Annual Report • Aug 30, 2007
Annual Report
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Our Company… Skilled • Innovative • Dynamic • Successful
| 2006/2007 | 2005/2006 | 2004/2005 | 2003/2004 | |
|---|---|---|---|---|
| Accounting standards, € thousand | IFRSs | IFRSs | IFRSs | US GAAP |
| Revenues | 17,939 | 18,060 | 15,878 | 13,568 |
| of which outside Germany (%) | 72.3 | 67.3 | 57.8 | 68.9 |
| Capital expenditure | 3,059 | 513 | 460 | 402 |
| R&D expenses | 1,316 | 1,227 | 922 | 873 |
| EBITDA | 2,437 | 2,239 | 2,008 | 1,317 |
| EBIT | 1,919 | 1,698 | 1,588 | 866 |
| EBIT margin (in %) | 10.7 | 9.4 | 10.0 | 6.4 |
| Profit before tax | 1,861 | 1,657 | 1,510 | 727 |
| Profit/loss | 1,047 | 979 | 1,052 | 316 |
| Profit attributable | ||||
| to shareholders of CeoTronics AG |
1,046 | 961 | 1,030 | |
| Gross cash flow | 1,565 | 1,520 | 1,472 | 767 |
| Cash and cash equivalents | 783 | 2,376 | 2,243 | 370 |
| Total assets | 17,533 | 14,271 | 13,966 | 14,328 |
| Equity | 11,705 | 11,343 | 10,819 | 10,060 |
| Equity ratio (%) | 66.8 | 79.5 | 77.5 | 70.2 |
| Employees (as of May 31) | 144 | 136 | 129 | 132 |
| Earnings per share (1) | 0.48 | 0.44 | 0.47 | 0.15 |
| Gross cash flow per share (1) | 0.71 | 0.69 | 0.67 | 0.35 |
(1) Figures per no-par value share; figures for 2001/2002 adjusted for the effect of the issue of bonus shares in 2002/2003 at a ratio of 1:1.
In the age of mobile communication, keeping seamlessly connected at all times and all places appears self evident. Provided, of course, the ambient conditions are problem-free and you aren't in the immediate vicinity of a running jet engine or in an explosion hazard zone. These cases demand other, highly complex communications solutions.
CeoTronics develops and produces innovative audio and video systems that are perfectly adapted to problematic applications. They often make operations possible in the first place and increase the efficiency of working processes. This is what makes CeoTronics so successful in serving industrial and aerospace companies, firefighters and civil defense workers, rescue services, and government security and law enforcement agencies.
As part of the Group's mission to be recognized as the industry standard, CeoTronics' two research and development departments and its production locations in Rödermark (Hesse) and Lutherstadt Eisleben (Saxony-Anhalt) are clearly committed to Germany as a location for industry.
Our strategy for the future: to sustainably increase the value of the Company through forward-thinking value management, targeted national development, and the Group's strategic global focus.
CeoTronics AG, Rödermark
| 1985 | Formation of CeoTronics GmbH in Rödermark near Frankfurt/Main, Germany; development, production, and sale of communication systems. |
|---|---|
| 1986- 1993 |
Formation of CeoTronics Ltd., CeoTronics AG (Switzerland), CeoTronics S.L., CeoTronics, Inc. and the opening of a sales office in the Benelux countries. |
| 1997 | Reorganization of international marketing/sales at the parent company. |
| Reorganization of CeoTronics GmbH as CeoTronics AG. | |
| 1998 | CeoTronics AG's IPO on the Neuer Markt in Frankfurt/Main. |
| 1999 | Formation of CT-Video GmbH. |
| 2000 | Opening of a sales office in Scandinavia servicing six countries. |
| Acquisition of the entire Audio Accessory Division of DTC, Inc. (U.S.A.). | |
| Launch of wireless digital audio transmission technology. | |
| 2000 DIN EN ISO 9001:1994 certification. | |
| 2001 | New CT-Video GmbH factory opens in Lutherstadt Eisleben. |
| 2002 | ATEX certification. |
| Acquisition of 75% of AACOM Ltd., Poland (former CT sales partner). | |
| Change of stock market segment from the Neuer Markt to the Geregelter Markt. |
|
| 2003 | Admission to and listing in the Prime Standard. |
| 2004 | DIN EN ISO 9001:2000 and ATEX certification. |
| Inclusion in the Technology All Share index. | |
| Launch of wireless digital video data transmission technology. | |
| 2006 | CeoTronics awarded the "2006 Georg Waeber Innovation Prize." |
| 2007 | CeoTronics receives the largest order in its history, €5.5 million from the German Air Force for CT-DECT JetCom systems. Inclusion in the GEX. |
| Key Figures | 2 |
|---|---|
| Mission Statement | 3 |
| History | 4 |
| Letter from the Board of Management | 6 |
| Report by the Supervisory Board | 8 |
| CeoTronics' Shares | 13 |
| Transparency Creates Trust | 17 |
| Corporate Governance Report | 18 |
| Our Market | 22 |
| Prime Performance | 24 |
| Our Employees | 26 |
| Our Customers' Point of View | 27 |
| Our Commitment to Germany | 28 |
| Group Structure | 30 |
| Locations | 31 |
| Our Engineers and Technicians | 32 |
| Milestones | 35 |
| Group Management Report | 37 |
| Consolidated Financial Statements | |
| Balance Sheet – Assets | 50 |
| Balance Sheet – Equity and Liabilities | 51 |
| Income Statement | 52 |
| Cash Flow Statement | 53 |
| Statement of Changes in Equity | 54 |
| Statement of Changes in Noncurrent Assets 2006/2007 | 56 |
| Notes to the Consolidated Financial Statements | |
| of CeoTronics AG for Fiscal Year 2006/2007 | 58 |
| Auditors' Report | 92 |
| CeoTronics AG Germany | |
| Balance Sheet – Assets | 94 |
| Balance Sheet – Equity and Liabilities | 94 |
| Income Statement | 95 |
| Executive Bodies | 96 |
| Financial Calendar | 97 |
| Editorial Information | 98 |
| Sustainable Value Management | 99 |
Thomas H. Günther, Chairman of the Board of Management
Dear ladies and gentlemen, dear CeoTronics shareholders,
CeoTronics generated consolidated revenues of €17,939 thousand in fiscal year 2006/2007, almost matching the record figure for the previous year (an increase of 13.7% at the time).
CeoTronics narrowly missed its revenue target by 1.4% due to a number of orders that were received later than planned (e.g., the German Armed Forces' order for CT-DECT JetCom systems) and to delayed decisions to award other projects.
CeoTronics also noted a certain reluctance to invest on the part of German security authorities and organizations (BOS – Behörden und Organisationen mit Sicherheitsaufgaben) due to the upcoming switch to digital radio.
The order backlog as of May 31, 2007 (fiscal year end) amounted to €8,478 thousand, rising from an already very high level by another 147.1% year-on-year in the period under review. The extremely high order backlog is dominated by the €5,500 thousand order for CT-DECT JetCom systems from the German Armed Forces. We plan to deliver and invoice the first systems, which include the new noise protection helmet developed by CeoTronics, by the end of 2007.
Despite missing its revenue target by €261 thousand, CeoTronics slightly exceeded its consolidated earnings target of €1,040 thousand. At €1,047 thousand (up 6.9% year-on-year), the Company generated the second-highest consolidated profit (in accordance with IFRSs) in its history in fiscal year 2006/2007.
As expected, cash and cash equivalents declined from their high level as of May 31, 2006; however, at €783 thousand they remain sufficiently high despite the acquisition of real estate used by the Company worth a total of €2,490 thousand. The adequate lines of credit available to us were therefore only drawn down briefly and to a very slight degree. This was the main reason for the 12.7 percentage point fall in the equity ratio year-on-year to 66.8% as of May 31, 2007 (previous year: 79.5%).
Profit before tax
The CeoTronics Group has sound finances and is a dependable business partner and employer.
The Board of Management has decided to recommend to the Supervisory Board that it propose to the General Meeting on November 2, 2007 that a dividend of €0.30 per share be paid as in the previous year out of the net retained profit of €2,610 thousand reported by the parent company, and that the reminder be carried forward to the new 2007/2008 fiscal year to further strengthen its self-financing ability.
We would like to thank our national and international customers, employees, sales and distribution partners, suppliers, our banks, the Supervisory Board, and our shareholders for their confidence in us and for our successful cooperation.
The Board of Management is satisfied with the results of the 2006/2007 fiscal year. Given the high order backlog and new ongoing projects, CeoTronics looks forward to a positive future.
CeoTronics – Your company!
Rödermark, August 17, 2007
Thomas H. Günther Chairman of the Board of Management
(from left to right) Stefan Haack (Member of the Supervisory Board), Hans-Dieter Günther (Chairman of the Supervisory Board), Horst Schöppner (Deputy Chairman of the Supervisory Board)
Our cooperation with CeoTronics AG's Board of Management was again based on trust and open communication in fiscal year 2006/2007. The Supervisory Board extensively supported the Company's development and advised the Board of Management.
The regular meetings of the Supervisory Board were held on August 18, 2006, October 13, 2006, January 12, 2007, and April 13, 2007. With the exception of the meeting held on April 13, 2007, all three members of the Supervisory Board attended the meetings in person. One member participated in the April 13, 2007 meeting by phone. Between its meetings, the Supervisory Board was also kept informed about key developments both orally and in writing. In addition, the Chairman of the Supervisory Board addressed policy issues during discussions at irregular intervals, in particular with the Chairman of the Board of Management, and were given access to the minutes of the meetings of the Board of Management.
At each meeting, the Supervisory Board addressed any necessary review of the transactions requiring approval as well as – in the presence of the Board of Management – discussing quarterly reports; analyses and deviations from the budget and year-on-year comparisons; income statements prepared by the parent company and each affiliate; risk management in accordance with the Gesetz zur Kontrolle und Transparenz im Unternehmensbereich (KonTraG – German Act on Control and Transparency in Business) with a risk inventory including strategic, financial market, and legal risks facing the Company; the complaints rate; the current business situation including bank balances; receivables and liabilities; bank ratings; order backlogs and forecasts; potential bad debts; the stock market situation; share price performance and investor relations measures, among other things.
On August 18, 2006 the Supervisory Board – in the presence of the Board of Management – received the oral report of the auditors, and discussed the HGB annual financial statements and the consolidated IFRS financial statements.
On October 13, 2006, the Supervisory Board meeting was held in Eisleben, with a factory tour, product presentation, and discussions with the management of the CT-Video GmbH subsidiary. This meeting enabled the members of the Supervisory Board to obtain a personal impression of the future prospects and potential expansion of business at the Eisleben location.
The Supervisory Board met to hold its regular elections immediately after the General Meeting on November 3, 2006. Hans-Dieter Günther was reelected as Chairman and Horst Schöppner as Deputy Chairman of CeoTronics AG's Supervisory Board.
After weighing the costs of engaging an external auditor, the Supervisory Board itself reviewed the efficiency of its work in accordance with section 161 of the Aktiengesetz (AktG – German Stock Cooperation Act) at its meeting on January 13, 2007, and concluded that it has been efficient.
Additionally, the Supervisory Board adopted the annual Declaration of Conformity with the German Corporate Governance Code. The joint Declaration of Conformity by the Supervisory Board and the Board of Management was resolved by the Supervisory Board on February 23, 2007 following the circulation of written documents. CeoTronics AG continues to comply with the required principles of the Code, with a small number of exceptions.
During the same meeting, the Supervisory Board discussed, among other things, the re-appointment of one Board of Management member and resolved to extend his contract by five years.
The Supervisory Board also discussed revising the Company's strategic focus with the Board of Management on January 13, 2007.
At the April 13, 2007 meeting, the Supervisory Board and the Board of Management discussed possible amendments to the Articles of Association, authorized signatories (Prokura), and bank powers of attorney, among other things.
The members of the Supervisory Board also kept themselves informed and exchanged viewpoints between its regular meetings – both in person and by telephone. On behalf of the Board of Management, the Supervisory Board defined the Board of Management's reporting obligations and the list of transactions requiring approval.
During the period under review, two members of the Supervisory Board each attended a legal seminar and held in-depth discussions there with experts in the field of corporate law, so as to keep themselves informed about changes in statutory provisions and their impact on CeoTronics AG, among other things. In each instance, documentation was prepared to inform the Supervisory Board and the Board of Management.
No important trade fairs in the Company's field of business were held in fiscal year 2006/2007, so the Supervisory Board was not required to attend any trade fairs during the period under review.
The Supervisory Board of CeoTronics AG therefore performed its duties in accordance with the law and the Articles of Association throughout the fiscal year. It monitored the work of the Board of Management and supported the latter's decision-making by giving its advice.
UWP Unitreu GmbH Wirtschaftsprüfungsgesellschaft, Eschborn, which was elected as auditors and Group auditors for 2006/2007 by the General Meeting on November 3, 2006, was engaged by the Supervisory Board to audit the annual financial statements, the consolidated financial statements, and the management reports after details were established and prices were agreed.
The Supervisory Board acknowledged the declaration of independence obtained from the auditor in accordance with section 7.2.1 of the German Corporate Governance Code and determined the key focuses of the audit. In accordance with the German Corporate Governance Code, the audit engagement also includes a duty to inform the Supervisory Board about any potential conflicts of interest or cases of bias that arise during the audit and cannot be eliminated immediately. The auditor must also report material findings or events, including any facts that prove the inaccuracy of the declaration of conformity with the German Corporate Governance Code submitted by the Board of Management and the Supervisory Board.
In the past fiscal year, the consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRSs). UWP Unitreu GmbH Wirtschaftsprüfungsgesellschaft audited the annual and consolidated financial statements of CeoTronics AG and the relevant management reports as of May 31, 2007, including the accounting system, in accordance with the legal requirements and issued unqualified audit reports on them.
On August 8, 2007, the Board of Management provided the Supervisory Board with a draft of the annual financial statements in accordance with the Handelsgesetzbuch (HGB – German Commercial Code) and the IFRS consolidated financial statements, as well as the management reports.
The auditors attended the meeting on August 17, 2007, reported on the results of their audit, and were available to answer questions from the Supervisory Board.
The Supervisory Board conducted its own examination of the HGB annual financial statements and the management report of CeoTronics AG, and did not raise any objections. The annual financial statements and the management report of the parent company in accordance with the HGB have therefore been adopted.
The Supervisory Board also concurred with the auditor's findings with regard to the consolidated financial statements and the Group management report and, following its own examination, approved the consolidated financial statements and the Group management report in accordance with IFRSs as of May 31, 2007.
The Supervisory Board endorses the proposal by the Board of Management on the appropriation of the net retained profit. A proposal will be made to the General Meeting that part of the profit for the year reported by CeoTronics AG be distributed as a dividend and that the remainder be carried forward to the new fiscal year to strengthen the Company's self-financing ability.
The Supervisory Board would like to thank the Board of Management, the executives, and the employees of the CeoTronics companies in Germany and abroad for their commitment and successful work.
We would like to thank our shareholders for their confidence in us and wish us all a very successful fiscal year 2007/2008.
Rödermark, August 17, 2007
The Supervisory Board of CeoTronics AG
Hans-Dieter Günther Chairman
Future prospects and market opportunities are key criteria in valuing the potential of listed companies. For this reason, market information has always formed a core component of our IR communications and research assessments.
However, the many positive reports on orders, the order backlog, quarterly revenues, and the record earnings published throughout the 2006/2007 fiscal year were not enough to generate an appropriate increase in the share price (+17.86% over the course of the year), particularly in comparison to the indices.
Analyst confirmations (based on both snapshot and in-depth research reports) of the significant undervaluing of CeoTronics shares were also largely unable to alter the unsatisfactory share price performance.
CeoTronics' shares compared with the benchmark indices from June 1, 2006 to May 31, 2007 (indexed)
Source:
The share price reacted only after the press release by the German Interior Ministers Conference was published on April 2, 2007, confirming what, CeoTronics and analysts had already communicated.
The press release announced that the lengthy negotiations regarding the introduction of digital radio for security and law enforcement agencies in Germany had reached a conclusion and that the German Interior Ministers Conference had resolved to invest approximately €4.5 billion in digital radio networks and a planned 500,000 equipment units.
CeoTronics' share price rose significantly after this announcement, even if only after the end of the 2006/2007 fiscal year (May 31, 2007), increasing 50.79% (as of June 15, 2007).
The effects of the switch to digital radio technology in neighboring European states have demonstrated in the past that there has been high demand for CeoTronics' products, for example in Spain, France, Switzerland, and the Benelux countries, with corresponding orders being recorded.
Share price performance from June 15, 2006 to June 15, 2007
Comparison of dividends
A good investment over the long term
CeoTronics' shares have substantially outperformed the TECDAX and the TEC ALL SHARE over a three-year period, growing by 248%.
The movements shown in the comparison chart below prove that CeoTronics' shares have been and are a profitable investment.
CeoTronics' shares compared with the benchmark indices from June 1, 2004 to May 31, 2007 (indexed)
Source:
Dividend proposal for the General Meeting on November 2, 2007 On August 17, 2007, the Board of Management resolved to recommend to the Supervisory Board to propose at the General Meeting that part of the net retained profit of €2,610,268.91 reported by the parent company be distributed in the form of a dividend of €0.30 per share.
CeoTronics is known for its timely, transparent, accurate, and honest investor relations activities and reporting. CeoTronics' shareholders and interested investors can receive information about CeoTronics in various ways:
In addition, the CEO is available to provide information by phone, fax, or e-mail at: [email protected].
The term "Corporate Governance" denotes the responsible management and supervision of companies; close and open cooperation between the Board of Management and the Supervisory Board; respect for shareholders' interests; transparent, timely corporate communication; and financial reporting and auditing in compliance with the required standards.
CeoTronics AG has adopted the recommendations of the German Corporate Governance Code as part of its management practices since 2002, with a small number of exceptions.
Declaration of conformity in accordance with section 161 of the AktG In accordance with section 161 of the Aktiengesetz (AktG – German Stock Corporation Act), the Board of Management and Supervisory Board of CeoTronics AG have issued the following statement:
Apart from the exceptions set out below, CeoTronics AG Audio • Video • Data Communication, Rödermark, complied with the recommendations of the German Corporate Governance Code published in the electronic Bundesanzeiger (German Federal Gazette) in fiscal year 2006/2007 and intends to comply with them in the future as well.
No deductible has been agreed for the D&O insurance policy for the members of the Supervisory Board and the Board of Management. A deductible would result in unreasonable additional cost at the Company.
The remuneration of the members of the Board of Management is not disclosed individually for each member of the Board of Management in the notes to the consolidated financial statements, but as an aggregate amount.
The Company did not comply with and will not in future comply with the recommendation in para. 1 sentence 2 of section 5.1.2 under which the Supervisory Board and the Board of Management jointly ensure that there is a longterm succession plan in the Board of Management. Because of the age of the current members of the Board of Management, the Supervisory Board does not see any need to prepare a long-term succession plan at present.
In light of the size of CeoTronics AG and the number of Supervisory Board members (currently three), the Supervisory Board has not drawn up rules of procedure for the Supervisory Board.
In light of the size of CeoTronics AG and the number of Supervisory Board members (currently three), the Supervisory Board has not formed committees.
Instead, all duties are performed collectively by the members of the Supervisory Board.
Rödermark, February 23, 2007
The remuneration report explains the basis of remuneration for the Board of Management and the Supervisory Board of CeoTronics AG.
The remuneration of the Board of Management is stipulated by the Supervisory Board, reviewed each year, and adjusted if required.
The remuneration of the Board of Management consists of fixed and variable remuneration components. Stock options are also issued from time to time.
The fixed annual salary is payable to the members of the Board of Management in 12 monthly installments at the end of the respective month. In addition, the members of the Board of Management are provided with a company car, and a direct insurance policy in a defined amount is taken out on their behalf. The package also includes health and long-term care insurance contributions.
In addition, each member of the Board of Management receives a variable remuneration (bonus) that depends on the performance of the Company. The bonus amounts to 3% of the 'Consolidated profit attributable to shareholders of CeoTronics AG', calculated in accordance with International Financial Reporting Standards (IFRSs). The annual bonus is limited to 25% of the total remuneration of the member of the Board of Management. The bonus is payable at the end of the month after the annual financial statements are adopted.
Please refer to the separate section in this report on the structure of the existing stock option plans and the participation of the Board of Management in these plans.
The contracts with the members of the Board of Management do not provide for any express severance payment commitment in the event of early termination of the contract of service.
The General Meeting on November 4, 2005 resolved that the salaries and other remuneration components will not be disclosed individually for each member of the Board of Management in the annual financial statements and consolidated financial statements of CeoTronics AG. This also applies to benefit commitments to the members of the Board of Management in the event of termination of their activities. The resolution is effective for the fiscal year beginning June 1, 2005 and for the four subsequent fiscal years until May 31, 2010.
The remuneration of the Supervisory Board is governed by Article 10 of the Articles of Association of CeoTronics AG. Each member of the Supervisory Board receives a fixed remuneration of €8,000.00 per fiscal year in addition to the reimbursement of expenses. In addition, each member receives a variable remuneration amounting to 1% of the gross total dividend of CeoTronics AG. In both cases, the Chairman of the Supervisory Board receives three times the remuneration and the Deputy Chairman receives one and a half times the remuneration. The members of the Supervisory Board also receive an attendance allowance of €250.00 for each meeting they attend.
The remuneration of the individual Supervisory Board members for fiscal year 2006/2007 is presented in the following overview.
| Name/Function | Fixed | Variable | Attendance | Total |
|---|---|---|---|---|
| remuneration | remuneration | allowance | remuneration | |
| Supervisory Board | ||||
| Hans-Dieter Günther | 24,000.00 | 19,800.00 | 1,250.00 | 45,050.00 |
| Supervisory Board Chairman | ||||
| Horst Schöppner | 12,000.00 | 9,900.00 | 1,250.00 | 23,150.00 |
| Dep. Supervisory Board Chairman | ||||
| Stephan Haack | 8,000.00 | 6,600.00 | 1,250.00 | 15,850.00 |
| Supervisory Board member |
Supervisory Board member Stephan Haack is a member of a law and notary firm to which the Company paid fees in the fiscal year in the amount of €19 thousand in accordance with the appropriate schedules of fees.
In fiscal year 2006/2007, there were two stock option plans for senior executives and specialist employees at CeoTronics AG (stock option plans IV and V), both of which were launched in fiscal year 2003/2004. Under these plans, options were not issued on no-par value shares from contingent capital, but on virtual shares (phantom shares). Purchase of an option entitles senior executives and specialist employees to a cash settlement in the amount of the difference between the exercise price and the share price of CeoTronics shares at the time of exercising the option. The option premium was €0.10 per option.
The exercise price of the shares in stock option plan IV equaled the average price in the last ten days of trading prior to November 6, 2003 (€2.12). The subscribers are able to exercise their options in the period between October 29, 2005 and October 28, 2008. However, exercise is subject to the condition that certain profit or share price targets for CeoTronics shares are met. If a participant in the stock option plan leaves the Company, the options expire under certain conditions. 6,000 stock options from this stock option plan were outstanding as of May 31, 2007. The participants in stock option plan IV are the members of the Board of Management of CeoTronics AG. Each member of the Board of Management holds 2,000 stock options.
The exercise price of shares in stock option plan V equaled the average price in the last ten days of trading prior to May 28, 2004 (€3.76). The subscribers are able to exercise their options in the period between May 31, 2006 and May 30, 2009. However, exercise is subject to the condition that certain profit or share price targets for CeoTronics shares are met. If a participant in the stock option plan leaves the Company, the options expire under certain conditions. 6,000 stock options from this stock option plan were outstanding as of May 31, 2007.
The annual declarations of conformity, remuneration reports, and other relevant general information are permanently available in the Investor Relations section of our website at www.ceotronics.com.
Revenues by customer group
Special situations require special solutions. Even now – or more than ever – in an age when communication is a lifestyle, but there are still hazardous areas where even the smartest multifunctional cell phones can't make a call.
CeoTronics AG specializes in high-end communication under difficult conditions, and develops, produces, and sells audio, video, and data communications solutions. Above all, our top-of-the-line products ensure clear and precise interaction: in noisy areas, in dangerous environments, while wearing protective helmets or protective clothing. In explosion hazard areas, in undercover operations, and in hands-free communication.
In addition to traditional headsets and other communications systems for connecting to analog and digital radio systems, the broad range of products for extremely diverse applications meets the toughest demands and focuses in particular on end-to-end system solutions. For example, mobile or fixed digital radio networks that can be set up in seconds and used on the move.
Now that the introduction of the nationwide digital radio network has been resolved by the German Interior Ministers Conference, the government security and law enforcement forces in all German federal states are expected to be equipped with the appropriate communications accessories by 2010 (according to the Interior Ministers Conference).
Since CeoTronics has already produced and sold over 35,000 systems for connection to new digital TETRA/TETRAPOL radios, CeoTronics has the experience that is sure to be a significant competitive advantage.
The diversity of our products' applications makes it possible to serve the widest variety of industries and individual needs. Our customer base thus includes engineering companies, the automotive industry, paper manufacturers, the aerospace industry, power utilities, refineries, and oil rigs. However, service providers such as amusement parks, the media, sports arenas, and motorsport teams also rely on CeoTronics.
A constantly growing market places its trust in CeoTronics products, including more than 300 airlines, airports, and ground handling service companies – and this trend is growing. As market leader in the area of ground-to-cockpit communication, our product range also includes systems for ramp handling, push back, maintenance, in-flight service, and cockpit communication for sky marshals, as well as aircraft and helicopter maintenance.
Always in action: fire fighters, civil defense, and rescue services Secure communication and high transmission quality are essential for fire fighting and in emergencies. That's why for these products, there is a special focus on development and design, safety, easy handling, and comfort. Durability, weather resistance, resistance to heat, cold, or chemical agents – and optionally explosion-proof models as well – are a must.
A wide range of systems is available in this field. Fully and partially covert communication systems as well as miniature radio cameras for the wireless transfer of video images during undercover investigations and for preserving evidence.
Since it was formed in 1985, CeoTronics has positioned itself at the top of the quality and performance pyramid due to its outstanding consulting expertise, customer focus, excellent product quality in terms of finish and function, the use of state-of-the-art technologies, and the flexibility to develop customized system solutions.
Seven subsidiaries, a field sales force comprising advisors in a total of 27 countries, and alliances with powerful partners enable CeoTronics to fulfill its claim of always being the best in all its priority markets.
The ability to meet our customers' diverse technical demands is based on substantial and continuous investment in our own research and development.
Our technological expertise reflects our in-house knowledge, and CeoTronics' customers value the rapid access they have to this engineering expertise, in particular when it comes to fulfilling individual customer wishes.
Professional audio communication systems are often no longer enough. Increasingly, the complexity of tasks requires additional data and image information. CT-Video GmbH, Lutherstadt Eisleben, which was established in 1999, specializes in the development, production, and marketing of video camera and analog/ digital video data transmission systems. The sales organizations of the two companies complement each other perfectly, and CeoTronics makes use of CT-Video GmbH's production facilities. Leading premium manufacturers of protective helmets, radio sets, special vehicles, and aircraft put their trust in the high-end products of CeoTronics and CT-Video GmbH. All individual products and systems dovetail perfectly and fulfill our customers' extremely exacting requirements for the overall solutions.
CeoTronics communications accessories are available for TETRA, TETRAPOL, and BOS-CSM standard digital equipment, as well as for commonly used analog radios.
If required, even CeoTronics' mobile digital radio networks and equipment (CT-DECT) for local operation can be integrated with the above-mentioned wide-scale radio networks as an add-on.
Since every human being is an individual, and the operating environments of our customers are extremely different, the requirements for a communication system are also highly specific.
The almost infinite range of potential configurations and variations within CeoTronics' product range is supplemented by the individual communication systems that we develop in accordance with specific customer demands. All our products are always developed in close cooperation with our international customers and continuously enhanced to reflect technological progress.
The cost-effectiveness of an investment results from the benefit it produces and its total cost of ownership.
A product's cost is affected by the purchase price itself and in particular by quality. No customer can afford long or frequent product downtimes, the cost of continual repairs, or even accidents due to malfunctions in a communication system.
Demanding customers value the reliability, durability, and the high costeffectiveness of CeoTronics products, which are never cheap, but are always worth their price.
CeoTronics is the first company in our communications sector to be certified in accordance with ISO 9001:2000 including KBA (Kraftfahrtbundesamt – German Federal Motor Transport Authority) and ATEX Directive 94/9.
CeoTronics offers warranties of up to 3 years on all its products.
CeoTronics is a registered NATO supplier, and is also "sicherheitsüberprüft" (security-vetted) for classified and secret information by the Federal Office of Economics and Export Control.
The customer satisfaction surveys we have conducted for a number of years also speak volumes. The recommendation rate for CeoTronics' products has been consistently over 95% for many years.
We know that shareholder value alone does not define a company's value and potential. Rather, it is CeoTronics' highly motivated and dedicated employees who put the Company in its outstanding position on the markets.
Management appreciates this and has the highest respect for the work of each employee, no matter what role they play in the Company's various departments. This corporate philosophy fosters an atmosphere in which every employee is free to develop and is motivated to do their best.
To enable the CeoTronics Group to maintain its position as an attractive and successful employer, CeoTronics AG's responsible human resources management focused heavily on further training for its employees further in the reporting period.
The results of this corporate culture are extremely positive: the sickness absence ratio is only 2%, the average length of service is eight years, the employee turnover rate is only 1.44%, and management scores better every year in the annual employee survey.
The Board of Management would once again like to express its gratitude to the entire CeoTronics team. 144 employees around the world (as of May 31, 2007), who speak different languages and are at home in nine countries.
CeoTronics has run customer surveys for many years, with the aim of receiving feedback on key performance criteria from the customers' point of view.
A total of 27 individual criteria were assessed, covering the areas of
In addition to receiving a "grade" for performance parameters, CeoTronics also receives important suggestions and market information, which it uses to improve its performance and for future product modifications and developments.
CeoTronics approached over 1,600 customers with whom it has direct contact.
CeoTronics received an average grade of 1.84 on a scale of 1 (very good) to 6 (unsatisfactory) for all performance criteria, with the grades based on those used in the German school system.
Compared with the results from the previous year (2.0), this is a noticeable improvement at a high level. Product quality and customer service again received the best grades.
Since the Company's formation in Rödermark in 1985, CeoTronics has developed and produced audio, video, and data communications systems exclusively at its two German locations in Rödermark (Hesse) and, since 1999, in Lutherstadt Eisleben (Saxony-Anhalt).
In addition to the after-sales service at these two locations for approximately 90% of the total volume, CeoTronics provides after-sales service through its subsidiaries in Poland, Spain, and the U.S.
CeoTronics prefers to work with German and European suppliers. The German content, i.e. the value added as a percentage of cost of sales, was 78% in fiscal year 2006/2007, and the European content amounted to 97%.
CeoTronics offers 128 jobs in Germany (as of May 31, 2007). The Company is looking for additional engineers for software development and programming, among other things.
Since CeoTronics was formed, it has placed value on training young people. Almost all vocational trainees were hired by CeoTronics following the successful completion of their training, and some have had remarkable careers. Currently 5.4% of CeoTronics' workforce is comprised of trainees.
However, it is unavoidable, and is in everybody's interest, that certain production steps that are no longer economically feasible in Hesse and Germany be transferred to other CeoTronics locations, if
For this reason, CeoTronics has begun to implement certain production steps at its subsidiary in Poland.
The individual components are delivered by CeoTronics Germany to these production facilities. CeoTronics Germany's employees are responsible for training, increased productivity, and for ensuring that the CeoTronics quality standards are upheld.
Afterwards, the "processed" components and assemblies are sent back to the German production facilities and are assembled into the end products and systems.
This ensures that the number of jobs at the German locations is not reduced. On the contrary: the number of jobs has risen at the German locations – primarily for the more demanding activities of highly trained specialists.
Revenue breakdown by market
CeoTronics AG and CT-Video GmbH are two of the few companies in the industry that have strong in-house research and development departments in Germany.
In total, 12 engineers (four of whom work for CT-Video GmbH) and an additional six technicians conduct research, development, and modification activities at the German locations.
Additionally, eight engineers (two of whom work for CT-Video GmbH) work with our office and field sales forces, as well as in product management and new business development, to ensure expertise, high-quality consulting, and an optimal flow of information into the technical departments.
The following presents a few examples of CeoTronics' innovation leadership:
€1,316 thousand was spent on research and development in fiscal year 2006/2007 (including €210 thousand at CT-Video GmbH), amounting to 7.3% of consolidated revenues in fiscal year 2006/2007.
During the reporting period, the Company also invested in
With its acoustics test head (artificial head from Bruel and Kjaer), which began operating two years ago, CeoTronics is optimally equipped to successfully meet future challenges with its own testing laboratory.
An important new chapter in CeoTronics AG's success story opened with the major order by the German Armed Forces for approximately €5.5 million.
The CT-DECT JetCom system with CT noise protection helmet and CT-DECT digital radio system, developed internally by CeoTronics, was responsible for the largest order in the Company's history to date, and also resulted in the CeoTronics Group's highest order backlog since the Company's formation.
The order volume comprises 3,700 CT-DECT JetCom systems for digital and secure communication in duplex mode for use in areas where noise levels reach 140 dB(A). This system is used during ground handling, takeoff preparation, and maintenance of military aircraft such as the Eurofighter.
However, not only can the German Air Force use this CeoTronics system. Other units of government security, law enforcement, and rescue services, and maintenance/service teams that have to handle helicopters and aircraft on land and at sea are also potential target groups – no matter where they are in the world.
And this success story could even have a postscript: In addition to being awarded this contract, CeoTronics AG secured an option for an additional €3 million for the German Armed Forces in the period until 2009, if more equipment is required.
Revenues 1985/1986 to 2006/2007
We are seeing stable, adequate economic growth in Europe and North America.
Tax revenues have increased in most countries. However, the most important countries still have a long way to go in increasing their budgets, which have been reduced over the course of many years, i.e., adjusting them to the necessary investments and workforce requirements.
Many industrial companies are again investing in new technologies that accelerate work processes, in increasing workplace safety through improved communication, and in new jobs.
This development offers CeoTronics further potential for growth, provided it continues.
The threat posed by international terrorism around the globe has not waned. Accordingly, government security and law enforcement agencies must upgrade their equipment in order to maintain the highest degree of security for citizens, as well as for freedom and democracy.
Of course, the government security and law enforcement agencies cannot do this with fewer personnel and a diminished local presence, and using outdated technology. The security forces therefore need proper equipment – including state-of-the-art audio, video, and data communications technology. Many countries realized this years ago and took appropriate measures.
As in previous years, CeoTronics again profited greatly in fiscal year 2006/2007 from these increased investments by government security and law enforcement agencies responsible for internal and external security.
Government security and law enforcement agencies in certain priority European markets already began switching from analog to digital radio several years ago. As a result, CeoTronics' subsidiaries in Spain, France, and Switzerland recorded sustained revenue increases, in part even more than doubling their revenues.
Preparations are being made for the switch in many other priority European markets. CeoTronics expects large investments in Germany on the part of security authorities and organizations (BOS – Behörden und Organisationen mit Sicherheitsaufgaben), the Armed Forces, fire fighters, and industry.
Revenues by company
Those responsible for Germany's switch to digital radio at the federal and state levels are projecting 500,000 BOS digital radio users and plan to invest a total of over €4.5 billion. Additionally, CeoTronics expects to see its revenues grow through the switch to digital radio in industry and by fire fighters.
However, the need to invest in digital radio technology and communications accessories is also growing in Northern Europe, Austria, and in Southeastern Europe. Most communication systems for analog radios currently in operation can no longer be used due to the different mechanical and electronic interfaces required by new digital radios.
CeoTronics has already produced and sold over 35,000 systems for connection to new digital TETRA/TETRAPOL radios. The experience in adapting communications accessories to digital radios is a major competitive advantage for CeoTronics.
As of May 31, 2007, CeoTronics again concluded another successful fiscal year, following the previous year's record revenues, which were also boosted by investments made in the run-up to the World Cup. Fiscal year 2006/2007 closed with €17,939 thousand in revenues, just slightly below the record revenues generated in the previous year (€18,060 thousand).
This shortfall from the revenue target of €18,200 thousand resulted from orders and projects that were awarded later than planned. The orders were awarded after the balance sheet date or, in some instances, have yet to be placed.
The share of revenues generated outside Germany increased to 72.3% in fiscal year 2006/2007 (previous year: 67.3%). The proportion accounted for by Germany fell to 27.7% (previous year: 32.7%).
This shift is due in part to increased revenues in Spain, Southern and Eastern Europe, Austria, and the Benelux countries, while revenues in Germany declined as a result of the investment backlog at the authorities in anticipation of the switch to digital radio technology by security authorities and organizations.
In Austria, CeoTronics successfully marketed CT-DECT JetCom systems with the digital radio system and noise protection helmet developed in-house.
CeoTronics' French subsidiary continued its success, although revenues "normalized" at -40.2% following years of extraordinarily high investments by government security and law enforcement agencies. As of the balance sheet date, the order backlog had increased noticeably by 436.7% year-on-year.
In fiscal year 2006/2007, CeoTronics Spain also continued to profit from the switch to digital radio (TETRA) by government security and law enforcement agencies and their preparations for combating terrorism. Revenues, which were already at an extremely high level, increased further by 57.6%. The order backlog fell by 40.1%, yet remains high.
In Switzerland, CeoTronics increased its revenues in euros by 4.4%, since the Swiss Army continued to invest in the switch to digital radio technology (TETRAPOL, as in France).
After consolidation and translation from U.S. dollars to euros, CeoTronics U.S.A.'s revenues fell by 30.4% year-on-year.
In Poland, CeoTronics was unable to maintain the previous year's revenue level in euros (-23.6%). A large number of projects were delayed, some of them until after the close of the fiscal year. Encouragingly, the order backlog increased by 281.2% as of May 31, 2007.
The subsidiary in the United Kingdom closed fiscal year 2006/2007 with a 0.7% increase in revenues (after consolidation and translation into euros). Unfortunately, revenues are too low and active marketing is entirely insufficient due to a lack of specialized British sales staff.
Business activities in the UK assumed by CeoTronics AG (Germany) Market developments in the UK have been unsatisfactory for years, due among other things to the fruitless search for specialized employees for the field sales staff. The resulting increased cooperation with selected sales partners in the United Kingdom caused CeoTronics AG (Germany) to assume responsibility for the business activities of CeoTronics Ltd. as of April 1, 2007 for economic and organizational reasons.
Earnings development of CeoTronics U.S.A. In fiscal year 2006/2007, CeoTronics U.S.A. reduced its loss for the year by approximately 60% year-on-year (USD 564 thousand).
The Group's business activities can be broken down into two main divisions: Audio/Data Communication and Video/Data Communication. CeoTronics also has a third division, Service. The largest division, Audio/Data Communication, is divided into the following units:
In the Radio Networks, Headsets, and Systems unit, CeoTronics was able to increase consolidated Group revenues by 7.2% year-on-year. The "CT-DECT" digital radio systems product group thus ranked among the top five internal CT revenue generators.
Revenues in the Vibration Technology and Helmet Communication unit fell by 34.6%, since the French gendarmerie and police required fewer units as compared to previous years. The original "CT-ContactCom" cranial microphone remains one of CeoTronics' top-selling products.
Revenues generated by products by the Ear Microphones and Covert Communication unit rose by 14.6% year-on-year.
The Cable-bound Audio Communication and Accessories unit again increased revenues by 12.4%.
The Video/Data Communication division again performed well in fiscal year 2006/2007, increasing revenues by 27.5%.
Revenues in the Service division fell slightly by 1.8% year-on-year.
For the second time, CeoTronics is publishing financial statements prepared in accordance with International Financial Reporting Standards (IFRSs) in the 2006/2007 Annual Report. The consolidated financial statements were and will continue to be prepared in the future in accordance with IFRSs as adopted by the E.U. at the time the financial statements were prepared.
Due to lower inventory write-downs, changes in the order structure (for example, fewer motorcycle helmets, fewer major orders, increased appreciation of our products and services), and more efficient production processes, the cost of sales ratio fell to 50.1% (previous year: 51.6%), despite an increase in the cost of materials.
Operating expenses (excluding cost of materials) as a percentage of revenues were 16.6%, up on the previous year (14.9%).
Increased investment in research and development expenses Additional costs for
led to a 7.3% increase in research and development expenses. The ratio of research and development expenses to revenues rose to 7.3% (previous year 6.8%).
Selling and marketing expenses reduced
Selling and marketing expenses as a percentage of revenues amounted to 22.4% in fiscal year 2006/2007 (previous year: 23.9%). Absolute costs fell by 6.9% year-on-year.
General and administrative costs up slightly In fiscal year 2006/2007, general and administrative costs increased by 4.3% year-on-year, due among other things to increased investor relations activities. This amounted to 8.5% of revenues (previous year: 8.1%).
During the period under review, EBITDA and EBIT increased by 8.8% and 13% respectively over fiscal year 2005/2006 to a new record level.
The consolidated profit for fiscal year 2006/2007 was €1,047 thousand, up 6.9% year-on-year (previous year: €979 thousand). This profit increase was achieved due to a year-on-year increase in the contribution margin, among other things, despite somewhat lower revenues.
The share of consolidated profit attributable to shareholders of the parent amounted to €1,046 thousand for the past fiscal year (previous year: €961 thousand).
Equity as of May 31, 2007 amounted to €11,705 thousand (previous year: €11,343 thousand), while the equity ratio fell to 66.8% (previous year: 79.5%). This reduction is largely due to the debt-financed portion of the November 2006 acquisition of properties used by the Company.
Gross cash flow for the period under review improved by €45 thousand, from €1,520 thousand during the previous record year to €1,565 thousand.
The unusually high cash and cash equivalents at the end of fiscal year 2005/2006 were reduced by €1,593 thousand, from €2,376 thousand to €783 thousand (as of May 31, 2007), mainly as a result of the property acquisition (total costs including transaction costs amounting to €2,606 thousand, partly debt-financed), the increase in customer receivables (up €2,315 thousand), and the dividend distribution in the amount of €660 thousand.
By investing in employee capacity, markets, technologies, developments, and production technologies and processes, CeoTronics has prepared itself for the challenges of the future in good time.
Investments in noncurrent assets rose by €2,546 thousand year-on-year to €3,059 thousand (up 496%).
The growth in the volume of business and the greater opportunities and challenges prompted CeoTronics to increase its number of staff (including trainees) by 8 from 136 (previous year) to 144 as of May 31, 2007.
Seven of the new jobs were created in Germany, and one was created in Poland. This reflects our clear commitment to Germany.
As in previous years, CeoTronics continued to fulfill its obligation in the reporting period to perform active risk management according to the Gesetz zur Kontrolle und Transparenz im Unternehmensbereich (KonTraG – German Act on Control and Transparency in Business).
As part of the risk management process, new risks were identified and then analyzed and evaluated in conjunction with previously identified risks. The resulting measures were then implemented, the implementation was reviewed and, where necessary, further adjustments were made.
The objective of this process was to weigh up business opportunities and the risks resulting from them in a reasonable manner. It is crucial not only to document the risk management process, but also for the Company's management to apply it in practice. This requires the Supervisory Board, Board of Management, executives, and employees to perform their risk management tasks in a highly responsible way.
In the fiscal year, risk management focused primarily on the potential risks relating to the following:
The findings were also discussed in depth by the Board of Management and the Supervisory Board, and the risk management manual was modified accordingly as a result.
The already extremely high order backlog as of May 31, 2006 increased by a further 147.1% at the end of the 2006/2007 fiscal year. The consolidated order backlog as of May 31, 2007 was €8,478 thousand.
The Spanish security and law enforcement agencies awarded CeoTronics an order in July 2007 worth approximately €1,500 thousand for Semi- and FullyCovertCom systems and for helmet-independent motorcycle communications systems for connection to TETRA digital radios.
Order backlog (in € thousand)
In the first quarter of 2007/2008, up to the date of going to print, CeoTronics recorded a large number of new orders with a balanced structure.
On June 4, 2007, all virtual share options that were still outstanding at the balance sheet date were exercised for stock option plans IV and V. The exercise price was €11.84. €9.72 per option was paid in cash for the fourth stock option plan and €8.08 per option was paid in cash for the fifth stock option plan.
Disclosures in accordance with section 315(4) of the HGB
a.) Appointment of members of the Board of Management In accordance with section 84(1) sentence 1 of the Aktiengesetz (AktG – German Stock Corporation Act), the Supervisory Board appoints members of the Board of Management for a maximum of five years. Reappointment or an extension of the member's term of office is permissible for a maximum of five years in each case. In accordance with Article 9 of the Articles of Association, the Board of Management of CeoTronics AG consists of at least two members, and the Supervisory Board determines the number of members of the Board of Management. The Supervisory Board can appoint a Chairman of the Board of Management and a Deputy Chairman of the Board of Management. Furthermore, the Supervisory Board can appoint alternate members of the Board of Management. The Articles of Association do not explicitly specify the term of office for members of the Board of Management. As a rule, members of the Board of Management are appointed for five-year terms.
In accordance with section 84(1) sentence 3 of the Aktiengesetz, the reappointment or extension of a member's term of office requires a further resolution by the Supervisory Board, which may be adopted at the earliest one year before a member's current term of office expires.
In accordance with section 84(1) sentence 4 of the Aktiengesetz, the extension of a member's term of office may be provided for without a new resolution by the Supervisory Board if the member has been appointed for less than five years, provided that, as a result of this extension, the total term of office does not exceed five years.
In accordance with section 85(1) of the Aktiengesetz, in the event that the Board of Management lacks a required member, the court must appoint a member in urgent cases upon request of an interested party. The decision may be appealed immediately. In accordance with section 85(2) of the Aktiengesetz, the term of the court-appointed member of the Board of Management expires as soon as a replacement member has been found.
In accordance with section 84(3) of the Aktiengesetz, the Supervisory Board may revoke the appointment of a member of the Board of Management or the appointment of the chairman of the Board of Management for cause. In accordance with section 84(3) sentence 2 of the Aktiengesetz, such cause is in particular a gross breach of duty, inability to properly manage a business, or the withdrawal of confidence by the General Meeting, unless confidence is withdrawn for evidently subjective reasons. In accordance with section 84(2) sentence 4 of the Aktiengesetz, the revocation of the appointment of the Board of Management shall be effective until its ineffectiveness has been declared final and absolute by a court.
Under section 179(1) of the Aktiengesetz, a resolution by the General Meeting shall be required for any amendment to the Articles of Association. However, under Article 10(15) of the Articles of Association in conjunction with section 179(1) sentence 2 of the Aktiengesetz, the Supervisory Board is authorized to resolve amendments to the Articles of Association that relate to the formal wording only.
Under section 179(2) sentence 1 of the Aktiengesetz, a resolution to amend the Articles of Association by the General Meeting shall require a majority of at least three quarters of the share capital represented at the vote on the resolution.
Under section 179(2) sentence 2 of the Aktiengesetz, the Articles of Association may require a different capital majority; in the case of an amendment to the purpose of the Company, however, they may only stipulate a larger capital majority and may lay down further requirements. Article 11(9) of the Articles of Association also stipulates that, apart from the cases in which the law requires a different majority, the resolutions by the General Meeting may be adopted by a simple majority of votes cast.
Furthermore it should be noted that, in particular, resolutions by the General Meeting to increase the share capital against contributions, to create contingent capital, to create authorized capital, to increase the capital from retained earnings, and to reduce the share capital each require a majority of at least three quarters of the share capital represented at the vote on the resolution in accordance with section 182(1) sentence 1, section 193(1) sentence 1, section 202(2) sentence 2, section 207(2) sentence 1, and section 222(1) sentence 1 of the Aktiengesetz.
(No. 7) The Board of Management has the following powers, in particular concerning its authorization to issue and repurchase shares:
a.) General powers of the Board of Management
The Board of Management manages CeoTronics AG and represents it both in and out of court. The members of the Board of Management must manage the Company's business in accordance with the law, the Articles of Association, the rules of procedure for the Board of Management and its schedule of responsibilities, as well as the Supervisory Board approval requirements in accordance with section 111(4) sentence 2 of the Aktiengesetz.
In accordance with Article 7(3) of the Articles of Association, the Board of Management is authorized, with the approval of the Supervisory Board, to increase the share capital in the period up to November 3, 2010 by an aggregate amount of up to €3,299,994.00 by issuing no-par value bearer shares against cash or noncash contributions on one or more occasions, and to issue the corresponding number of no-par value shares. The Board of Management is authorized, with the approval of the Supervisory Board, to disapply shareholders' preemptive rights to the issue in the following cases:
exchange price. The applicable stock exchange price is the average price of the Company's shares in floor trading in Frankfurt (or a comparable successor system) during the last three trading days before the resolution by the Board of Management to issue new shares. If the new shares are subscribed by an underwriter with a simultaneous commitment by the underwriter to offer the new shares for sale to one or more third parties designated by the Company, the issue price under this authorization shall be the amount payable by the third party or parties;
• if the capital is increased against non-cash contributions for the purpose of acquiring companies, parts of companies, or investments in companies.
The Board of Management was also authorized, with the approval of the Supervisory Board, to determine the further details of the rights attached to the shares and the other details of the capital increases and their implementation.
c.) Powers to repurchase shares
In accordance with section 71(1) of the Aktiengesetz, the Company may only acquire own shares:
The shares acquired in accordance with section 71(1) nos. 1 to 3 and no. 8 of the Aktiengesetz, together with other shares of the Company that the Company has acquired or still holds, may not account for more than 10% of the share capital.
Furthermore, such acquisition is only permitted if the Company is able to set up the reserve for own shares required under section 272(4) of the Handelsgesetzbuch (HGB – German Commercial Code) without reducing the share capital or a reserve required by law or in accordance with the Articles of Association that may not be utilized for payments to shareholders.
The Board of Management is not currently authorized to purchase own shares of CeoTronics AG in accordance with section 71(1) no. 8 of the Aktiengesetz.
The switch to digital radio by the police authorities and industry in Germany and Hungary as well as in Northern Europe and Austria will offer CeoTronics additional market potential for audio products for many years to come.
CT-Video's systems will play an even more important role in fighting crime and terrorism in future. The CeoTronics Group's long-term revenue growth will be boosted by authorities investing in monitoring areas at risk – especially those temporarily at risk – and in securing video evidence, as well as by CT-Video GmbH's new product innovations.
It is not certain that CeoTronics Spain and CeoTronics France will be able to maintain their past high level of revenues in the coming fiscal years. Any unlikely further delay in the switch to digital radio in Germany could adversely affect CeoTronics AG's revenue and earnings forecasts.
If CeoTronics U.S.A. cannot meet its revenue and earnings forecasts for the coming years, it cannot be ruled out that goodwill will decrease in CeoTronics U.S.A.'s balance sheet and that CeoTronics AG (Germany) will have to write down the value of its investment in CeoTronics U.S.A. and/or charge write-downs on its receivables from CeoTronics U.S.A.
Competitors, radio dealers, and importers could step up their efforts to penetrate CeoTronics' markets – especially Germany – using cheap goods from Asia in order to win tenders during the switch to digital radio.
CeoTronics will not leave the premium segment and will attempt to keep price acceptance and appreciation for its products and systems at a high level by offering value. The Company will also make greater use of its more cost-effective production locations in Lutherstadt Eisleben (Saxony-Anhalt, Germany) and Lodz (Poland).
Report on expected developments
In addition to the extremely high order backlog at the end of the fiscal year, CeoTronics is pleased with the orders it has received up to the date of going to print, and with the projects currently being negotiated or prepared for fiscal year 2007/2008.
CeoTronics will continue to profit from the switch to digital radio in Germany and Europe in the coming fiscal years, as well as from greater investment in domestic and foreign security.
In keeping with tradition, CeoTronics expects to issue its revenue and earnings targets for fiscal year 2007/2008 in January 2008, at the time of publication of its interim results for the first half of the year. By then, we will have enough information to give a reasonably reliable forecast.
Rödermark, August 17, 2007 CeoTronics AG Audio • Video • Data Communication
Thomas H. Günther Berthold Hemer
Günther Thoma Chief Operating Officer
Chairman of the Deputy Chairman of the Board of Management Board of Management
| € thousand | Note | May 31, 2007 | May 31, 2006 |
|---|---|---|---|
| Current assets | |||
| Cash and cash equivalents | 9 | 783 | 2,376 |
| Trade receivables | 10 | 4,886 | 2,571 |
| Inventories | 11 | 3,861 | 3,754 |
| Other current assets | 12 | 241 | 229 |
| Total current assets | 9,771 | 8,930 | |
| Noncurrent assets | |||
| Property, plant, and equipment | 13 | 5,740 | 3,262 |
| Intangible assets | 13 | 194 | 180 |
| Goodwill | 13 | 1,308 | 1,364 |
| Deferred tax assets | 14 | 520 | 535 |
| Total noncurrent assets | 7,762 | 5,341 | |
| Total assets | 17,533 | 14,271 |
| € thousand | Note | May 31, 2007 | May 31, 2006 |
|---|---|---|---|
| Current liabilities | |||
| Current financial liabilities | 15 | 291 | 175 |
| Trade payables | 16 | 814 | 679 |
| Advance payments received | 208 | 147 | |
| Provisions | 17 | 1,058 | 932 |
| Current tax payables | 816 | 219 | |
| Other current liabilities | 18 | 336 | 347 |
| Total current liabilities | 3,523 | 2,499 | |
| Noncurrent liabilities | |||
| Noncurrent financial liabilities | 15 | 2,305 | 429 |
| Total noncurrent liabilities | 2,305 | 429 | |
| Equity | |||
| Subscribed capital | 19 | 6,600 | 6,600 |
| Capital reserves | 19 | 4,471 | 4,471 |
| Retained earnings | 19 | 16 | 16 |
| Cumulative other recognized income and expense | -36 | -13 | |
| Net retained profit/net accumulated losses | 609 | 226 | |
| Equity attributable to shareholders | |||
| of CeoTronics AG | 19 | 11,660 | 11,300 |
| Minority interest | 20 | 45 | 43 |
| Total equity | 11,705 | 11,343 | |
| Total equity and liabilities | 17,533 | 14,271 | |
| € thousand | Note | 2006/2007 | 2005/2006 |
|---|---|---|---|
| Revenues | 21 | 17,939 | 18,060 |
| Cost of sales | 22 | -8,986 | -9,321 |
| Gross profit | 8,953 | 8,739 | |
| Selling and marketing expenses | -4,010 | -4,308 | |
| General and administrative expenses | -1,518 | -1,455 | |
| Research and development expenses | 23 | -1,316 | -1,227 |
| Other operating income and expenses | 26 | -176 | 46 |
| Impairment of goodwill | -14 | -97 | |
| Operating profit (EBIT) | 1,919 | 1,698 | |
| Interest income/expense | 27 | -58 | -41 |
| Profit before tax | 1,861 | 1,657 | |
| Income tax expense | 28 | -814 | -678 |
| Consolidated profit | 1,047 | 979 | |
| Consolidated profit attributable to: | |||
| Minority interest | 1 | 18 | |
| Shareholders of CeoTronics AG | 1,046 | 961 | |
| Earnings per share (basic) in € | 30 | 0.48 | 0.44 |
| Earnings per share (diluted) in € | 30 | 0.48 | 0.44 |
| Weighted average shares outstanding (basic) | 30 | 2,199,998 | 2,199,998 |
| Weighted average shares outstanding (diluted) | 30 | 2,199,998 | 2,199,998 |
| € thousand | 2006/2007 | 2005/2006 |
|---|---|---|
| Cash flow from operating activities | ||
| Profit before tax | 1,861 | 1,657 |
| Income tax expense | -814 | -678 |
| Consolidated profit | 1,047 | 979 |
| Depreciation, amortization, and impairment losses | 518 | 541 |
| Gross cash flow | 1,565 | 1,520 |
| Changes in assets and liabilities | ||
| Change in trade receivables | -2,315 | -895 |
| Change in inventories | -107 | 158 |
| Change in other assets | -12 | 86 |
| Change in trade payables | 135 | 242 |
| Change in advance payments received | 61 | 119 |
| Change in other provisions | 126 | 106 |
| Change in tax payables | 597 | 40 |
| Change in other current liabilities | -11 | -45 |
| Change in deferred tax assets | 15 | 380 |
| Total changes in assets and liabilities | -1,511 | 191 |
| Net cash provided by operating activities | 54 | 1,711 |
| Cash flow from investing activities | ||
| Payments to acquire intangible assets | -63 | -86 |
| Payments to acquire property, plant, and equipment | -2,996 | -427 |
| Change in noncurrent financial assets | 0 | 16 |
| Change in foreign currency differences | 45 | 43 |
| Disposal of noncurrent assets (net carrying amounts) | 60 | 12 |
| Net cash used in investing activities | -2,954 | -442 |
| Cash flow from financing activities | ||
| Change in current financial liabilities | 116 | -198 |
| Change in noncurrent financial liabilities | 1,876 | -483 |
| Dividend payment to minority interest | -3 | -14 |
| Dividend payment to shareholders of CeoTronics AG | -660 | -440 |
| Net cash provided by/used in financing activities | 1,329 | -1,135 |
| Change in cash and cash equivalents | -1,571 | 134 |
| Effect of exchange rate changes on cash and cash equivalents | -22 | -1 |
| Cash and cash equivalents at beginning of period | 2,376 | 2,243 |
| Cash and cash equivalents at end of period | 783 | 2,376 |
| Equity attributable to | |||||||
|---|---|---|---|---|---|---|---|
| € thousand | Subscribed capital |
Capital reserves | Retained earnings |
||||
| Balance at May 31, 2005 | 6,600 | 4,471 | 16 | ||||
| Consolidated profit | |||||||
| Dividend distribution | |||||||
| Currency translation adjustments |
|||||||
| Change in minority interest |
|||||||
| Balance at May 31, 2006 | 6,600 | 4,471 | 16 | ||||
| Consolidated profit | |||||||
| Dividend distribution | |||||||
| Currency translation adjustments |
|||||||
| Change in minority interest |
|||||||
| Balance at May 31, 2007 | 6,600 | 4,471 | 16 |
| shareholders of CeoTronics AG | ||||
|---|---|---|---|---|
| Net retained pro fit/net accumu lated losses |
Cumulative other recognized in come and expense |
Total | Minority interest |
Total equity |
| -283 | -33 | 10,771 | 48 | 10,819 |
| 961 | 961 | 18 | 979 | |
| -440 | -440 | -14 | -454 | |
| 20 | 20 | 1 | 21 | |
| -12 | -12 | -10 | -22 | |
| 226 | -13 | 11,300 | 43 | 11,343 |
| 1,046 | 1,046 | 1 | 1,047 | |
| -660 | -660 | -3 | -663 | |
| -22 | ||||
| -23 | -23 | 1 | ||
| 0 | ||||
| -3 | -3 | 3 | ||
| 11,705 | ||||
| 609 | -36 | 11,660 | 45 | |
| Cost | ||||||
|---|---|---|---|---|---|---|
| € thousand | June 1, 2006 | Currency translation adjustments |
Additions | Disposals | Reclassifica tions |
May 31, 2007 |
| Property, plant, and equipment | ||||||
| Land, land rights, and buildings, including buildings on third-party land |
2,615 | 0 | 2,606 | 0 | 0 | 5,221 |
| Technical equipment and machinery | 2,078 | -6 | 139 | 216 | 0 | 1,995 |
| Other equipment, operating and office equipment |
1,666 | -4 | 159 | 104 | 0 | 1,717 |
| Prepayments and assets under construction |
33 | 0 | 92 | 42 | 0 | 83 |
| 6,392 | -10 | 2,996 | 362 | 0 | 9,016 | |
| Intangible assets |
||||||
| Concessions, industrial and similar rights and assets, and licenses in such rights |
||||||
| and assets | 429 | 0 | 63 | 5 | 0 | 487 |
| Prepayments on intangible assets | 67 | 0 | 0 | 0 | 0 | 67 |
| 496 | 0 | 63 | 5 | 0 | 554 | |
| Goodwill | 1,461 | -46 | 0 | 0 | 0 | 1,415 |
| 8,349 | -56 | 3,059 | 367 | 0 | 10,985 |
| Cumulative depreciation, amortization, and impairment losses | Carrying amounts | |||||
|---|---|---|---|---|---|---|
| June 1, 2006 | Currency translation adjustments |
Additions | Disposals | May 31, 2007 | May 31, 2007 | May 31, 2006 |
| 334 | 0 | 79 | 0 | 413 | 4,808 | 2,281 |
| 1,434 | -4 | 177 | 173 | 1,434 | 561 | 644 |
| 1,362 | -3 | 199 | 129 | 1,429 | 288 | 304 |
| 0 | 0 | 0 | 0 | 0 | 83 | 33 |
| 3,130 | -7 | 455 | 302 | 3,276 | 5,740 | 3,262 |
| 316 | 0 | 49 | 5 | 360 | 127 | 113 |
| 0 | 0 | 0 | 0 | 67 | 67 | |
| 316 | 0 | 49 | 5 | 360 | 194 | 180 |
| 97 | -4 | 14 | 0 | 107 | 1,308 | 1,364 |
| 3,543 | -11 | 518 | 307 | 3,743 | 7,242 | 4,806 |
Basis of Preparation and Accounting Policies
(1) Business Activities/Information on the Company
CeoTronics AG, domiciled in 63322 Rödermark, Adam-Opel-Strasse 6, Germany, is the parent company of the CeoTronics Group and a listed stock corporation incorporated under the laws of Germany. The Company is entered in the commercial register of the Offenbach District Court (number HRB 34104).
The Company's business activities comprise the development, design, production, and sale of audio, video, and data communication systems, as well as wholesale and retail trading of these systems and other electronic devices, including their import and export, and all related activities in any form.
CeoTronics AG, Rödermark (hereafter 'CeoTronics AG') and its subsidiaries AACOM-CeoTronics Sp. z o.o., Lodz/Poland ('CeoTronics Poland') and CT-Video GmbH, Lutherstadt Eisleben ('CT-Video GmbH') are production and sales companies. The
• CeoTronics S.a.r.l., Brie Comte Robert Cédex/France ('CeoTronics France')
subsidiaries are solely sales companies.
CeoTronics UK discontinued its activities as a sales company as of March 31, 2007. CeoTronics AG took over customer support and order processing in the United Kingdom as from April 1, 2007. CeoTronics UK's business operations are being gradually wound down. The office in Bestwood Village was closed as of April 30, 2007.
Our subsidiaries in Spain, Poland, and the U.S.A. offer local after-sales service.
Most subsidiaries primarily sell the products developed by the parent company.
The majority of subsidiaries mainly restrict their sales activities to the countries in which they are domiciled. The parent company predominantly sells its products in Germany and in countries in which it is not represented by a subsidiary.
CeoTronics AG and the CT-Video GmbH subsidiary also undertake research and development activities.
(2) Basis of Preparation of the Consolidated Financial Statements CeoTronics AG is a parent within the meaning of section 290 of the HGB (German Commercial Code).
In compliance with section 315a of the HGB in conjunction with Article 4 of the Regulation of the European Parliament and of the Council of July 19, 2002 applicable to listed companies in Europe, the CeoTronics Group adopted the International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) for its consolidated accounting as of June 1, 2005.
The accompanying consolidated financial statements were prepared in accordance with IFRSs as adopted by the EU as of May 31, 2007. To ensure equivalence with consolidated financial statements required to be prepared under the provisions of the HGB, the accompanying consolidated financial statements present the amounts and disclosures required by German commercial law in addition to those required by IFRSs.
The prior-year figures were calculated on the basis of the same principles.
The consolidated financial statements were prepared in euros. Unless otherwise indicated, all amounts are presented in thousands of euros (€ thousand). The balance sheet is classified by the maturities of assets and liabilities. Assets and liabilities that will be sold, used in the normal course of business, or settled within twelve months are classified as current. Liabilities are classified as current if they will be settled within twelve months of the reporting date. The income statement has been prepared using the function of expense method. Items of the balance sheet and income statement that have been combined to enhance the clarity of presentation are explained in the notes.
The accompanying consolidated financial statements comply with the supplementary disclosure provisions of section 315a(1) of the HGB.
The annual financial statements of the companies included in the consolidated financial statements have been prepared as of the reporting date of the consolidated financial statements and are based on uniform accounting policies (IAS 27).
The authorization to publish the consolidated financial statements resolved by the Board of Management on August 17, 2007 was approved by the Supervisory Board on August 17, 2007.
(3) Basis of Consolidation, Shareholdings
All companies that are directly or indirectly controlled by CeoTronics AG are consolidated from the date on which CeoTronics AG obtains control.
They are deconsolidated as of the date when CeoTronics AG ceases to have control.
The consolidated financial statements as of May 31, 2007 include the annual financial statements of CeoTronics AG and of the seven subsidiaries listed in the following (hereafter together the 'CeoTronics Group'):
| Equity interest | Equity | Profit/loss | Currency | |
|---|---|---|---|---|
| CT-Video GmbH, Lutherstadt Eisleben/Germany | 100% | 1,128 | 203 | 1,000 EUR |
| CeoTronics AG, Rotkreuz/Switzerland | 100% | 179 | 59 | 1,000 EUR |
| 296 | 95 | 1,000 CHF | ||
| CeoTronics S.a.r.l., Brie Comte Robert Cédex/France | 100% | -349 | 18 | 1,000 EUR |
| CeoTronics Ltd., Bestwood Village/United Kingdom | 100% | 119 | -2 | 1,000 EUR |
| 81 | -2 | 1,000 GBP | ||
| CeoTronics, Inc., Virginia Beach/U.S.A. | 100% | -448 | -291 | 1,000 EUR |
| -604 | -378 | 1,000 USD | ||
| CeoTronics S.L., Madrid/Spain | 100% | 677 | 403 | 1,000 EUR |
| AACOM-CeoTronics Sp. z o.o., Lodz/Poland | 75% | 124 | 6 | 1,000 EUR |
| 475 | 23 | 1,000 PLN |
CT-Video GmbH was formed in fiscal year 1999/2000 and has been domiciled in Lutherstadt Eisleben, Germany, since that time.
CeoTronics Switzerland was originally formed in 1988 as a global export organization also responsible for sales in Switzerland. Since 1997, it has operated solely as a sales company in Switzerland.
Effective May 31,1996, CeoTronics AG acquired the remaining 33% interest in CeoTronics France; the company was formed in 1986. This interest was initially consolidated as of May 31,1996.
CeoTronics UK was acquired as a sales company in 1986 and subsequently renamed CeoTronics Ltd.
CeoTronics U.S.A. was formed as a sales branch in 1992. Local production commenced in 1996. In 2000, the company acquired the Audio Accessory Division of DTC Inc., Nashua/U.S.A.
CeoTronics Spain recommenced its sales activities in 1998. The company was formed in 1992. This company was initially consolidated as of December 1,1998.
CeoTronics AG acquired a 75% interest in CeoTronics Poland in fiscal year 2001/2002. The company was initially consolidated as of June 1, 2002. AACOM-CeoTronics Sp. z o.o. was renamed CeoTronics Sp. z o.o. as of June 1, 2007.
Subsidiaries in which the parent directly or indirectly holds the majority of shares and hence of the voting power are consolidated in accordance with the principles of acquisition accounting. The write-downs of interests in Group companies and the reversal of such write-downs in the single-entity financial statements of CeoTronics AG are eliminated in the consolidated financial statements.
Acquisition accounting uses the purchase method of accounting, under which the cost of the shares acquired is eliminated against the parent's share of the equity of the subsidiary at the date of acquisition. All identifiable assets, liabilities, and contingent liabilities are recognized at their fair values and included in the consolidated balance sheet. Any excess of cost over the fair value of the net assets attributable to the Group is recognized as goodwill.
As a rule, the date of initial consolidation is the date of formation or of the acquisition of the subsidiary concerned.
We account for the 25% minority interest in AACOM-CeoTronics Sp. z o.o., Lodz, Poland, by deducting the minority interest and the resulting effects on profit or loss within equity in the balance sheet, in the income statement, the cash flow statement, and the statement of changes in equity.
The carrying amount of goodwill remains in the balance sheet and is tested for impairment at least once a year on completion of the annual planning process and written down if necessary. Impairment losses on goodwill are not reversed.
Consolidation of intercompany balances
Receivables and liabilities between Group companies are eliminated.
There were no material differences resulting from the consolidation of intercompany balances.
Elimination of intercompany profits
The intercompany profits of €222 thousand (previous year: €200 thousand) from intercompany transactions contained in the carrying amounts of finished goods as of May 31, 2007 were also eliminated.
Because of the increase in intercompany profits, a consolidation adjustment of €22 thousand (previous year: €1 thousand) was recognized as an expense as of the reporting date.
Consolidation of income and expenses
Revenues from intercompany deliveries, other income and expenses from intragroup settlements, and investment, interest, and royalty income were eliminated in the course of consolidation.
Impairment tests on assets in the CeoTronics Group compare the carrying amounts of the individual cash-generating units with their recoverable amounts, i.e., the higher of the asset's net selling price and its value in use.
Reflecting the definition of a cash-generating unit, the CeoTronics Group's strategic business units are used as cash-generating units. In most cases, these are the individual subsidiaries themselves.
In those cases where the carrying amount of the cash-generating unit is higher than its recoverable amount, an impairment loss is recognized in the amount of the difference. The goodwill of the strategic business unit concerned is then written down by the amount of these impairment losses.
The calculation of value in use is based on the present value of estimated future cash flows expected to arise from the continuing use of the strategic business unit. The estimation of future cash flows is based on the CeoTronics Group's planning, using a six-year planning horizon (up to fiscal year 2012/2013 inclusive). For periods beyond this planning horizon, no growth compared with the final year specifically included in the planning is assumed.
Reflecting the volatility of CeoTronics AG shares, the discount rate applied is currently 10%.
Preparation of the consolidated financial statements in accordance with IFRSs requires management to make estimates and assumptions that affect the recognition and measurement of certain items in the consolidated balance sheet and the consolidated income statement. We believe that our estimates and assumptions are reasonable under the circumstances. However, actual amounts could differ materially from the estimates and assumptions.
Estimates are necessary in particular for:
In accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates, the annual financial statements of Group companies prepared in foreign currencies are translated into euros using the functional currency concept on the basis of the modified closing rate method. The functional currency is the currency of the primary economic environment in which the companies operate. The presentation currency of the consolidated financial statements is the functional currency of the parent, CeoTronics AG.
Balance sheet items are translated at the closing rate, and income statement items are translated at the average rate for the fiscal year. The equity accounts of the subsidiaries are measured at historical exchange rates. The foreign currency differences arising from the application of different exchange rates are taken directly to equity and presented in a separate account in equity (cumulative other recognized income and expense).
Foreign currency receivables and liabilities in balance sheets prepared in euros were measured at the closing rate. Gains and losses from the translation of items denominated in foreign currencies in the individual financial statements are recognized in profit or loss.
The relevant exchange rates as of May 31, 2007 and May 31, 2006 and for fiscal years 2006/2007 and 2005/2006 were:
| USD/EUR | GBP/EUR | CHF/EUR | PLN/EUR | |
|---|---|---|---|---|
| Closing rate at May 31, 2007 | 1.3469 | 0.6798 | 1.6490 | 3.8165 |
| Closing rate at May 31, 2006 | 1.2835 | 0.6851 | 1.5605 | 3.9393 |
| Change in € (%) | + 4.9% | - 0.8% | + 5.7% | - 3.1% |
| Average rate for fiscal year 2006/2007 | 1.2993 | 0.6767 | 1.6005 | 3.8905 |
| Average rate for fiscal year 2005/2006 | 1.2126 | 0.6830 | 1.5541 | 3.9311 |
| Change in € (%) | + 7.1% | - 0.9% | + 3.0% | - 1.0% |
Due to their short-term nature, the carrying amounts of cash and cash equivalents, trade receivables, other current assets, trade payables, other current liabilities, and provisions correspond approximately to their fair values.
The carrying amounts of the Company's other liabilities also correspond approximately to their fair values because they either have short maturities and/or the interest rates reflect the market conditions at which the Company could obtain refinancing.
The Company accounts for all highly fungible investments with a maturity of three months or less as cash and cash equivalents. Cash and cash equivalents comprise bank balances, checks and cash-in-hand, and time deposits with a maximum original maturity of three months.
Trade receivables and other current assets are carried at their principal amount or at the lower fair value after deduction of impairment losses. An impairment loss is recognized for trade receivables if there is evidence indicating that the amounts receivable are not collectible in full. The amount of the impairment loss is calculated as the difference between the carrying amount of the receivables and the estimated future cash flows from those receivables. The impairment loss is recognized in profit or loss.
Write-downs are recognized to take account of the general credit risk. Such write-downs are based on past experience, factors derived from the age structure of receivables, and on management's analysis of the reported assets.
The Company's trade receivables are not collateralized.
Inventories include raw materials, consumables, and supplies; work in progress and finished goods; and goods purchased and held for resale.
Purchased work in progress is measured at cost. Internally generated finished goods and work in progress are measured at fully absorbed cost. In accordance with IFRSs, fully absorbed cost includes direct material costs, direct labor costs, and production overheads. Production overheads include all expenses attributable to the production process. They are calculated on the basis of standard costing. Standard costs are continually adapted to the actual costs and correspond approximately to the actual costs. Borrowing costs are not included in the carrying amounts of inventories.
Appropriate valuation allowances are charged for inventory risks resulting from excessive storage periods or reduced marketability. Write-downs are reversed if the reasons for the original write-down no longer apply. Write-downs are reversed up to a maximum of depreciated cost.
In accordance with IAS 12 Income Taxes, deferred tax assets are recognized for all temporary differences between the carrying amounts of assets and liabilities in the IFRS balance sheet and their tax base, and for consolidation adjustments recognized in profit or loss. Deferred tax assets are also recognized for tax loss carryforwards. Deferred tax assets are only recognized for deductible temporary differences and tax loss carryforwards where it is probable that sufficient taxable profit will be available in future periods.
Deferred taxes are calculated on the basis of the tax rates that apply or are expected to apply in the individual countries to the period when the asset is realized or the liability is settled.
In accordance with IAS 1.70, deferred taxes are classified as noncurrent.
Purchased intangible assets (excluding goodwill) are carried at cost and reduced by straight-line amortization over an expected standard useful life of between three and five years. The 'Intangible assets' item mainly comprises software.
Impairment losses are recognized if there are indications that the carrying amount of the intangible asset is impaired. Impairment losses are reversed if the reasons for impairment losses recognized in prior years no longer apply; reversals of impairment losses are recognized in Other income.
At CeoTronics AG, development costs do not satisfy the criteria for capitalization under IAS 38 Intangible Assets and are recognized in profit or loss in the period in which they are incurred.
In accordance with IAS 38 and IFRS 3 Business Combinations, goodwill resulting from initial consolidation and from business combinations is regarding as having an indefinite useful life. Goodwill is tested for impairment at least once a year at yearend, and also whenever there is an indication that the carrying amount of goodwill may be impaired. If the impairment tests confirm that the impairment is expected to be permanent, the impairment loss is recognized in profit or loss. IAS 36 Impairment of Assets prohibits the reversal of impairment losses on goodwill.
In accordance with IAS 16 Property, Plant and Equipment, items of property, plant, and equipment are carried at cost (including directly attributable transaction costs) less depreciation. Preventive maintenance expenditures that do not increase the value of the assets or prolong their useful lives are treated as expenses of the period. Normal repair and corrective maintenance expenditures are recognized as expenses in the year in which they are incurred. Gains or losses on the disposal of items of noncurrent assets are recognized in Other operating income or expenses. Borrowing costs are not included in the carrying amounts of items of property, plant, and equipment.
Items of property, plant, and equipment are depreciated on a straight-line basis over their standard useful lives. Property, plant, and equipment must be assessed for impairment at each reporting date, and an impairment test must be performed if there are indications that an asset is impaired. An asset is impaired if its carrying amount is higher than its value in use or recoverable amount. Any impairment loss must be recognized in profit or loss.
Impairment losses are reversed if the reasons for impairment losses recognized in prior years no longer apply; reversals of impairment losses are recognized in Other income.
Low-value assets (purchase price not exceeding €410) are written off in full in the year of acquisition.
The useful lives applied are shown in the following overview:
| Useful life in years | |
|---|---|
| Buildings | 50 |
| Leasehold improvements | 10, max. remaining term of the lease |
| Technical equipment and machinery | 4 to 8 |
| Other equipment, operating and office equipment | 4 to 10 |
| Office furniture and equipment | 4 to 10 |
| Motor vehicles | 4 to 6 |
CT-Video GmbH receives investment grants for the purchase of certain long-lived assets. In accordance with IAS 20 Accounting for Government Grants and Disclosure of Government Assistance, the grants are deducted in full directly from the carrying amount of the asset in the year in which they are received. Grants are recognized in profit or loss through the lower amounts of depreciation or amortization over the useful life of the assets due to the reduced carrying amounts. Government grants are recognized only if there is sufficient assurance that the Company will satisfy the conditions attached to the grant.
Leases in which substantially all risks and rewards incidental to ownership of an asset remain with the lessor are classified as operating leases. Payments received in connection with an operating lease are recognized in the income statement on a straight-line basis over the term of the lease.
Leases that transfer substantially all the risks and rewards incidental to ownership of the asset to the lessee are classified as finance leases.
The lessee recognizes the assets at cost and depreciates them over their useful life. The financial liabilities are recognized in the same amount. The monthly lease payment is apportioned between the finance charge recognized in the income statement, which is allocated to each period of the lease term, and the reduction of the outstanding liability.
The lessor recognizes the lease payments for the entire lease term as revenues in the year of delivery, discounted to the present value. The discount factor is 5.0%. The payments from the lessee that are outstanding at the balance sheet date are also discounted and reported in trade receivables. The monthly installments to be paid by the lessee are broken down over the term of the lease into a finance charge, which is recognized as income in the income statement, and the reduction of the outstanding trade receivables.
A number of assets were purchased under hire-purchase arrangements, which are accounted for in the same way as finance leases.
Liabilities are recognized at their repayment amounts.
Under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, provisions are recognized for present obligations to third parties arising from past events that are more likely than not to result in an outflow of resources embodying economic benefits. Provisions are measured at the best estimate of the expenditure required to settle the obligation. Where provisions will not be settled for at least one year and the amount and timing of settlement can be estimated reliably, the noncurrent portion of the provision is discounted to arrive at the present value. Income from the reversal of provisions is presented in 'Other operating income' in the income statement.
Provisions for warranties are recognized on the basis of past experience. The historical data is based on the average amount of warranty expenditures in recent years.
Revenues are generated largely from the sale of products. In accordance with IAS 18 Revenue, revenue (net of value added tax and sales allowances) is generally recognized at the time of delivery to the customer – or, if contractually agreed – at the time of technical acceptance of the equipment by the customer. Delivery is deemed to be completed when the risks associated with title pass to the buyer.
Cost of sales comprises the cost of the goods and services sold. In addition to directly attributable materials and labor costs, it also includes indirect production overheads, including depreciation of production facilities and write-downs of inventories Cost of sales also includes additions to warranty provisions. Income from the reversal of previous write-downs of inventories reduces cost of sales.
Significant expenditures are incurred regularly for research and development projects established in anticipation of future revenues. These expenses are recognized in profit or loss and reflect in-process research and development.
Research and development expenses are reported separately in the income statement because of their significance for the Company.
In accordance with IAS 23 Borrowing Costs, borrowing costs are recognized as an expense in the period in which they are incurred (benchmark method).
All liabilities and assets from income taxes arising during a tax year are recognized in the consolidated financial statements in accordance with the relevant tax legislation.
In accordance with IAS 12 Income Taxes, deferred taxes are accounted for using the balance sheet liability method on the basis of the tax rates expected to apply when the assets are realized or the liabilities are settled. Deferred tax assets are recognized for the expected tax benefits of tax loss carryforwards for which it is probable that sufficient taxable profit will be available in future periods, and for temporary differences between the carrying amounts of assets and liabilities in the IFRS balance sheet and their tax base.
Income tax expense comprises payable and recoverable taxes for the reporting period, plus or minus the amount of changes in deferred tax assets and liabilities. The effect of changes in the tax rate on deferred tax assets or liabilities is recognized in profit or loss for the period in which the change becomes law.
Basic and diluted earnings per share are calculated in accordance with IAS 33 Earnings per Share. Basic earnings per share are calculated on the basis of the weighted average number of no-par value shares outstanding in the fiscal year. Diluted earnings per share are calculated on the basis of the weighted average number of no-par value shares outstanding in the period, including potential no-par value shares from the exercise of all stock options.
CeoTronics AG has introduced option plans for virtual shares for senior executives and specialist employees. The aim of the plans is to strengthen the identification of senior executives and specialist employees with the Company by allowing them to participate in the Company's success.
The existing plans are designed to grant the option holders a cash settlement measured as the amount of the difference between the exercise price and the share price of CeoTronics shares at the exercise date.
In accordance with IFRS 2 Share-based Payment, the Company recognizes the difference between the exercise price and the expected market price of the shares at the time of exercise as an employee expense, and allocates it ratably in the income statement over the term of the stock options. Exercise of stock options at the earliest possible date is assumed. The calculation is based on the share price of CeoTronics shares at the relevant reporting date.
In accordance with IAS 14 Segment Reporting, information on the operating business is presented classified by certain segments.
The primary segment reporting format in the CeoTronics Group is geographic.
| € thousand | May 31, 2007 | May 31, 2006 |
|---|---|---|
| Cash and bank balances | 783 | 2,376 |
This item contains balances on current accounts, overnight or time deposits, and cash-in-hand.
Trade receivables as of May 31, 2007 are composed of the following items:
| € thousand | May 31, 2007 | May 31, 2006 |
|---|---|---|
| Trade receivables, gross | 4,939 | 2,602 |
| less: valuation allowances | -53 | -31 |
| Trade receivables, net | 4,886 | 2,571 |
Trade receivables include receivables from finance leases amounting to €939 thousand. In fiscal year 2006/2007, CeoTronics entered into a lease that must be classified as a finance lease with a customer in Spain. The order has a total volume of €1,231 thousand and a term of 72 months. The lessee was granted the option of acquiring the products for €110 thousand after the lease expires.
The reconciliation of the gross value of the order at the reporting date to the present value of the minimum lease payments outstanding at the reporting date is as follows:
| € thousand | |
|---|---|
| Gross value of the order at the reporting date | 1,077 |
| Discount factor: 5.0% | -138 |
| Present value of the order at the reporting date | 939 |
The maturities of the lease payments break down as follows:
| € thousand | Gross value | Present value |
|---|---|---|
| Less than 1 year | 205 | 198 |
| 1 to 5 years | 821 | 701 |
| More than 5 years | 51 | 40 |
| Total amounts at the reporting date | 1,077 | 939 |
The other receivables included in trade receivables are due within one year. Valuation allowances of €19 thousand (previous year: €24 thousand) were recognized as general and administrative expenses in fiscal year 2006/2007.
Inventories as of May 31 are composed of the following items:
| € thousand | May 31, 2007 | May 31, 2006 |
|---|---|---|
| Raw materials, consumables, and supplies | 6 | 12 |
| Work in progress | 2,863 | 2,613 |
| Finished goods | 992 | 1,129 |
| Inventories, net | 3,861 | 3,754 |
Impairment losses of €369 thousand (previous year: €593 thousand) to the lower fair value were recognized in cost of sales in the fiscal year.
The geographic breakdown of impairment losses was as follows:
| € thousand | Fiscal year | Fiscal year |
|---|---|---|
| 2006/2007 | 2005/2006 | |
| Germany | 303 | 330 |
| Rest of Europe | 9 | 64 |
| Rest of world | 57 | 199 |
| Total impairment losses on inventories | 369 | 593 |
| € thousand | May 31, 2007 | May 31, 2006 |
|---|---|---|
| Other current assets | ||
| Current tax receivables | 28 | 56 |
| Claims on employees | 26 | 34 |
| Prepaid expenses | 105 | 98 |
| Miscellaneous | 82 | 41 |
| Total other current assets | 241 | 229 |
Changes in noncurrent assets are presented separately in the Statement of Changes in Noncurrent Assets.
Investments
Investments in fiscal year 2006/2007 mainly related to the acquisition of two previously rented properties at the Rödermark location. The purchase price amounted to €2,490 thousand, and the total investment including transaction costs was €2,606 thousand. The acquisition was partly financed by taking out a loan.
In particular, CeoTronics AG also invested €68 thousand in machinery and equipment, €45 thousand in operating and office equipment, €44 thousand in hardware, €42 thousand in new tools, and €34 thousand in software.
CT-Video GmbH invested €36 thousand in machinery and equipment, €27 thousand in software and licenses, and €18 thousand in hardware.
CeoTronics U.S.A. acquired a total of four computers through finance leases in fiscal year 2005/2006; the expenditures were recognized as items of property, plant, and equipment and as financial liabilities. A monthly payment is payable for 36 months. It consists of a finance charge, which is recognized in the income statement of the period, and the reduction of the outstanding liability over the term of the lease. The lease contract allows the equipment to be purchased for USD 1.00 at the end of the lease term. There are no other agreements. The carrying amount at the reporting date was €2 thousand.
In accordance with IFRS 3 Business Combinations, goodwill is not amortized, but written down for impairment. The carrying amount net of impairment losses is tested for impairment once a year and written down to the fair value if there are indications that goodwill is impaired.
As of May 31, 2007, goodwill resulting from initial consolidation or business combinations was attributable to the following cash-generating units:
| € thousand | Opening | Impairment losses | Currency translati | Carrying amounts |
|---|---|---|---|---|
| balance sheet | FY 2006/2007 | on adjustments | at year-end | |
| from initial consolidation: | ||||
| CeoTronics France | 322 | 0 | 0 | 322 |
| CeoTronics Spain | 13 | 0 | 0 | 13 |
| CeoTronics Poland | 134 | 0 | 0 | 134 |
| Total | 469 | 0 | 0 | 469 |
| from business combinations: | ||||
| CeoTronics France | 14 | -14 | 0 | 0 |
| CeoTronics U.S.A. | 881 | 0 | -42 | 839 |
| Total | 895 | -14 | -42 | 839 |
| Goodwill | 1,364 | -14 | -42 | 1,308 |
Effective May 31,1996, CeoTronics AG acquired the remaining 33% interest in CeoTronics France; the company was formed in 1986. This interest was initially consolidated as of May 31, 1996. The difference resulting from this initial consolidation was classified in full as goodwill. Goodwill amounted to €79 thousand at the date of initial consolidation. The current carrying amount is €47 thousand. In fiscal year 1998/1999, CeoTronics AG also acquired all shares of A&C Achats et Communication S.a.r.l., Pontault-Combault/France.
This company was initially consolidated as of April 1,1999. A&C Achats et Communication Sarl, Pontault-Combault/France, was merged with CeoTronics France. The difference of €323 thousand resulting from initial consolidation was classified in full as goodwill. The current carrying amount is €275 thousand.
CeoTronics Spain recommenced its sales activities in 1998. The company was formed in 1992. This company was initially consolidated as of December 1,1998. The difference resulting from this initial consolidation was classified in full as goodwill. Goodwill amounted to €16 thousand at the date of initial consolidation. The current carrying amount is €13 thousand.
CeoTronics AG acquired a 75% interest in CeoTronics Poland in fiscal year 2001/2002. The company was initially consolidated as of June 1, 2002. The difference resulting from initial consolidation was classified in full as goodwill. Goodwill amounted to €134 thousand at the date of initial consolidation. The current carrying amount is also €134 thousand.
The goodwill from the acquisition of CeoTronics France results from the acquisition of A&C Achats et Communication Sarl, Pontault-Combault/France. The goodwill was written off in full in the year under review (€14 thousand) because no further revenues are expected to be generated by this business unit.
The goodwill at CeoTronics U.S.A. results from the acquisition of the audio business of DTC Inc., Nashua/U.S.A. The enterprise value calculated on the basis of the planning data for 2007/2008 to 2012/2013 is higher than the carrying amount. No further impairment losses were therefore recognized.
An extremely small volume of government grants (previous year: none) was received by CT-Video GmbH in fiscal year 2006/2007 to acquire long-lived assets. CT-Video GmbH received grants amounting to €12 thousand for participating at trade fairs (previous year: €0 thousand).
Deferred tax assets are composed of the following items:
| May 31, 2007 | May 31, 2006 |
|---|---|
| 561 | 561 |
| -281 | -281 |
| 280 | 280 |
| 0 | 18 |
| 150 | 157 |
| 90 | 80 |
| 520 | 535 |
In fiscal years 1997/1998, 1998/1999, and 1999/2000, the Company had already recognized deferred tax assets for the loss carryforward at the U.S. company amounting to €561 thousand, as required by IFRSs, provided that the loss carryforward is recoverable. On the basis of this year's loss, no further deferred tax assets were recognized for the loss carryforward of the U.S. company in fiscal year 2006/2007. The Company has now accumulated a loss carryforward of more than €3 million. In fiscal year 2006/2007, other cost-cutting measures were taken that will have a positive effect on earnings in coming fiscal years. As the Board of Management is forecasting an increase in revenues for the coming years, it is expecting sustained positive earnings during these periods, against which the tax loss carryforwards can be utilized.
The deferred tax asset for the loss carryforward at the U.S. subsidiary amounting to a total of €561 thousand (previous year: €561 thousand) has been written down by 50% for reasons of prudence.
CT-Video GmbH has sustained positive earnings, and its profit before tax in fiscal year 2006/2007 was €300 thousand. Its tax loss carryforwards have now been utilized.
As in the prior years, CeoTronics France closed fiscal year 2006/2007 with positive earnings. Management assumes that the tax loss carryforwards will also continue to be available for utilization in future. The deferred tax asset for the loss carryforward amounts to €150 thousand (previous year: €157 thousand).
Deferred taxes of €10 thousand (previous year: €1 thousand) were recognized for consolidation adjustments in the income statement in fiscal year 2006/2007. Other temporary differences between the IFRS carrying amounts and the tax base of assets and liabilities are insignificant. No deferred taxes were therefore recognized for temporary differences in the reporting period or in the prior year.
German corporations are subject to corporate income tax and trade tax. Both are forms of income tax. In Germany, the corporate income tax rate for retained and distributed profits amounts to a standard 25% (plus 5.5% solidarity surcharge) and is thus the tax rate applicable under IFRSs when calculating deferred taxes.
Trade tax in Germany is levied on the Company's taxable profit, adjusted by eliminating certain income that is not subject to trade tax and by adding back certain types of expenses that are non-deductible for trade tax purposes. The effective trade tax rate depends on which municipality the Company operates in. The average trade tax rate during the reporting period was approximately 15%.
A tax rate of 37% was applied when calculating deferred taxes on the loss carryforward of CeoTronics U.S.A.
The tax expense for fiscal year 2006/2007 of €814 thousand is based on the positive earnings of the majority of companies. This led to a further reduction in tax loss carryforwards and to the recognition of income tax provisions at individual companies.
Deferred taxes were recognized for timing differences resulting from consolidation adjustments recognized in profit or loss.
This led to deferred tax assets in the amount of €90 thousand (previous year: €80 thousand).
| € thousand | May 31, 2007 | May 31, 2006 |
|---|---|---|
| Current: | ||
| Bank overdrafts | 116 | 86 |
| Bank loans | 114 | 26 |
| Leasing companies | 61 | 63 |
| Total | 291 | 175 |
| Noncurrent: | ||
| Bank loans | 2,274 | 338 |
| Leasing companies | 31 | 91 |
| Total | 2,305 | 429 |
| Total financial liabilities | 2,596 | 604 |
In fiscal year 2006/2007, CeoTronics AG, Rödermark, took out a loan amounting to €2,100 thousand to finance the acquisition of a previously rented property in Rödermark. The loan matures on October 31, 2016 and bears interest at 4.81% per annum. The property in question serves as collateral to secure the loan. The remaining amount of the loan as of May 31, 2007 is €2,050 thousand.
In fiscal year 2001/2002, CT-Video GmbH, Lutherstadt Eisleben, took out a loan of €390 thousand to finance the acquisition of a plot of land, the erection of a building, and investments in operating equipment. The loan matured on March 31, 2020 and bore interest at 5.25% per annum. The land, including the buildings erected on it, has been pledged as collateral to secure the loan. As contractually agreed, redemption of the loan commenced on September 30, 2005. Because of the positive interest rate developments, the loan was rescheduled on March 3, 2006. The interest rate now agreed is 4.5% until January 31, 2016. Provided that principal repayments remain constant, the loan will be fully repaid by March 31, 2020. The remaining amount of the loan as of May 31, 2007 is €338 thousand.
The interest expenses for all liabilities to banks and leasing companies amounted to €84 thousand in 2006/2007 and €67 thousand in 2005/2006.
The Group has access to adequate lines of credit from several banks.
The following table shows the due dates of financial liabilities:
| € thousand | |
|---|---|
| 2007/2008 | 291 |
| 2008/2009 | 143 |
| 2009/2010 | 129 |
| 2010/2011 | 128 |
| 2011/2012 | 133 |
| Thereafter | 1,772 |
| Total | 2,596 |
The financial liabilities contain liabilities from finance leases (purchase of four computers by CeoTronics U.S.A. – see note 13) amounting to €2 thousand.
The minimum lease payments and the present value of the finance leases are presented in the following:
| € thousand | Minimum lease | Present value |
|---|---|---|
| payments | ||
| 2007/2008 | 1 | 1 |
| 2008/2009 | 1 | 1 |
| 2009/2010 | 0 | 0 |
| 2010/2011 | 0 | 0 |
| 2011/2012 | 0 | 0 |
| Thereafter | 0 | 0 |
| Total | 2 | 2 |
The lease payments of €1 thousand in fiscal year 2006/2007 were recognized in Selling and marketing expenses in the income statement.
Trade payables of €814 thousand as of May 31, 2007 (previous year: €679 thousand) are due within one year.
The breakdown of other provisions is presented in the following overview:
| € thousand | June 1, 2006 | Utilization | Reversals | Additions | May 31, 2007 |
|---|---|---|---|---|---|
| Current provisions | |||||
| Provisions for employee expenses | |||||
| Claims for outstanding vacation entitlements | |||||
| and overtime | 244 | 244 | 0 | 237 | 237 |
| Employee bonuses | 312 | 312 | 0 | 344 | 344 |
| Management bonuses | 143 | 143 | 0 | 141 | 141 |
| Measurement of employee options | 51 | 0 | 0 | 13 | 64 |
| 750 | 699 | 0 | 735 | 786 | |
| Other provisions | |||||
| Legal and consulting fees and year-end closing costs | 73 | 73 | 0 | 74 | 74 |
| Warranty provisions | 45 | 45 | 0 | 65 | 65 |
| Miscellaneous | 64 | 49 | 15 | 133 | 133 |
| 182 | 167 | 15 | 272 | 272 | |
| Total provisions | 932 | 866 | 15 | 1,007 | 1,058 |
Provisions are recognized for the expected costs of warranty claims on the basis of past experience and reflect current trends expressed as a percentage of revenues. Differences between the actual and expected expenditures result in changes in estimates and are recognized in profit or loss for the period in which the change has arisen.
The measurement of employee options relates to two outstanding employee option plans. The provision is recognized in the amount of the difference between the virtual subscription price and the expected market price of the shares at the exercise date. The option holder receives a cash settlement on exercise.
| € thousand | May 31, 2007 | May 31, 2006 |
|---|---|---|
| Current tax payables | 247 | 288 |
| Social security liabilities | 23 | 13 |
| Miscellaneous | 66 | 46 |
| Other current liabilities | 336 | 347 |
The other current liabilities are due within one year.
Changes in equity are presented in the Statement of Changes in Equity.
The subscribed capital of CeoTronics AG, Rödermark, amounts to €6,599,994.00 and is composed of 2,199,998 no-par value shares with a notional value of €3.00 each.
The General Meeting on November 4, 2005 authorized the Board of Management, with the approval of the Supervisory Board, to increase the share capital in the period up to November 3, 2010 by an aggregate amount of up to €3,299,994.00 by issuing no-par value bearer shares against cash or non-cash contributions on one or more occasions, and to issue the corresponding number of no-par value shares. The Board of Management is authorized, with the approval of the Supervisory Board, to disapply shareholders' preemptive rights to the issue in the following cases:
The Board of Management was authorized, with the approval of the Supervisory Board, to determine the further details of the rights attached to the shares and the other details of the capital increases and their implementation.
The resolution of November 4, 2005 was entered in the commercial register on January 3, 2006.
The capital reserves contain the premium from shares issued at the time of the Company's IPO in 1998.
Amounts have been appropriated to the retained earnings of CeoTronics AG in accordance with section 150(2) of the AktG (German Stock Corporation Act).
The equity of the CeoTronics Group as of May 31, 2007 amounted to €11,705 thousand (previous year: €11,343 thousand), producing an equity ratio of 66.8% (previous year: 79.5%). The year-on-year decrease in the equity ratio is due to the debtfinanced portion of the real estate acquisitions.
Profit distributions are based on the net income reported in the single-entity financial statements of CeoTronics AG, including any accumulated losses brought forward and any appropriations to, or withdrawals from, reserves (net retained profit/net accumulated losses). Due to a number of factors, including adjustment items for IFRS purposes, these amounts differ from the amounts reported in the consolidated financial statements. The single-entity financial statements of CeoTronics AG reported net retained profit of €2,610 thousand as of May 31, 2007.
By way of a resolution dated August 17, 2007, the Board of Management proposed to the Supervisory Board to recommend a dividend of €0.30 per share to the shareholders at the General Meeting.
The minority interest in companies of the CeoTronics Group relates to a 25% minority interest in AACOM-CeoTronics Sp. z o.o. The minority interest of €45 thousand as of May 31, 2007 (previous year: €43 thousand) is presented directly in equity.
At €17,939 thousand, revenues in 2006/2007 fell by 0.7% as against the previous year (€18,060 thousand). €17,418 thousand was generated by the sale of goods and €521 thousand by other services.
Changes in revenues by region are presented in the segment reporting in note 31.
Cost of sales decreased to €8,986 thousand in the reporting period (previous year: €9,321 thousand). The ratio of cost of sales to revenues is now 50.1% (previous year: 51.6%).
The revenues disclosed above were reduced by aggregate cost of materials amounting to €6,016 thousand in fiscal year 2006/2007 (previous year: €6,636 thousand). The ratio of cost of materials to revenues is thus 33.5% (previous year: 36.7%). Cost of materials includes impairment losses of €369 thousand (previous year: €593 thousand).
In fiscal year 2006/2007, the CeoTronics Group implemented projects that will only lead to revenues in future periods. In accordance with IFRSs, these expenditures were recognized as expenses in the current period.
Although these projects thus reduced the Group's earnings in the reporting period, management believes that these expenditures will be amortized in the medium term because of the tremendous market potential for the resulting products.
| € thousand | Fiscal year 2006/2007 |
Fiscal year 2005/2006 |
|---|---|---|
| Wages and salaries | 5,737 | 5,409 |
| Social security, post-employment, and other employee benefit expenses | 1,076 | 992 |
| Total employee expenses | 6,813 | 6,401 |
| of which in respect of old age pensions | 23 | 18 |
An average aggregate of 141 (previous year: 135) employees were employed in the CeoTronics Group in the year under review.
Amortization of €48 thousand (previous year: €47 thousand) was charged on intangible assets.
€28 thousand of this is recognized in cost of sales, €7 thousand in selling and marketing expenses, €5 thousand in general and administrative expenses, and €8 thousand in research and development expenses.
Depreciation of €456 thousand (previous year: €396 thousand) was charged on items of property, plant, and equipment.
This item is broken down as follows:
| € thousand | Fiscal year 2006/2007 |
Fiscal year 2005/2006 |
|---|---|---|
| Other operating income | 36 | 103 |
| Other operating expenses | 212 | 57 |
| Other operating income and expenses | -176 | 46 |
Other operating income relates primarily to income from the reversal of provisions (€15 thousand) and exchange rate gains of €6 thousand.
Other operating expenses relate in particular to exchange rate losses of €94 thousand, to expenses for losses on the disposal of noncurrent assets (€45 thousand), and to other taxes (€21 thousand).
Net interest expense is composed of the following items:
| € thousand | Fiscal year 2006/2007 |
Fiscal year 2005/2006 |
|---|---|---|
| Interest and similar income | 26 | 26 |
| Interest and similar expenses | -84 | -67 |
| Net interest expense | -58 | -41 |
Interest income relates primarily to overnight and term deposits.
Interest expenses are composed mainly of mortgage interest and the amortization of a discount.
Tax expenses relate to corporate income tax, the solidarity surcharge, and municipal trade tax (computed on the basis of the trade tax multiplier at the domicile of the Company) at the German companies, and to comparable income taxes at the foreign companies.
In Germany, the corporate income tax rate was 25.0%, the solidarity surcharge was 5.5% on the corporate income tax liability, and the municipal trade tax rate was equivalent to 14.9% in Rödermark (CeoTronics AG) and 13.4% in Lutherstadt Eisleben (CT-Video GmbH). The corresponding income tax rates outside Germany in the fiscal year were between 15% and 37%.
The tax expense is composed of the following items:
| € thousand | Fiscal year 2006/2007 |
Fiscal year 2005/2006 |
|---|---|---|
| Current taxes | ||
| Germany | 521 | 107 |
| Abroad | 278 | 190 |
| Total | 799 | 297 |
| Deferred taxes | 15 | 381 |
| Income tax expense | 814 | 678 |
The reconciliation of the expected tax expense at the applicable tax rate in Germany (based on pre-tax profit) to the effective tax expense is presented in the following table. To arrive at the expected tax expense, the profit before tax is multiplied by a tax rate of 37.3% (previous year: 37.3%). This is composed of a corporate income tax rate of 25.0%, a municipal trade tax rate of 14.9%, and a solidarity surcharge of 5.5%.
| € thousand | Fiscal year | Fiscal year |
|---|---|---|
| 2006/2007 | 2006/2007 | |
| Profit before tax | 1,861 | 1,657 |
| Tax income at the applicable tax rate (37.3%) | 694 | 618 |
| Difference due to foreign tax rates | -47 | -62 |
| Benefit of tax loss carryforwards | -15 | -381 |
| Non-deductible expenses | 27 | 44 |
| Effect on deferred taxes | 125 | 663 |
| Effect of consolidation adjustments | -13 | -119 |
| Other differences | 43 | -85 |
| Tax expense reported in consolidated financial statements | 814 | 678 |
Other Disclosures
For the purposes of the cash flow statement, CeoTronics AG defines cash investments with a maximum original maturity of three months as cash equivalents. There is no restricted cash or cash equivalents.
The format of the cash flow statement complies with IAS 7 Cash Flow Statements, and classifies cash flow into cash flow from operating, investing, and financing activities.
Cash flow from investing and financing activities is derived from cash payments and receipts, while cash flow from operating activities is derived indirectly from consolidated profit.
| € thousand | Fiscal year 2006/2007 |
Fiscal year 2005/2006 |
|---|---|---|
| Consolidated profit attributable to shareholders of the parent | 1,046 | 961 |
| Weighted average number of shares | 2,199,998 | 2,199,998 |
| Earnings per share | 0.48 | 0.44 |
In accordance with IAS 33 Earnings per Share, basic earnings per share are computed by dividing 'Consolidated profit attributable to shareholders of the parent' by the weighted average number of shares outstanding in the year.
As in the prior year, all shares of the Company were outstanding in fiscal year 2006/2007.
No dilution from the existing stock option plans IV and V is possible because the plans exclusively feature cash settlements.
Segment reporting was prepared in accordance with IAS 14 Segment Reporting. The Company assesses the performance of the subsidiaries on the basis of their pre-tax profit. The accounting policies applicable to geographic segment reporting are identical to those described in note 8.
The information is presented for two segments. The primary segment describes the geographic breakdown by country of origin (domicile of the company in question), while the secondary segment contains the geographic breakdown by customer domicile.
The Company's product groups are comparable in terms of both the production process used and the marketing methods. Internal and external reporting primarily follows geographic criteria. At present, only revenues are recorded separately by product and product group. Please refer to the explanations in the Group management report for information on revenues by product and product group.
The segment information is presented by region in the following.
Revenues
Revenues are attributable as follows to the various regions in the primary segment (by country of origin) in fiscal years 2006/2007 and 2005/2006:
| € thousand | Fiscal year 2006/2007 |
Fiscal year 2005/2006 |
|---|---|---|
| Germany | 8,838 | 9,084 |
| Rest of Europe | 8,753 | 8,477 |
| Rest of world | 348 | 499 |
| Third-party revenues | 17,939 | 18,060 |
The breakdown in the secondary segment (by customer country) is as follows:
| € thousand | Fiscal year 2006/2007 |
Fiscal year 2005/2006 |
|---|---|---|
| Germany | 4,974 | 5,913 |
| Rest of Europe | 12,194 | 11,538 |
| Rest of world | 771 | 609 |
| Third-party revenues | 17,939 | 18,060 |
Profit or loss for the year is attributable as follows to the various regions (primary segment) in fiscal years 2006/2007 and 2005/2006:
| € thousand | Fiscal year | Fiscal year |
|---|---|---|
| 2006/2007 | 2005/2006 | |
| Germany | 697 | 992 |
| Rest of Europe | 641 | 541 |
| Rest of world | -291 | -554 |
| Consolidated profit | 1,047 | 979 |
Segment assets are attributable as follows to the various regions (primary segment) as of May 31, 2007 and May 31, 2006:
| € thousand | May 31, 2007 | May 31, 2006 |
|---|---|---|
| Germany | 10,587 | 8,751 |
| Rest of Europe | 5,332 | 3,864 |
| Rest of world | 1,614 | 1,656 |
| Total segment assets | 17,533 | 14,271 |
Segment liabilities are attributable as follows to the various regions (primary segment) as of May 31, 2007 and May 31, 2006:
| € thousand | May 31, 2007 | May 31, 2006 |
|---|---|---|
| Germany | 5,014 | 2,218 |
| Rest of Europe | 781 | 633 |
| Rest of world | 33 | 77 |
| Total segment liabilities | 5,828 | 2,928 |
Noncurrent assets are attributable as follows to the various regions (primary segment) as of May 31, 2007 and May 31, 2006:
| € thousand | May 31, 2007 | May 31, 2006 |
|---|---|---|
| Germany | 5,818 | 3,286 |
| Rest of Europe | 565 | 597 |
| Rest of world | 859 | 923 |
| Total noncurrent assets | 7,242 | 4,806 |
Investments are attributable as follows to the various regions (primary segment) in fiscal years 2006/2007 and 2005/2006:
| € thousand | Fiscal year 2006/2007 |
Fiscal year 2005/2006 |
|---|---|---|
| Germany | 3,031 | 419 |
| Rest of Europe | 25 | 66 |
| Rest of world | 3 | 28 |
| Total investments | 3,059 | 513 |
Depreciation, amortization, and impairment losses are attributable as follows to the various regions (primary segment) in fiscal years 2006/2007 and 2005/2006:
| € thousand | Fiscal year 2006/2007 |
Fiscal year 2005/2006 |
|---|---|---|
| Germany | 444 | 394 |
| Rest of Europe | 67 | 35 |
| Rest of world | 7 | 112 |
| Total depreciation, amortization, and impairment losses | 518 | 541 |
Neither CeoTronics AG nor any of its subsidiaries are currently involved in pending court or arbitration proceedings that could materially affect the net assets, financial position, and results of operations of the Group.
The following fees were agreed or recognized as expenses for the statutory auditors in fiscal years 2006/2007 and 2005/2006:
| € thousand | Fiscal year 2006/2007 |
Fiscal year 2005/2006 |
|---|---|---|
| Fees for audits of financial statements | 58 | 53 |
| Fees for other assurance and advisory services | 0 | 0 |
| Fees for tax advisory services | 9 | 6 |
| Fees for other services provided to the Company or to its subsidiaries | 0 | 0 |
| Total | 67 | 59 |
There are other financial commitments resulting from rental and leasing agreements, as well as commitments entered into under master agreements and outstanding purchase orders relating to the purchase of goods.
Future obligations under operating leases and rental agreements at May 31, 2007 amounted to:
| € thousand | |
|---|---|
| For fiscal year 2007/2008 | 213 |
| For fiscal year 2008/2009 | 126 |
| For fiscal year 2009/2010 | 63 |
| For fiscal year 2010/2011 | 19 |
| For fiscal year 2011/2012 | 0 |
| Thereafter | 0 |
| Total future rental and lease obligations | 421 |
Future commitments resulting from master agreements and outstanding purchase orders relating to the purchase of goods amounted to €2,385 thousand at May 31, 2007. The entire amount relates to fiscal year 2007/2008.
The following amounts relating to rental and leasing agreements were incurred in the reporting period and the prior year:
| € thousand | Fiscal year 2006/2007 |
Fiscal year 2005/2006 |
|---|---|---|
| Building rents | 220 | 420 |
| Motor vehicle leases | 139 | 113 |
| Total rental and lease expenses | 359 | 533 |
There were no subleases at the reporting date.
The Board of Management and the Supervisory Board introduced a total of five stock option plans for senior executives and specialist employees in fiscal years 1998/1999, 1999/2000, 2000/2001, and 2003/2004, three of which have now expired. The aim of the plans is to strengthen the identification of senior executives and specialist employees with the Company by allowing them to participate in the Company's success.
The first three stock option plans expired in fiscal year 2003/2004, 2004/2005, and 2005/2006 without any options having been exercised by the beneficiaries.
In fiscal year 2003/2004, the Company launched a fourth and fifth stock option plan for senior executives and specialist employees. Under these plans, options were not issued on no-par value shares from contingent capital, but on virtual shares (phantom shares). The option premium was €0.10 per option.
Purchase of an option entitles senior executives and specialist employees to a cash settlement in the amount of the difference between the exercise price and the share price of CeoTronics shares at the time of exercising the option. The exercise price of the shares in the fourth stock option plan equaled the average price in the last ten days of trading before November 6, 2003 (€2.12). The subscribers are able to exercise their options in the period between October 29, 2005 and October 28, 2008. However, exercise is subject to the condition that certain profit or share price targets for CeoTronics shares are met. If a participant in the stock option plan leaves the Company, the options expire under certain conditions. 6,000 stock options from this stock option plan were outstanding as of May 31, 2007.
The exercise price of shares in the fifth stock option plan equaled the average price in the last ten days of trading before May 28, 2004 (€3.76). The subscribers are able to exercise their options in the period between May 31, 2006 and May 30, 2009. However, exercise is subject to the condition that certain profit or share price targets for CeoTronics shares are met. If a participant in the stock option plan leaves the Company, the options expire under certain conditions. 6,000 stock options from this stock option plan were outstanding as of May 31, 2007.
A total of 12,000 stock options from the existing stock option plans were outstanding as of May 31, 2007.
Changes in the fiscal year in the number of stock options in issue were as follows:
| Plan IV | Plan V | Total |
|---|---|---|
| 6,000 | 6,000 | 12,000 |
| 0 | 0 | 0 |
| 0 | 0 | 0 |
| 0 | 0 | 0 |
| 0 | 0 | 0 |
| 0 | 0 | 0 |
| 6,000 | 6,000 | 12,000 |
All options outstanding as of May 31, 2007 were exercisable at the reporting date.
The option premiums paid by the employees for the stock option plans amounting to an aggregate of €1 thousand are reported in Other current liabilities.
The Company recognizes the difference between the subscription price and the expected market price of the shares at the date of exercise as an employee expense and allocates it ratably in the income statement over the term of the stock options. Exercise of stock options at the earliest possible date is assumed. Because both stock option plans could already be exercised as of the reporting date, the current share price as of May 31, 2007 was used for the calculation. The ratable expense calculated for the reporting period was €13 thousand.
All options were exercised on June 4, 2007 after the close of fiscal year 2006/2007. The exercise price was €11.84. €9.72 was paid as a cash settlement per option for the fourth stock option plan, and €8.08 per option for the fifth stock option plan.
The CeoTronics Group is exposed to price and currency fluctuations because of its international business operations. 88% of all revenues are generated in the euro zone, and the remaining 12% are generated primarily in the U.S.A., the United Kingdom, Poland, and Switzerland. Because the consolidated financial statements are prepared in euros, fluctuations between the euro and the corresponding foreign currencies have a not insignificant effect on the level of revenues and of individual income and expense items. Currency risks are mitigated by operating business locations in the corresponding countries; in addition to generating revenues in foreign currency, they also incur expenses in the same currency. No specific currency hedging transactions have been entered into in the past.
The CeoTronics Group is not significantly dependent on individual customers, neither does any customer account for 10% or more of aggregate Group revenues.
The share of the aggregate procurement volume of the CeoTronics Group attributable to individual suppliers is also less than 10%. Secondary sources have also been developed for the majority of assemblies/components, or can be activated within a very short period.
Because of the strongly competitive environment, the CeoTronics Group is faced with the need to continuously upgrade existing products and to drive forward the development of new products. The goal is to reinforce or extend the Company's existing technical lead over its competitors. The high degree of innovation in, and advanced technology of, CeoTronics products reduces price pressure and thus limits the price risk to the CeoTronics Group. In the past, the high level of research and development expenditures incurred to achieve this have always been amortized in the short to medium term.
Interest rate risk, i.e., the risk of exposure to possible fluctuations in the value of financial instruments because of changes in market rates of interest, may in particular affect medium- and long-term fixed-rate receivables and liabilities. There are no medium- and long-term interest-bearing receivables in the Group. In addition to the existing loan for a property in Lutherstadt-Eisleben, a new loan to finance the acquisition of a property in Rödermark amounting to €2,100 thousand was raised in fiscal year 2006/2007.
The fixed-interest period for the existing loans does not expire until 2016. Provided that principal is repaid on schedule, the remaining value of the loans after expiration of the fixed-interest period will be €1,141 thousand. No interest rate hedging contracts have been entered into so far due to the long term of the fixed-interest period and the long remaining maturity of the loans.
In many cases, CeoTronics AG makes advance payments for substantial materials purchases, especially for large contracts, although the contracts themselves are not invoiced and settled until months later. To mitigate this risk, CeoTronics AG has reached agreement with banks on adequate and, in fiscal year 2006/2007, considerably expanded lines of credit. This safeguards adequate liquidity in the Group at all times.
The carrying amount of financial assets is the maximum value at risk if business partners do not meet their contractual payment obligations. To keep the default risk to a minimum, CeoTronics AG has established a comprehensive receivables management system that ensures that credit rating information is obtained or historical data – and in particular payment patterns – from the existing business relationship is used to avoid payment default. If default risks are identified for individual financial assets, these risks are taken into account in the form of valuation allowances. In fiscal year 2006/2007, bad debts amounted to €19 thousand or 0.10% of revenues (previous year: €24 thousand or 0.13% of revenues).
An average of 141 employees were employed in the CeoTronics Group in fiscal year 2006/2007 (previous year: 135). The breakdown by function was as follows:
| Fiscal year | Fiscal year | |
|---|---|---|
| 2006/2007 | 2005/2006 | |
| Operations | 72 | 69 |
| Sales and marketing | 38 | 38 |
| Research and development | 12 | 10 |
| Administration | 19 | 18 |
| Total employees | 141 | 135 |
The number of employees in the Group is broken down by region as follows:
| Fiscal year | Fiscal year | |
|---|---|---|
| 2006/2007 | 2005/2006 | |
| Germany | 124 | 116 |
| U.S.A. | 3 | 5 |
| Spain | 4 | 4 |
| United Kingdom | 1 | 1 |
| France | 4 | 4 |
| Poland | 3 | 3 |
| Switzerland | 2 | 2 |
| Total | 141 | 135 |
Employee expenses amounted to €6,813 thousand in fiscal year 2006/2007, compared with €6,401 thousand in the prior year.
Board of Management The members of the Board of Management in fiscal year 2006/2007 were:
| Thomas H. Günther, Businessman, Rödermark |
Chairman |
|---|---|
| Berthold Hemer, Diplom-Ingenieur, Schaafheim |
Deputy Chairman |
| Günther Thoma, Technischer Betriebswirt, Schöllkrippen |
Member |
In accordance with Article 10 of the Articles of Association, the Company is represented by two members of the Board of Management or by one member of the Board of Management and a Prokurist (authorized signatory). The Supervisory Board is authorized to grant sole right of representation to one member or individual members of the Board of Management and/or to exempt this member/these members from the restrictions of section 181 of the BGB (German Civil Code).
The General Meeting on November 4, 2005 resolved that the salaries and other remuneration components will not be disclosed individually for each member of the Board of Management in the annual financial statements and consolidated financial state-
ments of CeoTronics. This also applies to benefit commitments to the members of the Board of Management in the event of termination of their activities. The resolution is effective for the fiscal year beginning June 1, 2005 and for the four subsequent fiscal years until May 31, 2010.
The total remuneration of the Board of Management in the fiscal year amounted to €626 thousand (previous year: €617 thousand). The total remuneration is broken down into fixed salary components of €532 thousand (previous year: €529 thousand), variable remuneration components of €87 thousand (previous year: €86 thousand), plus €7 thousand (previous year: €2 thousand) from the measurement of the outstanding virtual stock options held by members of the Board of Management.
In accordance with Article 11 of the Articles of Association, the Supervisory Board has at least three members who are elected by the General Meeting. The members of the Supervisory Board in the period under review were:
| Hans-Dieter Günther | Chairman |
|---|---|
| Businessman, Rödermark | |
| Horst Schöppner, Diplom-Kaufmann, Rödermark |
Deputy Chairman |
| Stephan Haack, | Member |
| Lawyer, Kronberg |
Hans-Dieter Günther has been Chairman of the Supervisory Board of Rhein-Main-Factoring AG, Rodgau, since January 12, 2004. There are no further memberships of supervisory bodies as defined by section 125(1) sentence 3 of the AktG.
The total remuneration of the Supervisory Board in fiscal year 2006/2007 amounted to €84 thousand (previous year: €72 thousand), of which €44 thousand (previous year: €44 thousand) related to fixed remuneration and €40 thousand (previous year: €28 thousand) related to variable components. The members of the Supervisory Board receive the above amounts plus value added tax at the statutory rate.
Shareholdings of the members of the executive bodies The members of the executive bodies held the following shares of CeoTronics AG:
| CeoTronics shares | |||
|---|---|---|---|
| Function | Name | (ISIN DE 0005407407/WKN 540740) (quantity) | |
| May 31, 2007 | May 31, 2006 | ||
| Board of Management | |||
| Chairman of the Board of Management | Thomas H. Günther | 9,498 | 9,498 |
| Deputy Chairman of the Board of Management | Berthold Hemer | 171,050 | 171,050 |
| Chief Operating Officer | Günther Thoma | 6,022 | 6,022 |
| Supervisory Board | |||
| Chairman | Hans-Dieter Günther | 371,200 | 371,200 |
| Deputy Chairman | Horst Schöppner | 219,270 | 219,270 |
| Member | Stephan Haack | 0 | 0 |
The following members of the executive bodies also hold options on virtual shares issued by CeoTronics AG:
| Function | Name | Quantity | |
|---|---|---|---|
| Board of Management | May 31, 2007 | May 31, 2006 | |
| Chairman of the Board of Management | Thomas H. Günther | 2,000 | 2,000 |
| Deputy Chairman of the Board of Management | Berthold Hemer | 2,000 | 2,000 |
| Chief Operating Officer | Günther Thoma | 2,000 | 2,000 |
Notification in accordance with section 21(1) of the Wertpapierhandelsgesetz (WpHG – German Securities Trading Act) On August 23, 2006, Horst Schöppner, Rödermark, notified CeoTronics AG in accordance with section 21(1) of the Wertpapierhandelsgesetz (WpHG – German Securities Trading Act) that his holdings of shares of CeoTronics AG had fallen below the notifica-
tion threshold of 10%.
Other service relationships
The Company rented a factory building in Rödermark from a shareholder until October 31, 2006. The rent in fiscal year 2006/2007 amounted to €99 thousand. CeoTronics AG bought the building as of November 1, 2006 for a price of €2.3 million.
The same shareholder runs an advertising agency as a sole proprietor. The Company used its services for placing advertisements with a total value of €49 thousand, and purchased other services.
Until October 31, 2006, the Company rented a parking lot behind the factory building from a member of the Supervisory Board. The rent in fiscal year 2006/2007 amounted to €3 thousand. CeoTronics AG bought the parking lot as of November 1, 2006 for a price of €190 thousand.
A member of the Supervisory Board is a member of a law and notary firm to which the Company paid fees in the fiscal year in the amount of €19 thousand in accordance with the appropriate schedules of fees.
The daughter of a member of the Supervisory Board is the owner of a translation agency from which the Company purchased services in the amount of €3 thousand in fiscal year 2006/2007.
The brother of a member of the Board of Management operates a printing service from which the Company purchased services in the amount of €8 thousand in fiscal year 2006/2007.
No amounts were outstanding at the reporting date under the above service relationships.
(40) Events after the Balance Sheet Date
In accordance with IAS 10 Events after the Balance Sheet Date, events after the balance sheet date are favorable and unfavorable events that occur between the balance sheet date and the date when the financial statements are authorized for issue.
In July 2007, the Spanish security and law enforcement agencies placed an order with CeoTronics amounting to approximately €1,500 thousand for Semi- and FullyCovertCom systems and for helmet-independent motorcycle communications systems for connection to TETRA digital radios.
Please refer to note 35 for information on the exercise of the stock options on June 4, 2007.
(41) Declaration of Conformity with the German Corporate Governance Code The Board of Management and the Supervisory Board have published the Declaration of Conformity on compliance with the provisions of the German Corporate Governance Code in accordance with section 161 of the AktG on the Internet (http://www.ceotronics.com), and have thus made it permanently accessible to shareholders.
Rödermark, August 17, 2007
CeoTronics AG Audio • Video • Data Communication
Thomas H. Günther Chairman of the Board of Management and Chief Executive Officer
Berthold Hemer
Deputy Chairman of the Board of Management and Chief Technology Officer
Günther Thoma Member of the Board of Management Chief Operating Officer
We have audited the consolidated financial statements – comprising the balance sheet, income statement, statement of changes in equity, cash flow statement, and the notes – and the group management report prepared by CeoTronics Aktiengesellschaft Audio • Video • Data Communication, Rödermark, for the fiscal year from June 1, 2006 to May 31, 2007. The preparation of the consolidated financial statements and the group management report in accordance with IFRSs as adopted by the EU and the supplementary provisions of German commercial law required to be applied under section 315a(1) of the Handelsgesetzbuch (HGB – German Commercial Code) is the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements and the group management report based on our audit.
We conducted our audit of the consolidated financial statements in accordance with section 317 of the HGB and the German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW), as well as in accordance with the International Standards on Auditing (ISAs). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position, and results of operations in the consolidated financial statements in accordance with the applicable financial reporting standards and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of the companies included in the consolidated financial statements, the determination of the companies to be included in the consolidated financial statements, the accounting and consolidation principles used, and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and the group management report. We believe that our audit provides a reasonable basis for our opinion.
Our audit has not led to any reservations.
In our opinion, based on the findings of our audit, the consolidated financial statements comply with IFRSs as adopted by the EU and the supplementary provisions of German commercial law required to be applied under section 315a(1) of the HGB and give a true and fair view of the net assets, financial position, and results of operations of the Group in accordance with these requirements. The group management report is consistent with the consolidated financial statements, as a whole provides a suitable understanding of the Group's position, and suitably presents the opportunities and risks of future development.
Eschborn, August 17, 2007
UWP Unitreu GmbH Wirtschaftsprüfungsgesellschaft
Stefan Sauerbier Peter J. Goldsche Wirtschaftsprüfer Wirtschaftsprüfer
| € thousand | May 31, 2007 | May 31, 2006 |
|---|---|---|
| Intangible assets | 165 | 185 |
| Tangible assets | 4,887 | 2,358 |
| Financial assets | 4,328 | 4,328 |
| Fixed assets | 9,380 | 6,871 |
| Inventories | 2,699 | 2,650 |
| Trade receivables | 1,106 | 743 |
| Receivables from affiliated companies | 4,535 | 3,097 |
| Other assets | 126 | 131 |
| Securities | 0 | 0 |
| Cash funds | 12 | 1,223 |
| Current assets | 8,478 | 7,844 |
| Total assets | 17,858 | 14,715 |
| € thousand | May 31, 2007 | May 31, 2006 |
|---|---|---|
| Subscribed capital | 6,600 | 6,600 |
| Capital reserves | 4,181 | 4,181 |
| Revenue reserves | 16 | 15 |
| Net retained profit/net accumulated losses | 2,610 | 2,353 |
| Equity | 13,407 | 13,149 |
| Provisions for taxes | 504 | 103 |
| Other provisions | 805 | 695 |
| Provisions | 1,309 | 798 |
| Liabilities to banks | 2,166 | 0 |
| Advances received | 31 | 24 |
| Trade payables | 654 | 548 |
| Liabilities to affiliated companies | 107 | 6 |
| Other liabilities | 184 | 190 |
| Liabilities | 3,142 | 768 |
| Total equity and liabilities | 17,858 | 14,715 |
| € thousand | 2006/2007 | 2005/2006 |
|---|---|---|
| Sales | 13,104 | 13,975 |
| Cost of sales | -7,292 | -7,745 |
| Gross profit | 5,812 | 6,230 |
| Research and development expenses | -1,116 | -1,066 |
| Selling and marketing expenses | -2,707 | -2,981 |
| General and administrative expenses | -1,156 | -1,043 |
| Other operating expenses | -133 | -67 |
| Other taxes | -14 | -5 |
| Operating expenses | -5,126 | -5,162 |
| Other operating income | 204 | 221 |
| Operating result (EBIT) | 890 | 1,289 |
| Net financial and investment income | 441 | 259 |
| Result before income taxes | 1,331 | 1,548 |
| Taxes on income | -413 | -108 |
| Net income for the year | 918 | 1,440 |
| Chairman |
|---|
| Deputy Chairman |
| Member |
| Chairman |
| Deputy Chairman |
Technischer Betriebswirt, Schöllkrippen
| Annual earnings press conference in Rödermark | August 30, 2007 |
|---|---|
| Analyst meeting in Rödermark | August 30, 2007 |
| Small Cap Theme Park at the IAM, Düsseldorf | September 7-9, 2007 |
| Publication of preliminary revenue and order backlog figures after first 3 months of fiscal year 2007/2008 |
Calendar week 36 |
| Report on 1st quarter as of August 31, 2007 | October 12, 2007 |
| General Meeting 2007 | November 2, 2007 |
| Publication of preliminary revenue and order backlog figures after first 6 months of fiscal year 2007/2008 |
Calendar week 49 |
| Report on 2nd quarter as of November 30, 2007 | January 14, 2008 |
| Publication of preliminary revenue and order backlog figures after first 9 months of fiscal year 2007/2008 |
Calendar week 10 |
| Report on 3rd quarter as of February 29, 2008 | April 11, 2008 |
| End of fiscal year 2007/2008 | May 31, 2008 |
| Publication of preliminary revenue and order backlog figures after 12 months of fiscal year 2007/2008 |
Calendar week 23 |
| Report on 4th quarter and annual report as of May 31, 2008 | August 14, 2008 |
| Annual earnings press conference in Rödermark | August 28, 2008 |
| Analyst meeting in Rödermark | August 28, 2008 |
| Publication of preliminary revenue and order backlog figures after 3 months of fiscal year 2008/2009 |
Calendar week 36 |
| Report on 1st quarter as of August 31, 2008 | October 10, 2008 |
| General Meeting 2008 | November 7, 2008 |
All information subject to correction and change without notice.
Published by: CeoTronics AG, Audio • Video • Data Communication Contact: Thomas H. Günther, CEO Graphic design: Alexander U. Günther
This Annual Report contains forward-looking statements based on estimates of future developments made by the Board of Management of CeoTronics. The statements and forecasts represent estimates made at the time of going to print on the basis of all information available at that time. If the assumptions on which the statements and forecasts are based do not materialize, the actual results may differ from those expected at the current time.
All brand names, trademarks, or product names mentioned in this Annual Report are the property of their respective owners. This applies in particular to DAX, GEX, Prime Standard, Technology All Share, and Xetra, which are registered trademarks and the property of Deutsche Börse AG; TETRA, which is a brand of TETRA MoU Association Ltd.; and TETRAPOL, which is a brand of EADS TELECOM Corporation France.
(from left to right) Berthold Hemer (CTO), Thomas H. Günther (CEO), Günther Thoma (COO)
Pressure to deliver short-term success stories and the constraints imposed by quarterly financial reporting are factors that run counter to stable, continuous corporate development. That's why the CeoTronics Group's management strategies are aligned with long-term value growth.
CeoTronics concentrates on its core competencies, occupies attractive niche markets, and makes a careful analysis before investing in technologies, products, markets, and capacity.
The recipe for sustainable value management includes such ingredients as risk management; regular analysis of ratios and other financial indicators; tools that create transparency in projects and processes; short decision paths; and goal agreements (not only for revenues and contribution margins, but also relating to organizational and process enhancements, and to reductions in production costs). Some of the other ingredients are revenue and contribution margin analyses (by sales territories, product and customer groups); sales commissions and contribution margin-based bonuses as variable remuneration components; dynamic growth of the product portfolio; innovation management for products and process organization; and cooperation management (in the areas of R&D, production, and sales/marketing).
Unhealthy revenue growth from over-ambitious acquisitions (possibly with an excessive level of leverage), a willingness to take on too many low-margin jobs to pump up revenues, and operating in high-risk markets are all factors that can endanger the substance of a healthy company.
That's why CeoTronics will continue to deploy its management capacity and financial resources going forward only after a careful opportunity, risk, and feasibility analysis, and will be equally conscientious in examining new markets.
CeoTronics AG 63322 Rödermark (Germany) Adam-Opel-Str. 6 Tel. +49 6074 8751-722 Fax +49 6074 8751-720 E-Mail: [email protected]
www.ceotronics.com
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