5,282 459,537 of which financing leasing Carrying amount 31.12.2013 3,194 0 22,574 5,246 0 31,014
in EUR '000 Other Payments on Technical equipment, account and Cost of purchase/ Land and Investment equipment and factory and assets in course cost of manufacturing buildings property machinery office equipment of construction Total
01.01.2014 302,284 1,763 488,855 73,032 5,282 871,216 Change in scope of consolidation -563 0 -2,063 -678 0 -3,304 Additions 3,926 6 43,524 7,310 9,322 64,088 Disposals 6,022 0 49,712 6,374 193 62,301 Transfers 765 -35 5,255 -112 -5,889 -16 Currency adjustment 5,802 0 27,331 2,119 -309 34,943 31.12.2014 306,192 1,734 513,190 75,297 8,213 904,626
* Previous year’s fi gures changed; this involves a correction to the balances carryforward due to the system 130 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
in EUR '000 Other Payments on Technical equipment, account and Land and Investment equipment and factory and assets in course Accumulated depreciation buildings property machinery office equipment of construction Total
01.01.2014 90,707 900 274,359 45,713 0 411,679 Change in scope of consolidation -5 0 -773 -485 0 -1,263 Additions 10,042 36 49,829 8,918 0 68,825 Disposals 2,000 0 32,386 5,366 0 39,752 Transfers 6 -6 168 -172 0 -4 Currency adjustment 866 0 15,784 1,582 0 18,232 31.12.2014 99,616 930 306,981 50,190 0 457,717 Carrying amount 31.12.2014 206,576 804 206,209 25,107 8,213 446,909
of which financing leasing Carrying amount 31.12.2014 2,935 0 19,150 5,122 0 27,207
The changes to the scope of consolidation comprise assets arising from the deconsolidation of BAUER Nimr LLC, Muscat – Al Mina. Of these, EUR −2,041 thousand relate exclusively to property, plant and equipment.
In respect of buildings and equipment leased by way of finance lease agreements purchase options exist for the most part, which will be exercised. The interest rates applied to the leases vary, according to the market and date of signing, between 2.38 % and 7.89 % (previous year: 2.31 % and 8.13 %). The future lease payments due at their present values are shown in the following table:
in EUR '000 Remaining term 2013 Remaining term 2014
under 1 year 1 to 5 years over 5 years Total under 1 year 1 to 5 years over 5 years Total Minimum lease payments 11,182 18,779 0 29,961 8,470 13,707 0 22,177 Interest portions 997 1,514 0 2,511 1,017 675 0 1,692 Present value 10,185 17,265 0 27,450 7,453 13,032 0 20,485
The investment property has a fair value of EUR 804 thousand (previous year: 1,143 thousand) and in 2014 were all rented out. This relates to a hotel owned by SCHACHTBAU NORDHAUSEN GmbH which is rented out to third parties and is being written down over a period of 48 years. SCHACHTBAU NORDHAUSEN GmbH is also committed to a maintenance contract in respect of the property. The valuation was derived from current market prices. This procedure falls within Level 2 of the IFRS 13 measurement hierarchy.
In the period under review rental income in the amount of EUR 60 thousand (previous year: 62 thousand) was generated, to which direct operating expenses totaling EUR 23 thousand (previous year: 19 thousand) are attributable. Property, plant and equipment with a carrying amount of EUR 105,811 thousand (previous year: 133,191 thousand) is subject to charges in the form of land charges and assignment. In addition, the usual commercial restrictions on right of disposal existing respect of leased assets, attributable to the Group in accordance with IAS 17 (finance lease agreements), totaling EUR 27,207 thousand (previous year: 31,014 thousand). In the financial year, investment grants for the extension of manufacturing facilities were awarded to Olbersdorfer Guß GmbH in an amount of EUR 13 thousand (previous year: 42 thousand). All conditions necessary for allocation of the investment subsidies were met on the balance sheet date.
No borrowing costs were capitalized in the financial year (previous year: 520). The finance cost rate in the previous year was between 6.76 and 8.0 %. NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 131
Total impairment losses on fixed assets in the financial year were EUR 1,775 thousand (previous year: 3,713 thousand). Of that figure, EUR 0 thousand (previous year: 526 thousand) was attributable to the Construction segment, EUR 1,768 thou- sand (previous year: 996 thousand) to the Equipment segment and EUR 7 thousand (previous year: 2,191 thousand) to the Resources segment. Of the total, intangible assets accounted for EUR 942 thousand (previous year: 3,184 thousand) and property, plant and equipment accounted for EUR 833 thousand (previous year: 529 thousand). Most of the impair- ment losses on intangible assets relate to capitalized development costs amounting to EUR 520 thousand at Klemm Bohrtechnik GmbH in the Equipment segment. Future expected market development for various machines developed in-house was decisive in this respect. Also in the Equipment segment, the carrying amounts of BAUER Pileco Inc., Houston, Texas in land and buildings amounting to EUR 794 thousand were written down to their fair value. Impairment losses were realized on the basis of the achievable amount. In the regular way, these corresponded to the fair value less costs of sale. This procedure falls within Level 1 of the IFRS 13 measurement hierarchy.
18.3 Investments accounted for using the equity method and participations The balance sheet valuations of the joint ventures and associated companies have developed as follows: in EUR '000 31.12.2013 31.12.2014 Shares in joint ventures measured at equity * 3,302 4,175
Shares in associated companies measured at equity 9,947 38,731 FINANCIAL STATEMENTS CONSOLIDATED Total 13,249 42,906 2014 The following table provides an overview of the change in the shares measured at equity: in EUR '000 Associated companies Joint ventures
Cost of purchase/cost of manufacturing 2013 2014 2013 * 2014 01.01. 13,133 9,947 3,277 3,302 Additions 0 31,089 17 662 Disposals 1 0 0 479 Profit share −234 330 8 690 Dividend payments −2,951 −450 0 0 Transfers 00 0 0 Currency adjustment 0 0 0 0 31.12. 9,947 40,916 3,302 4,175
in EUR '000 Associated companies Joint ventures
Accumulated depreciation 2013 2014 2013 2014 01.01. 00 0 0 Additions 0 2,185 0 0 Disposals 00 0 0 Transfers 00 0 0 Currency adjustment 0 0 0 0 31.12. 0 2,185 0 0 Carrying amount 31.12. 9,947 38,731 3,302 4,175
* Previous year adjusted, see notes on page 106 132 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
a) Joint ventures The financial information presented for the joint ventures are amounts that are derived from financial statements prepared according to local legislation, corrected to take account of any adaptations to IFRS.
Combined financial information about the immaterial joint ventures (before consolidations):
BALANCE SHEET Joint ventures in EUR '000 31.12.2013 31.12.2014 Non-current assets 180 317 Current assets 65,022 63,796 of which cash and cash equivalents 3.089 2,445 Total assets 65,202 64,113 Non-current liabilities 00 of which non-current financial liabilities 00 Current liabilities 58,758 55,646 of which current financial liabilities 33,782 43,607 Total liabilities 58,758 55,646
The non-current and current financial liabilities do not contain any trade liabilities and provisions.
INCOME STATEMENT Joint ventures in EUR '000 31.12.2013 31.12.2014 Sales revenues 48,996 41,008 Scheduled depreciation -234 -373 Operating result 2,700 3,529 Interest income 40 1 Interest expenditure -3 -4 Income tax expense 00 Net profit or loss 2,737 3,526 Dividends paid to the BAUER Group 10 0
Reconciliation of the combined financial information for joint ventures The pro rata carrying value of the joint ventures can be reconciled as follows:
in EUR '000 31.12.2013 31.12.2014 Net assets of joint ventures 6,444 8,467 Interest in joint venture according to investment quota 3,302 4,175 Goodwill and other adaptations 00 Carrying value disclosed within the balance sheet 3,302 4,175
The fair value has not been stated, because there is no quoted market price available for our joint ventures (generally construction consortia). NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 133
The risk arising from joint and several liability on failure of a partner is hedged within the joint venture by mutual guarantees. There are no further obligations and significant restrictions beyond that. b) Associated companies The financial information presented for the associated companies are amounts that are derived from financial statements prepared according to local legislation, corrected to take account of any adaptations to IFRS.
The main associated companies are as follows:
2013 financial year:
Name Activity Headquarters Capital share in % of the company
Wöhr + Bauer GmbH Project development Munich, Germany 33.33 % NDH Entsorgungsbetreibergesellschaft mbH Disposal Bleicherode, Germany 25.00 % TERRABAUER S. L. Specialist foundation engineering Madrid, Spain 30.00 %
2014 financial year: FINANCIAL STATEMENTS CONSOLIDATED
Name Activity Headquarters Capital share in %
of the company 2014
Wöhr + Bauer GmbH Project development Munich, Germany 33.33 % NDH Entsorgungsbetreibergesellschaft mbH Disposal Bleicherode, Germany 25.00 % TERRABAUER S. L. Specialist foundation engineering Madrid, Spain 30.00 %
Water treatment and Muscat – Al Mina, BAUER Nimr LLC 49.00 % soil remediation Sultanate of Oman
Combined financial information for each significant associated company (amounts before consolidations):
BALANCE SHEET Wöhr + Bauer GmbH NDH Entsorgungsbetreiber- TERRABAUER S. L. BAUER Nimr LLC gesellschaft mbH in EUR '000 31.12.2013 31.12.2014 31.12.2013 31.12.2014 31.12.2013 31.12.2014 31.12.2013 31.12.2014 Non-current assets 60,472 60,132 19,090 18,288 5,338 - 0 41,102 Current assets 43,209 48,073 25,869 26,857 7,357 - 0 13,187
of which cash and 8,309 526 21,936 23,060 125 - 0 5,019 cash equivalents
Total assets 103,681 108,205 44,959 45,145 12,695 - 0 54,289 Non-current liabilities 10,816 22,279 0 0 1,800 - 0 35,421
of which non-current financial liabilities 10,685 21,897 0 0 665 - 0 34,968
Current liabilities 74,556 66,775 40,065 40,225 3,327 - 0 7,299
of which current financial liabilities 8,803 0 3,375 3,225 1,390 - 0 2,327
Total liabilities 85,372 89,054 40,065 40,225 5,127 - 0 42,720
* These are extrapolated values; fi nancial information was not available at the balance sheet date 134 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
INCOME STATEMENT Wöhr + Bauer GmbH NDH Entsorgungsbetreiber- TERRABAUER S. L. BAUER Nimr LLC gesellschaft mbH
in EUR '000 2013 2014 2013 2014 2013 2014 * 2013 2014 Sales revenues 50,865 21,531 22,952 22,736 3,452 - 0 1,528 Scheduled depreciation -1,170 -1,774 -2,744 -2,956 -676 - 0 -367 Operating result 1,330 2,550 1,624 1,522 -1,832 - 0 281 Interest income 261 15 98 238 0 - 0 6 Interest expenditure -503 -414 -287 -262 -310 - 0 -244 Income tax expense -587 -667 -474 -509 0 - 0 0 Net profit or loss 501 1,484 961 989 -2,142 -1,090 0 43
Net profit or loss according to interest 167 494 240 247 -643 -327 0 21
Dividends paid to the BAUER Group 2,640 210 135 240 166 0 0 4,598
* These are extrapolated values; fi nancial information was not available at the balance sheet date
Combined financial information for associated companies that are, taken individually, non-significant (amounts before consolidations):
BALANCE SHEET Associated companies in EUR '000 31.12.2013 31.12.2014 Non-current assets 90 67 Current assets 245 239 of which cash and cash equivalents 47 33 Total assets 335 306 Non-current liabilities 26 22 of which non-current financial liabilities 26 22 Current liabilities 135 132 of which current financial liabilities 00 Total liabilities 161 154
INCOME STATEMENT Associated companies in EUR '000 31.12.2013 31.12.2014 Sales revenues 853 825 Scheduled depreciation -33 -29 Operating result 6 -22 Interest income 00 Interest expenditure -1 -1 Income tax expense -2 0 Net profit or loss 3 -23 Net profit or loss according to interest 1-7 Dividends paid to the BAUER Group 10 0 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 135
Reconciliation of the combined financial information for associated companies The pro rata carrying value of the associated companies can be reconciled as follows: in EUR '000 31.12.2013 31.12.2014 Net assets of associated companies 30,945 35,792 Interest in associated companies according to investment quota 9,651 13,331 Goodwill and other adaptations 296 16,908 Cash value of the concession agreement 0 8,709 Currency adjustment 0 -217 Carrying value disclosed within the balance sheet 9,947 38,731
The other adaptations relate to temporary posting differences.
The market value of BAUER Nimr LLC as at December 31, 2014 is EUR 63,447 thousand. The market values of the other significant associated companies were not available as at the balance sheet date.
There were no obligations, significant restrictions or risks relating to the shares in associated companies as at the balance sheet date. FINANCIAL STATEMENTS CONSOLIDATED 2014 136 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
c) Participations
in EUR '000 Participations
Cost of purchase/cost of manufacturing 2013 2014 01.01. 4,454 4,429 Additions 00 Disposals 25 0 Profit share 00 Dividend payments 00 Transfers 00 Currency adjustment 00 31.12. 4,429 4,429
in EUR '000 Participations
Accumulated depreciation 2013 2014 01.01. 816 816 Additions 00 Disposals 00 Transfers 00 Currency adjustment 00 31.12. 816 816 Carrying amount 31.12. 3,613 3,613
19. DEFERRED TAXES The deferred tax assets and liabilities are distributed across the following balance sheet items:
in EUR '000 31.12.2013 31.12.2014 31.12.2013 * 31.12.2014
Deferred tax assets Deferred tax liabilities Intangible assets 33 401 6,437 7,202 Property, plant and equipment 324 119 9,468 13,926 Inventories 2,509 3,763 2,424 2,498 Receivables and other assets 1,228 1,474 2,093 1,410 Defined benefit plans 10,275 19,652 4 208 Liabilities 9,811 10,201 5,937 4,800 Tax losses carryforward 14,560 12,559 0 0 Consolidation 4,841 3,999 5,873 4,274 Offsetting -17,282 -21,195 -17,282 -21,195 Net amount 26,299 30,973 14,954 13,123
* Previous year adjusted; see notes on page 106
In the above table, the liabilities include deferred tax assets totaling EUR 2,025 thousand (previous year: 835 thousand) and deferred tax liabilities totaling EUR 1,708 thousand (previous year: 8 thousand) which are part of the hedge accounting. Also, the provisions for defined benefit plans include deferred tax assets totaling EUR 16,772 thousand (previous year: 7,889 thousand) and deferred tax liabilities totaling EUR 4 thousand (previous year: 4) in respect of the actuarial gains and losses recognized in the shareholders’ equity. NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 137
Current deferred tax assets excluding losses carryforward totaled EUR 10,039 thousand (previous year: 9,080 thousand); deferred tax liabilities totaled EUR 7,280 thousand (previous year: 9,585 thousand).
The tax losses carryforward at the year-end are broken down as follows: in EUR '000 31.12.2013 31.12.2014 Domestic losses (corporation tax) 76,262 75,553 Foreign losses 31,758 46,953 Total 108,020 122,506 Of which losses carryforward deductible for limited periods 21,069 25,461
Based on our medium-term earnings planning, losses carryforward totaling EUR 78,059 thousand (previous year: 47,672 thousand) were not usable for tax purposes. Current deferred tax assets against losses carryforward in the financial year totaled EUR 1,028 thousand (previous year: 1,708 thousand).
In connection with interests in subsidiaries, temporary differences totaling EUR 1,170 thousand (previous year:
1,172 thousand) exist for which no deferred tax liabilities were recognized. FINANCIAL STATEMENTS CONSOLIDATED
20. RECEIVABLES FROM CONCESSION ARRANGEMENTS 2014 BAUER Nimr LLC (“Bauer”) signed a contract with Petroleum Development Oman LLC (“the customer”) on November 28, 2008 relating to water treatment (“the service”). In performance of the service, Bauer is constructing a plant which it will subsequently operate. Bauer will receive a fixed agreed unit price per cbm for operation of the plant. This price includes a variable component to compensate for price rises during the contract term. According to the agreement, Bauer is obligated to comply with the general standards applicable in the oil and gas industry in constructing and operating the plant, unless otherwise stipulated in the contract. Bauer is further obligated to allow the customer to conduct any necessary inspection and testing. The costs of this are to be borne by the customer. At the end of the service performance period, Bauer is required by the customer to dismantle the plant and recultivate the site (for a fee). The agreement also provides the customer with a purchase option at a price yet to be agreed. The contract runs for a term of 20 years, with an option to extend by a further 5 years. Bauer is entitled to cancel the contract at any time by means of written notice to the customer. If the contract is canceled by the customer before the agreed term ex- pires – provided the cancellation is not as a result of bad or failed performance, or insolvency of the operator – the customer is obligated to pay compensation. The customer undertakes to supply Bauer with a daily minimum of 45,000 m³ of water for treatment. If the customer supplies less water, Bauer receives a compensation payment, which may be offset by over-supply quantities in the subsequent months.
On May 10, 2011, Bauer signed a contract extension with the customer providing for an increase in the customer’s supplies of water for treatment by 45,000 m³. 138 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
The receivables from concession arrangements developed as follows:
in EUR '000 31.12.2013 31.12.2014 As at 01.01. 40,770 36,762 Interest income from financial assets 1,931 1,721 Currency adjustment -1,581 3,886 Payment of contract costs -4,358 -4,079 Disposal 0 -38,290 As at 31.12. 36,762 0 of which with a remaining term of 1 to 5 years 9,122 0 of which with a remaining term of over 5 years 27,640 0
21 % of the shares in BAUER Nimr LLC were sold on November 19, 2014. Refer to page 104 in this regard. The short-term portion of the receivables from concession arrangements is EUR 0 (previous year: 2,280 thousand) following the divestment. The short-term portion was previously stated under “Other current financial assets”. The financial income from concession arrangements in the financial year totaled EUR 1,721 thousand (previous year: 1,931 thousand). The discount rate in the past financial year was 4.26 % (previous year: 4.67 %). The financial income is included in the interest income from financial assets.
21. OTHER NON-CURRENT ASSETS The other non-current assets comprise the following items:
in EUR '000 31.12.2013 31.12.2014 Claims from backup insurance 4,743 4,787 Sundry other non-current assets 2,821 2,705 Total 7,564 7,492
The sundry other non-current assets were not subject to interest in the past financial year, as in the previous year. The previous year’s figure has been adapted. They also include assets arising from continuing involvements totaling EUR 1,068 thousand (previous year: 1,170 thousand). As in the previous year, the other non-current assets were neither impaired nor overdue in the year under review.
The BAUER Group sold trade receivables as well as services totaling EUR 18,425 thousand (previous year: 17,378 thousand) to third parties as part of receivables sale agreements. It comprises the maximum amount of the remaining risks which the BAUER Group would have to pay to the buyer. The corresponding liability amounts to EUR 1,175 thousand (previous year: 1,287), and is stated under “Other non-current liabilities”. The difference reflects the fair value of the guarantees resulting from the remaining risk and the servicing, and is recognized in net income. NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 139
22. OTHER NON-CURRENT FINANCIAL ASSETS The other non-current financial assets comprise the following: in EUR '000 Remaining term 31.12.2013 Remaining term 31.12.2014
1 to 5 years over 5 years 1 to 5 years over 5 years Sundry other non-current financial assets 5,420 0 28,420 0 Total 5,420 0 28,420 0
The sundry other non-current assets contain receivables from derivatives as well as other non-current financial assets. The derivatives are presented in item 36 under “Other disclosures”. Financial 2014 also includes a receivable item from the purchase price payment and loan to BAUER Nimr LLC amounting to EUR 20,059 thousand (previous year: 0). As in the previous year, the other non-current financial assets were neither impaired nor overdue in the year under review.
CURRENT ASSETS
23. INVENTORIES
The inventories comprise the following items: FINANCIAL STATEMENTS CONSOLIDATED in EUR '000 31.12.2013 31.12.2014
Raw materials and supplies 146,666 155,334 2014 Finished goods and work in progress and stock for trade 272,866 283,850 Total 419,352 439,184
Of the inventories, EUR 121,319 thousand (previous year: 116,787 thousand) are stated at net realizable value. The impairment losses on inventories against the net realizable value affecting net expenditure in the financial year totaled EUR 24,386 thousand (previous year: 22,445 thousand).
They are broken down as follows: in EUR '000 31.12.2013 31.12.2014 Write-downs of inventories due to use 14,196 15,789 Impairment losses on inventories 8,249 8,597 Total 22,445 24.386
The rate of hire was higher than last year, above all at BAUER Maschinen GmbH. Write-downs of used machinery due to use therefore increased from EUR 14,196 thousand to EUR 15,789 thousand.
The impairment losses on inventories include both impairment losses on new and used machinery (stated under “Changes in inventories”) and on warehouse inventories (stated under “Cost of materials”). Most of the impairment losses relate to the machinery which was not hired out, and are attributable to the Equipment segment. Impairment losses were realized on the basis of the achievable amount. In the regular way, these corresponded to the fair value less costs of sale.
The finished goods and merchandise include machinery and accessories produced internally by the Equipment segment and intended primarily for sale. 140 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
We differentiate essentially between two forms of machinery and accessories (referred to in the following as “machinery”):
New machines These are machines manufactured in the financial year or in earlier years which are available for sale but have not yet been hired out. These machines are valued at manufacturing cost or at the lower net realizable value on the balance sheet date.
Used machines Used machines are machines which are primarily up for sale and which have been temporarily hired out as a secondary sales promotion measure during the financial year or in earlier years. New machines automatically become used machines the first time they are hired out. When hiring out machinery, the net realizable value is determined from the manufacturing cost less the write-downs due to use and impairment losses on inventories.
In the case of a new machine, or a used machine which has not been hired out, the reduction in value against the net realizable value is recognized by means of an impairment loss.
The sale and hire of machinery relates solely to the Equipment segment.
The following chart sets out the carrying amount before impairment of the used machinery and accessories along with the rate of hire status on the balance sheet date:
in EUR '000 31.12.2013 31.12.2014 Carrying value of the used machine 94,392 86,744 of which hired out 33,588 32,236 of which not hired out 60,804 54,508
In the financial year, apart from the usual retentions of title, inventories totaling EUR 119 thousand (previous year: 2,507 thou- sand) were provided as security for loans with a term until 2016. The securities provided can only be claimed by the lending banks in the event of definitive failure to fulfill contractual obligations, such as defaulting on interest and loan payments or failure to meet agreed financial targets. No claims on securities provided are foreseeable.
24. RECEIVABLES AND OTHER ASSETS Construction contracts The construction contracts measured according to the percentage of completion method developed as follows:
in EUR '000 31.12.2013 31.12.2014 Contract costs incurred (plus profits, less losses) for projects not yet completed 493,944 674,169 less down-payments 383,549 590,481 Balance 110,395 83,688 of which: Receivables from construction contracts (PoC) 143,234 132,159 of which: Liabilities from construction contracts (PoC) 32,839 48,471 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 141
Development of receivables and other assets The receivables and other assets comprise the following: in EUR '000 31.12.2013 31.12.2014 Receivables from construction contracts (PoC) 143,234 132,159 Trade receivables * 320,301 311,417 Receivables from enterprises in which the company has participating interests 444 67 Payments on account 3,725 4,304 Other current assets 30,695 28,603 Other current financial assets 19,551 20,100 Total * 517,950 496,650
* Previous year adjusted; see notes on page 106
The “Trade receivables” balance sheet item includes long-term receivables totaling EUR 10,504 thousand (previous year: 15,077 thousand).
The following table presents the changes in value adjustments to current receivables: CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED in EUR '000 31.12.2013 31.12.2014 Value adjustments at start of financial year 63,504 59,938
Change in scope of consolidation 14 0 2014 Currency adjustment −353 842 Allocation 32,207 20,568 Reversal 34,003 19,557 Consumption 1,431 7,815 Value adjustments at end of financial year 59,938 53,976
The value adjustment for foreseeably uncollectable trade receivables of EUR 53,976 thousand (previous year: 59,938 thou- sand) was calculated taking into account individual risks and on the basis of past experience in relation to payment default. Value adjustments were applied in respect of individual claims as well as on a portfolio flat-rate basis. The individual value adjustments were translated into flat-rate percentages spread across the age structure of the receivables. Within the individual value adjustments, 100 % of the claim receivable was usually adjusted. The calculation of value adjustments in respect of uncertain receivables is based to a large extent on estimates and assessments of individual claims, incorporating considera- tions of the creditworthiness and late-payment record of the customer concerned as well as current economic trends and historical experience in relation to default.
In the financial year, receivables from construction contracts totaling EUR 3,993 thousand (previous year: 2,998 thousand) and other current assets totaling EUR 0 thousand (previous year: 2,993) were subject to impairment. 142 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
The following table presents an analysis of the due dates of gross carrying amounts of trade receivables:
in EUR '000 Carrying Carrying amount amount 31.12.2013 * 31.12.2014
Trade receivables (gross carrying amount) 382,946 365,393 Value adjustments in respect of trade receivables 59,938 53,976
Trade receivables (net carrying amount) 320,301 311,417 of which neither impaired nor overdue at closing date 114,938 110,640 of which not impaired at closing date and overdue in the following time bands: 205,363 200,777
- less than 30 days 68,462 75,046 - between 30 and 60 days 27,881 13,599 - between 60 and 90 days 10,627 10,886 - more than 90 days 98,393 101,246
* Previous year adapted; part of the overdue receivables of SCHACHTBAU NORDHAUSEN GmbH has not been included
The above table includes trade receivables as well as receivables from joint ventures. With regard to the trade receivables which were neither impaired nor delayed in payment, there were no indications at the balance sheet date that the debtors concerned will not fulfill their payment obligations. Credit ratings are derived from an active system of claims management with reference to the relevant credit history and from continuous monitoring of the creditworthiness of our customers based on information obtained from both internal and external sources. As in the previous year, the other current assets were neither impaired nor overdue in the year under review (previous year: EUR 2,993 thousand). The other current assets mainly comprise miscellaneous tax refund claims and claims against employees and against welfare benefit funds as well as accrued interest and insurance premiums and other prepayments and deferred charges. A total of EUR 6,846 thousand (previous year: 15,400 thousand) in monetary assets were pledged as securities for potential future guarantees during the financial year. The current portion of the receivables from foreign exchange forward contracts included in the current financial assets in the financial year totaled EUR 141 thousand (previous year: 3,169 thousand).
The payments on account for intangible assets shown under “Other current assets” totaled EUR 0 (previous year: 4 thousand) in the year under review. In the 2014 financial year, impairment totaled EUR 20,568 thousand (previous year: 38,198 thousand). NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 143
25. CASH AND CASH EQUIVALENTS The cash and cash equivalents totaling EUR 41,835 thousand (previous year: 57,217 thousand) include credit balances at banks and petty cash stocks.
26. SHAREHOLDERS’ EQUITY The shareholder structure of BAUER AG is as follows: in EUR '000 31.12.2013 31.12.2014
% EUR '000 % EUR '000 Bauer family 48.19 35,182 48.19 35,182 Free float 51.81 37,819 51.81 37,819 Total 100.00 73,001 100.00 73,001
With regard to the disclosures relating to shares held in BAUER AG, refer to the Notes to the annual financial statements of BAUER AG as per December 31, 2014 published in the German Federal Gazette (“Bundesanzeiger”).
Composition of subscribed capital
The subscribed and fully paid-up capital (share capital) of BAUER AG remains unchanged at EUR 73,001,420.45 and is FINANCIAL STATEMENTS CONSOLIDATED divided into 17,131,000 no-nominal-value bearer shares, representing a pro rata amount of approximately EUR 4.26 per share of the total share capital. The shares have no nominal value. Each share entails equal rights, and entitles the holder to one 2014 vote at the Annual General Meeting, with the exception of share categories precluded from voting by law pursuant to section 136 of the German Stock Corporation Act (AktG) and section 28 of the German Securities Trading Act (WpHG).
As in the previous year, 51.81 % of the shares were in free float. The members of the Bauer family and a charitable foundation own a total of 8,256,246 no-nominal-value shares in BAUER AG on the basis of a pool agreement, representing a 48.19 % share in the company. The pool agreement provisions include binding voting commitments as well as a right of pre-emption of pool participants if any member of the pool sells shares to third parties. No other direct or indirect holdings of BAUER AG share capital exceeding 10 % of the voting rights are known to the company.
None of the shareholders have special rights entailing controlling powers. Nor does any voting rights control exist on the part of the employees holding shares in the capital.
Authority of the Management Board to issue or buy back shares Article 4, paragraph 4 of the company’s Articles of Association Board states that the Management Board is authorized, with the consent of the Supervisory Board, to increase the share capital once or more than once up to June 27, 2017 by up to a total of EUR 7.3 million by the issue of new no-nominal-value bearer shares against cash and/or non-cash contributions (2012 authorized capital). To that end, the Management Board is authorized, with the consent of the Supervisory Board, to exclude the legal subscription rights of shareholders in the following cases:
• in the event of capital increases against non-cash contributions; • in the event of capital increases against cash contributions where the issue amount of the new shares issued is not materially below the market price of the already quoted shares at the time of definitive setting of the issue price and the shares issued excluding shareholders’ subscription rights pursuant to section 186, subsection 3, clause 4 AktG do not in total exceed 10 % of the existing share capital either at the time this authority takes effect or at the time of exercising 144 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
this authority. Shares which have been or are to be sold or issued in direct or corresponding application of section 186, subsection 3, clause 4 AktG while this authority is in place until such time as it is exercised, pursuant to other authorities, excluding subscription rights, are to be set off against the said 10 % limit; • to balance out fractional amounts.
By resolution of the Ordinary Annual General Meeting held on June 26, 2014, the company was authorized to acquire treasury stock, over a limited period up to June 25, 2019, representing up to a total of 10 % of the company’s share capital at the time the resolution was passed. The shares shall be acquired at the discretion of the Management Board by means of a public tender offer or by way of the stock market. If the acquisition is effected by way of the stock market, the acquisition price (excluding ancillary costs) may be no more than 10 % above or 20 % below the price determined by the opening auction on the trading day for shares in the company in Xetra trading (or a comparable successor system) on the Frankfurt Stock Exchange. that if the acquisition is effected by means of a public tender offer, the purchase price or the limits of the purchase price span per share (excluding ancillary costs) may be no more than 10 % above or 20 % below the average of the closing prices per share in the company in Xetra trading (or a comparable successor system) on the Frankfurt Stock Exchange on the three trading days prior to the day of issue of the public tender offer. If not insignificant variations of the decisive share price occur after the day of issue of the public tender offer, the purchase price may be adjusted.
The Management Board shall be authorized to appropriate shares in the company acquired pursuant to the above authoriza- tions for all legally admissible purposes. Consequently, the acquired shares may also in particular be sold by means other than by way of the stock market or by means of an offer to the shareholders, if the shares are sold for cash at a price (excluding ancillary costs) not materially below the stock market price of shares of the company carrying the same rights at the time of the sale in Xetra trading (or a comparable successor system) on the Frankfurt Stock Exchange. The shares may also be sold to third parties, provided this is done for the purpose of effecting company mergers or acquiring companies, parts of companies, shareholdings in companies or other assets. The aforementioned shares may be redeemed without need of a further Annual General Meeting. With regard to use of the bought-back shares, the authorization provides, in specific cases, for legal rights of subscription of shareholders to be excluded. The facility to acquire treasury stock has not been utilized to date. NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 145
The Supervisory Board is authorized to amend Article 4 of the Articles of Association accordingly following complete or partial execution of the increase in share capital or on expiration of the period of authority.
The remaining shareholders’ equity of the BAUER Group developed as follows: in EUR '000 31.12.2013 31.12.2014 I. Capital reserve 38,404 38,404 II. Other revenue reserves and net earnings available for distribution 285,601 287,903 324,005 326,307 III. Non-controlling interests 22,809 19,617 Total 346,814 345,924
In the financial year, a dividend amounting to EUR 0.00 (previous year: EUR 0.30) per share was paid to the shareholders. CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED 2014 146 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
26.1 Non-controlling interests
a) Details of the non-wholly-owned subsidiaries in which significant non-controlling interests exist The non-controlling interests which are significant in the BAUER Group are as follows:
in EUR '000 31.12.2013 31.12.2014 Capital Capital Profit Capital Capital Profit share share share share share share Non-controlling in in in in in in Group company interests % EUR '000 EUR '000 % EUR '000 EUR '000
BAUER Maschinen GmbH, Schrobenhausen, BAUER Anteilspool GbR 1.00 1,855 74 1.00 2,014 122 Germany
BAUER EGYPT S.A.E, Cairo, Egypt Various natural persons 44.25 9,827 671 44.25 11,268 939
OOO BAUER Maschinen – Kurgan, Paryscheva Valentina, 35.00 1,556 37 35.00 841 -372 Russian Federation Kokota Ivan
BAUER Casings Makina Sanayi ve Ticaret Emiroglu Makina 40.00 1,102 359 40.00 1,185 184 Limited Sirketi, Ankara, Turkey
Synergy Petroleum BAUER Nimr LLC, Muscat – Al Mina, International LLC, Merit 30.00 4,201 852 - - 939 Sultanate of Oman * International LLC
Site Group for Services and Well Drilling Ltd. Oweis family 16.70 -558 -4,048 16.70 -183 104 Co., Amman, Jordan
Individual non-significant subsidiaries with 4,826 -449 4,492 -671 non-controlling interests
Total 22,809 -2,504 19,617 1,245
Combined financial information is presented below for each Group company with significant non-controlling interests, and corresponds to the amounts before intra-Group eliminations:
BALANCE SHEET BAUER Maschinen GmbH BAUER EGYPT S.A.E OOO BAUER Maschinen – Kurgan
in EUR '000 31.12.2013 31.12.2014 31.12.2013 31.12.2014 31.12.2013 31.12.2014 Non-current assets 144,774 156,332 2,776 4,339 1,961 3,089 Current assets 290,197 317,141 23,673 26,326 7,636 5,732 Non-current liabilities 118,848 198,527 144 0 3,314 4,967 Current liabilities 172,740 133,321 6,192 6,827 2,549 2,164
BALANCE SHEET BAUER Casings BAUER Nimr LLC Site Group
in EUR '000 31.12.2013 31.12.2014 31.12.2013 31.12.2014 31.12.2013 31.12.2014 Non-current assets 598 579 38,396 0 35,238 38,003 Current assets 3,306 3,052 15,783 0 48,737 50,833 Non-current liabilities 19 4 33,460 0 0 0 Current liabilities 1,115 649 6,585 0 86,022 90,767
* up to November 19, 2014; see notes on page 104 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 147
INCOME STATEMENT BAUER Maschinen GmbH BAUER EGYPT S.A.E OOO BAUER Maschinen – Kurgan in EUR '000 31.12.2013 31.12.2014 31.12.2013 31.12.2014 31.12.2013 31.12.2014 Sales revenues 393,011 357,925 20,084 22,758 6,663 7,567 Operating result 19,129 23,788 2,468 3,064 564 -818 Profit before tax 9,759 15,819 2,773 3,559 161 -1,316 Net profit or loss 7,426 12,165 1,696 2,122 105 -1,063 Profit share of non-controlling interests 74 122 671 939 37 372 Profit share of shareholders of BAUER AG 7,352 12,043 1,025 1,183 68 -691 Dividends paid to minority shareholders -40 -50 -69 -227 0 0
INCOME STATEMENT BAUER Casings BAUER Nimr LLC Site Group in EUR '000 31.12.2013 31.12.2014 31.12.2013 31.12.2014 31.12.2013 31.12.2014 Sales revenues 5,250 3,687 11,745 16,616 20,750 11,224 Operating result 1,122 575 3,514 3,819 -20,314 5,027 Profit before tax 1,123 575 2,840 3,131 -23,908 503 Net profit or loss 898 460 2,840 3,131 -24,007 355 Profit share of non-controlling interests 359 184 852 939 -4,048 104 FINANCIAL STATEMENTS CONSOLIDATED Profit share of shareholders of BAUER AG 539 276 1,988 2,192 -19,959 251 Dividends paid to minority shareholders 0 -146 -1,182 -2,364 0 0 2014
CASH FLOW STATEMENT BAUER Maschinen GmbH BAUER EGYPT S.A.E OOO BAUER Maschinen – Kurgan in EUR '000 2013 2014 2013 2014 2013 2014 Cash flows from operational activities 5,614 15,001 3,007 4,636 3,354 1,968 Cash flows from investment activities -9,398 -16,205 -406 -2,929 -1,097 -1,607 Cash flows from financing activities 6,995 -1,631 144 -19 -2,396 -478 Influence of exchange rate movements on cash 0 0 -993 1,117 -61 155 Net change in liquid funds 3,211 -2,835 1,752 2,805 -200 38
CASH FLOW STATEMENT BAUER Casings BAUER Nimr LLC Site Group in EUR '000 2013 2014 2013 2014 * 2013 2014 Cash flows from operational activities 438 537 11,114 10,352 -8,890 11,519 Cash flows from investment activities -242 -74 -376 -607 8,878 -4,191 Cash flows from financing activities 33 -375 -6,373 -9,735 -2,349 -7,791 Influence of exchange rate movements on cash -145 12 49 26 443 516 Net change in liquid funds 84 100 4,414 36 -1,918 53
* up to November 19, 2014; see notes on page 104 148 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
b) Changes to the investment quota of subsidiaries of the Group In financial 2013, BAUER Resources GmbH/Jordan Ltd. Co. purchased 23.3 % of the shares in Site Group for Services and Well Drilling Ltd. Co., Amman, Jordan for a purchase price of USD 1. As a result, the proportion increased to 83.30 %. In this, proportions totaling EUR 4,647 thousand in value (proportion of the carrying value of the net assets of the Site Group) have been transferred to BAUER Resources GmbH/Jordan Ltd. Co. The transferred proportions have been reported under revenue reserves.
With effect from April 30, 2014, Celler Brunnenbau Holding GmbH, Celle, contributed assets with a fair value of EUR 900 thousand to PRAKLA Bohrtechnik GmbH as part of an asset deal. The fair value was certified by an external auditor. In return, linked to a capital increase by PRAKLA Bohrtechnik GmbH, Peine, a capital share (10 %, or EUR 114 thousand) determined by the DCF method was allotted. The asset deal also entailed a premium of EUR 786 thousand. The asset deal reduced the investment in PRAKLA Bohrtechnik GmbH to 90 %, while the proportion of the minority share- holders increased by EUR 900 thousand due to the asset deal. NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 149
ADDITIONAL INFORMATION ABOUT CAPITAL MANAGEMENT
The object of Bauer’s capital management is to safeguard a strong financial profile. In particular, capital servicing is to be as- sured for suitable dividend payments for the shareholders as well as for the external capital providers. We also aim to provide ourselves with adequate financial resources to sustain our growth strategy. The risk profile is actively managed and monitored. This is focused primarily on key indicators such as the equity ratio, net debt and net profit or loss for the period.
The key indicators are presented below: in EUR '000 31.12.2013 31.12.2014 Shareholders’ equity * 419,815 418,925 Equity ratio 26.5 % 26.6 % Net profit or loss -19,431 15,726 Net debt 672,096 645,679 Financial indebtedness 729,313 687,514 Liquid funds 57,217 41,835 Net debt / EBITDA * 5.42 3.78 EBITDA / net interest coverage * 3.28 4.49
* Previous year adjusted; there was a non-signifi cant change in value in the course of calculating the share of joint ventures according to IFRS 11 and the retrospectively changed balance sheet disclosure (see page 106) CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED
As part of the capital management strategy covering the subsidiaries of the BAUER Group, it is ensured that member companies are provided with an equity base in line with local requirements. Our aim in doing this is to provide the necessary 2014 flexibility in terms of finance and liquidity. All externally imposed capital requirements (covenants) were complied with during the year under review.
NON-CURRENT LIABILITIES
27. NON-CURRENT LIABILITIES The non-current portions of the liabilities comprise the following: in EUR '000 Remaining term 31.12.2013 Remaining term 31.12.2014
1 to 5 years over 5 years 1 to 5 years over 5 years Liabilities to banks 247,775 0 364,771 0 Liabilities from finance lease agreements 17,265 0 13,032 0 Other non-current liabilities 6,483 0 5,959 0 Other non-current financial liabilities 14,397 0 10,013 0 Total 285,920 0 393,775 0
in EUR '000 Fair value Interest rate margin
31.12.2013 31.12.2014 31.12.2013 31.12.2014 Liabilities to banks 256,361 378,016 0.50 - 9.12 % 0.50 - 11.2 % Liabilities from finance lease agreements 17,265 13,032 2.38 - 7.75 % 2.38 - 7.89 % Other non-current financial liabilities 15,396 9,904 1.59 - 9.21 % 0.85 - 12.5 % Total 289,022 400,952 - - 150 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
The other non-current liabilities include non-current portions of liabilities from obligations in respect of part-time retirement and service anniversary payments, trade payables, and liabilities from continuing involvements.
The other non-current financial liabilities mainly comprise the fair values of the derivatives as well as other liabilities to finance companies and convertible bonds (see the Notes to the financial instruments in section 36).
28. PROVISIONS FOR DEFINED BENEFIT PLANS The BAUER Group operates a number of defined benefit plans in Germany and internationally. The provisions for defined benefit plans of the companies in Schrobenhausen recognized on the consolidated balance sheet cover most (96 %) of the balance sheet value. Those companies are governed by the occupational pension scheme of BAUER Spezialtiefbau GmbH constituted on July 1, 1992 as amended by the in-company agreement dated November 18, 1998. In it, the company grants all employees who joined by March 31, 1998 and their surviving dependents a retirement pension and invalidity benefit as well as a widow’s/widower’s pension. Employees qualify for the retirement pension on reaching the standard retirement age, or on prior qualification for a pension from the statutory pension fund. The pension payable amounts to 0.225 % of the employee’s pensionable earnings for each pensionable year of service, plus 0.075 % of pensionable earnings for each pensionable year of service completed before January 1, 1999; plus, for the portion of pensionable earnings above the contribution assess- ment limit in the statutory pension fund, 0.375 % plus 0.125 % for each pensionable year of service completed before January 1, 1999. In the case of scheme members who are not members of the Zusatzversorgungskasse des Baugewerbes (construction industry ancillary benefits fund): The pension payable amounts to 0.3 % of the employee’s pensionable earnings for each pensionable year of service, plus 0.1 % of pensionable earnings for each pensionable year of service completed before January 1, 1999; plus, for the portion of pensionable earnings above the contribution assessment limit in the statutory pension fund, 0.3 % plus 0.1 % for each pensionable year of service completed before January 1, 1999.
The widow’s/widower’s pension amounts to 50 % of the attained entitlement. Benefits are also promised to surviving depend- ent children in various forms. Vesting and transitional arrangements are also in place. The risks entailed by the pension schemes are mainly those commonly associated with defined benefit plans in terms of potential variations in the discount interest rate and, to a lesser extent, inflation trends as well as longevity.
The calculations are based on the following actuarial assumptions:
in % 31.12.2013
Germany Indonesia Philippines Taiwan Interest rate 3.7 8.8 4.7 2.0 Future salary increases 3.0 10.0 3.0 3.0 Future pension increases 2.0 - - -
in % 31.12.2014
Germany Indonesia Philippines Taiwan Interest rate 2.0 8.0 7.8 2.0 Future salary increases 3.0 10.0 3.0 3.0 Future pension increases 2.0 - - - NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 151
Defined benefit plans in Germany are calculated biometrically applying the 2005 G Graduated Life Tables compiled by Klaus Heubeck. The discount interest rate applied to future pension payment commitments by most Group companies is derived from the Mercer Yield Curve. Outside of Germany, the underlying biometric probability of death is based on published national statistics and empirical data.
The amount of the provisions recognized on the balance sheet for pensions and similar obligations was determined as follows: in EUR '000 31.12.2013 31.12.2014 Present value of commitments financed by a fund 2,688 3,801 Fair value of plan assets -504 -657 Plan deficit 2,184 3,144 Present value of commitments not financed by a fund 81.421 115,360 Total deficit of define benefit pension plans 83,605 118,504 Effect of asset ceiling -- Recognized provision 83,605 118,504 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED 2014 152 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
The defined benefit obligation and the plan assets developed as follows during the previous year:
in EUR '000 Present value Fair value Effect of commitment of plan assets Total of asset ceiling Total
As at: January 1, 2013 82,825 -502 82,323 - 82,323 Current service costs 1,850 - 1,850 - 1,850 Interest expense/income 2,933 -21 2,912 - 2,912
Post-employment expenditure, gains and losses from payment in lieu -----
Total 87,608 -523 87,085 - 87,085
Revaluation:
Return on plan assets excluding amounts included in the above interest - 35 35 - 35
Actuarial gains and losses arising from adjustments to demographic assumptions -----
Actuarial gains and losses arising from adjustments to financial assumptions -1,410 - -1,410 - -1,410
Empirical value-based adjustments 405 - 405 - 405
Changes in asset ceiling, excluding amounts included in the interest -----
Total -1,005 35 -970 - -970 Exchange rate movements -272 61 -211 - -211 Contributions: Employer - -88 -88 - -88 Beneficiary employee ----- Payments from the plan: Ongoing payments - 11 11 - 11 Benefits (not fund-financed) -2,222 - -2,222 - -2,222 Other effects ----- As at: December 31, 2013 84,109 -504 83,605 - 83,605 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 153
The defined benefit obligation and the plan assets developed as follows during the financial year: in EUR '000 Present value Fair value Effect of commitment of plan assets Total of asset ceiling Total
As at: January 1, 2014 84,109 -504 83,605 - 83,605 Current service costs 1,817 - 1,817 - 1,817 Interest expense/income 3,080 -32 3,048 - 3,048
Post-employment expenditure, gains and losses from payment in lieu -----
Total 89,006 -536 88,470 - 88,470
Revaluation:
Return on plan assets excluding amounts included in the above interest - 18 18 - 18
Actuarial gains and losses arising from adjustments to demographic assumptions -----
Actuarial gains and losses arising from adjustments to financial assumptions 32,274 - 32,274 - 32,274
Empirical value-based adjustments -6 - -6 - -6 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED Changes in asset ceiling, excluding amounts included in the interest -----
Total 32,268 18 32,286 - 32,286 2014 Exchange rate movements 140 -52 88 - 88 Contributions: Employer - -89 -89 - -89 Beneficiary employee ----- Payments from the plan: Ongoing payments - 2 2 - 2 Benefits (not fund-financed) -2,253 - -2,253 - -2,253 Other effects ----- As at: December 31, 2014 119,161 -657 118,504 - 118,504 154 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
The fair value of the plan assets can be allocated to the following categories:
in EUR '000 31.12.2013 31.12.2014 Qualifying insurance contracts 223 235 Money market fund and pension fund 252 390 Cash and cash equivalents 29 32 Total 504 657
No market price quotations exist for the qualifying insurance contracts.
The key actuarial assumptions applied in determining the defined benefit plan commitment are the discount interest rate, expected salary increases and expected pension increases.
The sensitivity of the overall pension commitment to variations in the weighted primary assumptions is:
in EUR '000 Effect on obligation
Variation Increase Decrease in assumption in assumption in assumption
Discount interest rate +/- 0.5 % 107,354 131,121 Future salary increases +/- 0.5 % 122,313 114,726 Future pension increase +/- 0.5 % 125,835 110,971
Increase Decrease in assumption in assumption by 1 year by 1 year
Probability of death 124,321 114,007
The above sensitivity analysis is based on a variation in one assumption while all other assumptions remain constant. It is unlikely that this will occur in reality, and variations in some assumptions may correlate. In calculating the sensitivity of the defined benefit plan obligation to variations in actuarial assumptions, the same method was applied as that used to measure the provisions for defined benefit plans on the balance sheet. The present value of the defined benefit plan obligations was calculated by the projected unit credit method as at the end of the reporting period.
The methods and categories of assumption applied in preparing the sensitivity analysis have not changed relative to the prior period except for the probability of death. NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 155
The defined benefit plan commitments and plan assets by country are as follows: in EUR '000 31.12.2013
Germany Indonesia Philippines Taiwan Total Present value of commitments 83,062 708 175 164 84,109 Fair value of plan assets -223 -252 0 -29 -504 Total 82,839 456 175 135 83,605 Effect of asset ceiling - - - - - Total 82,839 456 175 135 83,605
in EUR '000 31.12.2014
Germany Indonesia Philippines Taiwan Total Present value of commitments 117,773 1,027 223 138 119,161 Fair value of plan assets -235 -390 0 -32 -657 Total 117,538 637 223 106 118,504 Effect of asset ceiling - - - - - Total 117,538 637 223 106 118,504 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED
The present value of the defined benefit plan commitment is distributed as follows among the plan members: in EUR '000 31.12.2013 31.12.2014 2014 Active scheme members 49,949 75,169 Deferred beneficiaries 4,630 6,522 Pensioners 29,530 37,470 Total 84,109 119,161
The weighted average term of the defined benefit plans is 20.2 years. For the 2015 financial year, pension payments totaling EUR 2,314 thousand (previous year: 2,242 thousand) are expected. Of that total, EUR 2,314 thousand (previous year: 2,242 thousand) is projected to be contributed by the employer. Contribu- tions to the external plan assets totaling EUR 89 thousand (previous year: 84 thousand) are expected for 2015.
The following table provides an overview of the due dates of the undiscounted pension payments: in EUR '000 Under 1 to 5 years 6 to 10 years 31.12.2014 1 year Total
Pension payments 2,314 11,736 26,181 40,231 156 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
CURRENT LIABILITIES
29. CURRENT LIABILITIES
in EUR '000 31.12.2013 31.12.2014 Liabilities to banks 427,589 266,533 Liabilities from finance lease agreements 10,185 7,453 Advances received for orders 9,801 19,579 Liabilities from construction contracts (PoC) 32,839 48,471 Trade payables 194,471 168,974 Liabilities to enterprises in which the company has participating interests 219 205 Other current liabilities 69,873 68,632 Other current financial liabilities 12,102 25,712 Total 757,079 605,559
The “Trade liabilities” balance sheet item includes long-term liabilities totaling EUR 979 thousand (previous year: 949 thousand).
The other current liabilities mainly comprise obligations in respect of outstanding invoices, flexitime and holiday credits, employer’s liability insurance associations, the compensation levy for the shortfall in handicapped employees, performance bonuses as well as other tax liabilities and liabilities in respect of social security.
The other current financial liabilities mainly comprise obligations to leasing and finance companies. The fair values virtually match the carrying amounts. The interest rate margin on current liabilities to banks is 0.75 to 11.20 % (previous year: 1.10 to 9.60 %).
30. OTHER PROVISIONS The other provisions have developed as follows in the financial year:
in EUR '000 31.12.2013 31.12.2014 As at 01.01. 14,893 14,809 Change in scope of consolidation 00 Currency adjustment -33 153 Allocation 6,461 6,633 Reversal 3,454 3,432 Consumption 3,058 2,283 As at 31.12. 14,809 15,880
The other provisions comprise the following:
in EUR '000 31.12.2013 31.12.2014 Risk from contract processing and warranties 14,605 14,670 Litigation 204 1,210 Total 14,809 15,880 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 157
The provisions for risk from contract processing and warranties include all risks arising from carrying out specialist founda- tion engineering work and from the sale of machinery, equipment and tools for specialist foundation engineering, with the associated services. These primarily relate to warranty obligations and to other uncertain commitments. The risk from contract processing and warranties is determined specific to project/construction site.
The majority of the provisions for risks arising from contract processing and warranties and provisions for litigation are predicted to be used up during 2015. Provisions for litigation amounting to EUR 427 thousand (previous year: 0) is predicted to be used up during 2017.
31. CONTINGENT LIABILITIES Contingent liabilities are liabilities not yet recognized in the financial statements, which are recognized in the amount of the maximum possible exposure on the balance sheet date. in EUR '000 31.12.2013 31.12.2014 Liabilities from guarantees 4,386 5,112
In the construction industry, it is common and essential practice to issue various guarantees to secure obligations arising from construction contracts. These guarantees are usually issued by banks or credit insurance companies (guarantors), and FINANCIAL STATEMENTS CONSOLIDATED essentially guarantee quotations, contract performance, prepayments and warranty commitments. In the event of a guarantee being given, the guarantors have a right of recourse against the Group. A risk of a guarantee being implemented exists only 2014 when the underlying contractual obligations are not duly met.
The contingent liabilities were mainly in relation to the securing of contract performance, to warranty obligations and to advance payments. Liabilities from guarantees exist to third parties. In addition, we are subject to joint and several liability in respect of all joint ventures in which we participate.
For reasons of practicality, no information has been provided about the due dates of outflows from contingent liabilities.
32. OTHER FINANCIAL OBLIGATIONS in EUR '000 Remaining term
under 1 year 1 to 5 years over 5 years
31.12.2013 31.12.2014 31.12.2013 31.12.2014 31.12.2013 31.12.2014 Minimum lease payments from operating leases 15,139 9,663 15,688 22,048 89 77 Other financial obligations 8,616 6,715 4,893 3,677 5,724 6,749
The operating leases relate mainly to mutual agreements about factory and office equipment, as well as to technical equip- ment and machinery which were added in the financial year and are classified as operating leases. The BAUER Group is committed to rental agreements of unlimited term totaling monthly EUR 685 thousand (previous year: 1,686 thousand). The other financial obligations mainly include limited-term property rentals and leases.
33. DISCONTINUED OPERATIONS There no plans to discontinue business operations under the terms of IFRS 5.
34. EVENTS AFTER THE BALANCE SHEET DATE No events subject to mandatory reporting in accordance with IAS 10 occurred after December 31, 2014. 158 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
OTHER DISCLOSURES
35. CASH FLOW STATEMENT The funds shown in the cash flow statement comprise only the cash and cash equivalents stated on the balance sheet. The cash flow statement details payment flows, broken down by inflow and outflow of funds from operating activities and from investing and financing activities. The cash flow from operating activities is derived indirectly from the pre-tax profit. The pre-tax profit is adjusted by non-cash transactions. The cash flow from operating activities is produced taking account of the changes in working capital. Investing activities include additions to property, plant and equipment and to financial assets and intangible assets, as well as income from the sale of assets. Financing activities include outflows of cash and cash equivalents arising from dividend payments as well as the change in other financial indebtedness. The changes in balance sheet items applied for the preparation of the cash flow statement are not directly derivable from the balance sheet, as the effects of currency translation and changes in the scope of consolidation, as well as the allocation and elimination of value adjustments on trade receivables, do not affect payments and are stripped out.
36. FINANCIAL INSTRUMENTS In its business operations and financing activities the BAUER Group is subject in particular to fluctuations in exchange rates and interest rates. It is the company’s policy to exclude, or at least limit, these risks by entering into hedge transactions. All hedging measures are managed centrally by BAUER AG. Application of the segregation-of-duties approach ensures that there is an adequate split between the trading and execution functions. The segregation-of-duties approach is implemented by spreading functions across the Management Board (financial reporting) and the corporate departments (operational handling). All derivatives transactions are entered into only with banks of the highest credit rating.
MARKET RISKS
Foreign exchange rate risks Foreign exchange rate risks under the terms of IFRS 7 are created by financial instruments which are denominated in a currency different to the functional currency and are of a monetary nature. Exchange rate-related differences when converting financial statements into the Group currency are ignored. All non-functional currencies in which the BAUER Group enters into financial instruments are classed, as a matter of principle, as relevant risk variables. The existing foreign exchange forward contracts, foreign exchange options and cross-currency swaps safeguard our currency hedging strategy. Within the BAUER Group, the primary monetary financial instruments are either denominated directly in functional currency or are largely transferred into the functional currency by means of derivatives. In view of the usually short- term maturity of the instruments too, possible changes in exchange rates have only very minor effects on earnings or equity. For the purposes of sensitivity analysis, foreign exchange rate risks arising from monetary financial instruments which were not concluded in the functional currencies of the individual member companies of the BAUER Group are included in the analysis. NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 159
Quantification of foreign exchange risk in case of exchange rate shifts of +/- 10 %:
In EUR '000 As at 31.12.2013 USD RUB CAD Overall effect of +10 % on OCI 5,572 255 0 Overall effect of −10 % on OCI -6,838 -309 0 Overall effect of +10 % on income statement 2,713 49 -367 Overall effect of −10 % on income statement -2,654 -58 449
In EUR '000 As at 31.12.2014 USD RUB CAD Overall effect of +10 % on OCI 10,653 137 0 Overall effect of −10 % on OCI -13,021 -167 0 Overall effect of +10 % on income statement 8,055 64 -99 Overall effect of −10 % on income statement -6,181 -78 122
In 2014, the sensitivity effects mainly related to the US Dollar, Russian Ruble and Canadian Dollar. No concentrations of risk exist.
Interest rate risks FINANCIAL STATEMENTS CONSOLIDATED The existing interest rate swaps serve to safeguard our financing and interest rate hedging strategy. Agreements exist in respect of swaps from variable to fixed interest rates in order to exclude the risk of fluctuation in market interest rates. 2014 Changes in market interest rates affect the interest results of variable-rate primary financial instruments of which the interest payments are not hedged by derivatives, and consequently are included in the calculation of earnings-related sensitivity. Changes in market interest rates of interest rate derivatives (interest rate swaps, interest rate/currency swaps) which are not embedded in a hedging relationship pursuant to IAS 39 have effects on financial income and expenses (net valuation based on adjustment of financial assets to applicable fair value) and so are included in the calculation of earnings-related sensitivity. The effects of changes in market interest rates of interest rate derivatives to which hedge accounting is applied are recognized in the OCI.
Quantification of risk of change in interest rate in case of interest rate shifts of +/- 100 base points: in EUR '000 31.12.2013 31.12.2014 Overall effect of +100 base points on OCI 2,076 732 Overall effect of −100 base points on OCI -1,806 -393 Overall effect of +100 base points on income statement 2,494 4,080 Overall effect of −100 base points on income statement -2,298 -3,474
A drop in the variable interest rate below 0 % was ruled out when calculating the interest sensitivity.
Raw material risks Raw material risks to which the BAUER Group is exposed in respect of availability and potential fluctuations in price on the market are excluded, or limited, by means of supply promises and fixed pricing agreements entered into with suppliers prior to execution of contracts. The raw material risk relates mainly to steel. 160 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
Liquidity risks The liquidity risk is managed by means of business planning, which ensures that the necessary funds to finance operating activities and current and future capital investments are made available at the appropriate time, in the required currency, and at optimum cost, in all Group companies. In liquidity risk management, the liquidity requirement arising from operating activities, from investment activities and from other financial measures is determined in the form of a banking report and a liquidity plan. Liquidity is guaranteed at all times by means of a liquidity forecast focused on a fixed planning horizon and by unused lines of credit and guarantee facilities.
The following tables present the contractually agreed and discounted interest payments and capital repayments in respect of primary financial liabilities and derivative financial instruments of the BAUER Group:
in EUR '000 Carrying amount Cash flows Cash flows Cash flows 31.12.2013 2014 2015 to 2018 2019 ff.
Liabilities to banks 675,364 443,095 239,939 30,423 Liabilities from finance lease agreements 27,450 11,070 18,324 0 Other liabilities 76,356 69,873 6,483 0 Other financial liabilities (without derivatives) 18,968 11,088 6,416 3,537 Liabilities from construction contracts (PoC) 32,839 32,839 0 0 Trade payables 194,471 193,522 949 0 Liabilities to enterprises in which the company has participating interests 219 219 0 0
in EUR '000 Carrying amount Cash flows Cash flows Cash flows 31.12.2014 2015 2016 to 2019 2020 ff.
Liabilities to banks 631,304 276,146 393,705 10,816 Liabilities from finance lease agreements 20,485 8,201 13,712 20 Other liabilities 74,591 68,632 2,898 3,062 Other financial liabilities (without derivatives) 17,623 11,981 5,997 0 Liabilities from construction contracts (PoC) 48,471 48,471 0 0 Trade payables 168,974 167,995 979 0 Liabilities to enterprises in which the company has participating interests 205 205 0 0
There were no instances of defaulting on interest payments or capital repayments in the period under review. Furthermore, all externally imposed capital requirements (covenants) for the loan agreements were met, see also page 148 “Additional information about capital management”. No concentrations of risk exist. It is not to be expected that liabilities arising from sureties (contingent liabilities) will result in significant actual liabilities, and thus in significant cash flows, for which no provisions have yet been made. NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 161
The due dates of derivative financial instruments based on outflow and inflow of cash and cash equivalents are as follows:
In EUR '000 As at 31.12.2013 Carrying amount 2014 2015 to 2018 from 2019 Liabilities from foreign exchange forward contracts 491 -382 -150 0 Outflow of cash and cash equivalents * - -41,399 -9.159 0 Inflow of cash and cash equivalents * - 41,017 9,009 0 Liabilities from interest rate swaps 6,846 -3,132 -4,513 -190 Outflow of cash and cash equivalents - -3,132 -4,513 -190 Inflow of cash and cash equivalents - 0 0 0 Liabilities from cross currency swaps 194 -122 -95 0 Outflow of cash and cash equivalents - -239 -186 0 Inflow of cash and cash equivalents - 117 91 0
* Previous year’s fi gure adapted
In EUR '000 As at 31.12.2014 Carrying amount 2015 2016 to 2019 from 2020 Liabilities from foreign exchange forward contracts 12,926 -12,804 -279 0 Outflow of cash and cash equivalents - -228,410 -8,220 0
Inflow of cash and cash equivalents - 215,606 7,941 0 FINANCIAL STATEMENTS CONSOLIDATED Liabilities from interest rate swaps 5,176 -2,598 -2,341 -29 Outflow of cash and cash equivalents - -2,598 -2,341 -29
Inflow of cash and cash equivalents - 0 0 0 2014 Liabilities from cross currency swaps 0 0 0 0 Outflow of cash and cash equivalents - 0 0 0 Inflow of cash and cash equivalents - 0 0 0
To calculate the cash inflows from interest rate swaps the conditions as per December 31, 2014 were applied.
Risk of default The risk of default is managed at Group level. Default risks arise from cash and cash equivalents, derivative financial instru- ments and deposits at banks and financial service companies. Only banks and financial services companies with high credit ratings are selected as partners. No credit limit was exceeded in the reporting period. The management expects no defaults on the part of these business partners.
The risk of default on financial assets exists in terms of the risk of failure of a contract party and thus to a maximum in the amount of the carrying amount of the exposure to the said party. A presentation of the carrying amounts and the resultant maximum risk of default per category is given in the table starting on page 166. The risk arising from primary financial instru- ments is countered by means of value adjustments for bad debt, and in Germany also by means of credit insurance cover. As derivative financial instruments are entered into only with banks with high credit ratings, and the risk management system sets limits for each party, the actual risk of default is negligible. No concentrations of risk exist. 162 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
Other disclosures relating to financial instruments On October 2, 2001, BAUER EGYPT S.A.E. issued an 11 % convertible bond with a face value of EGP 10,000,000. The term of the convertible bond was originally 6 years, and was again extended for a further 3 years in 2010. On expiry of the convertible bond, the holder did not exercise the option to exchange it for 200,000 shares at EGP 50 each. Repayment of the convertible bond was agreed in three installments. The first two installments were paid in 2013, in the amount of EGP 3,000,000, and in 2014, in the amount of EGP 4,000,000; the remaining installment of EGP 3,000,000 will be paid in 2015. The applicable fair value of the liability component and of the equity conversion component was set as per the issue date of the convertible bond. The applicable fair value of the debt component recognized in the non-current financial liabilities as at December 31, 2014 amounts to EUR 0 (previous year: 144 thousand). The applicable fair value of the equity component recognized in the non-controlling interests as at December 31, 2014 EUR 116 thousand (previous year: 324 thousand).
The Group has taken up loans with variable interest rates and hedged against its interest rate-related cash flow risk by means of swaps. Such interest rate swaps have the commercial effect of converting variable-interest loans into fixed-interest loans. In these interest rate swaps, the Group agrees with other parties to swap the difference between the fixed and variable interest rates derived from the agreed nominal amounts at regular intervals.
The nominal volumes and market values of the derivative financial instruments are as follows:
in EUR '000 Nominal volume Fair value 31.12.2013 31.12.2014 31.12.2013 31.12.2014
Positive Negative Positive Negative Interest rate swaps of which in hedge accounting 125,464 64,571 0 −2,765 0 −1,354 of which not in hedge accounting 45,550 67,350 0 −4,081 0 −3,822 Foreign exchange forward contracts of which in hedge accounting 74,931 119,546 1,980 −133 988 −7,640 of which not in hedge accounting 84,712 145,022 1,211 −358 426 −5,286 Foreign exchange forward options of which in hedge accounting 0 0 0 0 0 0 of which not in hedge accounting 6,556 0 115 0 0 0 Cross-currency swaps of which in hedge accounting 1,605 1,419 0 −42 69 0 of which not in hedge accounting 3,314 2,578 0 −152 60 0
Net result by valuation category The following table sets out the net profits and losses (before tax) on financial instruments stated in the income statement, broken down by valuation category as per IAS 39:
in EUR '000 31.12.2013 31.12.2014 Loans and receivables 8,471 982 Financial liabilities measured at amortized cost -38,691 -39,075 Available-for-sale financial assets -2,586 -705 Held for Trading 2,465 -7,875 Total -30,341 -46,673 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 163
The net result of the “Loans and Receivables” category includes results from the creation and reversal of value adjustments in respect of trade receivables as well as interest income. Furthermore, the valuation category of “Loans and Receivables” was extended in 2014 to include the results from bank fees amounting to EUR −3,284 thousand (previous year: −2,827 thousand) and value reductions on irrecoverable receivables in the amount of EUR −411 thousand (previous year: −72 thousand).
The net result of the “Financial Liabilities Measured at Amortized Cost” category includes the result from interest expenditure to third parties, for current and non-current loans as well as guaranty commissions.
The net result of the “Available-for-Sale Financial Assets” category includes impairment of financial assets. Equity shares in companies are valued at cost and are not included.
The net result of the “Financial Assets and Liabilities Held for Trading” category includes results from foreign exchange forward contracts and options, as well as results from changes to the fair values of interest rate swaps.
Carrying amounts and fair values The fair value of a financial instrument is the consideration for which an asset might be exchanged, or a debt paid, between informed, willing and mutually independent parties. Where financial instruments are quoted on an active market – such as in particular shares held and bonds issued – the price quoted on the market in question is the fair value. If no active market FINANCIAL STATEMENTS CONSOLIDATED exists, the fair value is determined by financial valuation methods. For securities (AfS) the BAUER Group has at its disposal the prices quoted on an active market. 2014
The fair values of foreign exchange forward contracts and cross-currency swaps are measured separately at their respective forward prices and discounted to the reference date based on the corresponding interest rate curve. The market prices of foreign exchange forward options are determined by recognized option models. The fair values of the interest rate swaps correspond to the respective market value as determined by appropriate financial valuation methods, such as by discounting expected future cash flows.
For cash and cash equivalents, current trade receivables and other current assets, current trade payables and other current liabilities, owing to their short remaining terms the carrying amount should be adopted as a realistic estimate of the fair value.
The fair values of non-current financial assets and of other non-current financial liabilities correspond to the cash values of the payment flows linked to the assets, taking into account the applicable interest rate parameters, which reflect changes in the terms and expectations of the market and of the respective parties.
The fair values of financial instruments are determined on the basis of one of the methods set out on the three following levels:
• Level 1: Quoted prices (adopted unchanged) on active markets for identical assets and liabilities • Level 2: Directly or indirectly observable input data for the asset or liability other than quoted prices as per level 1 • Level 3: Applied input data which does not originate from observable market data for measurement of the asset and liability (non-observable input data)
There were no transfers between the levels during the year. If circumstances arise necessitating a reclassification, it is undertaken at the end of the reporting period. 164 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
Other disclosures relating to hedging transactions In the 2014 financial year, changes in shareholders’ equity from cash flow hedges in an amount of EUR 1,184 thousand (previous year: 1,767 thousand) before tax and EUR 1,235 thousand (previous year: 1,129 thousand) after tax were recognized in the shareholders’ equity as a hedge reserve with no effect on profit and loss. An amount of EUR 6,497 thousand (previous year: 310) was recognized as affecting expenditure from the hedge reserve created with no effect on net income in the shareholders’ equity. Fair value changes in the shareholders’ equity (reducing equity) amounting to EUR -5,313 thousand were reported from the derivative financial instruments held as at December 31, 2014. Moreover, the changes in deferred taxes in the amount of EUR 51 thousand were reported in the shareholders’ equity with no effect on net income. Future transactions in foreign currencies secured by hedging and hedged changes in market interest rates are expected to be realized by 2020 at the latest. Gains and losses on future contracts in foreign currency and interest rates at December 31, 2014 included in the hedge reserve in the OCI are recognized in the income statement in the period in which the hedged planned transaction impacts on the income statement. The prospective effectiveness is measured according to the Critical Term Match method and the retrospective effectiveness according to the Dollar Offset method based on the Hypothetical Derivatives method.
Offsetting Financial Assets and Financial Liabilities a) Financial assets The following financial assets are subject to offsetting, enforceable master-netting arrangements or similar arrangements.
in EUR '000 Related amounts not offset on the balance sheet
Gross amount Net amount of of recognized financial liabilities Gross amount financial assets recognized on the of recognized offset on the financial Financial Cash financial liabilities balance sheet balance sheet instruments securities paid Net amount
Status: December 31, 2013 Derivative financial assets 3,306 0 3,306 -859 - 2,447 Cash and cash equivalents 57,217 0 57,217 -3,400 - 53,817 Total 60,523 0 60,523 -4,259 - 56,264
Status: December 31, 2014
Derivative financial assets 1,543 0 1,543 -1,484 - 59 Cash and cash equivalents 41,835 0 41,835 -4,402 - 37,433 Total 43,378 0 43,378 -5,886 - 37,492 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 165
b) Financial liabilities The following financial liabilities are subject to offsetting, enforceable master-netting arrangements or similar arrangements.
in EUR '000 Related amounts not offset on the balance sheet
Gross amount Net amount of of recognized financial liabilities Gross amount financial assets recognized on the of recognized offset on the financial Financial Cash financial liabilities balance sheet balance sheet instruments securities paid Net amount
As at: December 31, 2013 Derivative financial liabilities 7,531 0 7,531 -859 - 6,672 Current-account overdrafts 255,605 0 255,605 -3,400 - 252,205 Total 263,136 0 263,136 -4,259 - 258,877
As at: December 31, 2014
Derivative financial liabilities 18,102 0 18,102 -1,484 - 16,618 Current-account overdrafts 188,709 0 188,709 -4,402 - 184,307 Total 206,811 0 206,811 -5,886 - 200,925 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED
The “Financial instruments” column lists the amounts which are subject to master-netting arrangements but are not netted on the balance sheet because the preconditions for offsetting are not met. The “Cash securities received” column lists the 2014 amounts of cash and financial instrument securities received relative to the sum total of assets and liabilities which do not meet the criteria for netting on the balance sheet. 166 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
Within the Group, financial instruments are classified in the same way as the respective balance sheet items. No fair value is stated for current financial instruments or financial instruments reported at acquisition cost in the balance sheet, according to IFRS 7.29. The following table presents a progression of the classes to the categories of IAS 39 and the respective market values:
in EUR '000
Valuation standard Carrying amount Loans and receivables/ other financial liabilities
31.12.2013 31.12.2014 31.12.2013 31.12.2014
NON-CURRENT ASSETS
Participations at cost 3,613 3,613 0 0
Receivables from concession arrangements at amortized cost 36,762 0 36,762 0
Other non-current financial assets 5,420 28,420
at fair value 137 1,402 0 0
at amortized cost 1,325 22,671 1,325 22,671
at cost 3,958 4,347 0 0
CURRENT ASSETS
Receivables from construction contracts at amortized cost 143,234 132,159 143,234 132,159
Trade receivables at amortized cost 320,301 311,417 320,301 311,417
Receivables from enterprises
in which the company has participating interests at amortized cost 444 67 444 67
Other current financial assets 19,551 20,100
at fair value 3,169 141 0 0
at amortized cost 16,382 19,959 16,382 19,959
Cash and cash equivalents 57,217 41,835 57,217 41,835
Total financial assets 586,542 537,611 575,665 528,108 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 167
Balance sheet valuation as per IAS 39 Not assigned to any IAS 39 category Valuation Available for sale Financial assets and Derivatives in Balance sheet valuation Fair Value as per IFRS 7 level liabilities held for trading hedge accounting as per IAS 17 and IFRS 13 according to IFRS 13 31.12.2013 31.12.2014 31.12.2013 31.12.2014 31.12.2013 31.12.2014 31.12.2013 31.12.2014 31.12.2013 31.12.2014
3,613 3,613 0 0 0 0 0 0 n/a n/a
0 0 0 0 0 0 0 0 40,449 0 2
0 0 127 349 10 1,053 0 0 137 1,402 2
0 0 0 0 0 0 0 0 1,214 22,224 2 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED 3,958 4,347 0 0 0 0 0 0 n/a n/a n/a 2014
0 0 0 0 0 0 0 0 n/a n/a n/a
0 0 0 0 0 0 0 0 319,454 310,972 2
0 0 0 0 0 0 0 0 n/a n/a n/a
0 0 1,199 136 1,970 5 0 0 3,169 141 2
0 0 0 0 0 0 0 0 n/a n/a n/a
0 0 0 0 0 0 0 0 n/a n/a n/a
7,571 7,960 1,326 485 1,980 1,058 0 0 364,423 334,739 168 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
in EUR '000
Valuation standard Carrying amount Loans and receivables/ other financial liabilities
31.12.2013 31.12.2014 31.12.2013 31.12.2014
NON-CURRENT LIABILITIES
Liabilities to banks at amortized cost 247,775 364,771 247,775 364,771
Liabilities from finance lease agreements at fair value 17,265 13,032 0 0
Other non-current financial liabilities 14,397 10,013
at fair value 6,516 4,371 0 0
at amortized cost 7,881 5,642 7,881 5,642
CURRENT LIABILITIES
Liabilities to banks at amortized cost 427,589 266,533 427,589 266,533
Liabilities from finance lease agreements at fair value 10,185 7,453 0 0
Liabilities from construction contracts at amortized cost 32,839 48,471 32,839 48,471
Trade payables at amortized cost 194,471 168,974 194,471 168,974
Liabilities to enterprises
in which the company has participating interests at amortized cost 219 205 219 205
Other current financial liabilities 12,102 25,712
at fair value 1,015 13,731 0 0
at amortized cost 11,087 11,981 11,087 11,981
Total financial liabilities 956,842 905,164 921,861 866,577 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 169
Balance sheet valuation as per IAS 39 Not allocated to any IAS 39 category Valuation Available for Sale Financial assets and Derivatives in Balance sheet valuation Fair Value as per IFRS 7 level liabilities held for trading hedge accounting as per IAS 17 and IFRS 13 according to IFRS 13 31.12.2013 31.12.2014 31.12.2013 31.12.2014 31.12.2013 31.12.2014 31.12.2013 31.12.2014 31.12.2013 31.12.2014
0 0 0 0 0 0 0 0 256,361 378,016 2
0 0 0 0 0 0 17,265 13,032 17,265 13,032 n/a
0 0 4,270 3,648 2,246 723 0 0 6,516 4,371 2
0 0 0 0 0 0 0 0 8,880 5,533 2 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED 0 0 0 0 0 0 0 0 n/a n/a n/a
0 0 0 0 0 0 10,185 7,453 10,185 7,453 n/a
0 0 0 0 0 0 0 0 n/a n/a n/a 2014
0 0 0 0 0 0 0 0 n/a n/a n/a
0 0 0 0 0 0 0 0 n/a n/a n/a
0 0 321 5,460 694 8,271 0 0 1,015 13,731 2
0 0 0 0 0 0 0 0 n/a n/a n/a
0 0 4,591 9,108 2,940 8,994 27,450 20,485 300,222 422,136 170 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
37. EXECUTIVE BODIES In the year under review the Supervisory Board comprised the following members:
Chairman • Dr. Klaus Reinhardt, General (retd.), Starnberg
Deputy Chairman • Robert Feiger, Neusäss Chairman of the Federal Executive Committee of the IG Bauen-Agrar-Umwelt trade union, Frankfurt am Main Supervisory Board, HeidelbergCement AG, Heidelberg, Member (up to May 7, 2014) Supervisory Board, Zusatzversorgungskasse des Baugewerbes AG, Wiesbaden, Member Supervisory Board, Zusatzversorgungskasse Gerüstbaugewerbe VVaG, Wiesbaden, Chairman
Employer representatives • Dr.-Ing. Johannes Bauer, Schrobenhausen Construction engineer with BAUER Designware GmbH, Schrobenhausen • Dipl.-Ing. (FH) Rainer Schuster Retired construction engineer • Dipl.-Ing. (FH) Elisabeth Teschemacher, née Bauer, Schrobenhausen 1st Chair of Caritasverband Neuburg-Schrobenhausen e.V. • Gerardus N. G. Wirken, Breda, Netherlands Freelance consultant on strategy, controlling and accounting Supervisory Board, Vendor Beheer B.V., Tilburg/Netherlands, Chairman Supervisory Board, Winters Bouw- en Ontwikkeling B.V., Breda/Netherlands, Chairman Supervisory Board, Rabobank Breda, Breda/Netherlands, Chairman (to July 1, 2014) Supervisory Board, Egeria Investments B.V., Amsterdam/Netherlands, Chairman (to July 1, 2014) Member of the Board of Rabobank Pensioenfonds, Utrecht/Netherlands (to 1 July 1, 2014) • Prof. Dr.-Ing. E.h. Manfred Nußbaumer M.Sc, Munich Retired construction engineer Supervisory Board, Leonhardt, Andrä und Partner Beratende Ingenieure VBI AG, Stuttgart, Member
Employee representatives • Regina Andel, Ellrich Chair of the Works Council, SCHACHTBAU NORDHAUSEN GmbH, Nordhausen • Dipl.-Volkswirt Norbert Ewald, Bad Vilbel Member of the Management Board, Zusatzversorgungskasse des Steinmetz- und Steinbildhauerhandwerks VVaG, Wiesbaden • Reinhard Irrenhauser, Schrobenhausen Chairman of the Works Council, BAUER Maschinen GmbH, Schrobenhausen • Dipl.-Kfm. (FH) Stefan Reindl, Schrobenhausen Human Resources Director of BAUER Aktiengesellschaft, Schrobenhausen Advisory Board, BAUER Training Center GmbH, Schrobenhausen, Chairman • Dipl.-Ing. Gerold Schwab, Kernen Construction Engineer in the Technical Division of BAUER Spezialtiefbau GmbH, Schrobenhausen NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 171
Management Board • Prof. Dr.-Ing. E.h. Dipl.-Kfm. Thomas Bauer, Schrobenhausen, Chairman, Functions: Participations in Subsidiaries, Accounting, Planning, Advertising, Controlling Supervisory Board, BAUER Spezialtiefbau GmbH, Schrobenhausen, Chairman Supervisory Board, BAUER Maschinen GmbH, Schrobenhausen, Chairman Supervisory Board, BAUER Resources GmbH, Schrobenhausen, Deputy Chairman Supervisory Board, SCHACHTBAU NORDHAUSEN GmbH, Nordhausen, Chairman Supervisory Board BAUER EGYPT S.A.E., Cairo, Chairman • Dipl.-Betriebswirt (FH) Hartmut Beutler, Schrobenhausen, Functions: Finance, Legal Affairs and Insurance, Investor Relations, Facility management Supervisory Board, BAUER Resources GmbH, Schrobenhausen, Member Supervisory Board, Schrobenhausener Bank e.G., Schrobenhausen, Chairman • Dipl.-Ing. Heinz Kaltenecker, Schrobenhausen, Functions: Participations in Subsidiaries, Information Technology, Human Resources, Quality Management, Risk Management, Health Safety Environment Supervisory Board, BAUER Spezialtiefbau GmbH, Schrobenhausen, Deputy Chairman Supervisory Board, BAUER Maschinen GmbH, Schrobenhausen, Deputy Chairman
Supervisory Board, BAUER Resources GmbH, Schrobenhausen, Chairman FINANCIAL STATEMENTS CONSOLIDATED Supervisory Board, SCHACHTBAU NORDHAUSEN GmbH, Nordhausen, Deputy Chairman 2014 The total remuneration paid to members of the Management Board in the year under review, excluding allocations to provi- sions for defined benefit plans, was EUR 1,150 thousand (previous year: EUR 1,361 thousand). Of that total, EUR 1,090 thou- sand (previous year: 1,056 thousand) was not performance-related and EUR 60 thousand (previous year: 305 thousand) was performance-related. The total remuneration includes benefits in kind arising from the private use of a company car and reimbursement of travel expenses for each member of the Management Board, as well as pro rata group accident insurance premiums and employer’s liability insurance association contributions. The company pension scheme for Management Board members incurred pension service costs totaling EUR 159 thousand (previous year: 118 thousand). The pensionable earnings serving as the basis for calculating pension levels are significantly lower than the basic salary in all contracts. Calculated in accordance with IAS 19, the defined benefit obligation entailed by all pension commitments to members of the Management Board at the year-end was EUR 5,531 thousand (previous year: EUR 3,868 thousand). Former members of the management bodies of the parent company received total remuneration of EUR 0 thousand (previous year: 0) in return for duties performed on behalf of the parent company. 172 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
The remuneration paid to the Supervisory Board for the 2014 financial year totaled EUR 254 thousand (previous year: 254 thousand) and was distributed as follows:
in EUR '000 2013 2014 Chairman Dr. Klaus Reinhardt 38 38 Deputy CEO Robert Feiger 27 27 Employer representatives Dr.-Ing. Johannes Bauer 20 20 Dipl.-Ing. (FH) Rainer Schuster 18 18 Dipl.-Ing. (FH) Elisabeth Teschemacher 18 18 Gerardus N. G. Wirken 20 20 Prof. Dr. Manfred Nußbaumer 20 20 Employee representatives Dipl.-Volkswirt Norbert Ewald 20 20 Dipl.-Kfm. (FH) Stefan Reindl 918 Regina Andel 18 18 Dipl.-Ing. Gerold Schwab 20 20 Dipl.-Ing. (FH) Walter Sigl 90 Reinhard Irrenhauser 18 18 Total * 254 254
* As a result of rounding to the nearest thousand euros, there was a rounding difference of EUR 1,000 in 2013 and 2014
38. RELATED PARTY DISCLOSURES Related parties under the terms of IAS 24 are parties that the reporting enterprise has the ability to control or exercise signifi- cant influence over, or parties that have the ability to control or exercise significant influence over the reporting enterprise. Transactions with related parties are defined as the transfer of resources, services or obligations between the reporting entity and a related party, regardless of whether an invoice is issued in respect of the transaction or not. Members of the Management Board of BAUER AG are members of Supervisory Boards and Management Boards of other companies with which BAUER AG maintains relations in the course of its ordinary business operations. Supervisory Board received pensions totaling EUR 55 thousand (previous year: 54 thousand) in respect of former employment within the BAUER Group. The members of the Supervisory Board, by virtue of their role as employees, received remuneration totaling EUR 468 thousand (previous year: 503 thousand). Lease and service contracts and contracts of employment (except for the remunera- tion to members of the Management Board disclosed) exist with members of the Management Board, including close family, in respect of which remuneration to an amount of EUR 879 thousand (previous year: 945 thousand) was paid. NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 173
Loan commitments to the BAUER Foundation existed totaling EUR 1,000 thousand (previous year: 1,000 thousand), for which interest amounting to EUR 55 thousand (previous year: 55 thousand) was paid. At the end of the financial year no loan commitments existed to shareholders of BAUER AG. The key relationships between fully consolidated Group companies and related parties are set out in the following table: in EUR '000 Associated companies Non-consolidated companies Joint ventures
2013 2014 2013 2014 2013 2014 Income 2,063 1,990 16,457 14,651 9,965 11,812 Purchased services 312 172 6,915 2,875 0 0 Receivables and other assets (31.12.) 444 0 25,893 18,863 31,661 24,738 Liabilities (31.12.) 133 125 1,775 2,538 0 0 Impairment of receivables 0 0 4,035 891 21,802 16,790
The purchased services essentially comprise all expenses incurred with related parties during the financial year.
Transactions with related parties are conducted at standard market terms.
The receivables and other assets include uncollectable receivables as well as financial assets in respect of related parties. FINANCIAL STATEMENTS CONSOLIDATED 2014 39. JOINT OPERATIONS The main joint operations are listed below:
2013 financial year:
Project Activity Headquarters Shareholding of the company
Specialist foundation Bangaroo Project Sydney, Australia 60 % engineering
Specialist foundation Sebuku Island South Kalimantan, Indonesia 35 % engineering
Specialist foundation Deep-Bauer Foundation Inc. Calgary, Canada 50 % engineering
2014 financial year:
Project Activity Headquarters Shareholding of the company
Specialist foundation Bangaroo Project Sydney, Australia 60 % engineering
Specialist foundation Sebuku Island South Kalimantan, Indonesia 35 % engineering
Specialist foundation Deep-Bauer Foundation Inc. Calgary, Canada 50 % engineering 174 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014
40. FEES AND SERVICES OF THE AUDITORS The fee paid to the auditors and recorded as expenditure in the financial year is broken down as follows:
PricewaterhouseCoopers AG:
in EUR '000 2013 2014 Fees for auditing services 593 668 Fees for other certification 25 Fees for tax advice 74 21 Fees for other services 76 45 Total 745 739
In addition, Roland Jehle GmbH Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft was engaged to audit the major German capital corporations included in the Group’s consolidated financial statements. The fees for this recognized in the financial year are broken down in accordance with Section 285, Paragraph 17 and Section 314, Subsection 1, Paragraph 9 HGB as follows:
in EUR '000 2013 2014 Auditing fees 34 37 Fees for other certification 00 Fees for tax advice 77 Fees for other services 00 Total 41 44
41. DECLARATION OF CONFORMITY TO THE GERMAN CORPORATE GOVERNANCE CODE The Management Board and Supervisory Board of BAUER AG issued their declaration in accordance with Section 161 of the German Stock Corporation Act (AktG) on December 5, 2014 and published it in a form permanently accessible to sharehold- ers on the company’s website at www.bauer.de.
42. AVERAGE NUMBER OF EMPLOYEES
2013 2014 Salaried staff 3,835 3,948 Germany 1,957 1,984 International 1,878 1,964 Industrial & trades 6,189 6,209 Germany 1,947 1,926 International 4,242 4,283 Apprentices 240 248 Total number of employees 10,264 10,405
43. AUTHORIZATION FOR ISSUE OF THE CONSOLIDATED FINANCIAL STATEMENTS The Management Board has submitted the consolidated financial statements to the Supervisory Board for authorization for issue (the Supervisory Board meeting is scheduled for April 8, 2015). NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 175
44. PROPOSAL ON APPROPRIATION OF NET EARNINGS AVAILABLE FOR DISTRIBUTION The Management Board and Supervisory Board submit the proposal for decision that a dividend should be paid from the net earnings available for distribution of BAUER Aktiengesellschaft for the 2014 financial year, amounting to EUR 33,349,700.22 EUR; it is proposed that the dividend should be EUR 0.15 per bearer share entitled to participate in the dividend, which given 17,131,000 bearer shares entitled to the dividend, represents an amount of EUR 2,569,650, leaving the remaining net earnings available for distribution, namely EUR 30,780,050.22, to be carryforward as profit. Any apportionment to bearer shares not entitled to participate in the dividend will also be carryforward to the next accounting period.
Schrobenhausen, March 31, 2015
The Management Board
Prof. Thomas Bauer Dipl.-Betriebswirt (FH) Hartmut Beutler Dipl.-Ing. Heinz Kaltenecker
Chairman of the Management Board FINANCIAL STATEMENTS CONSOLIDATED 2014 176
Principal investments of the BAUER Group as at December 31, 2014
NAME OF COMPANY AND REGISTERED PLACE OF BUSINESS Currency Capital share in %
1. Fully consolidated companies BAUER Aktiengesellschaft EUR A. Germany BAUER Spezialtiefbau GmbH, Schrobenhausen, Germany EUR 99.00 BAUER Maschinen GmbH, Schrobenhausen, Germany EUR 99.00 SCHACHTBAU NORDHAUSEN GmbH, Nordhausen, Germany EUR 99.00 SPESA Spezialbau und Sanierung GmbH, Schrobenhausen, Germany EUR 99.00 BAUER Resources GmbH, Schrobenhausen, Germany EUR 99.00 BAUER Training Center GmbH, Schrobenhausen, Germany EUR 100.00 BAUER Designware GmbH, Schrobenhausen, Germany EUR 100.00 BAUER Umwelt GmbH, Schrobenhausen, Germany EUR 100.00 KLEMM Bohrtechnik GmbH, Drolshagen, Germany EUR 100.00 EURODRILL GmbH, Drolshagen, Germany EUR 100.00 BAUER Mietpool GmbH, Schrobenhausen, Germany EUR 100.00 RTG Rammtechnik GmbH, Schrobenhausen, Germany EUR 100.00 MAT Mischanlagentechnik GmbH, Immenstadt, Germany EUR 90.00 PRAKLA Bohrtechnik GmbH, Peine, Germany EUR 90.00 Olbersdorfer Guß GmbH, Olbersdorf, Germany EUR 75.00 SPANTEC Spann- & Ankertechnik GmbH, Schrobenhausen, Germany EUR 90.00 SCHACHTBAU NORDHAUSEN Bau GmbH, Nordhausen, Germany EUR 100.00 MMG Mitteldeutsche MONTAN GmbH, Nordhausen, Germany EUR 100.00 HGC Hydro-Geo-Consult GmbH, Freiberg, Germany EUR 100.00 BAUER Water GmbH, Dunningen, Germany EUR 100.00 PURE Umwelttechnik GmbH, Schrobenhausen, Germany EUR 100.00 BAUER Foralith GmbH, Schrobenhausen, Germany EUR 100.00 GWE pumpenboese GmbH, Peine, Germany EUR 100.00 Esau & Hueber GmbH, Schrobenhausen, Germany EUR 75.50 hydesco24 GmbH, Hamburg, Germany EUR 60.00 BAUER Deep Drilling GmbH, Schrobenhausen, Germany EUR 100.00 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 177
NAME OF COMPANY AND REGISTERED PLACE OF BUSINESS Currency Capital share in %
B. EU excluding Germany BAUER Resources Hungary Kft., Budapest, Hungary HUF 100.00 GWE Budafilter Kft., Mezöfalva, Hungary HUF 100.00 BAUER Ambiente S.r.l., Milan, Italy EUR 100.00 BAUER SPEZIALTIEFBAU Gesellschaft m.b.H., Vienna, Austria EUR 100.00 BAUER Technologies Limited, Bishops Stortford, UK GBP 100.00 BAUER RENEWABLES LIMITED, Bishops Stortford, UK GBP 100.00 BAUER EQUIPMENT UK LIMITED, Rotherham, Great Britain GBP 100.00 BAUER Magyarország Speciális Mélyépítö Kft., Budapest, Hungary HUF 100.00 BAUER ROMANIA S.R.L., Bucarest, Rumania RON 100.00 BAUER BULGARIA EOOD, Sofia, Bulgaria BGN 100.00 BAUER Funderingstechniek B.V., Mijdrecht, Netherlands EUR 100.00 BAUER Foundations (IRL) Ltd., Dublin, Ireland EUR 100.00 GWE France S.A.S., Aspiran, France EUR 100.00 BAUER Cimentaciones Y Equipos S.A., Madrid, Spain EUR 100.00
TracMec Srl, Mordano, Italy EUR 100.00 FINANCIAL STATEMENTS CONSOLIDATED BAUER Macchine Italia Srl, Mordano, Italy EUR 100.00 FAMBO Sweden AB, Eslöv, Sweden SEK 100.00 2014 GWE Pol-Bud Sp.z.o.o, Łódz, Poland PLN 100.00 BAUER RESOURCES SPAIN S.A., Leganes, Spain EUR 100.00 BAUER Resources UK Ltd., Wigan, Great Britain GBP 100.00 C. Europe (other) BAUER Spezialtiefbau Schweiz AG, Baden-Dättwil, Switzerland CHF 100.00 FORALITH Drilling Support AG, St. Gallen, Switzerland CHF 100.00 OOO BAUER Maschinen - Kurgan, Kurgan, Russian Federation RUB 65.00 OOO BAUER Maschinen SPb, St. Petersburg, Russian Federation RUB 100.00 OOO BG-TOOLS-MSI, Ljuberzy, Russian Federation RUB 55.00 OOO BAUER Maschinen Russia, Moscow, Russian Federation RUB 100.00 OOO BAUER Technologie, Moscow, Russian Federation RUB 100.00 BAUER Georgia Foundation Specialists LCC, Batumi, Georgia GEL 100.00 D. Middle East & Central Asia Saudi BAUER Foundation Contractors Ltd., Jeddah, Saudi Arabia SAR 100.00 BAUER LEBANON FOUNDATION SPECIALISTS S.a.r.L., Beirut, Lebanon USD 100.00 BAUER International FZE, Dubai, United Arab Emirates AED 100.00 BAUER International Qatar LLC, Doha, Qatar QAR 49.00 * BAUER Equipment Gulf FZE, Dubai, United Arab Emirates AED 100.00
BAUER Emirates Environment Technologies & Services LLC, Abu Dhabi, United Arab Emirates AED 49.00 * 178 CONSOLIDATED NOTES 2014
NAME OF COMPANY AND REGISTERED PLACE OF BUSINESS Currency Capital share in %
Middle East & Central Asia (continued)
BAUER Resources GmbH / Jordan Ltd. Co. – (sub-group consolidated financial statements), Amman, Jordan USD 100.00
Site Group for Services and Well Drilling Ltd. Co., Amman, Jordan USD 83.30 Site Group for Services and Well Drilling Ltd. Co., Ramallah, Palestine USD 100.00 Site Drilling Ltd. Co., Limassol, Cyprus USD 100.00 BAUER Casings Makina Sanayi ve Ticaret Limited Sirketi, Ankara, Turkey TRY 60.00 BAUER Corporate Services Private Limited, Mumbai, India INR 100.00 BAUER Geotechnical Specialized Foundation LLC, Abu Dhabi, United Arab Emirates AED 100.00 E. Asia-Pacific, Far East and Australia
BAUER (MALAYSIA) SDN. BHD. – (sub-group consolidated financial statements), Petaling Jaya, Malaysia MYR 100.00
BAUER Foundations Australia Pty Ltd, Brisbane, Australia AUD 100.00 BAUER (NEW ZEALAND) LIMITED, Auckland, New Zealand NZD 100.00 BAUER Resources Australia Pty Ltd., Sydney, Australia AUD 100.00 P.T. BAUER Pratama Indonesia, Jakarta, Indonesia IDR 100.00 BAUER Services Singapore Pte Ltd, Singapore, Singapore EUR 100.00 BAUER Hong Kong Limited, Hong Kong, People’s Republic of China HKD 100.00 BAUER Vietnam Ltd., Ho Chi Minh City, Vietnam VND 100.00 BAUER Foundations Philippines, Inc., Quezon City, Philippines PHP 100.00
BAUER Technologies Far East Pte. Ltd. – (sub-group financial statements), Singapore, Singapore EUR 100.00
BAUER EQUIPMENT SOUTH ASIA PTE. LTD., Singapore EUR 100.00 BAUER Technologies Taiwan Ltd., Taipei, Taiwan TWD 99.88 BAUER Tianjin Technologies Co. Ltd., Tianjin, People’s Republic of China CNY 100.00 BAUER Equipment Hong Kong Ltd., Hong Kong, People’s Republic of China HKD 100.00 BAUER Equipment (Malaysia) Sdn. Bhd., Shah Alam, Malaysia MYR 100.00 Shanghai BAUER Technologies Co. Ltd., Shanghai, People’s Republic of China CNY 100.00 BAUER Equipment (Shanghai) Co. Ltd., Shanghai, People’s Republic of China CNY 100.00 NIPPON BAUER Y.K., Tokyo, Japan JPY 100.00 Inner City (Thailand) Company Limited, Bangkok, Thailand THB 49.00 % Thai BAUER Co. Ltd., Bangkok, Thailand THB 73.99 F. Americas BAUER FUNDACIONES PANAMÁ S.A., Panama City, Panama USD 100.00 BAUER MEXICO, S.A. DE C.V., Mexico City, Mexico MXP 100.00 BAUER Resources Canada Ltd., Edmonton, Canada CAD 100.00 BAUER Foundations Canada Inc., Calgary, Canada CAD 100.00 BAUER-Pileco Inc., Conroe, Texas, USA USD 100.00 BAUER Manufacturing Inc., Conroe, United States of America USD 100.00 BAUER FOUNDATION CORP., Odessa, Florida, USA USD 100.00 BAUER Resources Chile Limitada – (sub-group financial statements), Santiago de Chile, Chile CLP 100.00 GWE Tubomin S.A., Santiago de Chile, Chile CLP 60.00 NOTES OF THE CONSOLIDATED FINANCIAL STATEMENT 2014 179
NAME OF COMPANY AND REGISTERED PLACE OF BUSINESS Currency Capital share in %
G. Africa BAUER EGYPT S.A.E. Specialised Foundation Contractors, Cairo, Egypt EGP 55.75
BAUER Technologies South Africa (PTY) Ltd – (sub-group financial statements), Johannesburg, South Africa ZAR 100.00
MINERAL BULK SAMPLING NAMIBIA (PTY) LTD, Windhoek, Namibia NAD 100.00 MINERAL BULK SAMPLING SOUTH AFRICA (PTY) LTD, Cape Town, South Africa ZAR 100.00 BAUER RESOURCES GHANA LIMITED, Accra, Ghana GHS 100.00 BAUER-DE WET EQUIPMENT (PROPRIETARY) LIMITED, Rasesa, Botswana BWP 51.00
2. Associates and joint ventures A. Germany Wöhr + Bauer GmbH – (sub-group financial statements), Munich, Germany EUR 33.33 Wöhr + Bauer Angerhof GmbH & Co. KG, Munich, Germany EUR 100.00 Wöhr + Bauer Angerhof Verwaltungs GmbH, Munich, Germany EUR 100.00 WÖHR + BAUER PARKING GmbH, Munich, Germany EUR 100.00 Wöhr + Bauer H2O Verwaltungs GmbH, Munich, Germany EUR 100.00
Wöhr + Bauer H2O GmbH & Co. KG, Munich, Germany EUR 100.00 FINANCIAL STATEMENTS CONSOLIDATED Wöhr + Bauer Projekt HTW Verwaltungs GmbH, Munich, Germany EUR 100.00 Wöhr + Bauer Projekt HTW GmbH & Co. KG, Munich, Germany EUR 100.00 2014 WÖHR + BAUER Tower Riem Verwaltungs GmbH, Munich, Germany EUR 100.00
WÖHR + BAUER Tower Riem GmbH & Co. KG, Munich, Germany EUR 100.00 Riem Vermietungs GmbH, Munich, Germany EUR 100.00 NDH Entsorgungsbetreibergesellschaft mbH, Bleicherode, Germany EUR 25.00 Grunau und Schröder Maschinentechnik GmbH, Drolshagen, Germany EUR 30.00 B. International TERRABAUER S. L., Madrid, Spain EUR 30.00 NuBa Equipment Ltd., Edmonton, Canada CAD 50.00 Bauer + Moosleitner Entsorgungstechnik GmbH, Salzburg, Austria EUR 50.00 BAUER Nimr LLC, Muscat – Al Mina, Sultanate of Oman OMR 49.00
3. Enterprises in which the company has participating interests A. Germany TMG Tiefbaumaterial GmbH, Emmering, Germany EUR 33.33 Nordhäuser Bauprüfinstitut GmbH, Nordhausen, Germany EUR 20.00
Harz Hotel Grimmelallee Nordhausen Beteiligungsgesellschaft mbH, Nordhausen, Germany EUR 20.00
Harz Hotel Grimmelallee Nordhausen GmbH & Co. KG, Nordhausen, Germany EUR 20.00
Stadtmarketing Schrobenhausen e.G., Schrobenhausen, Germany EUR 4.18 B. International OAO Mostostrojindustria, Moscow, Russian Federation RUB 15.00 * Benefi cial ownership is 100 % 180
Assurance by the Legal Representatives
We hereby assure that, to the best of our knowledge, the consolidated financial statements give a true and fair view of the net assets, financial position and earnings of the company in accordance with the accounting principles applicable to financial reporting, and that the Combined Management Report depicts the course of business, including the earnings and overall situation of the Group, in such a way that a true and fair view is conveyed and the material opportunities and risks of the foreseeable development of the Group are set out.
Schrobenhausen, March 31, 2015
The Management Board
Prof. Thomas Bauer Dipl.-Betriebswirt (FH) Hartmut Beutler Dipl.-Ing. Heinz Kaltenecker Chairman of the Management Board 181
Auditor’s Report
“We have audited the consolidated financial statements prepared by BAUER Aktiengesellschaft, Schrobenhausen, comprising the balance sheet, the income statement and statement of comprehensive income, statement of changes in equity, cash flow statement and the notes to the consolidated financial statements, together with the Group management report, which is combined with the company management report, for the business year from January 1 to December 31, 2014. The prepara- tion of the consolidated financial statements and the combined management report in accordance with the IFRS, as adopted by the EU, and the additional requirements of German commercial law pursuant to § (Article) 315a, Abs. (paragraph) 1 HGB (“Handelsgesetzbuch” – German Commercial Code) are the responsibility of the parent company’s Management Board. Our responsibility is to express an opinion on the consolidated financial statements and the combined management report, based on our audit.
We conducted our audit of the consolidated financial statements in accordance with § 317 HGB and the generally accepted German standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the combined management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial FINANCIAL STATEMENTS CONSOLIDATED statements and the combined management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of 2014 the entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by the company’s Management Board, as well as evaluating the overall presentation of the consolidated financial statements and the combined management report. We believe that our audit provides a reasonable basis for our opinion.
Our audit has not led to any reservations.
In our opinion, based on the findings of our audit, the consolidated financial statements comply with the IFRS as adopted by the EU and the additional requirements of German commercial law pursuant to § 315a, Section 1 HGB, and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The combined management report is consistent with the consolidated financial statements, and as a whole provides a suitable view of the Group’s position, and suitably presents the opportunities and risks of future development.”
Stuttgart, March 31, 2015
Klaus Neubarth ppa. Dagmar Liphardt Auditor Auditor 182
Glossary
A F
ASSOCIATED COMPANIES | Associated companies are FINANCIAL COVENANTS | Some loan agreements those over which a major but not controlling influence can be include clauses stipulating adherence to threshold values for exerted. The shareholding is usually between 20 and 50 %. predefined key financial performance indicators. Such holdings are valued at equity. FINANCIAL INSTRUMENT | Any transaction which results AT EQUITY | “At equity” is the method by which shares in in a financial asset for one entity and a financial liability (or an associated companies are valued in the Group’s financial equity instrument) for the other. statements. The carrying amount of the investment is adjusted according to the trend of the percentage equity G held in the entity concerned. GROSS DOMESTIC PRODUCT (GDP) | Gross domestic C product corresponds to the total value of all goods and services for consumption produced by an economy in one CASH FLOW | This figure indicates the amount of money year. GDP is a measure of the performance (output) of an which a business entity generates by its own efforts and is economy. able to use for its own purposes. It essentially comprises profit, depreciation and amortization and increases in H provisions. HGB FINANCIAL STATEMENTS | The German Com- CONSOLIDATED REVENUES | Consolidated revenues mercial Code (Handelsgesetzbuch; HGB) imposes financial are disclosed in the income statement. They comprise the reporting rules on incorporated entities in Germany. output of the companies fully consolidated into the Group’s consolidated annual financial statements. I
D IFRS FINANCIAL STATEMENTS | International Financial Reporting Standards (IFRS) are applicable to stock market DEEP DRILLING RIG (TBA) | This equipment series was listed companies. The standards are issued by the Interna- developed specially to drill for particularly deep-lying raw tional Accounting Standards Board (IASB). Their aim is to material resources. The rigs can drill down to depths of more ensure the international comparability of corporate financial than 5,000 meters, and are used to extract oil, gas, water reporting. The BAUER Group has been preparing financial and geothermal energy. statements in accordance with IFRS since 2004.
E N
EBITDA | Earnings before interest, taxes, depreciation NET PROFIT OR LOSS FOR THE PERIOD | The net profit and amortization (on property, plant and equipment and or loss for the period – also referred to as the profit after intangible assets). tax – is the profit earned or loss made in a given period.
EBIT MARGIN | The EBIT margin is a profitability indicator, describing the ratio of EBIT to the entity’s sales revenues.
EBIT | Earnings before interest and taxes. GLOSSARY 183
O SEGMENTS | The BAUER Group’s segments are its operat- ing divisions: Construction, Equipment and Resources. Each segment comprises a holding company with subsidiaries ORDERS IN HAND | Indicates the volume of orders held by beneath it, all of which have the same portfolio of products a business entity at the reporting date. and services. Within the Group, only SCHACHTBAU NORDHAUSEN GmbH operates in all three segments. ORDERS RECEIVED | Corresponds to the sum of all orders received in a specific reporting period. Orders received are SINKING | The term describes the execution of shafts or an indicator of future order volumes. bore holes to mine mineral deposits or to extract resources. P STAKEHOLDERS | The term refers to individuals or groups who have a justified interest in the fortunes of a business PERCENTAGE OF COMPLETION METHOD (POC) | entity. The interests of the various stakeholders may vary This method is applied to measure and report the profit widely. realized on contracts extending over a protracted period of time according to their degree of completion based on the associated costs and revenues (actual and forecast). T
TOTAL GROUP REVENUES | In addition to the output of PREMIUMLINE | The PremiumLine comprises the FINANCIAL STATEMENTS CONSOLIDATED the consolidated companies, total Group revenues include multifunction rotary drilling rigs of the BG series designed to the proportionate outputs of associated companies as well handle a wide variety of foundation engineering applications. as the outputs of non-consolidated subsidiaries and joint 2014 Deep vibrators or trench cutters can also be mounted on ventures. them.
R V
VALUE ADDED | Value added is the contribution made by ROTARY DRILLING RIG (BG) | BAUER Maschinen GmbH a business entity to the wider society at large. Value added specializes in the development and manufacture of rotary reflects how the output of a business is distributed across drilling rigs. The machines are produced and marketed in the wide variety of stakeholder groups. two product lines: Premium and Value. They are able to carry out a wide variety of foundation engineering tasks. VALUELINE | The ValueLine includes the rotary drilling rigs S of the BG series which are optimized for the kelly drilling process.
SALES REVENUES | As opposed to the output, which comprises the value of all goods produced, the sales W revenues disclosed in the income statement relate to all WORKING CAPITAL | The working capital is the portion products and services definitively sold and billed within a of the current assets which is tied up by the operational period. The difference between the two values essentially production process and by the process of selling products stems from changes in work in progress, inventories and and services (such as receivables). other income. 184
IMPRINT
Published by Registered place of business BAUER Aktiengesellschaft 86529 Schrobenhausen, Germany BAUER-Strasse 1 Registered at the District Court of 86529 Schrobenhausen, Germany Ingolstadt under HRB 101375 www.bauer.de Print Photos Kastner AG – das medienhaus, BAUER Group Wolnzach
HOW TO CONTACT US
Contact Investor Relations BAUER Aktiengesellschaft BAUER-Strasse 1 http://ir.bauer.de 86529 Schrobenhausen, Germany Tel.: +49 8252 97-1215 Fax: +49 8252 97-2900 http://www.youtube.com/ [email protected] BAUERGroup
This Annual Report is published in German and English.
The 2014 Annual Report is printed on environmentally friendly paper conforming to the standards of the Forest Stewardship Council (FSC). >>>
Construction Equipment Resources
BAUER Spezialtiefbau GmbH, the original The BAUER Maschinen Group is the world The Resources segment is focused on parent company of the BAUER Group, has market leader in the development and man- products and services in the areas of been a major driving force in the development ufacture of specialist foundation engineering water, environment and natural resources. of specialist foundation engineering, and equipment. BAUER Maschinen GmbH – the BAUER Resources GmbH is the holding carries out projects all over the world. Bauer holding company for a number of subsidiaries company, under the umbrella of which the Spezialtiefbau is organized on a regional basis – designs and builds heavy-duty drilling rigs, subsidiaries operate as full-service providers. in Germany, and operates on all the world's trench cutters, grab systems, vibrators and The competence centers of Water Treatment, continents with over 50 subsidiaries and deep drilling rigs, as well as the related tool- Process and Biotechnology, Environmental branch offices. Market trends have meant that ing, at its plants in Schrobenhausen, Aresing Rehabilitation and Waste Management, Drilling most of the company’s revenues are now gen- and Edelshausen. The company also operates Technologies as well as Well Drilling and Geo- erated outside of Germany. Bauer has major manufacturing facilities in the USA, Russia, thermal pool their expertise and support the subsidiaries and branch offices in the United China, Malaysia, Italy, Singapore and Turkey. subsidiaries in carrying out projects. Arab Emirates, Malaysia, Egypt and the USA It is supplied with components from within the among other locations. Bauer Spezialtiefbau BAUER Group by Schachtbau Nordhausen has built up networks in numerous regions and Olbersdorfer Guß. The BAUER Maschinen across the world, enabling it to acquire and Group operates a global sales and service execute contracts both in the countries in network. which it is represented and in neighbouring countries, using its own machinery and in- house engineering consultancy. In addition to
GROUP KEY FIGURES: INCOME STATEMENT AND BALANCE SHEET GROUP KEY FIGURES: INCOME STATEMENT the predominant field of specialist foundation engineering, Group companies SCHACHTBAU NORDHAUSEN GmbH, SPESA Spezialbau und Sanierung GmbH and Wöhr + Bauer GmbH also carry out general construction ac- tivities such as civil engineering, environmental engineering and project development. Income statement of the BAUER Group in EUR '000 2013 * 2014 Change
SALES REVENUES 1,402,173 1,375,679 -1.89 % Changes in inventories -4,423 26,622 n/a Other capitalized goods and services for own account 19,196 14,696 -23.44 % Other income 30,579 89,022 n/a CONSOLIDATED REVENUES 1,447,525 1,506,019 4.04 % Cost of materials -755,906 -749,247 -0.88 % Staff costs -342,815 -355,250 3.63 % Depreciation of fixed assets -79,696 -78,781 -1.15 % Write-downs of inventories due to use -14,196 -15,789 11.22 % Other operating expenses -224,827 -230,526 2.53 % OPERATING RESULT 30,085 76,426 n/a Financial income 7,729 7,096 -8.19 % Financial expenses -45,541 -45,149 -0.86 % Share of the profit or loss of associated companies accounted for using the equity method 1,770 -572 n/a PROFIT BEFORE TAX -5,957 37.801 n/a Income tax expense -13,474 -22,075 63.84 % NET PROFIT OR LOSS -19,431 15,726 n/a
Balance Sheet of the BAUER Group
ASSETS in EUR '000 31.12.2013 * 31.12.2014 Change NON-CURRENT ASSETS Intangible assets 35,388 34,440 -2.68 % Property, plant and equipment and investment property 459,537 446,909 -2.75 % Investments accounted for using the equity method 13,249 42,906 n/a Participations 3,613 3,613 0.00 % Deferred tax assets 26,299 30,973 17.77 % Receivables from concession arrangements 36,762 0 -100.00 % Other non-current assets 7,564 7,492 -0.95 % Other non-current financial assets 5,420 28,420 n/a 587,832 594,753 1.18 % CURRENT ASSETS Inventories 419,352 439,184 4.73 % Receivables and other assets 517,950 496,650 -4.11 % Effective income tax refund claims 3,437 2,661 -22.58 % Cash and cash equivalents 57,217 41,835 -26.88 % 997,956 980,330 -1.77 % 1,585,788 1,575,083 -0.68 %
EQUITY AND LIABILITIES in EUR '000 31.12.2013 * 31.12.2014 Change SHAREHOLDERS’ EQUITY Group shares 397,006 399,308 0.58 % Minority interests 22,809 19,617 -13.99 % 419,815 418,925 -0.21 % NON-CURRENT LIABILITIES Defined benefit plans 81,637 116,358 42.53 % Financial liabilities 279,437 387,816 38.78 % Other liabilities 6,483 5,959 -8.08 % Deferred tax liabilities 14,954 13,123 -12.24 % 382,511 523,256 36.80 % CURRENT LIABILITIES Financial liabilities 449,876 299,698 -33.38 % Other liabilities 307,203 305,861 -0.44 % Effective income tax obligations 9,606 9,317 -3.01 % Provisions 16,777 18,026 7.44 % 783,462 632,902 -19.22 % 1,585,788 1,575,083 -0.68 %
In the “Change” column, there may be differences from the Group key figures as a result of roundings and a different representation between thousands of EUR and millions of EUR. * Previous year adjusted; see notes on page 106 Financial calendar 2015
April 10, 2015 Publication of Annual Report 2014 Annual Press Conference Analysts' Conference
May 13, 2015 Interim Report March 31, 2015
June 25, 2015 Annual General Meeting
August 14, 2015 Half-Year Interim Report June 30, 2015
November 13, 2015 Interim Report September 30, 2015 BAUER Aktiengesellschaft BAUER-Strasse 1 86529 Schrobenhausen, Germany www.bauer.de