SINGULUS
TECHNOLOGIES

Annual Report 2018

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2018

1 General

The consolidated financial statements present the operations of SINGULUS TECHNOLOGIES AG, Hanauer Landstrasse 103, 63796 Kahl am Main (hereinafter also referred to as "SINGULUS TECHNOLOGIES AG") and its subsidiaries (hereinafter also referred to as "SINGULUS TECHNOLOGIES," the "Company" or the "Group").

The Company is registered under HRB 6649 in the commercial register at the local court (Amtsgericht) of Aschaffenburg.

The consolidated financial statements were prepared in euros (EUR). Unless stated otherwise, all figures are presented in millions of euros (EUR m). Rounding differences may occur due to the presentation in millions of euros.

The consolidated financial statements of SINGULUS TECHNOLOGIES AG were prepared in accordance with the International Financial Reporting Standards ("IFRSs") as adopted in the European Union ("EU") and the additional requirements of section 315e (1) of the German Commercial Code (Handelsgesetzbuch, "HGB”).

The term "IFRSs" includes all International Financial Reporting Standards and International Accounting Standards ("IASs") with mandatory application as of the reporting date. All interpretations of the International Financial Reporting Standards Interpretations Committee ("IFRS IC") – formerly the Standing Interpretations Committee ("SIC") and the International Financial Reporting Interpretations Committee ("IFRIC") – that were mandatory for fiscal year 2018 were likewise applied.

In order to improve the clarity and meaningfulness of the consolidated financial statements, individual items are aggregated in the balance sheet and income statement and presented separately and in the notes to the financial statements.

At the extraordinary shareholders' meeting on November 29, 2017, the Executive Board disclosed in accordance with section 92 (1) of the German Stock Corporation Act (Aktiengesetz, "AktG") that half of its share capital had been eroded. Equity reported in the Company's annual financial statements in accordance with HGB amounted to EUR -29,9 million (not covered by equity) as of the balance sheet date. Reported equity continued to decline during the period. The equipment for the first factory for thin-film solar cells in China will largely have undergone final acceptance in the months to come, thus strengthening equity in accordance with HGB again. The Executive Board does not expect the equity base to experience a long-term recovery until in the coming fiscal year. However, it is currently believed that the Company will have sufficient cash funds available during this period to secure its business activities and has therefore prepared its accounts on a going concern basis. The going concern assumption is based on the assumption that scheduled projects will proceed as planned and that the agreed prepayments will be received. Moreover, cash collateral for guarantees is expected to be reduced.

For information relating to the existence of material uncertainty which may raise significant doubt as to the Company's ability to continue operating as a going concern and risks to the Company's continued existence within the meaning of section 322 (2) sentence 3 HGB, please refer to the section entitled "Report on risks and opportunities" in the combined management report of the SINGULUS TECHNOLOGIES Group and SINGULUS TECHNOLOGIES AG.

2 Business activities

SINGULUS TECHNOLOGIES develops and builds machinery for effective and resource-efficient production processes. Areas of application include vacuum thin-film deposition and plasma deposition, as well as wet-chemical processes and thermal process technologies.
SINGULUS TECHNOLOGIES applies its expertise in the areas of automation and process technology to all machines, processes and applications. Additional fields of activity are being tapped into aside from the solar, semiconductor and optical disc areas of application.

For more information, please see the comments on segment reporting in Note 5.

3 New accounting standards

New accounting standards and interpretations requiring application

In previous years, the International Accounting Standards Board ("IASB") and the International Financial Reporting Standards Interpretations Committee ("IFRS IC") issued the following new accounting standards or interpretations. These standards/interpretations have been endorsed by the EU as part of the endorsement project and are mandatory for fiscal year 2018:

  • IFRS 9 – "Financial Instruments"
  • IFRS 15 – "Revenue from Contracts with Customers"
  • Amendments to IFRS 2 – "Classification and Measurement of Share-based Payment Transactions"
  • Amendments to IFRS 4 – "Applying IFRS 9 'Financial Instruments' with IFRS 4 'Insurance Contracts'"
  • Amendments to IFRS 15 – "Clarifications to IFRS 15"
  • Amendments to IAS 40 – "Transfers of Investment Property"
  • IFRIC 22 – "Foreign Currency Transactions and Advance Consideration"
  • Amendments to IFRS 1 and IAS 28

The provisions which are relevant for the SINGULUS TECHNOLOGIES Group as well as their impact on these consolidated financial statements are outlined below:

  • Amendments to IFRS 9 – "Financial Instruments"

As of January 1, 2018 the Group applied IFRS 9 for the first time. Due to the transition methods selected by the Group when applying these standards, the comparative information contained in these financial statements were not restated to comply with the requirements of the new standards. The effects from the first-time application of the standard were primarily attributable to the increase in impairment charges for financial assets. IFRS 9 sets out the requirements for recognizing and measuring financial assets, financial liabilities and certain agreements to purchase or sell non-financial contracts. This standard replaces IAS 39 "Financial Instruments: Recognition and Measurement". In addition, the Group has applied subsequent amendments to IFRS 7 "Financial Instruments: Disclosures" to the disclosures in the notes for fiscal year 2018. These amendments were not applied to the comparative information. The effects from the first-time application of IFRS 9 resulted in adjustments to the opening balance sheet of less than EUR 0.1 million.

i. Classification and measurement of financial assets and liabilities

IFRS 9 sets out three general categories into which financial assets are classified: at amortized cost, at fair value through other comprehensive income (FVOCI) and at fair value through profit or loss (FVTPL). In accordance with IFRS 9, financial assets are classified according to the entity's business model for managing financial assets and cash flow characteristics. IFRS 9 eliminates the categories previously used under IAS 39: held to maturity, loans and receivables, and available for sale. In accordance with IFRS 9, derivatives which are embedded in contracts with a host that is an asset within the scope of the standard are never accounted for separately. Instead, the hybrid contract is assessed as a whole for the purposes of classification. IFRS 9 largely retains the existing requirements of IAS 39 for the classification of financial liabilities. The first-time application of IFRS 9 did not result in any material effects on the Group's accounting methods for financial liabilities and derivative financial instruments. The table below and the accompanying disclosures present the original measurement category in accordance with IAS 39 and the new measurement category in accordance with IFRS 9 as of January 1, 2018 for each category of financial assets and financial liabilities recognized by the Group. The effects of the first-time application of IFRS 9 on the carrying amounts of the financial assets as of January 1, 2018 resulted exclusively from the new requirements for recognizing impairments, although these effects amount to less than EUR 0.1 million.

EUR milion Original measurement category in accordance with IAS 39 New measurement category in accordance with IFRS 9 Original carrying amount in accordance with IAS 39 New carrying amount in accordance with IFRS 9
Financial assets        
Cash and cash equivalents Loans and receivables Amortized cost 27.2 27.2
Financial assets subject to restrictions on disposal Loans and receivables Amortized cost 8.7 8.7
Trade receivables Loans and receivables Amortized cost 2.3 2.3
Receivables from construction contracts (Contract assets following IFRS 15) Loans and receivables Amortized cost 9.5 9.5
Total financial assets     47.7 47.7
EUR milion Original measurement category in accordance with IAS 39 New measurement category in accordance with IFRS 9 Original carrying amount in accordance with IAS 39 New carrying amount in accordance with IFRS 9
Financial liabilities        
Bond Financial liabilities measured at amortized cost Amortized cost 12.8 12.8
Liabilities from loans Financial Liabilities Measured at Amortized cost 4.0 4.0
Derivative financial instruments Hedging derivatives Hedging derivatives Fair value – hedging instrument 0.0 0.0
Trade payables Other financial liabilities Amortized cost 10.1 10.1
Total financial liabilities     26.9 26.9

a) Cash and cash equivalents and financial assets subject to restrictions on disposal, which had been classified under IAS 39 as loans and receivables, are recognized at amortized cost in accordance with IFRS 9. The expected write-down on cash and cash equivalents and financial assets subject to restrictions on disposal was calculated on the basis of expected losses within the respective maturity bands. Due to the availability of demand deposits at short notice and the outstanding creditworthiness of the credit institutions, it is assumed that cash and cash equivalents are exposed to low risk of default. As a consequence, the application of the impairment rules set out in IFRS 9 as of December 31, 2018 will result in a slight default risk. The Finance department monitors changes in the default risk through quarterly observation of published external credit ratings. To the extent that the potential impairment losses remain small, the Company will opt not to recognize a write-down as of the transition date and for subsequent periods.

b) Receivables from construction contracts (Contract assets following IFRS 15), (which had been classified under IAS 39 as loans and receivables, are recognized at amortized cost in accordance with IFRS 9. Receivables from construction contracts reflect the Group's receivables from the machinery business. These are generally collateralized through letters of credit. Unsecured receivables are recognized using the historical default rates for each customer. The resulting effects on receivables from construction contracts were immaterial as of January 1, 2018.

c) Trade receivables, which had been classified under IAS 39 as loans and receivables, are recognized at amortized cost in accordance with IFRS 9. An increase in allowances on these receivables by less than EUR 0.1 million was recognized in retained earnings upon transition to IFRS 9 as of January 1, 2018. No additional trade receivables were recognized as of January 1, 2018 in the course of the first-time application of IFRS 15.

d) Prepayments, which had been classified under IAS 39 as loans and receivables, are measured at amortized cost in accordance with IFRS 9. Prepayments to suppliers have been analyzed with respect to supplier creditworthiness. The resulting effects as of January 1, 2018 were immaterial.

ii. Impairment of financial assets IIFRS 9 replaces the "incurred loss" model of IAS 39 with the "expected credit loss" ("ECL") model. As a result, credit losses are recognized earlier under IFRS 9 than under IAS 39. The new impairment model is applicable to financial assets measured at amortized cost and debt instruments measured at FVOCI, but not to equity investments held as long-term financial assets.

Impairments in respect of assets falling under the scope of the impairment model set out in IFRS 9 are likely to increase in amount and volatility. The Group has determined that the additional impairment charges resulting from the application of the impairment requirements of IFRS 9 as of January 1, 2018 will be as follows:

  Carrying amount EUR k Estimated loss rate (weighted average) Estimated write-down EUR k
Not overdue 746 0.00 % 0.0
1-30 days overdue 295 0.00 % 0.0
31-60 days overdue 86 0.63 % 0.5
61-90 days overdue 12 0.59 % 0.1
91-180 days overdue 10 0.00 % 0.0
More than 180 days overdue 21 28.19 % 6.0
Total 1.179   6.6

The estimated expected write-downs were calculated on the basis of experience with actual credit defaults over the past five years. The Group has calculated the expected credit defaults separately for individual maturity bands.

iii. Hedge accounting tdsingleThe Group has opted to apply the new general hedge accounting model set out in IFRS 9. That model requires that the Group ensure that the hedging relationships be concluded in line with the Group's risk management strategy and objectives and that they apply a more qualitative and future-facing approach for assessing hedge effectiveness. The Group uses forward exchange contracts to hedge against fluctuations in cash flows in connection with changes in exchange rates affecting foreign-denominated receivables. The Group designates only the change in the fair value of the spot elements of the foreign exchange contracts as the hedging instrument in cash flow hedges. The effective portion of the change in the fair value of the hedging instrument is reported as a separate item of equity in the reserve for cash flow hedges.

The first-time application of IFRS 9 did not result in any material effects on the Group's basic or diluted earnings per share in the fiscal year ended December 31, 2018.

  • Amendments to IFRS 15 – "Revenue from Contracts with Customers"

    IFRS 15 establishes a comprehensive framework for determining whether and when to recognize revenue, and how much revenue to recognize. It replaces the existing standards on recognizing revenue, including IAS 18 "Revenue", IAS 11 "Construction Contracts" and IFRIC 13 "Customer Loyalty Programs". In accordance with IFRS 15, revenue is recognized when a customer obtains control over goods or services. Judgment is required when determining whether control is obtained at a point in time or over time. The Group applied IFRS 15 for the first time as of January 1, 2018.

    Due to the transition methods selected by the Group when applying these standards, the comparative information contained in these financial statements were not restated to comply with the requirements of the new standards. The effects from the first-time application of the standard are attributable to the delay in the recognition of revenue due to potential contractual penalties relating to deliveries. The Company applied the modified retrospective method to transition to IFRS 15, whereby cumulative adjustments were recognized as of January 1, 2018. As a result, the comparative information for 2017 was not adjusted and is thus presented as previously in accordance with IAS 18,

    IAS 11 and the relevant interpretations. Moreover, the disclosure requirements set out in IFRS 15 are generally not applied to comparative information.

    The effects on retained earnings and non-controlling interests from the transition to IFRS 15 as of January 1, 2018 amounted to less than EUR 0.1 million.

    The tables below summarize the effects of IFRS 15 on the relevant items of the consolidated balance sheet as of December 31, 2018 and the income statement for the 2018 fiscal year.

    Effects on the consolidated balance sheet

    December 31, 2018
    EUR million
    Note As reported Adjustments Amounts reported absent application of IFRS 15
    Assets        
    Receivables from construction contracts
    (Contract assets following IFRS 15)
    8 20.4 0.1 20.5
    Other   83.7 - 83.7
    Total assets   104.1 0.1 104.2
    Liabilities        
    Liabilities from construction contracts (Contract liabilities following IFRS 15) 8 14.8 -0.2 14.6
    Other   69.6 - 69.6
    Total liabilities 84.4 -0.2 84.2
    Equity        
    Retained earnings   -12.6 0.3 -12.3
    Other   32.3 - 32.3
    Total equity   19.7 0.3 20.0
    Total assets, liabilities and equity   104.1 0.1 104.2

    Effects on the income statement

    January 1 to December 31, 2018
    EUR million
    Note As reported Adjustments Amounts reported absent application of IFRS 15
    Revenue 5 127.5 0.3 127.8
    Gross profit on sales   35.4 0.3 35.7
    Operating result (EBIT)   6.8 0.3 7.1
    Profit or loss for the period   0.8 0.3 1.1

    The effects on the consolidated balance sheet and income statement were attributable to the temporary delay in revenue recognition due to potential contractual penalties relating to construction contracts. The resulting shift in revenue brought about a reduction in the contract asset balances and an increase in the contract liabilities balances. There was no material effect on the consolidated cash flow statement or statement of comprehensive income for fiscal year 2018.

  • Amendments to IFRS 2 – "Classification and Measurement of Share-based Payment Transactions"

    The amendments address accounting for cash-settled share-based payment transactions that include a performance condition, the classification of share-based payment transactions with net settlement features for tax withholdings, and the accounting for modifications of sharebased payment transactions from cash-settled to equitysettled.

    The amendments have no significant impact on the consolidated financial statements.

    • IFRIC 22 – "Foreign Currency Transactions and Advance Consideration"

      IFRIC 22 addresses an application issue relating to IAS 21 – "The Effects of Changes in Foreign Exchange Rates". It clarifies the date of the exchange rate used for translating transactions that are denominated in a foreign currency in circumstances in which consideration is received or paid in advance. The interpretation stipulates that the date of initial recognition of the asset or liability resulting from the prepayment is the deciding factor in determining the exchange rate for the underlying asset, income or expense.

      There was no significant impact on the consolidated financial statements.

    New and revised accounting standards and interpretations that do not yet require application

    In addition to the new accounting standards and interpretations published by the IASB and IFRS IC requiring application, other standards and interpretations have also been published, some of which have already been endorsed by the EU but will only become mandatory at a later date. The following standards will be applied on the date on which they became mandatory. Use was not made of the option to adopt the standards voluntarily at an earlier date in these financial statements. Unless otherwise indicated, the effects on the SINGULUS TECHNOLOGIES consolidated financial statements are currently being examined.

    The new and revised standards and interpretations listed below have already been endorsed by the EU:

    • IFRS 16 – "Leases"

    • Amendments to IFRS 9 – "Prepayment Features with Negative Compensation"
    • IFRIC 23 – "Uncertainty over Income Tax Treatments"
    • Amendments to IAS 28 - Non-current Interests in Associates and Joint Ventures
    • Amendment to IAS 19 - Plan amendment, reduction or settlement

    The following new and revised standards have not yet been endorsed by the EU:

    • IFRS 17 – "Insurance Contracts"
    • Amendments to IFRS 3 – "Definition of a Business"
    • Amendments to IAS 1 and IAS 8 – "Definition of Material"
    • Amendments to IFRS 2015 - 2017 - Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23
    • Amendments to IFRS 10 and IAS 28 – "Sale or Contribution of Assets between an Investor and its Associate or Joint Venture"
    • Conceptual Framework – "Amendments to References to the Conceptual Framework in IFRS Standards"

    Only those Standards and Interpretations having a material effect on the SINGULUS TECHNOLOGIES Group's net assets, financial position and results of operations are explicitly listed below.

    • IFRS 16 – "Leases"

      The Group is required to apply IFRS 16 – "Leases" as of January 1, 2019. The Group has assessed the estimated effects of the first-time application of IFRS 16 on the consolidated financial statements.

    • IFRS 16 introduces a single accounting model by which leases must be recognized in the balance sheet of the lessee. Lessees recognize a right-of-use asset (representing the right to use the underlying asset) and a lease liability (representing the obligation to make lease payments). There are practical expedients for short-term leases and leases where the underlying asset has a low value.

      IFRS 16 replaces the existing rules for lease accounting, including those set out in IAS 17 – "Leases", IFRIC 4 – "Determining whether an Arrangement Contains a Lease", SIC-15 – "Operating Leases – Incentives" and SIC-27 – "Evaluating the Substance of Transactions Involving the Legal Form of a Lease".

      For the first time, the Group will recognize assets and liabilities for its operating leases, including the lease for the branch office building in Fürstenfeldbruck and motor vehicle leases. The nature of the expenses in connection with these leases will change, since the Group now recognizes amortization for right-of-use assets and interest expenses relating to the lease liabilities. Previously, the Group had recognized operating leases on a straight-line basis over the term of the lease and had recognized assets and liabilities only in the amount by which there was a timing difference between the actual lease payments and the recognized expenses.

      In addition, the Group will no longer recognize provisions for operating leases, which are estimated to be onerous, as discussed in Note 20. Instead, the Group will factor the payments due in relation to the lease into the lease liability.

      This is not expected to have any material impact on the Group's finance leases.

      IFRS 16 provides a simplified application option for leases with a total term of less than 12 months and leases for assets valued at less than EUR 5,000. As previously, the SINGULUS TECHNOLOGIES Group does not recognize any such leases.

      Based on the currently available information, the Group estimates that it will be required to recognize additional lease liabilities amounting to EUR 6.9 million as of January 1, 2019. The Group has opted to apply the modified retrospective approach, meaning that it has not retrospectively restated prior-year comparative figures in the consolidated financial statements.

      The Group intends to apply the practical expedient permitting it to retain the definition of a lease. This means that the Group will apply IFRS 16 to all leases entered into prior to January 1, 2019 which were identified as leases in accordance with IAS 17 and IFRIC 4.

    • Amendments to IFRS 9 – "Prepayment Features with Negative Compensation"

    • The amendments relate to a limited change in the assessment criteria of relevance to the classification of financial assets. Financial assets containing a prepayment feature with negative compensation may be recognized at amortized cost or at fair value through other comprehensive income rather than at fair value through profit or loss, provided they meet certain criteria.

      The amendments are applicable for the first time as of January 1, 2019.

      At present, the Group does not expect this to have any material impact on the consolidated financial statements.

    • Amendments to IFRIC 23 – "Uncertainty over Income Tax Treatments"

    • The tax treatment of such transactions may depend on the future recognition by the tax office or the financial courts. IAS 12 – "Income Taxes" determines how current and deferred taxes must be accounted for. IFRIC 23 supplements the requirements of IAS 12 with respect to the recognition of uncertainties over the income tax treatment of certain transactions. The interpretation is applicable for the first time in reporting periods beginning on or after January 1, 2019. Earlier application is permitted. At present, the Group does not expect this to have any material impact on the consolidated financial statements.

    The following new and revised standards have not yet been endorsed by the EU:

    • Amendment to IFRS 3 – "Definition of a Business"

    • In the amendment, the IASB clarifies that to be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The definition of outputs is furthermore based on goods and services provided to customers; the reference to an ability to reduce costs is removed. In addition, the new provisions also include an optional "concentration test" that is intended to permit a simplified identification of a business. Subject to an adoption into EU law, the changes are applicable to business combinations for which the acquisition date is on or after January 1, 2020. Earlier application is permitted. At present, the Group does not expect this to have any material impact on the consolidated financial statements.

    4 Significant accounting policies

    4.1 Basis of consolidation and consolidation principles

    The consolidated financial statements include the financial statements of SINGULUS TECHNOLOGIES AG and its subsidiaries as of December 31 of a given fiscal year.

    Subsidiaries are fully consolidated as of the date of their acquisition, i.e., the date on which the Group obtains control. Consolidation ends as soon as the parent ceases to have control.

    The financial statements of the subsidiaries are prepared as of the same balance sheet date as that of the parent, using consistent accounting policies.

    All intragroup balances, income and expenses and unrealized gains and losses resulting from intragroup transactions are eliminated in full.

    In addition to SINGULUS TECHNOLOGIES AG, the consolidated financial statements include all entities under the legal and/or de facto control of the Company.

    The following subsidiaries are included in the consolidated financial statements:

    • SINGULUS TECHNOLOGIES Inc., Windsor, USA
    • SINGULUS TECHNOLOGIES MOCVD Inc., Windsor, USA
    • SINGULUS TECHNOLOGIES ASIA PACIFIC Pte. Ltd., Singapore
    • SINGULUS TECHNOLOGIES LATIN AMERICA Ltda., São Paulo, Brazil
    • SINGULUS TECHNOLOGIES IBERICA S.L., Sant Cugat del Vallés, Spain
    • SINGULUS TECHNOLOGIES FRANCE s.a.r.l., Sausheim, France
    • SINGULUS TECHNOLOGIES ITALIA s.r.l., Senigallia (Ancona), Italy
    • SINGULUS TECHNOLOGIES TAIWAN Limited, Taipeh, Taiwan
    • SINGULUS TECHNOLOGIES SHANGHAI Co. Ltd., Shanghai, China
    • HamaTech USA Inc., Austin, USA
    • STEAG HamaTech Asia Ltd., Hong Kong, China
    • SINGULUS CIS Solar Tec GmbH, Kahl am Main, Germany
    • SINGULUS New Heterojunction Technologies GmbH, Kahl am Main, Germany

    The companies SINGULUS TECHNOLOGIES ITALIA s.r.l., and SINGULUS TECHNOLOGIES IBERICA S.L. were in liquidation as of December 31, 2018. The deconsolidation is anticipated to be made in each case upon conclusion of the liquidation during the 2019 fiscal year. The liquidation of SINGULUS MANUFACTURING GUANGZHOU Ltd. was completed with effect from September 28, 2018.

    During the reporting period, the newly formed distribution company SINGULUS TECHNOLOGIES SHANGHAI Co. Ltd. was included in the basis of consolidation. SINGULUS TECHNOLOGIES AG holds 100 % of shares in the newly formed company, which was therefore fully consolidated. The share of equity and profit or loss attributable to minority interests is reported separately in the balance sheet and income statement (non-controlling interests).

    The profit or loss of acquired entities is recognized in the consolidated financial statements from the date of acquisition.

    For more information, please refer to Note 35.

    4.2 Foreign currency translation

    The financial statements of the foreign subsidiaries are prepared in the currency in which the majority of transactions are concluded (functional currency). The functional currency is the relevant local currency. For inclusion of the foreign financial statements in the Group's reporting currency, the balance sheet items are translated using the closing rate on the balance sheet date and income statement items are translated using the average rate for the fiscal year. The equity of equity investments is translated using the historical rate. Currency translation differences arising from the application of different exchange rates are recognized in other comprehensive income.

    Foreign currency monetary items are translated using the closing rate. Exchange differences are recognized as income or expenses in the period in which they occur.

    4.3 Management’s use of judgment and main sources of estimating uncertainties

    The preparation of consolidated financial statements in accordance with IFRSs requires the use of estimates and assumptions by management which have an effect on the amounts of the assets, liabilities, income, expenses and contingent liabilities reported. Assumptions and estimates generally relate to the uniform determination of useful lives of assets within the Group, impairment of assets, the measurement of provisions, the collectability of receivables, the recognition of realizable residual values for inventories and the probability of future tax benefits. The actual values may in some cases differ from the assumptions and estimates made. Any changes are recognized in profit or loss as and when better information is available.

    In the Group, the use of judgment and estimating uncertainties affect the following areas in particular:

    4.3.1 Impairment of assets

    The Group determines whether goodwill is impaired at least once a year. Moreover, if there is any indication that an asset may be impaired, that asset is tested for impairment by estimating its recoverable amount. If it is not possible to estimate the recoverable amount of the individual asset, the Group determines the recoverable amount of the cashgenerating unit to which the asset is allocated.

    This requires an estimate of the recoverable amount of the assets or cash-generating units to which the goodwill or asset is allocated. Please also refer to the comments under 4.16 "Impairment of assets".

    4.3.2 Deferred tax assets

    Deferred tax assets are recognized for all temporary differences and for all unused tax loss carryforwards to the extent that it is probable that taxable profit will be available against which the tax assets can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the probable timing and level of future taxable profits together with future tax planning strategies. Please also refer to the comments in Note 22.

    4.3.3 Share-based payment

    The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date on which they are granted. In order to estimate fair value, an appropriate measurement approach must be determined for grants of equity instruments; this approach depends on the terms and conditions of the grant. Furthermore, the appropriate data to be used in this measurement approach, including the anticipated option term, volatility, dividend yield and the corresponding assumptions, must be determined. The assumptions and approaches used are disclosed in Note 15.

    4.3.4 Pension obligations

    The cost of defined benefit pension plans is determined using actuarial calculations. The actuarial valuation involves making assumptions about discount rates, future salary increases, mortality rates and future pension increases. As these plans are of a long-term nature, such estimates are highly uncertain. Please also refer to the comments in Note 18.

    4.3.5 Development costs

    Development costs are capitalized in accordance with the accounting policies described under “Research and development costs” further below in this section. In order to test for impairment, the management must make assumptions regarding the amount of estimated future cash flows from assets, the discount rates to be applied, and the timing of the future cash flows expected to be generated by the assets. Please also refer to the comments in Note 11.

    4.3.6 Customer lists

    In order to estimate the fair values of customer lists, assumptions must be made regarding the future free cash flows, the discount rates to be applied and the timing of future cash flows expected to be generated by these assets.

    4.3.7 Leases

    The Group has entered into lease agreements. The test to determine whether an agreement constitutes a lease is performed on the basis of the substance of the agreement on the date it was concluded and requires an estimate of the opportunities and risks being transferred in connection with the leased asset. Please also refer to the comments in Note 32.

    4.3.8 Construction contracts

    In order to evaluate the stage of completion of customerspecific construction contracts, the costs to complete the order must be estimated. Please also refer to the comments made below under 4.4 "Revenue recognition" and to the comments in Note 8.

    4.3.9 Provisions

    Estimating future expenses is fraught with uncertainty. Estimates relate in particular to restructuring measures which extend over a longer period. When determining the provision for expected losses, it was necessary to make estimates concerning the capacity utilization of the building. Please refer to our comments under Note 20.

    4.4 Revenue recognition

    The Group recognizes revenue when it satisfies a performance obligation by transferring a specified asset to a customer. An asset is deemed to have been transferred once the customer obtains control over that asset. Depending on the transfer of control, revenue is recognized either at a point in time or over time in the amount that reflects the consideration to which the Company expects to be entitled. Revenue relating to the sale of equipment in the Optical Disc operating segment is recognized when a contract has entered into effect, the delivery has been made, and, if required, the equipment has been installed for and accepted by the customer and payment is reasonably certain. Revenue relating to services is recognized when the service has been rendered, a price has been negotiated and is determinable and payment thereof is probable.

    Given that the Solar and Semiconductor operating segments do not manufacture products in serial batches but rather to individual customer order, revenue is recognized over time. The relevant stage of completion is calculated using the input-oriented cost-to-cost method. The progress of the performance achieved can be estimated most accurately by the chosen method. The costs incurred to date are calculated as a proportion of the estimated total costs. Contracts are recognized on the balance sheet either as receivables from construction contracts (assets) or as liabilities from construction contracts if the prepayments received exceed the cumulative work performed. If it is probable that the total contract costs exceed the total contract revenue, the expected loss is immediately expensed.

    Revenue from the sale of individual components of equipment or replacement parts is recognized at a point in time when control is transferred in accordance with the underlying agreements.

    Revenue is recognized net of VAT, returns, sales deductions, credits and direct selling costs (primarily commissions).

    For warranty claims, percentages are derived from experience for each product type and range between 2.75 % and 4.00 %.

    The typical payment terms for the sale of equipment call for a significant down payment at the commencement of production. Further payment terms are contractually defined and depend on the degree of completion, calling for a final payment upon transfer of the specified equipment. No material financing components exist. Typically, payment targets of between 30 and 60 days net are agreed for the replacement parts and service business. In addition, customer-specific advance payments are also agreed.

    4.5 Goodwill

    In all business combinations, the goodwill acquired was initially measured at cost, this being the excess of the cost of the business combination over the acquirer’s interest in the fair value of the identifiable assets acquired and the liabilities and contingent liabilities assumed (partial goodwill method). After the effective date of the revised IFRS 3 and IAS 27, there is an option to recognize the total amount of the goodwill acquired, including goodwill attributable to non-controlling interests (full goodwill method), for all business combinations made on or after July 1, 2009. After initial recognition, goodwill is measured at cost less any accumulated impairment losses.

    The recognized goodwill is not amortized. It is tested for impairment annually or whenever there are indications of impairment. Impairment testing takes place at the cashgenerating unit level. If the recoverable amount of the relevant unit has fallen below the carrying amount of the unit, an impairment loss is recognized in accordance with IAS 36. Reversals of impairment losses are prohibited.

    4.6 Research and development costs

    Research costs are expensed in the period in which they are incurred. Pursuant to IAS 38, development costs are recognized as intangible assets at cost, provided that the conditions of IAS 38.57 are fulfilled. Cost comprises all costs directly attributable to the development process as well as appropriate shares of development-related overheads. Development costs are amortized using the straight-line method over the expected useful life of the developed products (3 to 5 years).

    Amortization and impairment of capitalized development costs are recognized in the functional area to which the respective assets are allocated. Impairment losses on development costs are disclosed under “Restructuring expenses” if production of the relevant products is discontinued at the respective locations.

    Government subsidies received for research and development projects are offset against the research and development costs in the income statement.

    4.7 Other intangible assets

    Intangible assets acquired separately are recognized at cost. Intangible assets acquired in a business combination are recognized at fair value as of the date of acquisition. Internally generated intangible assets are recognized if the criteria for recognition are met. If the criteria are not met, the costs related to such intangible assets are recognized as expenses in the period in which they are incurred. Intangible assets with finite useful lives are amortized over their useful lives. Intangible assets with indefinite useful lives are not amortized, and are instead tested for impairment at least once a year. No intangible assets with indefinite useful lives were recognized in the reporting period.

    The useful lives of intangible assets with finite useful lives are:

    • Software 3 years
    • Patents 8 years
    • Technology 5 to 8 years
    • Customer lists 10 to 11 years
    4.8 Cash and cash equivalents

    Cash and cash equivalents comprise monetary investments with a remaining maturity of up to three months at the time of acquisition as well as bills of exchange with an original maturity of up to three months.

    Financial assets subject to restrictions on disposal are presented separately in the balance sheet. These financial assets relate to the Company's financing transactions and are included in the consolidated cash flow statement as cash flows from financing activities.

    4.9 Receivables

    Trade invoices are issued mainly in euros and are recognized as receivables at the fair value of the goods supplied or services rendered.

    If there is an objective indication that receivables carried at amortized cost are impaired, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding expected future credit losses that have not yet been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate determined on initial recognition). The carrying amount of the asset is reduced through the use of an allowance account. The impairment loss is recognized directly in profit or loss. For trade receivables, if there are objective indications that not all due amounts will be collected pursuant to the original payment terms (such as probability of insolvency or significant financial difficulties of the debtor), an impairment loss is charged. This only applies where there is no collateral (e.g., credit insurance policies, etc.). Receivables are derecognized when they are classified as uncollectible.

    If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed, with the amount of the reversal recognized in profit or loss. However, the reversal must not result in the carrying amount of the asset exceeding what the amortized cost would have been at the date the impairment is reversed if the impairment had not been recognized.

    Under the expected credit loss model set out in IFRS 9, portfolio loss allowances are recognized for trade receivables for which no individual loss allowance is recognized; the portfolio loss allowances are recognized based on the assets' statistical probability of default.

    When trade receivables are sold under factoring arrangements and all risks and rewards of the asset are transferred to the buyer, the receivables are derecognized. In this connection, please refer to the comments under 4.11 "Financial assets and liabilities".

    For details on the recognition of foreign currency receivables and the related hedging transactions, please see our comments under 4.12 "Hedge accounting" and 4.2 "Foreign currency translation".

    4.10 Inventories

    Inventories are carried at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. Raw materials, consumables and supplies including spare parts are measured using the weighted average cost formula. In the case of manufactured products, the cost includes an appropriate share of the production overheads based on normal operating capacity. Appropriate allowances are made for potential losses due to obsolete or slow-moving inventories.

    The four existing allowance classes for salability are derived from past experience and range between 0 % and 80 % of depreciated cost. The four existing allowance classes for days inventory held (“DIH”) also range between 0 % and 80 % of depreciated cost.

    In addition, inventories are individually tested for impairment and written down by up to 100 %.

    4.11 Financial assets and liabilities

    Financial assets and financial liabilities are recognized in the balance sheet when an entity becomes party to the contractual provisions of the instrument. All financial assets and financial liabilities are initially recognized at fair value (plus any transaction costs).

    Financial assets (particularly cash and cash equivalents and trade receivables) classified as held in order to collect contractual cash flows are recognized at amortized cost. Financial assets held for trading are measured at fair value through profit or loss. Financial assets classified as "hold and sell" are measured at fair value through other comprehensive income.

    All regular way purchases and sales of financial assets are recognized on the trade date, i.e., the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established generally by regulation or convention in the marketplace concerned.

    Financial assets which are held in order to collect contractual cash flows are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. These assets are measured reflecting discounts and premiums upon acquisition and include transaction costs and fees which are an integral part of the effective interest rate. After initial recognition, loans and receivables are measured at amortized cost using the effective interest method less any impairment. Gains and losses are recognized in profit or loss when the loans and receivables are derecognized or impaired, as well as through the amortization process.

    The Group has not classified any financial assets as at fair value through profit or loss.

    Financial assets and financial liabilities are measured at fair value through profit or loss if they are acquired for the purpose of disposal in the near future. Derivatives, including separately recognized embedded derivatives, are measured analogously, except for those derivatives that are financial guarantees or that have been designated as hedging instruments and are effective as such. Gains or losses from financial assets and financial liabilities held for trading are recognized in profit or loss.

    For investments that are actively traded in organized financial markets, fair value is determined by the quoted market prices (bid prices) as at the reporting date. The fair value of investments that are not quoted on an active market is determined using valuation techniques. Such techniques may include using recent arm’s length transactions between knowledgeable, willing independent parties, reference to the current fair value of another financial instrument which is substantially the same and discounted cash flow analysis or other valuation models.

    Borrowings are initially recognized at fair value net of transaction costs directly associated with the borrowing. They are not designated as measured at fair value through profit or loss.

    Derecognition

    A financial asset (or, where applicable, part of a financial asset or part of a group of similar financial assets) is derecognized when one of the following conditions is met:

    • The rights to receive cash flows from the asset have expired.
    • The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without delay to a third party under an agreement that meets the conditions in IFRS 9.3.2 ("pass-through" arrangement); and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
    4.12 Hedge accounting

    Changes in the fair value of derivatives designated as a hedging instrument in a fair value hedge are recognized in profit or loss. The hedged item attributable to the hedged risk is also recognized at fair value, with the hedge expected to be highly effective in offsetting the changes in the fair value of the hedged item.

    The derivative designated as a hedge in a cash flow hedge is carried in the balance sheet at fair value. However, changes in the value of the derivative are recorded in other comprehensive income if, and to the extent that, the hedging relationship is effective. The non-effective portion of the change in fair value continues to be recognized in profit or loss. The change in fair value recorded in equity is derecognized and recorded in profit or loss as soon as the hedged item has an effect on the income statement, or, if the hedged item is reversed, as soon as the hedged item ceases to exist.

    In accordance with IFRS 9, effectiveness is tested on the basis of qualitative methods. The qualitative test must evaluate the economic relationship between the hedging instrument and the hedged item and ensure that the effects of a change in the credit risk is not so significant as to dominate the value changes of the changes in hedging instrument and the hedged item.

    The Company primarily concludes forward exchange contracts to hedge foreign currency risks from trade receivables. In the case of hedges for existing receivables, the hedging transaction and the risk portion of the hedged item are carried at fair value. Changes in value are recognized in profit or loss.

    In the case of cash flow hedges, the hedging instruments are likewise carried at fair value. Forward exchange contracts are measured using the ECB reference rates for spot currency and the valid forward exchange rates of the respective commercial bank for forward currency. Changes in value, provided that the hedges are deemed to be effective, are initially disclosed in other comprehensive income, taking into account any deferred taxes, and only recognized in profit or loss when the cash flow is realized.

    4.13 Property, plant and equipment

    Property, plant and equipment are carried at cost plus directly allocable costs, less depreciation and impairments. Finance costs relating to qualifying assets are recognized as part of the cost if the criteria set out in IAS 23 are met. Depreciation is charged on a straight-line basis over the economic lives of the assets. The economic life and depreciation method are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from items of property, plant and equipment.

    The economic lives are estimated as follows:

    • Buildings 25 to 30 years
    • Plant and machinery 2 to 10 years
    • Other assets 1 to 4 years

    The economic useful life of the buildings at the production site Kahl am Main was reassessed and increased to 30 years. Depreciation and impairment of property, plant and equipment are recognized in the functional area to which the respective assets are allocated.

    4.14 Leases

    The Company is a lessee of property, plant and equipment and a lessor of replication lines. The criteria defined in IAS 17 for assessing, based on the risks and rewards, whether beneficial ownership of the leased asset is attributable to the lessor (operating lease) or the lessee (finance lease), are used to assess all the leases and account for them accordingly.

    For leases in which the Group is the lessee, beneficial ownership of the leased assets is attributable to the lessor pursuant to IAS 17 if the lessor bears all the risks and rewards incidental to ownership of those assets. In this case, the leased assets are recognized in the financial statements of the lessor. The related lease expenses are expensed in full by the lessee.

    4.15 Impairment of assets

    At each reporting date, the Company assesses whether there is any indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is mandatory, the Group makes an estimate of the asset’s recoverable amount.

    The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset/cash-generating unit exceeds its recoverable amount, the asset/cash-generating unit is considered impaired and is written down through profit and loss to the recoverable amount.

    If a cash-generating unit is impaired, the assets in the unit are depreciated as follows:

    a) First, the carrying amount of goodwill allocated to the cash-generating unit

    b) then, the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit.

    In assessing the recoverable amount, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. These estimates are based on a fiveyear plan prepared by the Company, which is derived from the three-year plan approved by the Supervisory Board and extrapolated a further two years in order to determine the recoverable amount. The perpetual annuity is determined on the basis of the fifth planning year.

    For purposes of impairment testing, the goodwill acquired in business combinations is allocated to the cash-generating units, which correspond to the Group's three operating segments. Since goodwill from the acquisition of SINGULUS STANGL SOLAR also reflects the current and future business activities of SINGULUS TECHNOLOGIES AG in the Solar operating segment, this goodwill was tested for impairment at the level of the Solar operating segment.

    4.15.1 Key assumptions used in the value-in-use calculation

    The following parameters of the assumptions used in the value-in-use calculation of cash-generating units leave room for estimating uncertainties:

    • Development of revenue and future EBIT margins
    • Discount rates
    • Development of the relevant sales markets
    • Growth rates used to extrapolate cash flow projections beyond the forecast period

    The EBIT margins are based on the revenue expectations of the management, which are in turn validated using market research forecasts for the industry. The corporate planning for planning years 2019 to 2021 (budget period) factors in both the order backlog in the Solar segment and revenue estimated on the basis of customer requests and bids which are in the process of negotiation. Overall, management expects an increase in revenue in the Solar segment significantly greater than general market growth. The Executive Board likewise expects a significant improvement in EBIT margins in connection with the planned increase in revenue. Market expectations are factored in for 2022 and 2023 in particular. This revenue planning is used to determine the cost of sales and operating expenses based on current cost structures, budgetary calculations and past experience. The overall detailed budget period extends over five years.

    Discount rates – The discount rates reflect estimates made by management on risks to be attributed to specific cash-generating units. The weighted average cost of capital (“WACC”) for each cash-generating unit was used as the discount rate. The underlying base interest rate was determined using the Svensson method and yields of German government bonds (Bunds) for equivalent terms. Further components include the 7.00 % market risk premium (previous year: 7.00 %), beta factors, assumptions regarding country and credit risk premiums and the debt ratio using market data.

    Management assumptions on market changes and growth are very significant in calculating value in use in the Solar segment. Specifically, technological trends, the future development of these trends, and the behavior of competitors is forecast for the budget period. The Company's own industry experience, dialog with customers and published industry-specific market research forecast continuing strong growth for the solar market despite the volatility prevalent in previous years.

    Growth rate estimates – The forecast growth rates outside of the budget period are based on published industryspecific market research. The growth rate in the perpetual annuity using the discounted cash flow model ("DCF model") was extrapolated at 1 % in the Solar segment.

    The recoverable amount of the cash-generating units was determined based on a value-in-use calculation, using cash flow projections based on financial budgets prepared by senior management covering a five-year period. The pre-tax discount rate applied to the cash flow projections is 15.2 % (previous year: 15.3 %) in the Solar operating segment.

    Working capital attributable to the cash-generating unit is taken into account in calculating its carrying amount. This working capital was negative as of the reporting date due to liabilities from construction contracts; the carrying amount of the cash-generating unit was positive.

    4.15.2 Sensitivity of assumptions made

    For the Solar operating segment, the value in use exceeds the carrying amount by EUR 72.2 million. A change in the assumptions could lead to a situation in which the carrying amount of the cash-generating unit exceeds the recoverable amount. This could result from revenue in each case falling more than 29.5 % short of the budgeted figures in the five-year planning period as well as in the perpetual annuity. The Solar operating segment is likely to benefit from the expected global market growth. In particular, the further development of the Chinese solar market is highly significant for the Company. At the same time, management expects the EBIT margin to increase. This development is thus reflected in the value in use of the cash-generating units in this operating segment. EBIT margins will increase from a low level to 10.4 % by 2023. In the event the actual EBIT margin in the five-year planning period, as well as the perpetual annuity, is more than 8.3 percentage points lower than the assumed margin, the carrying amounts would be written down as a result.

    4.16 Current tax assets and liabilities

    Current tax assets and liabilities for current and prior periods are measured at the amount expected to be recovered from or paid to the tax authorities using the tax rates and tax laws that have been enacted by the end of the reporting period.

    Current taxes relating to items which are recognized in comprehensive income are also recognized in other comprehensive income and not in profit or loss.

    4.17 Deferred tax liabilities and assets

    Deferred taxes are recognized for all temporary differences between carrying amounts in the tax accounts and the consolidated balance sheet using the balance sheet liability method. Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized for all deductible temporary differences and the carryforward of unused tax losses, to the extent that it is probable that taxable profit will be available for use of the deductible temporary differences and the carryforward of unused tax losses.

    The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of the deferred tax asset to be utilized. Previously unrecognized deferred tax assets are reviewed at the end of each reporting period and recognized to the extent to which it has become probable that future taxable profit will allow the deferred tax asset to be recovered. This decision is made based on internal tax forecasts.

    Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable profit in the years in which these temporary differences are expected to be reversed. In the event of a change in tax rate, the effects on deferred tax assets and liabilities are recognized in profit or loss in the period to which the new tax rate applies. Deferred tax assets and liabilities are not discounted and are classified as non-current assets or liabilities in the consolidated balance sheet.

    Deferred tax assets and deferred tax liabilities are offset if SINGULUS TECHNOLOGIES AG or one of its subsidiaries has a legally enforceable right to set off a current tax asset against a current tax liability when they relate to income taxes levied by the same taxation authority.

    4.18 Pension provisions

    The actuarial measurement of pension provisions is based on the projected unit credit method prescribed by IAS 19 for benefit obligations for old-age pensions. This method takes into account the pensions and vested benefits known as of the balance sheet date as well as the increases in salaries and pensions to be expected in the future. The actuarial gains and losses are recognized in other comprehensive income.

    4.19 Provisions

    Under IAS 37, provisions are recognized if a present obligation toward a third party as a result of a past event exists which will probably result in a future outflow of resources, and whose amount can be reasonably estimated. Provisions that are not expected to lead to an outflow of resources in the subsequent year are carried at their discounted settlement amount on the balance sheet date. The discount factor is based on market interest rates. The settlement amount also includes the expected cost increases.

    Provisions for warranty costs are recognized as soon as the respective revenue is realized. The provision is measured on the basis of historical estimates of the costs of meeting warranty obligations, including handling and transport costs.

    4.20 Liabilities

    The Group initially recognizes financial liabilities in connection with the issue of bonds as of the issue date. Repurchased own bonds are offset against financial liabilities from the bond issue. All other financial liabilities are initially recognized on the trade date, i.e., the date on which the Group became a contractual party to the financial instrument.

    Financial liabilities are derecognized when the contractual obligations have been settled, canceled or have expired.

    Non-derivative financial instruments are classified as other financial liabilities. Such financial liabilities are initially recognized at fair value less directly attributable transaction costs. These financial liabilities are subsequently measured at amortized cost using the effective interest method.

    Other financial liabilities include loans and interest-bearing financial liabilities, financial liabilities in connection with the issue of bonds, trade payables and other liabilities.

    Finance lease liabilities are recognized at the fair value of the leased asset or, if lower, the present value of the minimum lease payments.

    4.21 Share-based payment

    The Management Board and senior executives are granted share-based payments ("phantom shares") which are settled with a cash payment (cash-settled share-based payment transactions).

    The cost of granting the share-based payments is measured at the fair value of these instruments on the date they were granted ("grant price"). The fair value is determined by an external valuer using a suitable measurement model, further details of which are given in Note 15.

    The recognition of the expenses incurred in connection with the issue of share-based payment instruments takes place throughout the period in which the exercise or performance condition must be fulfilled (vesting period). This period ends on the date on which the relevant employees become fully entitled to the award. The cumulative expenses recognized on each reporting date for equity-settled transactions until the vesting date reflect the extent to which the vesting period has expired and the number of awards that, in the opinion of the Group at that date, based on the best available estimate of the number of equity instruments, will ultimately vest. The income statement charge or credit for a period represents the movement in cumulative expense recognized as of the beginning and end of that period. No expense is recognized for awards that do not vest, except for awards where vesting is conditional upon certain market conditions, which are treated as vesting irrespective of whether or not the market conditions are satisfied, provided that all other performance conditions are satisfied.

    The costs arising due to cash-settled share-based payments is initially measured using a binominal model with reference to the fair value at the date on which they were granted. This fair value is expensed over the period until vesting with recognition of a corresponding liability. The liability is remeasured at each balance sheet date and at the date of settlement. Changes in the fair value are recognized in profit or loss.

    4.22 Earnings per share

    Basic earnings per share are calculated by dividing profit by the weighted average number of shares outstanding. Diluted earnings per share are calculated by dividing profit by the weighted average number of shares outstanding plus the number of convertible bonds and stock options outstanding, provided that the exercise of conversion rights and the stock options is reasonably certain.

    The dilutive effect of the outstanding options would be reflected as additional share dilution in the determination of earnings per share, if vesting were deemed to be probable as of the balance sheet date.

    5 Segment reporting

    The Group’s business is organized by product for corporate management purposes and has the following three operating segments which are subject to disclosure:

    Solar segment (including medical technology)

    At Kahl am Main, machinery is designed for use in evaporation, cathode sputtering and selenization processes, and end-to-end production lines are designed and offered. The aforementioned types of plants for manufacturing solar cells are assembled and commissioned in Kahl. The focus of SINGULUS TECHNOLOGIES' activities at its Fürstenfeldbruck plant is to develop, assemble and commission equipment used in wet-chemical processes, such as cleaning, etching and deposition machinery.

    Optical Disc segment (including decorative coating)

    The primary focus of SINGULUS TECHNOLOGIES' Optical Disc segment is to manufacture and distribute integrated production lines used in the manufacture of Blu-ray discs. SINGULUS TECHNOLOGIES offers BLULINE II and BLULINE III modular production systems for 50 GB, 66 GB and 100 GB Blu-ray discs. Income from the replacement parts and service business related to the aforementioned product lines is also reported under the Optical Disc segment.

    Semiconductor segment

    SINGULUS TECHNOLOGIES operates in the market for semiconductor elements through its Semiconductor segment. One area of focus is the development and manufacture of equipment that uses tunnel magnetic resistance (TMR) technology for semiconductor applications. This equipment is used to process wafers for MRAM, thin film heads and sensors.

    Directly attributable income, expenses and assets are generally reported directly under the segments to which they are directly attributable in the segment reporting. Income, expenses and assets which cannot be directly attributed to a given segment are allocated as a proportion of planned revenue for the fiscal year.

    Management monitors the business segments’ operating results separately in order to facilitate decisions regarding the allocation of resources and to determine the units’ performance.

    The key figures for management are net revenue and EBIT (operating result). Liabilities are managed at the group level. Revenue and operating results were allocated to the operating segments as follows in 2018:

    "Solar" operating segment "Optical Disc" operating segment "Semiconductor" operating segment SINGULUS TECHNOLOGIES Group
    2018
    EUR m
    2017
    EUR m
    2018
    EUR m
    2017
    EUR m
    2018
    EUR m
    2017
    EUR m
    2018
    EUR m
    2017
    EUR m
    Gross revenue 98.5 64.8 19.8 18.4 9.2 8.0 127.5 91.2
    Sales deductions and direct selling costs -0.2 0.0 -1.3 -1.2 -0.1 0.0 -1.6 -1.2
    Net revenue 98.3 64.8 18.5 17.2 9.1 8.0 125.9 90.0
    Operating result (EBIT) 5.4 2.1 0.7 -3.0 0.7 -0.3 6.8 -1.2
    Amortization, depreciation and impairment -1.9 -1.7 -0.3 -0.2 -0.1 0.0 -2.3 -1.9
    Financial income/expense -2.0 -1.6
    EBT 3.1 -2.8

    The additions to capitalized development costs are attributable exclusively to the Solar segment (EUR 3.6 million; previous year: EUR 1.7 million).

    Furthermore, significant revenue was generated with two customers in the Solar segment in fiscal year 2018. Of that revenue, EUR 53.8 million or 42.2 % of total revenue was attributable to one customer. EUR 19.2 million or 15.1 % of total revenue was attributable to the second customer.

    The table below shows information by geographical region as of December 31, 2018 based on gross revenue and assets:

    Germany Rest of
    Europe
    North &
    South
    America
    Asia Africa &
    Australia
    EUR m EUR m EUR m EUR m EUR m
    Revenue by country of
    origin 113.7 0.6 11.5 1.7 0.0
    destination 11.1 14.9 14.7 86.0 0.8
     
    Germany Rest of
    Europe
    North &
    South
    America
    Asia Africa &
    Australia
    EUR m EUR m EUR m EUR m EUR m
    Assets 94.2 0.3 6,6 3.0 0.0

    The table below shows information by geographical region as of December 31, 2017 based on gross revenue and assets:

    Germany Rest of
    Europe
    North &
    South
    America
    Asia Africa &
    Australia
    EUR m EUR m EUR m EUR m EUR m
    Revenue by country of
    origin 75.8 0.7 12.2 2.5 0.0
    destination 10.8 6.9 16.7 56.2 0.6
     
    Germany Rest of
    Europe
    North &
    South
    America
    Asia Africa &
    Australia
    EUR m EUR m EUR m EUR m EUR m
    Assets 80.4 0.7 3.1 3.6 0.0

    Outside of Germany, significant revenue was generated in China (EUR 73.4 million; previous year: EUR 52.1 million) and the USA (EUR 11.3 million; previous year: EUR 14.4 million) during the fiscal year.

    The matrix below presents the revenue for the reporting period as allocated to the individual segments by selected categories.

    Solar Optical Disc Semiconductor Total
    EUR m EUR m EUR m EUR m
    Revenue by country of origin        
    Germany 9.5 1.6 0.0 11.1
    Rest of Europe 3.5 4.7 6.7 14.9
    North & South America 3.8 10.4 0.5 14.7
    Asia 81.7 2.3 2.0 86.0
    Africa & Australia 0.0 0.8 0.0 0.8
    98.5 19.8 9.2 127.5
     
    Revenue by country of origin
    Germany 96.0 9.4 8.3 113.7
    Rest of Europe 0.0 0.4 0.2 0.6
    North & South America 2.1 8.9 0.5 11.5
    Asia 0.4 1.1 0.2 1.7
    Africa & Australia 0.0 0.0 0.0 0.0
    98.5 19.8 9.2 127.5
    Products and services        
    Production facilities 94.9 4.8 8.0 107.7
    Service and spare parts 3.6 15.0 1.2 19.8
    98.5 19.8 9.2 127.5
     
    Revenue recognition date
    Periodic revenue recognition 94.9 3.5 8.0 106.4
    Revenue recognition as of a specific date 3.6 16.3 1.2 21.1
    98.5 19.8 9.2 127.5

    The Group reported more than EUR 66.0 million as outstanding order backlogs for performance obligations not yet rendered in full. These are expected to be rendered in the next 15 months.

    6 Cash and cash equivalents

    Bank balances earn interest at floating rates based on daily bank deposit rates. Short-term deposits are made for periods ranging between one day and twelve months, depending on the relevant cash requirements of the Group. These earn interest at the relevant rates applicable to shortterm deposits. The fair value of cash and cash equivalents is EUR 13.5 million (previous year: EUR 27.2 million).

    7 Financial assets subject to restrictions on disposal

    The Company has cash deposits of EUR 14.3 million (previous year: EUR 8.7 million) in blocked accounts over which it has no power of disposal. These deposits are included as cash flows from financing activities in the consolidated statement of cash flows if they are linked to the Group’s financing transactions.

    8 Trade receivables and receivables from construction contracts

    2018
    EUR m
    2017
    EUR m
    Trade receivables – current 7.3 3.4
    Receivables from construction contracts 20.4 9.5
    Less allowances -1.2 -1.1
    26.5 11.8

    As of December 31, 2018, bad debt allowances of a nominal EUR 1.2 million had been charged on trade receivables (previous year: EUR 1.1 million). The development of the valuation allowances is presented below:

    2018
    EUR m
    2017
    EUR m
    As of January 1 1.1 1.5
    Allowances recognized in profit or loss 0.3 0.1
    Utilization -0.1 -0.4
    Reversals -0.1 -0.1
    As of December 31 1.2 1.1

    If trade receivables become uncollectible, the associated receivables and allowances are derecognized.

    As of December 31, the age structure of trade receivables and receivables from construction contracts, taking into

    account specific bad debt allowances, are broken down as follows:

    Total Not due

    EUR m

    EUR m
    less than 30 days
    EUR m
    30 to 60 days
    EUR m
    60 to 90 days
    EUR m
    90 to 180 days
    EUR m
    Overdue by
    more
    than 180 days

    EUR m
    2018 26.5 25.9 0.5 0.1 0.0 0.0 0.0
    2017 11.8 11.1 0.5 0.1 0.1 0.0 0.0

    The overdue trade receivables are collateralized in the form of retention of title, insurance policies and letters of credit. With regard to trade receivables for which no bad debt allowance was charged, there were no indications as of the balance sheet date that the debtors would not meet their payment obligations.

    Subsequent measurement of trade receivables resulted in a net effect of EUR 0.2 million (previous year: EUR 0.0 million). This included expenses from additions to specific bad debt allowances amounting to EUR 0.3 million (previous year: EUR 0.1 million). In the reporting period, income was also generated from the reversal of specific bad debt allowances in the amount of EUR 0.1 million.

    Receivables from construction contracts arise when revenue can be recognized according to the stage of completion (using the cost-to-cost method) and the criteria set forth in IFRS 15.35 have been fulfilled but this revenue cannot yet be invoiced to customers under the respective contract. The costs and estimated profits include directly allocable costs and all production-related overheads. Receivables from construction contracts are all recognized in current receivables. The receivables from construction contracts and the project-related prepayments offset against them break down as follows:

    2018
    EUR m
    2017
    EUR m
    Aggregate amount of costs incurred and recognized profits (less any recognized losses) 60.3 63.7
    Prepayments received -39.9 -54.2
    Receivables from construction contracts 20.4 9.5

    Gross amounts due to customers for construction contracts, which are reported as liabilities from construction contracts in a separate balance sheet item, break down as follows:

    2018
     EUR m
    2017
    EUR m
    Aggregate amount of costs incurred and recognized profits (less any recognized losses) 112,5 14.1
    Prepayments received -127.3 -26.2
    Liabilities from construction contracts -14.8 -12.1

    Revenue from construction contracts of EUR 106.4 million (previous year: EUR 65.7 million) was recognized in the fiscal year.

    Revenue from construction contracts include contract commissions amounting to EUR 0.3 million.

    Deviations in the projected manufacturing costs mean that EUR 4.1 million less in revenue would have been attributable in prior periods. This effect was recognized during the reporting period and reduced income.

    9 Other receivables and other assets

    Other receivables and other assets break down as follows:

    2018
    EUR m
    2017
    EUR m
    Prepayments made 7.0 4.3
    Insurance claims 0.0 1.3
    Tax reimbursement claims 1.1 0.1
    Other 0.9 1.7
    9.0 7.4

    Tax assets for fiscal year 2018 essentially concern SINGULUS TECHNOLOGIES AG (EUR 1.1 million) and result primarily from claims for VAT reimbursements.

    10 Inventories

    The Group’s inventories break down as follows:

    2018
    EUR m
    2017
    EUR m
    Raw materials, consumables and supplies 19.1 19.5
    Work in process 19.9 24.0
    Less allowances -21.9 -26.2
    17.1 17.3

    The inventory allowances relate to reductions in value in accordance with the "lower of cost or net realizable value" principle as well as decreases in carrying values to account for a lack of marketability and excessive days inventory held.

    During the 2018 fiscal year, EUR 1.7 million in write-downs to the net realizable value of inventories were reported (previous year: reduction of more than EUR 2.3 million).

    The carrying amount of inventories recognized at net realizable value amounts to EUR 12.9 million (previous year: EUR 10.6 million).

    11 Intangible assets

    In fiscal years 2018 and 2017, intangible assets developed as follows (all amounts in EUR m):

    Goodwill Other intangible assets Capitalized development costs Total
    Cost
    As of Jan. 1, 2017 21.7 75.5 107.5 204.7
    Additions 0.0 0.1 1.7 1.8
    Disposals 0.0 0.0 0.0 0.0
    As of Dec. 31, 2017 21.7 75.6 109.2 206.5
    Additions 0.0 0.2 3.6 3.8
    Disposals 0.0 0.0 0.0 0.0
    As of Dec. 31, 2018 21.7 75.8 112.8 210.3
     
    Amortization and impairment
    As of Jan. 1, 2017 15.0 75.3 104.8 195.1
    Additions to amortization (scheduled) 0.0 0.1 1.0 1.1
    Additions to impairment losses (unscheduled) 0.0 0.0 0.0 0.0
    Disposals 0.0 0.0 0.0 0.0
    As of Dec. 31, 2017 15.0 75.4 105.8 196.2
    Additions to amortization (scheduled) 0.0 0.1 1.0 1.1
    Additions to impairment losses (unscheduled) 0.0 0.0 0.0 0.0
    Disposals 0.0 0.0 0.0 0.0
    As of Dec. 31, 2018 15.0 75.5 106.8 197.3
             
    Carrying amounts Dec. 31, 2017 6.7 0.2 3.4 10.3
    Carrying amounts Dec. 31, 2018 6.7 0.3 6.0 13.0

    As of the balance sheet date, the Solar segment reported goodwill with a carrying amount of EUR 6.7 million (previous year: EUR 6.7 million). For further information on goodwill please also refer to our comments under 4.5 "Goodwill" and 4.15 "Impairment of assets".

    VEUR 3.6 million of the development costs incurred in fiscal year 2018 qualifies for recognition as an asset under IFRSs (previous year: EUR 1.7 million). Amortization and impairment of capitalized development costs is recognized under research and development expenses in the consolidated income statement.

    12 Property, plant and equipment

    In fiscal years 2018 and 2017, property, plant and equipment developed as follows (all amounts in EUR m):

    Land,
    own buildings
    Techn.
    equip. &
    mach.
    Office &
    operating
    equip.
    Total
    Cost    
    As of Jan. 1, 2017 6.6 9.5 7.2 23.3
    Additions 0.1 0.7 0.3 1.1
    Disposals 0.0 0.0 -0.1 -0.1
    As of Dec. 31, 2017 6.7 10.2 7.4 24.3
    Additions 5.5 1.1* 0.4 7.0
    Disposals 0.0 -0.3 -0.1 -0.4
    As of Dec. 31, 2018 12.2 11.0 7.7 30.9
             
    Amortization and impairment    
    As of Jan. 1, 2017 4.4 7.4 6.7 18.5
    Additions to depreciation (scheduled) 0.3 0.3 0.4 1.0
    Disposals 0.0 0.0 -0.1 -0.1
    As of Dec. 31, 2017 4.7 7.7 7.0 19.4
    Additions to depreciation (scheduled) 0.5 0.4 0.3 1.2
    Disposals 0.0 -0.3 -0.1 -0.4
    As of Dec. 31, 2018 5.2 7.8 7.2 20.2
             
    Carrying amounts Dec. 31, 2017 2.0 2.5 0.4 4.9
    Carrying amounts Dec. 31, 2018 7.0 3.2 0.5 10.7

    * of which EUR 1.0 million from reclassifications of inventories

    13 Other liabilities

    Other liabilities are broken down as follows:

    2018
    EUR m
    2017
    EUR m
    Outstanding liabilities to personnel 2.9 1.9
    Executive Board and employee bonuses 4.1 2.3
    Outstanding invoices 1.5 1.6
    Financial reporting, legal and consulting fees 0.5 0.5
    Services to be provided 0.5 1.86
    Other 1.8 2.9
    11.3 11.0

    In the fiscal year, commitments for performance-related payments of EUR 4.1 million (previous year: EUR 2.3 million) to members of the Executive Board, managing directors of subsidiaries, senior executives and employees were recognized as a liability.

    14 Prepayments received

    2018
    EUR m
    2017
    EUR m
    Prepayments from customers 1.0 0.8

    Prepayments received as of December 31, 2018 mainly relate to advances for orders received by the Solar and Optical Disc segments, which are reported in inventories under work in process.

    15 Share-based payment

    The various share-based payment plans launched in previous years are described below:

    Phantom Stock Program 2015 (PSP VII and PSP VIII)

    In order to provide Executive Board members and senior executives with a long-term incentive, SINGULUS TECHNOLOGIES AG launched a phantom stock program. Each stock option under this program entitles the beneficiaries to subscribe to one virtual bearer share of the Company with a par value of EUR 1.00 each at the exercise price. The stock options were issued free of charge. The phantom shares are not settled in shares of the Company, but in cash. The cash settlement is determined on the basis of the difference between the exercise price and the relevant closing price.

    By resolution dated March 24, 2015, the Supervisory Board resolved to issue 225,000 stock options to the Executive Board (PSP VII). A further 112,000 stock options were issued to senior executives (PSP VIII). The exercise price of these stock options is EUR 1.3052. Upon entry of the capital decrease at a ratio of 160:1 in the 2016 fiscal year, the stock options under the above phantom stock programs were adjusted at the same ratio.

    Phantom Stock Program 2016 (PSP IX and PSP X)

    By resolution dated November 9, 2016, the Supervisory Board resolved to issue 225,000 stock options to the Executive Board (PSP IX). A further 130,000 stock options were issued to senior executives (PSP X). The underlying phantom stock program corresponds to the 2015 program. The exercise price of these stock options is EUR 4.5974.

    Phantom Stock Program 2017 (PSP XI and PSP XII)

    By resolution dated July 21, 2017, the Supervisory Board resolved to issue 250,000 stock options to the Executive Board (PSP XI). A further 120,000 stock options were issued to senior executives (PSP XII). The underlying phantom stock program corresponds to the 2015 program. The exercise price of these stock options is EUR 8.7950.

    Phantom Stock Program 2018 (PSP XIII and PSP XIV)

    By resolution dated April 9, 2018, the Supervisory Board resolved to issue 250,000 stock options to the Executive Board (PSP XIII). A further 130,000 stock options were issued to senior executives (PSP XIV). The underlying phantom stock program corresponds to the 2015 program. The exercise price of these stock options is EUR 12.016.

    The specific terms and conditions of the above phantom stock programs are as follows:

    The term of the stock options is five years. The stock options can be exercised at the earliest upon expiry of the two-year vesting period within a period of 14 trading days beginning on the sixth trading day following publication of the quarterly reports for the first or third quarter; up to 25 % of the phantom shares held by the respective beneficiary can be exercised during the first exercise period and then a further 25 % every six months during each subsequent exercise period.

    The stock options under Phantom Stock Programs PSP VII through PSP X may only be exercised if the non-weighted average closing price for SINGULUS TECHNOLOGIES AG shares is (i) at least 15 % higher than the exercise price during the reference period for the first 25 % of the stock options (first tranche), (ii) at least 17.5 % higher than the exercise price during the reference period for the second 25 % (second tranche), (iii) at least 20 % higher than the exercise price during the reference period for the third 25 % (third tranche) and (iv) at least 22.5 % higher than the exercise price during the reference period for the final 25 % (fourth tranche). For stock options issued under the Phantom Stock Programs PSP XI to PSP XIV, the reference price for all tranches as of the exercise date must be at least 15.0 % above the exercise price.

    If the stock options of a tranche cannot be exercised within the respective exercise period because the earnings target has not been reached, the phantom shares of this tranche can be exercised in subsequent exercise period(s) on the condition that the unmet earnings target for the respective previous exercise period(s) is achieved in those reference period(s). The reference period is the period of five trading days from the date of publication of the quarterly report applicable to the beginning of the exercise period.

    The development of the issued tranches is presented below:

      PSP VII PSP VIII
    Change in stock options 2018
    Number of
    stock options
    Average
    exercise price
    (EUR)
    2018
    Number of
    stock options
    Average
    exercise price
    (EUR)
    Outstanding as of the beginning of the fiscal year 703.120 1.3052 318.75 1.3052
    Issued in the fiscal year - - - -
    Revoked in the fiscal year - - - -
    Exercised during the fiscal year 703.12 3.7656 318.75 3.7600
    Expired in the fiscal year - - - -
    Outstanding at the end of the fiscal year - - - -
    Exercisable at the end of the fiscal year - - - -
     
      PSP IX PSP X
    Change in stock options 2018
    Number of
    stock options
    Average
    exercise price
    (EUR)
    2018
    Number of
    stock options
    Average
    exercise price
    (EUR)
    Outstanding as of the beginning of the fiscal year 225,000 4.5974 130,000 4.5974
    Issued in the fiscal year - - - -
    Revoked in the fiscal year - - - -
    Exercised during the fiscal year 56,250 11.4200 28,000 10.8371
    Expired in the fiscal year - - 10,000 -
    Outstanding at the end of the fiscal year 168,750 4.5974 92,000 4.5974
    Exercisable at the end of the fiscal year - - 2,000 -
     
      PSP XI PSP XII
    Change in stock options 2018
    Number of
    stock options
    Average
    exercise price
    (EUR)
    2018
    Number of
    stock options
    Average
    exercise price
    (EUR)
    Outstanding as of the beginning of the fiscal year - - - -
    Issued in the fiscal year 250,000 8.7950 120,000 8.7950
    Revoked in the fiscal year - - - -
    Exercised during the fiscal year - - - -
    Expired in the fiscal year - - - -
    Outstanding at the end of the fiscal year 250,000 8.7950 120,000 8.7950
    Exercisable at the end of the fiscal year - - - -
     
      PSP XIII PSP XIV
    Change in stock options 2018
    Number of
    stock options
    Average
    exercise price
    (EUR)
    2018
    Number of
    stock options
    Average
    exercise price
    (EUR)
    Outstanding as of the beginning of the fiscal year - - - -
    Issued in the fiscal year 250,000 12.016 130,000 12.016
    Revoked in the fiscal year - - - -
    Exercised during the fiscal year - - - -
    Expired in the fiscal year - - - -
    Outstanding at the end of the fiscal year 250,000 12.016 130,000 12.016
    Exercisable at the end of the fiscal year - - - -
     

    The stock options were measured using a binomial model, which reflects the fact that the amount to be paid out is limited to 300 % of the exercise price. The following parameters were used when measuring the options:

    Tranche PSP VII PSP VIII PSP IX PSP X
    Grant date Apr. 9, 2015 Apr. 9, 2015 Nov. 9, 2016 Sep. 11, 2016
    Exercise price EUR 1.3052 EUR 1.3052 EUR 4.5974 EUR 4.5974
    Dividend yield 0.00 % 0.00 % 0.00 % 0.00 %
    Interest rate -0.70 % -0.70 % -0.61 % -0.61 %
    Volatility of SINGULUS TECHNOLOGIES 50.46 % 50.46 % 80.57 % 80.57 %
       
    Fair value of each stock option as
    of December 31, 2018
    EUR 3.895 EUR 3.896 EUR 4.891 EUR 4.871
     
    Tranche PSP XI PSP XII PSP XIII PSP XIV
    Grant date Jul. 21, 2017 Jul. 21, 2017 Apr. 9, 2018 Apr. 9, 2018
    Exercise price EUR 8.7950 EUR 8.7950 EUR 2.0160 EUR 2.0160
    Dividend yield 0.00 % 0.00 % 0.00 % 0.00 %
    Interest rate -0.49 % -0.49 % -0.43 % -0.43 %
    Volatility of SINGULUS TECHNOLOGIES 102.30 % 102.30 % 100.89 % 100.89 %
     
    Fair value of each stock option as of
    December 31, 2018
    EUR 4.045 EUR 4.017 EUR 3.789 EUR 3.759

    The estimates pertaining to expected volatility were made on the basis of SINGULUS TECHNOLOGIES AG’s past share performance. The remaining term of the stock options was used as a historical timeframe.

    The measurement of the phantom shares resulted in an expense of EUR 1,564 thousand during the fiscal year (previous year: expense of EUR 1,117 thousand).

    The program was treated as a cash-settled share-based payment within the meaning of IFRS 2.

    16 Financial liabilities from bond issue

    The collateralized bond (ISIN DE000A2AA5H5) with a volume of EUR 12.0 million was issued in July 2016 for a five-year term and with annually increasing yields. The initial yield was 3.0 %; subject to an early redemption by the Company, this yield increases annually to 6.0 %, 7.0 %, 8.0 % to up to 10.0 % p.a. The effective yield is 6.70 % p.a. The bond is collateralized primarily through cash, receivables, inventories, property, plant and equipment, and intangible assets of SINGULUS TECHNOLOGIES AG.

    Financial liabilities measured at amortized cost resulted in a loss of EUR 0.8 million in the reporting period (previous year: EUR 0.8 million). The net loss was essentially attributable to interest. Please refer to Note 37.

    17 Liabilities from loans

    In March 2017, the Company took out a loan of EUR 4.0 million from a shareholder and a bondholder. The original term of the loan was one year. The term was extended until the end of 2018 in November 2017. The Company repaid the loan early in June 2018. The loan was granted in connection with the bond terms set out in section 8 (a) (iv) in conjunction with section 3 (e). According to those terms, the Company may take out financial liabilities in the form of a loan of up to EUR 4.0 million. The bond collateral was also used to collateralize the loan. This was senior in relation to the bondholders. The effective interest rate amounted to 13.85 % p.a.

    Financial liabilities measured at amortized cost resulted in a loss of EUR 0.3 million in the reporting period (previous year: EUR 0.5 million). The net loss was essentially attributable to interest. Please refer to Note 36.

    18 Pension provisions

    Pension plans were granted by SINGULUS TECHNOLOGIES AG and from the previous HamaTech AG. They are defined benefit plans in both cases.

    HamaTech AG's benefit obligations were transferred to SINGULUS TECHNOLOGIES AG in connection with the merger in fiscal year 2009. HamaTech AG's pension plan, which was transferred in the merger, was operated solely for former members of that company's Executive Board.

    At SINGULUS TECHNOLOGIES AG company pension schemes in the form of direct pension commitments are provided for only some of the employees. On the one hand, beneficiaries are those employees who were employed at Leybold prior to the founding of the company in 1995 in accordance with the pension directives there in the versions dated January 1, 1969 and January 1, 1986 and, on the other hand, some former Executive Board members as well as a few employees who were granted corporate pension benefits based on an individual contract. New pension commitments have not been issued for some time. In particular, there are no pension plans open for new employees.

    The existing pension obligations are all based on defined benefit plans. In a special case based on individual contractual arrangements, a one-time capital payment is promised when the age limit is reached, otherwise all benefits are in the form of lifetime pensions upon disability, age or death (to survivors). The amount of the pensions is contractually stipulated for the individual commitments. The commitments under the Leybold pension directives are based on the length of service in the company and the pensionable income; the total pension from the company pension and statutory pensions has an upper limit that may not exceed the last net pay received. The age limit is the last day on which the beneficiary is 65.

    All benefits are financed internally by the regular accumulation of provisions. There are no plan assets within the meaning of IAS 19, nor are there other employers' pension insurance plans. The company is charged with taxes or social security contributions on the retirement benefits.

    Other than the general risks arising from interest rates, inflation, longevity and case law, there are no special risks specific to the company for these pension commitments. The longevity risk is taken into account through the use of cohort tables when calculating the obligation. The cohort tables make appropriate assumptions, in particular with respect to the further increase in life expectancy in the future.

    The risk of inflation is factored in sufficiently by a long-term estimate of 1.60 % p.a. when calculating the obligation based on current knowledge. Moreover, this risk primarily impacts the adjustment when reviewing current pensions. Currently, there are no known risks arising from labor law by virtue of supreme court rulings which would impact the commitments.

    HamaTech AG's pension plan, which was transferred in the merger, was operated solely for former members of that company's Executive Board.

    The pension plan is not covered by plan assets. Pension provisions are determined on the basis of an independent actuarial report. Pension benefits under the plan are based on a percentage of the employees’ current pensionable compensation and their years of service.

    The pension obligations and underlying assumptions are described below.

    The change in SINGULUS TECHNOLOGIES AG's pension obligations as of December 31, 2018 and 2017 is presented in the following tables:

    Change in pension obligations 2018
    EUR m
    2017
    EUR m
    Present value at the beginning of the fiscal year 13.3 13.8
    Recognized in profit or loss:
    Service cost 0.1 0.1
    Interest expense 0.2 0.2
    Recognized in other comprehensive income:
    Actuarial gains/losses from:
    financial assumptions 0.7 -0.6
    demographic assumptions 0.2 0.0
    experience-based adjustments 0.1 0.2
    Miscellaneous:
    Payments made -0.6 -0.4
    Present value at the end of the fiscal year 13.9 13.3

    Net pension expenses break down as follows:

    2018
    EUR m
    2017
    EUR m
    Service cost 0.1 0.1
    Interest expense 0.2 0.2
    0.3 0.3

    While service cost was mainly recognized under selling costs and general and administrative expenses as well as cost of sales, interest expense was disclosed in the financial result.

    The figures for the current and previous four periods are as follows:

    2018
    EUR m
    2017
    EUR m
    2016
    EUR m
    2015
    EUR m
    2014
    EUR m
    Present value of the defined benefit obligation 13.9 13.3 13.8 12.3 12.4

    The assumptions underlying the calculation of the pension provision are as follows:

    2018 2017

    Biometrics
    Heubeck
    2018 G
    actuarial tables
    Heubeck
    2005 G
    actuarial tables
    Discount rate (future pensioners) 1.77 % 2.16 %
    Discount rate (current pensioners) 1.32 % 1.46 %
    Estimated future wage and salary increases 2.00 % 2.00 %
    Estimated future pension increases 1.60 % 1.60 %

    As of December 31, 2018, the weighted average term of the defined benefit obligation was 16.3 years.

    In the financial year 2018, the "Richttafeln 2018 G" by Prof. Dr. Ing. Klaus Heubeck applied. Expenses for pensions in the amount of EUR 0.3 million (of which EUR 0.2 million interest expenses) were estimated for this period.

    Contributions by the Company to the statutory pension insurance system amounted to EUR 1.6 million in the year under review. This is a defined contribution plan.

    In addition, members of the Executive Board received a defined-contribution company pension benefit financed by the company. EUR 0.4 million was paid out for this in the year under review.

    Keeping all other assumptions constant, from a reasonable perspective, possible changes to one of the significant actuarial assumptions as of the reporting date would have affected the defined benefit obligation in the following amounts.

    Defined benefit obligation

    Effect in EUR m
    Increase Decrease
    Discount rate (0.5 percentage point change) -1.1 1.2
    Estimated future wage and salary increases (0.25 percentage point change) 0.1 -0.1
    Estimated future pension increases (0.25 percentage point change) 0.4 -0.4
    Life expectancy (+1 year change) 0.8 -

    19 Other provisions

    Other provisions developed as follows in the fiscal year:

    Jan. 1, 2018
    EUR m
    Utilizations
    EUR m
    Reversals
    EUR m
    Additions
    EUR m
    Dec. 31, 2018
    EUR m
    Warranties 0.5 -0.1 -0.3 0.2 0.3
    Other 0.5 0.0 0.0 0.7 1.2
    1.0 -0.1 -0.3 0.9 1.5

    Provisions for warranty costs are recognized as a percentage of product cost. The percentages used are derived from experience for each product type and range between 2.75 % and 4.00 % (previous year: between 2.75 % and 4.00 %). The guarantee period, and thus a possible utilization, ranges from 2 months to 24 months as of December 31, 2018.

    20 Provisions for restructuring measures

    The provisions for restructuring measures developed as follows during the fiscal year:

    Jan. 1, 2018
    EUR m
    Additions
    EUR m
    Utilizations
    EUR m
    Reversals
    EUR m
    Dec. 31, 2018
    EUR m
    Provisions for restructuring measures 2.6 0.0 -0.4 -0.1 2.1

    The provisions for restructuring measures mainly contain provisions for underutilization of office and production facilities leased for wet-chemical processes within the Solar segment (EUR 1.9 million). Of that amount, provisions of EUR 1.5 million were recognized in non-current liabilities (previous year: EUR 1.9 million). Utilization of the provisions is anticipated to extend over the term of the leased administrative and production building in Fürstenfeldbruck until 2024.

    21 Equity

    On September 21, 2017, SINGULUS TECHNOLOGIES AG disclosed in accordance with section 92 (1) AktG that half of its share capital had been eroded as of August 31, 2017. This loss was announced to the shareholders at an extraordinary shareholders' meeting on November 29, 2017.

    As of December 31, 2018, the share capital amounted to EUR 8,896,527.00, divided into 8,896,527 bearer shares with a par value of EUR 1.00. Authorized capital 2018/1 amounted to EUR 4,448,263.00 as of the balance sheet date.

    Reserves

    Reserves include changes in the fair value of cash flow hedges as well as currency translation differences from translating the financial statements of foreign entities.

    Non-controlling interests

    Non-controlling interests represent third-party shareholdings in group entities. In the fiscal year, the non-controlling interests exclusively related to SINGULUS CIS SOLAR TEC GmbH.

    22 Tax expense/tax income; deferred tax assets/deferred tax liabilities

    The disclosures on income taxes for 2018 and 2017 are as follows:

    2018
    EUR m
    2017
    EUR m
    Current income taxes
    Germany -0.3 0.0
    Foreign -0.1 -0.1
    Sub-total -0.4 -0.1
     
    Deferred taxes
    Germany -3.4 -0.1
    Foreign -0.2 -0.2
    Sub-total -3.6 -0.3
     
    Total tax expense/income -4.0 -0.4

    Pursuant to German tax law, the income taxes comprise corporate income tax, trade income tax and the solidarity surcharge. Deferred tax assets relate to the following:

    2018
    EUR m
    2017
    EUR m
    Inventories 5.6 4.7
    Pension provisions 2.1 1.5
    Trade receivables 0.1 0.3
    Provision for restructuring measures 0.5 0.5
    Goodwill 0.5 0.4
    Other intangible assets 0.1 0.1
    Deferred taxes on loss carryforwards 5.2 0.0
    Other liabilities 0.1 0.1
    14.2 7.6
     
    Netting with deferred tax liabilities -14.2 -7.3
     
    Deferred tax assets 0.0 0.3

    The deferred tax assets (before netting with deferred tax liabilities) of EUR 14.2 million were above the prior year's level (EUR 7.6 million). After being offset against deferred tax liabilities, there were no deferred tax assets (previous year: EUR 0.3 million).

    Deferred tax assets developed as follows:

    2018
    EUR m
    2017
    EUR m
    Balance as of Jan. 1 0.3 0.6
     
    Recognized in other comprehensive income:
    Change in actuarial gains and losses from pension commitments
    0.2 0.0
     
    Recognized through profit and loss:
    Change in temporary differences
    -0.1 -0.3
    Netting with deferred tax liabilities -0.4 0.0
     
    Balance as of Dec. 31 0.0 0.3

    As of December 31, 2018, SINGULUS TECHNOLOGIES AG (excl. foreign operating facilities) had preliminary corporate income tax loss carryforwards in the amount of EUR 168.6 million (previous year: EUR 140.9 million) and municipal trade tax loss carryforwards of EUR 161.2 million (previous year: EUR 133.7 million). In 2018, EUR 1.5 million was added to the EUR 11.3 million in interest carryforwards from previous years; these amounted to EUR 12.8 million as of December 31, 2018.

    Deferred tax assets are recognized for all temporary differences and for all unused tax loss carryforwards to the extent that it is probable that taxable profit will be available against which the tax assets can be utilized. In accordance with IAS 12.34f in conjunction with IAS 12.31, in addition to the fact that this is netted with deferred tax liabilities, there were no deferred tax assets in the balance sheet due to the history of losses by SINGULUS TECHNOLOGIES AG.

    In accordance with the disclosures under 4.16 Impairment of assets, the Company expects positive business development and expects SINGULUS TECHNOLOGIES AG to utilize existing loss carryforwards to a limited extent in the next three fiscal years.

    Deferred tax liabilities break down as follows:

    2018
    EUR m
    2017
    EUR m
    Receivables and liabilities
    from construction contracts
    15.6 6.3
    Capitalized development costs 1.6 1.0
    17.2 7.3
     
    Netting with deferred tax assets -14.2 -7.3
     
    3,0 0,0

    Deferred tax liabilities total EUR 17.2 million (before being offset against deferred tax assets), higher than the previous year's figure (EUR 7.3 million). This is primarily a result of higher temporary differences for receivables and liabilities from construction contracts, as well as capitalized development costs. After being offset against deferred tax assets, deferred tax liabilities amounted to EUR 3.0 million (previous year: EUR 0.0 million).

    Deferred tax liabilities developed as follows:

    2018
    EUR m
    2017
    EUR m
    Balance as of Jan. 1 0.0 0.0
     
    Recognized in other comprehensive income:
    Change in actuarial gains and losses
    from pension commitments
    0.0 0.0
     
    Recognized through profit and loss
    Change in temporary differences 17.2 0.0
    Netting with deferred tax assets* -14.2 0.0
     
    Balance as of Dec. 31 3.0 0.0

    The amount of the temporary differences related to investments in subsidiaries for which no deferred tax liabilities have been recognized totaled EUR 0.2 million.

    The effective tax rate in Germany (for corporate income tax, trade tax and the solidarity surcharge) was 29.13 % (previous year: 29.13 %).

    The effective tax rate is reconciled to the actual tax rate as follows:

    2018
    EUR m
    2017
    EUR m
    Consolidated earnings before taxes 4.8 -2.8
     
    Anticipated tax * 1.4 -0.7
    Adjustment of temporary differences and loss and interest
    carryforwards of the current period for which
    no deferred taxes were recognized
    3.0 0.7
    Recognized directly in other comprehensive income: -0.2 0.0
    Non-tax deductible expenses (+)
    /tax-free income (-)
    0.0 0.4
    Other permanent differences -0.2 0.0
     
    Current taxes 0.4 0.2

    * * A minus sign denotes tax income

    The most recent tax field audit of SINGULUS TECHNOLOGIES AG covered the period from 2010 up to and including 2013.

    23 Earnings per share

    Basic earnings per share are calculated by dividing profit for the period attributable to owners of the parent by the weighted average number of ordinary shares outstanding during the reporting period.

    Diluted earnings per share are calculated by dividing the profit attributable to owners of the parent by the weighted average number of ordinary shares outstanding during the reporting period plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. There were no dilutive effects in either the reporting period or the comparable prior-year period.

    The table below shows the figures used to calculate basic and diluted earnings per share:

    2018
    EUR m
    2017
    EUR m
    Profit attributable to owners of the parent
    for calculating basic earnings per share
    0.8 -3.2
     
    Weighted average number of ordinary shares used to calculate
    basic earnings per share
    8,896,527 8,145,363
     
    Dilutive effect - -
     
    Weighted average number of common shares,
    adjusted for dilutive effect
    8,896,527 8,145,363

    There have been no transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of preparation of these consolidated financial statements.

    24 Sales deductions and direct selling costs

    Sales deductions comprise all cash discounts granted. Direct selling costs essentially include expenses for commissions.

    25 Cost of materials

    The cost of sales for fiscal year 2018 includes material costs of EUR 67.8 million (previous year: EUR 46.9 million).

    26 Personnel expenses

    The income statement for fiscal year 2018 includes personnel expenses in the amount of EUR 33.5 million (previous year: EUR 29.5 million). Expenses for wages and salaries in the year under review totaled EUR 28.2 million (previous year: EUR 24.6 million); expenses for social security contributions totaled EUR 4.7 million (previous year: EUR 4.4 million); post-employment expenses were EUR 0.6 million (previous year: EUR 0.5 million).

    27 Depreciation and amortization

    Depreciation and amortization expenses amounted to EUR 2.3 million (previous year: EUR 2.0 million).

    28 General administration

    Administrative expenses include management expenses, HR expenses and finance and accounting expenses as well as the premises and vehicle expenses attributable to such areas. Ongoing IT costs, legal and consulting fees, investor relations costs as well as costs of general meetings and the financial statements are also recognized in this item.

    29 Research and development

    Research and development costs relate not only to research and non-capitalizable development costs but also to the amortization of capitalized development costs of EUR 1.0 million (previous year: EUR 1.0 million).

    Totaling EUR 13.4 million in 2018, the expenditures for research and development (including development services included in cost of sales) were above the prior-year level of EUR 8.6 million. EUR 3.6 million of these expenditures were capitalized (previous year: EUR 1.7 million).

    The Company received national and EU subsidies amounting to EUR 0.5 million in the fiscal year (previous year: EUR 0.6 million).

    30 Other operating income/expenses

    In the reporting year, other operating income mainly contained income from the reversal of other liabilities and provisions of EUR 1.8 million (previous year: EUR 0.5 million), exchange gains of EUR 0.3 million (previous year: EUR 0.7 million) and income from insurance receivables of EUR 0.3 million (previous year: EUR 1.1 million).

    Other operating expenses in the fiscal year primarily included foreign currency losses amounting to EUR 0.3 million (previous year: EUR 0.8 million).

    31 Finance income and finance costs

    Finance income/costs break down as follows:

    2018
    EUR m
    2017
    EUR m
    Interest income from time/ overnight deposits 0.0 0.1
    Finance costs from the bond issue
    (including incidental expenses)
    -0.8 -0.8
    Interest expense from interest accrued on the pension provisions -0.2 -0.2
    Other finance costs -1.0 -0.7
    -2.0 -1.6

    The finance costs from the bond issue result from the bonds issued in 2016.

    32 Rents and leases

    Under a real estate lease concluded on September 24, 1999 and supplemented on December 27, 2004, the Company leased the office building and production hall in Kahl am Main. The lease began on July 1, 2000 and ends on June 30, 2018. The annual lease payment is EUR 1.5 million. The Company has renewed this lease. The building with acquisition costs of EUR 5.5 million has been financed at a 4.9 % rate of interest over the lease term from July 1, 2018 to December 31, 2022. At the end of the lease term, ownership will transfer to the lessee.

    Following the renewal of this lease, it is now classified as a finance lease in accordance with IAS 17.13 and both the lease asset and the lease liability are therefore recognized.

    In addition, the Company entered into a real estate lease as of September 26, 2008, covering a production and administrative building in Fürstenfeldbruck. The total investment costs of the property are EUR 17.5 million; the lease period is 15 years plus a lease extension option of 5 years. The annual payments to the lessor in this connection are EUR 1.4 million.

    Pursuant to IAS 17, this lease must be classified as an operating lease, as substantially all the opportunities and risks connected to ownership of the property remain with the lessor.

    As of December 31, 2018, the future minimum payments arising from finance and operating leases in the Group were:

    EUR m
    2019 2.7
    2020 2.5
    2021 2.4
    2022 2.4
    2023 and thereafter 1.8
    11.8

    33 Events after the balance sheet date

    The government of the People's Republic of China, Beijing, notified SINGULUS TECHNOLOGIES AG on January 22, 2019 that a further 3.64 % of shares had been acquired in a second stage as part of a minority interest and the ownership of the shares transferred to Triumph Science and Technology Group Company, LLC, a wholly owned subsidiary of China National Building Materials, Beijing, China (CNBM). With effect from September 20, 2018, 13.11 % of shares were acquired in a first step. CNBM thus holds a total of 16.75 % of outstanding shares in SINGULUS TECHNOLOGIES AG.

    With effect as of February 19, 2019, the Company assumed financial liabilities (pursuant to section 8 (a) (vi) in conjunction with section 3 (e) of the bond conditions) in the amount of EUR 4.0 million in the form of a 12-month loan to secure further liquidity. The bond collateral is also used to collateralize the loan. This is senior in relation to the bondholders.

    There were no further events after the end of the fiscal year requiring disclosure.

    34 Related party disclosures

    In accordance with IAS 24, those persons and companies which are able to exercise control or a significant influence over SINGULUS TECHNOLOGIES AG are deemed related parties. At the balance sheet date, the members of the Supervisory Board and the Executive Board of SINGULUS TECHNOLOGIES AG and associates were identified as related parties.

    In accordance with the articles of incorporation, the Supervisory Board of SINGULUS TECHNOLOGIES AG has three members. The members of the Supervisory Board in fiscal year 2018 were:

    Dr.-Ing. Wolfhard Leichnitz, Essen
    Chairman

    Christine Kreidl, Regensburg
    Deputy Chairman

    Dr. rer. nat. Rolf Blessing, Trendelburg
    Member

    The above members of the Supervisory Board were elected for the period until the end of the annual shareholders' meeting that resolves the ratification of their actions for the fourth fiscal year following the beginning of their term of office; the fiscal year in which their term of office begins is not included in this calculation.

    In addition to compensation for expenses, each member of the Supervisory Board is entitled to fixed remuneration of EUR 40 thousand for each full fiscal year of board membership. The chairman receives twice and the deputy chairman one and half times this amount. Supervisory Board members who were only on the Supervisory Board for part of the fiscal year receive proportionately lower remuneration than the other Supervisory Board members. For their work in the fiscal year, the Supervisory Board members are entitled to fixed remuneration in accordance with the articles of incorporation of EUR 180 thousand. In addition, the Supervisory Board members were reimbursed expenses of EUR 7 thousand.

    Dr.-Ing. Leichnitz held a total of 245 shares in the Company as of December 31, 2018 (previous year: 245 shares).

    Companies are deemed related parties if they are able to exert control or a significant influence over the reporting entity and hence SINGULUS TECHNOLOGIES AG (associates). With effect from September 20, 2018, Triumph Science and Technology Group Co., Ltd (a wholly owned subsidiary of China National Building Materials, Beijing, China, "CNBM") acquired 13.11 % of shares in SINGULUS TECHNOLOGIES AG. In January 2019, CNBM acquired a further 3.64 % of shares in the Company. Its shareholding of SINGULUS TECHNOLOGIES AG was thus 16.75 %. At the same time, CNBM is currently the Company's largest customer and has therefore been classified as a related party within the meaning of IAS 24 since September 20, 2018. For reasons relating to cost-effectiveness and materiality, periodrelated disclosures are made for the last three months of the fiscal year. During the period from October 1 to December 31, 2018, revenue amounting to EUR 15.2 million was generated from the manufacturing and delivery of equipment for CNBM. As a result, POC receivables of EUR 12.1 million were outstanding as of December 31, 2018.

    The current occupations of Supervisory Board members are listed as follows:

    Occupation Membership of other supervisory boards and similar oversight bodies
    Dr.-Ing. 
    Wolfhard Leichnitz
    Construction engineer None
    Christine Kreidl Diplom-Kauffrau, German Public Auditor
    [Wirtschaftsprüferin] and Tax Consultant
    Biotest AG, Dreieich, Member of the Supervisory Board
    Dr. rer. nat. 
    Rolf Blessing
    Dipl.-Physiker, Director of B.plus
    Beschichtungen Projekte Gutachten,
    Bad Karlshafen
    None

    Members of the Executive Board in fiscal year 2018 were:

    Dr.-Ing. Stefan Rinck
    Chairman of the Executive Board

    Dipl.-Oec. Markus Ehret
    Head of Finance

    The total remuneration received by the Executive Board in the reporting period was as follows:

    2018
    Fixed
    remuneration
    Other
    compensation1
    Variable
    remuneration
    Components
    with long-term
    incentive2
    Total
    EUR k EUR k EUR k EUR k EUR k
    Dr.-Ing. Stefan Rinck 440 46 278 683 1,447
    Dipl.-Oec. Markus Ehret 300 27 177 455 959
    740 73 455 1,138 2,406

    1 Other compensation includes ancillary benefits such as insurance and company vehicles.

    2 Phantom shares are accounted for at the respective fair value upon the initial grant.

    The remuneration of the Executive Board for the previous year is broken down as follows:

    2017
    Fixed
    remuneration
    Other
    compensation1
    Variable
    remuneration
    Components
    with long-term
    incentive2
    Total
    EUR k EUR k EUR k EUR k EUR k
    Dr.-Ing. Stefan Rinck 440 46 234 472 1,447
    Dipl.-Oec. Markus Ehret 280 27 149 315 771
    720 73 383 787 1,963

    1 Other compensation includes ancillary benefits such as insurance and company vehicles.

    2 Phantom shares are accounted for at the respective fair value upon the initial grant.

    Members of the Executive Board receive a definedcontribution company pension benefit financed by the Company. The Company grants Executive Board members an annual pension contribution amounting to a certain percentage of their respective gross annual fixed remuneration. For Dr.-Ing. Stefan Rinck, this amounted to 59.97 % beginning on January 1, 2012 and for Mr. Markus Ehret, this percentage was 31.58 %. The annual expense for the Company in fiscal year 2018 was EUR 359 thousand (previous year: EUR 352 thousand), of which EUR 264 thousand (previous year: EUR 264 thousand) was for Dr.-Ing. Stefan Rinck and EUR 95 thousand (previous year: EUR 88 thousand) for Mr. Markus Ehret.

    Former members of the Executive Board of SINGULUS TECHNOLOGIES AG received total remuneration of EUR 0.3 million in the fiscal year. As of December 31, 2018, the provisions for pension claims for former board members stood at EUR 6.6 million.

    In addition, the members of the Executive Board held the following number of shares in SINGULUS TECHNOLOGIES AG from their own purchases as of the fiscal year-end:

    2018
    No.
    2017
    No.
    Dr.-Ing. Stefan Rinck 122 122
    Dipl.-Oec. Markus Ehret 43 43
    165 165

    35 Disclosures on shareholdings

    Equity interest % Equity
    EUR k
    Net income/loss
    EUR k
    Germany
    SINGULUS CIS Solar Tec GmbH, Kahl am Main, Germany 66 15 -1
    New Heterojunction Technologies GmbH, Kahl am Main,
    Germany
    100 3,691 -685
     
    Foreign 1
    SINGULUS TECHNOLOGIES Inc.,
    Windsor, USA
    100 9,045 509
    SINGULUS TECHNOLOGIES  MOCVD Inc.,
    Windsor, USA
    100 -635 0
    SINGULUS TECHNOLOGIES  ASIA Pacific  Pte. Ltd.,
    Singapur
    100 722 -307
    SINGULUS TECHNOLOGIES  LATIN AMERICA Ltda.,
    São Paolo, Brazil
    91.5 -4,200 -822
    SINGULUS TECHNOLOGIES  IBERICA  S.L.,
    Sant Cugat del Vallés, Spain
    100 -1,458 0
    SINGULUS TECHNOLOGIES  FRANCE S.A.R.L.,
    Sausheim, France
    100 -272 -207
    SINGULUS TECHNOLOGIES  ITALIA  s.r.l.,
    Ancona, Italy
    100 0 0
    SINGULUS TECHNOLOGIES  TAIWAN  Ltd.
    Taipeh, Taiwan
    100 -1,412 -44
    SINGULUS  TECHNOLOGIESSHANGHAI Ltd.,
    Shanghai, China
    100 50 -128
    STEAG  HamaTech Asia  Ltd.
    Hongkong, China
    100 0 0
    HamaTech USA  Inc.,
    Austin/Texas, USA
    100 -975 23

    1 Equity and net income/loss were taken from the IFRS annual financial statements

    SINGULUS TECHNOLOGIES Inc., Windsor, USA, wholly owns SINGULUS TECHNOLOGIES MOCVD Inc.

    8.5 % of the interest in SINGULUS TECHNOLOGIES LATIN AMERICA Ltda. is held by SINGULUS TECHNOLOGIES IBERICA S.L.

    STEAG HamaTech Asia Ltd. discontinued its operating business in April 2003. The companies SINGULUS TECHNOLOGIES ITALIA s.r.l., and SINGULUS TECHNOLOGIES IBERICA S.L. were in liquidation as of December 31, 2018. The liquidation of SINGULUS MANUFACTURING GUANGZHOU was completed with effect from September 28, 2018.

    During the reporting period, the newly formed distribution company SINGULUS TECHNOLOGIES SHANGHAI Co. Ltd. was included in the basis of consolidation. SINGULUS TECHNOLOGIES AG holds 100 % of shares in the newly formed company, which was therefore fully consolidated.

    36 Financial risk management

    The financial liabilities contained in the consolidated financial statements essentially concern the bond placed in 2016. The Group has various financial assets such as trade receivables and cash and short-term deposits which arise directly from its operations.

    In accordance with group policy, no derivatives trading took place in fiscal years 2018 or 2017, nor will derivatives be traded for speculative purposes in the future.

    The operating and financing activities can essentially give rise to interest rate, credit, liquidity and foreign currency risks.

    The individual risks are described in greater detail below. Additional remarks may be found in the risk report within the management report.

    Foreign currency risk

    Foreign currency risks from operations abroad are assessed as part of a risk analysis. Some sales of the SINGULUS TECHNOLOGIES Group are subject to the US dollar (USD) currency risk. For this reason, derivative financial instruments are used to hedge against USD exchange rate risks. Risks from foreign currencies are continually assessed as part the risk management system.

    The following table shows the sensitivity of consolidated earnings before taxes (due to the change in the fair values of monetary assets and liabilities) and of consolidated equity (due to the changes in fair values of forward exchange contracts recognized in other comprehensive income) to a change in the USD/EUR exchange rate generally possible based on reasonable judgment. There were no open forward exchange contracts as of the balance sheet date. All other factors remain unchanged.

    Change in USD exchange rate Effect on EBT Effect on equity
    EUR m EUR m
    2018 +10 % 0.5 0.5
    -10 % -0.4 -0.4
    2017 +10 % 0.0 0.0
    -10 % 0.0 0.0

    SINGULUS TECHNOLOGIES' earnings results from bank balances, unhedged trade receivables and payables as well as unhedged intragroup receivables and payables denominated in USD.

    The effects on equity reflect the potential change in fair value of forward exchange contracts recognized in other comprehensive income (cash flow hedges).

    Liquidity risk

    The processing of the major orders as scheduled in 2019 will be critical for the Company's future solvency. In particular, the Company is dependent on the major Chinese customer CNBM in this regard. The management also expects further order intake and thus additional cash and cash equivalents from prepayments for new projects.

    The Group still has access to bank guarantee lines in the amount of EUR 20.8 million. EUR 11.9 million of these had been drawn down as of the end of the fiscal year. In addition, as of the balance sheet date, there was a single bank guarantee of € 2.0 million for a prepayment received. Cash and cash equivalents are deposited as collateral to secure these loan commitments. For more information, please refer to Note 7.

    The table below summarizes the maturity profile of the Group’s financial liabilities as of December 31, 2018. The disclosures are made on the basis of the contractual, nondiscounted payments.

    Fiscal year ended December 31, 2018 Payable on
    demand
    Up to 3
    months
    3 to
    12 months
    1 to
    5 years
    More than
    5 years
    Total
    EUR m EUR m EUR m EUR m EUR m EUR m
    Bond repayment 0.0 0.0 0.0 12.0 0.0 12.0
    Bond interest 0.0 0.9 0.0 0.0 0.0 0.9
    Liabilities from loans 0.0 0.0 0.0 0.0 0.0 0.0
    Other liabilities 1.6 4.0 5.7 1.6 0.0 12.9
    Trade payables 3.5 11.1 3.9 0.0 0.0 18.5
    5.1 16.0 9.6 13.6 0.0 44.3
     
    Fiscal year ended
    December 31, 2017
    Payable on
    demand
    Up to 3
    months
    3 to
    12 months
    1 to
    5 years
    More than
    5 years
    Total
    EUR m EUR m EUR m EUR m EUR m EUR m
    Bond repayment 0.0 0.0 0.0 12.0 0.0 12.0
    Bond interest 0.0 0.8 0.0 0.0 0.0 0.8
    Liabilities from loans 0.0 0.0 4.0 0.0 0.0 4.0
    Other liabilities 2.0 3.2 3.8 1.4 0.6 11.0
    Trade payables 3.3 6.8 0.0 0.0 0.0 10.1
    5.3 10.8 7.8 13.4 0.6 37.9
     
    Interest rate risk

    The Group is exposed to the risk of fluctuations in market interest rates. A shift in the yield curve by +/- 50 basis points would not have any significant effect on the Group's earnings before taxes.

    Credit risk

    The credit risk is the risk of financial losses if a customer or contractual party to a financial instrument fails to meet its contractual obligations. The credit risk generally arises from trade receivables, loans and the group's receivables from construction contracts. The group is using export credit insurance as the primary instrument to hedge against specific country risks. Customers' creditworthiness and payment history are continually monitored and corresponding credit limits are set. In addition, risks in individual cases are limited where possible through credit insurance, bank guarantees and retention of title. From our current perspective, the group assumes sufficient coverage of the receivables default risk.

    Significance of the credit risk

    The carrying amounts of the financial assets correspond to the maximum credit risk. The Group's maximum credit risk as of the reporting date is presented below:

    2018
    EUR m
    2017
    EUR m
    Cash and cash equivalents 13.5 27.2
    Financial assets subject to restrictions on disposal 14.3 8.7
    Trade receivables 6.1 2.3
    Receivables from construction contracts 20.4 9.5
    54.3 47.7
    Capital management

    The Group analyzes its capital based on the "net liquidity" (as the total of cash and cash equivalents, short-term deposits and financial assets subject to restrictions on disposal less the bond and interest-bearing loans). As of the end of the fiscal year, the net liquidity was as follows:

    2018
    EUR m
    2017
    EUR m
    Cash and cash equivalents 13.5 27.2
    Financial assets subject to
    restrictions on disposal
    14.3 8.7
    Financial liabilities from bond
    issue
    -12.9 -12.8
    Liabilities from loans 0.0 -4.0
    Net liquidity 14.9 19.1

    In order to identify liquidity risks at an early stage, cash flow forecasts are prepared every month on the basis of a one-year forecast. The insolvency risk is thus reviewed on a regular basis.

    37 Financial instruments

    Fair values

    The effect from the first-time application of IFRS 9 on the consolidated financial statements is described in Note 4. The following table shows the carrying amounts and fair values of all financial instruments recognized in the consolidated financial statements by category.

    Carrying amount Fair value
    2018 2017 2018 2017
    Measurement
    method
    EUR m EUR m EUR m EUR m
    Financial assets
    Cash and cash equivalents** AC 13.5 27.2 13.5 27.2
    Financial assets subject to restrictions on disposal** AC 14.3 8.7 14.3 8.7
    Derivative financial instruments
    Hedging derivates** HD - - - -
    Trade receivables** AC 6.1 2.3 6.1 2.3
    Receivables from construction contracts** AC 20.4 9.5 20.4 9.5
     
    Financial liabilities
    Bond* AC 12.9 12.8 12.9 12.7
    Liabilities from loans AC 0.0 4.0 0.0 4.0
    Derivative financial instruments
    Hedging derivative** HD - 0.0 - 0.0
    Trade payables** AC 18.5 10.1 18.5 10.1
     
    Total AC 85.7 74.6 85.7 74.5
    Total HD 0.0 0.0 0.0 0.0
     

    Abbreviations:

    AC: Financial assets and liabilities measured at amortized cost
    HD: Hedging Derivatives

    * Fair value measurement was categorized as fair value Level 1 based on the input factors for the measurement approach applied.

    ** Fair value measurement was categorized as fair value Level 2 based on the input factors for the measurement approach applied.

    Cash and cash equivalents, financial assets subject to restrictions on disposal, and trade payables are generally due in the short term. The balance sheet figures approximate the fair values. The same applies for trade receivables and other assets.

    The fair values of non-current trade receivables correspond to the present values of the payments relating to the assets taking into account the corresponding interest parameters.

    Forward exchange contracts are measured using the ECB reference rates for spot currency and the valid forward exchange rates of the respective commercial bank for forward currency.

    The fair value of the exchange-listed bond equals the market price as of the balance sheet date plus the carrying amount of accrued interest liabilities as of the balance sheet date.

    The fair values of the liabilities to banks correspond to the amounts repayable on the bank loans as of the balance sheet date.

    The maximum credit risk is reflected in the carrying amounts of the financial assets and liabilities.

    The table below shows changes in liabilities held for financing purposes.

      As of January 1,
    2018
    Cash flow Additions ZAs of December 31, 2018
      EUR m EUR m EUR m EUR m
    Bond 12.0 0.0 0.0 12.0
    Interest 0.8 -0.8 0.9 0.9
    Liabilities from loans 4.0 -4.3 0.3 0.0
    16.8 -5.1 1.2 12.9

    38 Headcount

    In the fiscal year, the Company had an annual average of 327 (previous year: 315) permanent employees. The annual average distribution of employees (FTEs) by functional area in the fiscal year is presented below:

    2018 2017
    Assembly, production and
    logistics
    108 100
    Development 82 73
    Sales 98 103
    Administration (excluding
    Executive Board members)
    39 39
    327 315

    The Group had 343 employees as of December 31, 2018 (previous year: 315).

    39 Auditor's fees (disclosures pursuant to section 314 (1) no. 9 HGB)

    In the year under review, SINGULUS TECHNOLOGIES AG and its subsidiaries were charged the following fees by the auditor of the consolidated financial statements:

    2018
    EUR k
    a) for the audit of the financial statements 235
    b) for other assurance services 3
    d) other 64
    Total 302

    The fee for KPMG AG Wirtschaftsprüfungsgesellschaft's auditing services related to the audit of the annual and consolidated financial statements. Other services concerned services in relation to audit-related issues.

    40 Corporate governance

    The Executive Board and the Supervisory Board made the declaration required under section 161 AktG in November 2018 and have made it available to shareholders on a permanent basis on the Company's website at http://www. singulus.com/en/investor-relations/corporate-governance/ declaration-of-conformity/2019.html.

    41 Publication

    The consolidated financial statements of SINGULUS TECHNOLOGIES AG were released for publication by the Executive Board on March 15, 2019.

    Kahl am Main, March 15, 2019

    SINGULUS TECHNOLOGIES AG

    The Executive Board

    Dr.-Ing. Stefan Rinck

    Dipl.-Oec. Markus Ehret