Bauer AG — Annual Report 2016

Apr 13, 2017

The BAUER Group is a leading provider of services, equipment and products related to ground and groundwater. With over 110 subsidiaries, Bauer operates a worldwide network on all continents.

The operations of the Group are divided into three future-oriented segments with high synergy potential: Construction, Equipment and Resources. The Construction segment offers new and innovative specialist foundation engineering services alongside the established ones, and carries out foundation and excavation work, cut-off walls and ground improvements worldwide. Bauer is a world market leader in the Equipment segment and provides a full range of equipment for specialist foundation engineering as well as for the exploration, mining and extraction of natural resources. In the Resources segment, Bauer focuses on highly innovative products and services in the areas of water, environment and natural resources.

Bauer profits greatly from the collaboration between its three separate segments, enabling the Group to position itself as an innovative, highly specialized provider of products and services for demanding projects in specialist foundation engineering and related markets. Bauer therefore offers suitable solutions to the greatest problems in the world, such as urbanization, the growing infrastructure needs, the environment and water, oil and gas.

The BAUER Group was founded in 1790 and is based in Schrobenhausen, Bavaria. In 2016, it employed some 10,800 people in around 70 countries and achieved total Group revenues of EUR 1.6 billion. BAUER Aktiengesellschaft is listed in the Prime Standard of the German stock market.

The Group at a glance

GROUP KEY FIGURES 2013 – 2016

IFRS in EUR million		2013	2014	2015	2016	Change 2015/2016
Total Group revenues		1,504.2	1,560.2	1,656.4	1,586.1	-4.2 %
of which	Germany	410.4	440.2	473.7	481.0	1.6 %
	International	1,093.8	1,120.0	1,182.7	1,105.1	-6.6 %
	International in %	72.7	71.8	71.4	69.7	n/a
of which	Construction	741.7	725.6	742.9	722.1	-2.8 %
	Equipment	628.6	639.2	753.1	651.7	-13.5 %
	Resources	188.9	252.8	221.6	264.7	19.5 %
	Other/Consolidation	-55.0	-57.4	-61.2	-52.4	n/a
	Consolidated revenues	1,447.5	1,506.0	1,587.9	1,488.6	-6.3 %
Sales revenues		1,402.2	1,375.7	1,379.0	1,396.9	1.3 %
Order intake		1,484.5	1,521.1	1,811.4	1,598.6	-11.8 %
Order backlog		765.2	762.7	995.6	1,008.1	1.3 %
EBITDA		124.0	171.0	185.1	158.4	-14.4 %
	EBITDA margin in % (of sales revenues)	8.8	12.4	13.4	11.3	n/a
EBIT		30.1	76.4	90.7	68.3	-24.7 %
	EBIT margin in % (of sales revenues)	2.1	5.6	6.6	4.9	n/a
Earnings after tax		-19.4	15.7	29.0	14.4	-50.3 %
	Capital investment in property, plant and equipment	91.9	64.1	83.2	88.5	6.4 %
Equity		419.8	418.9	451.2	434.1	-3.8 %
Equity ratio in %		26.5	26.6	27.2	25.5	n/a
Net assets		1,585.8	1,575.1	1,656.9	1,701.4	2.7 %
Earnings per share		-0.99	0.85	1.73	0.66	-61.8 %
Distribution		0.00	2.57	2.57	1.71 *	-33.3 %
	Dividend per share in EUR	0.00	0.15	0.15	0.10 *	-33.3 %
	Return on equity after tax in %	-4.2	3.7	6.9	3.2	n/a
	Employees (on average over the year)	10,264	10,405	10,738	10,771	0.3 %
of which	Germany	4,144	4,158	4,166	4,064	-2.4 %
	International	6,120	6,247	6,572	6,707	2.1 %

* Proposed; subject to the consent of the Annual General Meeting to be held on June 29, 2017

At variance with the consolidated revenues presented in the Group income statement, the total Group revenues presented here include portions of revenues from associated companies as well as revenues of non-consolidated subsidiaries and joint ventures.

DEVELOPMENT OF TOTAL GROUP REVENUES BY SEGMENT

in EUR million	Construction	Equipment	Resources
2013			1,504
2014			1,560
2015			1,656
2016			1,586

CONSTRUCTION SEGMENT KEY FIGURES
in EUR '000	2015	2016	Change
Total Group revenues	742,862	722,103	-2.8 %
Sales revenues	650,762	614,456	-5.6 %
Order intake	878,436	716,316	-18.5 %
Order backlog	591,059	585,272	-1.0 %
EBIT	13,916	30,385	n/a
Earnings after tax	-7,316	9,463	n/a
Employees (on average over the year)	6,243	6,412	2.7 %

EQUIPMENT SEGMENT KEY FIGURES
in EUR '000	2015	2016	Change
Total Group revenues	753,083	651,715	-13.5 %
Sales revenues	548,039	542,688	-1.0 %
Order intake	649,108	667,649	2.9 %
Order backlog	128,096	144,030	12.4 %
EBIT	99,441	36,984	-62.8 %
Earnings after tax	65,397	10,946	-83.3 %
Employees (on average over the year)	2,919	2,753	-5.7 %

RESOURCES SEGMENT KEY FIGURES
in EUR '000	2015	2016	Change
Total Group revenues	221,609	264,712	19.5 %
Sales revenues	179,319	238,199	32.8 %
Order intake	345,045	267,044	-22.6 %
Order backlog	276,463	278,795	0.8 %
EBIT	-19,807	-3,229	n/a
Earnings after tax	-29,398	-8,452	n/a
Employees (on average over the year)	1,276	1,282	0.5 %

BAUER Aktiengesellschaft Annual Report 2016

• 2 Milestones in the Company's History
• 4 Pictures of 2016
• 6 Mission and Strategy
• 8 The World is our Market
• 10 Foreword
• 13 Combined Management Report
• 62 The Bauer Share

• 64 Corporate Governance Report

• 68 Report of the Supervisory Board

• 71 Balance sheet and income statement of BAUER Aktiengesellschaft in accordance with HGB
• 75 Consolidated financial statements in accordance with IFRS
• 166 Assurance by the legal representatives
• 167 Audit opinion
• 168 Imprint

Milestones in the Company's History

1790

Sebastian Bauer acquires a coppersmith's shop in the center of Schrobenhausen; in the 19th century, subsequent Bauer generations were engaged in copper working, primarily for breweries and domestic households

1840

Copper cladding for the steeple roof of St. Jakob's church in Schrobenhausen

1900

Start of well drilling by Andreas Bauer

1790 – 1948 1956 – 1984

1902

Drilling of an artesian well for Schrobenhausen railway station

1928

Dipl.-Ing. Karl Bauer constructs the Schrobenhausen water supply system; construction of wells and water pipes throughout Bavaria

1948

First works on Wittelsbacherstrasse

1956

Dr.-Ing. Karlheinz Bauer, a shareholder in the company since 1952, becomes sole managing director; construction of a first office building in Wittelsbacherstrasse

Dipl.-Ing. Karl Bauer (left) turned the company into an industrial well builder known throughout Bavaria. Dr.-Ing. Karlheinz Bauer (center) led the company onto the international stage, taking it into the field of specialist foundation engineering and launching equipment manufacturing operations. Prof. Dr. Dipl.-Kfm. Thomas Bauer shaped the current global Group, with a network of operations on every continent.

1958

Invention of the injection anchor on the construction site of the Bayrischer Rundfunk building in Munich

1969

First anchor drilling rig UBW 01

1972

Construction of the new head office administration block

1975

First contracts in Libya, Saudi Arabia and the United Arab Emirates

1976

First heavy-duty rotary drilling rig BG 7

1984

Work complex West begins operations; manufacture and deployment of the first trench cutter

1986

Prof. Thomas Bauer becomes sole managing director of BAUER Spezialtiefbau GmbH and drives forward the international growth of the Group

1990

Founding of BAUER und MOURIK Umwelttechnik GmbH and of SPESA Spezialbau und Sanierung GmbH

1992

Takeover of SCHACHTBAU NORDHAUSEN GmbH

1994

Founding of BAUER Aktiengesellschaft

2001

BAUER Maschinen GmbH becomes independent company

2002

Purchase of large machinery manufacturing facility in Aresing

2003 – 2005

Specialist companies in a variety of fields are acquired and integrated into the BAUER Group

2006

BAUER AG is listed on the stock market

2007

Founding of BAUER Resources GmbH; market launch of the three new segments: Construction, Equipment and Resources

2008

Expansion of machinery manufacturing capacities in Aresing and Nordhausen as well as in Tianjin and Shanghai, China

2009

Largest investment program in the company's history completed: administration building in Schrobenhausen, Edelshausen plant, machinery manufacturing plant in Conroe, Texas, USA

2011

The first deep drilling rig is sold to South America

2012

During the year, the Group's global workforce topped the 10,000 mark for the first time

2013

Bauma Innovation Prize for an underwater drilling technique

2014

Execution of the Schwarzkopf Tunnel bypass railway project

1986 – 2007 2008 – 2016

2015

Joint Venture in the field of deep drilling technology with Schlumberger, the world's leading supplier of technology and project management for oil and gas industry customers

2016

Start of drilling large diameter boreholes for the Kesslergrube remediation project, the company's largest single contract to date

Pictures of 2016

A successful home game: BAUER Maschinen Group at the Bauma 2016

Every three years, the world's largest construction machinery fair opens its doors at the Munich exhibition center. With 580,000 visitors from 200 countries, an exhibition area covering 605,000 square meters and more than 3,400 exhibitors from the construction industry, new records were broken.

Reducing noise emissions, saving energy, increasing safety and productivity at the same time: the product range and services are of the highest quality and are continuously being perfected, in line with Bauer's intention of decisively shaping the topics of the future. At the Bauma 2016, the BAUER Maschinen Group once again presented a large number of ground-breaking innovations. A model of an entire diaphragm wall construction site, a new generation of ValueLine drilling rigs, a state-of-the-art piling rig as the world's first of a kind, a Bauer Foundation Simulator – the Bauer stand was brimming with highlights.

Successful Mine Rescue in China using Bauer Technology 1 2

For 36 days, hundreds of rescue workers fought for the lives of numerous buried miners in a gypsum mine in the Shandong province of eastern China. On January 29, four of them were eventually saved through a vertical emergency shaft, not least thanks to the drilling rigs from BAUER Maschinen Group that were in operation.

The most important system was a deep drilling rig which, under the type designation PRAKLA RB-T 90, was designed and built in Germany a few years ago for application in China during mine collapses; six machines were delivered. The concept was developed in the Bauer Equipment segment. Two additional Bauer units were also in operation to drill the emergency shaft, a BG 26 and a BG 38. With these, predrilled holes were bored, before the RB-T 90 rig drilled down more than 200 meters.

Tunnel construction under the Suez Canal 3

The Suez Canal is the most frequented waterway in the world. It connects the Mediterranean Sea to the Red Sea, and is the shortest sea route between Asia and Europe. Since August 2015, a second waterway, which is parallel to the existing route, has been easing the traffic situation on the 163-kilometer-long main canal.

To the north of the city of Ismailia, a new road tunnel is being constructed, which will run underneath the Suez Canal over an six-kilometer-long stretch. BAUER EGYPT S.A.E. has been carrying out the necessary specialist foundation works. For the ventilation system Bauer was constructing four shafts with a depth of up to 85 meters and a diameter of 21 meters using diaphragm wall technology; additionally, Bauer was constructing a diaphragm wall around 110,000 square meters in size to serve as start and target shafts for the tunnel boring machine. The scope of works also included the construction of a soft gel blanket covering and anchor works. A BAUER MC 128 and an MC 96 duty-cycle crane,

both equipped with a BC 40 cutter, were being used along with two BAUER BG 28 drilling rigs.

First solar-powered water treatment plant for fluoride removal 4

Happy faces of the residents of the small community of Gbalo in the African nation of Ghana: the first solar-powered water treatment plant for the removal of fluoride from drinking water was recently put into operation here. BAUER Resources Ghana Limited, a subsidiary of BAUER Resources GmbH, planned and constructed the plant in cooperation with the Deutsche Gesellschaft für Internationale Zusammenarbeit.

For more than a decade, the inhabitants of this region had been forced to drink heavily fluoridated water from a borehole. The result: Osteofluorosis and dental fluorosis – two diseases that cause pain and damage to the bones and teeth. Thanks to the water treatment plant, the fluoride content in the local groundwater has reduced from more than 4 milligrams per liter to less than 1.5 milligrams per liter. Around 2,000 liters of purified water can be produced per hour.

Mission and Strategy

OUR MISSION

SERVICES, EQUIPMENT AND PRODUCTS DEALING WITH GROUND AND GROUNDWATER >>>

OUR STRATEGY

• >>> The world is our market
• >>> World market leadership in specialist foundation technologies
• >>> Powerful development of drilling techniques and applications for related markets such as environment, water and natural resources
• >>> Optimization of worldwide organizational structures and of the Group's self-managed business units

• >>> Annual growth from 3 to 8 %

• >>> Target: ~ 20 % of total Group revenues

• >>> Activities in environmental technology, deep drilling, well construction, materials

• >>> Target: ~ 40 % of total Group revenues

• >>> Global provider of specialist foundation engineering services
• >>> Specialist construction services
• >>> Focus on complex international projects

The World is our Market

25 PRODUCTION FACILITIES

and many other service centers and construction yards

Foreword

Dear Shareholders, Partners and Friends of our company, Ladies and Gentlemen,

2016 was yet another difficult year. Our total Group revenues were EUR 1.6 billion and earnings after tax were EUR 14,4 million. Earnings after tax were somewhat lower than projected in our last annual report, mainly because of poor contributions to earnings by two of our construction subsidiaries in the Far East. However, we did start to make a turnaround in our business operations.

Our construction companies in Hong Kong and Malaysia were one key reason for our lower earnings last year. In Malaysia, the award of three large projects was delayed several times. As a result, we were not able to utilize our capacities for almost six months. In Hong Kong, we did extensive preliminary work for a very large airport expansion project. In the end, the contract was awarded to a competitor that had offered a much lower price. These two circumstances alone resulted in a loss that caused earnings to fall below original projections.

Nevertheless, we have started to make a turnaround thanks to our many restructuring efforts in recent years and the improving situation in the construction equipment market.

Our performance in the Construction segment was highly satisfactory, with the exception of the two regions mentioned above and very few weak markets such as Angola and Russia. Construction markets worldwide are growing and demand for specialist foundation engineering services is even increasing somewhat. Overall, we succeeded in generating a very good order backlog that is evenly distributed across our regions. It was a good year for our business in Germany and our subsidiaries in Canada and Egypt. Wöhr + Bauer GmbH, a participation in which we have reduced our shares, also made a good operating contribution to earnings.

We are also seeing a positive trend once again in the Equipment segment. Growth in the core area of specialist foundation equipment was up from last year, and our order backlog improved despite many deliveries at the end of the year. We are very pleased with our stable sales performance during this period, especially considering the major turbulence in the market in recent years – the global market for construction equipment contracted by 28 % between 2012 and 2015 – and the fact that our Chinese competitors were operating with enormous surplus capacity. We are very confident that we will achieve adequate growth in the future now that global construction markets are growing – meaning there is demand for equipment – and many competitors in China have left the market.

Our joint venture with Schlumberger in deep drilling rigs is developing well, although not as quickly as originally planned. Its development has been impeded by the price of oil, which has been low for several years.

Most of our restructuring measures in recent years were in the Resources segment. In 2016, our core operating companies in Germany were combined into one company. This will expand our opportunities, especially for large-scale projects. The environmental business is continuing to perform very well. Our subsidiaries in the water business still had to deal with former projects, but their order situation is still good. We are very pleased to report that our Jordanian deep drilling company has been awarded major projects after a long dry spell. We are confident that we will make this segment profitable again in the next two years.

Overall, we can see that our measures of recent years are making an impact, resulting in much better performance in our core operations in 2016 compared to the previous year. Nevertheless, we will continue to undertake many efforts to improve. Last year we identified additional areas of focus for our earnings improvement program that we will continue to pursue intensively. These include purchasing, value analyses, production and human resources.

In our technology development, we are primarily focused on the possibilities of digitalization for our business. Key topics include 'digital construction' and new functions for the equipment that we develop for customers. As always, the quality of our machines has the highest priority. We are certain that quality has been a major factor in the stability of our sales in the Equipment segment, especially given the challenges of recent years.

Despite the positive effects of our efforts, operating as an international company around the globe has not become easier. "The world is our market" – and that market is currently anything but easy. The problems in the world increased rather than decreased in 2016. These include the conflict between Russia and Ukraine, a weaker China, the Islamic State – the source of terrorism and numerous refugee crises – and a growing rise in protectionism and nationalism. There is a risk that these tendencies will become stronger, not only in the US, but also in certain countries in Europe.

As a result, on the one hand, we can be optimistic about the future because our many efforts are having an impact. At the same time, instability in the world is preventing us from improving very quickly.

However, overall we are optimistic, and for 2017 we are expecting total Group revenues of about EUR 1.7 billion and earnings after tax of approximately EUR 23 to 28 million.

I would like to express my sincere gratitude to all employees, shareholders, financial partners, customers and friends of the company for their loyalty and outstanding teamwork. The last few years have been very challenging. We are certain that we are on the right path to improving our results again. I would be delighted if you would join us on that path.

Kind regards,

Prof. Thomas Bauer

Combined Management Report

15	I.	The Group
15		Group structure
15		Corporate Governance and control system
17	II.	Business Report
17		Macro-economic trend
18		A general view of our markets
20		Course of business
22		Construction segment
24		Equipment segment
26		Resources segment
28		Other / Consolidation segments
32	III.	Earnings, financial and net asset position
32		Group earnings position
34		Group financial and net asset position
38	IV.	Financial statements of BAUER Aktiengesellschaft
40	V.	Sustainability
40		Sustainability in the BAUER Group
40		Employees
41		Capital Investments
42		Research and Development
44		Health Safety Environment (HSE)
44		Quality
45	VI.	Legal disclosures
45		Remuneration Report
47		Statutory disclosures regarding takeovers
51	VII.	Risk and Opportunity Report
51		Risk Report
56		Opportunity Report
59	VIII.	Forecast Report

Hongkong & Shanghai Banking Corporation (HSBC) is building a new headquarters in Dubai. Bauer International FZE constructed a secant bored pile wall with a depth of up to approx. 11 meters for the excavation pit. Several BG 28s were used.

Combined Management Report

I. THE GROUP

GROUP STRUCTURE

The BAUER Group is a leading provider of services, equipment and products related to ground and groundwater. With over 110 subsidiaries, Bauer operates a worldwide network on all continents. The operations of the Group are divided into three future-oriented segments with high synergy potential: Construction, Equipment and Resources.

The Construction segment applies all the established methods and techniques of specialist foundation engineering all over the world. These include creating complex excavation pits, foundations for large infrastructure projects and buildings, cut-off walls and ground improvements. Its specialist construction unit also performs other construction services such as civil engineering and remediation works.

Bauer is a world market leader in the Equipment segment and provides a full range of equipment for specialist foundation engineering as well as for the exploration, mining and extraction of natural resources. Besides its registered office in Schrobenhausen, the Equipment segment operates a worldwide distribution network and additional production facilities in Germany, China, Malaysia, Russia, Italy, Turkey, the USA among other locations.

In the Resources segment, Bauer focuses on highly innovative products and services in the areas of water, environment and natural resources. BAUER Resources GmbH and its subsidiaries operate as full-service providers with a focus on environmental technology, water and natural resources for industrial customers.

BAUER Aktiengesellschaft is the holding company of the Group and is listed on the Frankfurt Stock Exchange. BAUER AG provides central management and service functions for its affiliates. These specifically include human resources, accounting, finance, legal and tax affairs, IT, facility management, and health, safety and environment (HSE).

In the financial year gone by, there were no branch offices in the Group that were important or essential for business operations.

CORPORATE GOVERNANCE AND CONTROL SYSTEM

The principal task of the Management Board of BAUER AG is the strategic management of a global group of companies. As part of central strategies, goals and regulations, the main companies in the three operating segments – BAUER Spezialtiefbau GmbH, BAUER Maschinen GmbH and BAUER Resources GmbH – develop their own detailed strategies which are converged at holding company level and integrated into the strategic corporate planning process.

The development and implementation of a self-managing organizational structure with decentralized business units is the primary characteristic of corporate governance within the BAUER Group. The managers of the various Group companies operate under their own responsibility, and are provided with a large degree of independence within the framework of the corporate strategy in determining how their business units progress.

The autonomous management of the individual operating business units is constrained by framework guidelines and standards laid down by the Group and the individual subsidiaries. The principles of proper conduct, including adherence to our ethical and moral standards, are defined among other instances by an ethics management and values program covering all the companies of the BAUER Group, flanked by corporate management guidelines and a code of conduct imposed on our employees. The self-managing structure is linked to a centralized system of risk management and control, and to a central Group accounting function. Internal auditing systems monitor compliance with laws and standards across the Group.

The roles of the Management Board and Supervisory Board and other aspects of corporate governance are set forth in the Declaration on Corporate Governance on pages 64 to 67 of this Annual Report, which is published on the Internet at http://www.bauer.de/ in the Investor Relations section under Reports & Accounts.

Financial performance indicators

The trend in total Group revenues is used as the fundamental and significant key financial performance indicator for the

management of the Group. The total Group revenues represent the revenues of all the companies forming part of our Group. The difference between the consolidated revenues and the total Group revenues is derived from the revenues of the associated companies, from our portion of revenues in joint ventures, and from the revenues of non-consolidated companies. The trend in total Group revenues and the contributions to them by the various segments are depicted in the Business Report.

Alongside total Group revenues, earnings before interest and taxes (EBIT) and earnings after tax are used as key financial performance indicators for internal management. The Business Report details the trends in EBIT and earnings after tax as well as trends in the various segments.

A wide range of other financial performance indicators, which are of comparatively minor significance to the medium- and long-term development of the Group, are collated and integrated in the course of internal Group management activities. They primarily comprise balance sheet and income statement figures and the indicators of capital structure, profitability and liquidity derived from them.

Non-financial performance indicators

Many non-financial indicators of Group performance are measured as part of a comprehensive reporting system, although they have no individual material significance in terms of internal controls and other respects. The reporting on trends in those performance indicators in the Sustainability section is primarily intended to convey an overall picture of the operations of the BAUER Group.

The indicators included originate, among other sources, from the human resources function, such as workforce numbers. Indicators on further and advanced training as well as others derived from the research and development field are also reported.

Bauer Umwelt conducted an extensive remediation project on the premises of TÜV Süd in Munich. In addition to the demolition of existing buildings, the project included the excavation and disposal of 150,000 t of soil material. >>>

II. BUSINESS REPORT

MACRO-ECONOMIC TRENDS

Although the global economy is still on a good course for further growth, the general political conditions in the world are becoming increasingly worse. In addition to ever-present problems such as the many crises in the Middle East, religious conflicts, the tensions between Russia and the West because of Ukraine, the oil price crisis, the huge financial problems of several European countries, Brexit, the refugee crisis in Germany and Europe, terror attacks in major European cities, and much more, a movement that had been almost presumed dead has been revived and is now also a great threat to peace and economic growth in the world: the return of nationalists and protectionists. "America first" is the motto of the new president in the USA. Turkey and England are behaving similarly. Autocracy, isolationism and xenophobia have become socially acceptable once again. There is reason to fear that the world is only at the beginning of a new trend and that this could be a huge impediment to the development of the world in the coming years.

Many of the drivers of global economic development in recent decades will not be suppressed by new ideologies because these growth drivers are the result of technological progress rather than political will. High-speed communication and the resulting availability of information at any place and any time, the cheap and worldwide exchange of goods and services as well as fast air travel to any corner of the world are enduring drivers, which ultimately cannot be impeded by such ideologies. Nevertheless, isolationism and autocratic tendencies will have an impact and slow the development of the world economy.

Worst of all, however, are the ongoing threats to peace in the world. Countries that increasingly isolate themselves from one another are much more likely to resolve their conflicts through acts of war. The huge increase in such conflicts in recent years is clear evidence of this. Peace efforts have so far been unsuccessful in nearly all conflicts. This has resulted in even further isolation, which leads to more potential for conflict.

Last year, the term "deglobalization" was increasingly used, especially in the media. A few years ago, global companies like us believed that internationalization and establishing a presence in many countries is the best strategy, but this must now be reconsidered. Today, when a company assesses a country, it is much more important to consider the country's political environment and stability rather than factors such

as economic development, the size of the market or the availability of labor.

The BAUER Group is no exception and must also reconsider its own strategy. We need to reassess our presence in some countries and strive to reduce risks. A few years ago, we were still making efforts to be active everywhere in the world, but this no longer applies without exception today.

Despite these developments, the world will continue to grow, though not as strongly as it has been growing in recent years. The major drivers of growth have lost their impact. In China, prospects for growth are dim. India continues to develop very slowly. Russia is in a crisis because of its conflicts with the world and Brazil must once again try to free itself from a deep recession. Other countries are now potential drivers of the global economy. In addition to the US, these include countries such as Indonesia and the Philippines as well as Europe, which is slowly emerging from a very difficult period.

According to the major research institutes, the world will continue to grow by about 3 %. This cannot happen unless the construction markets lay the necessary foundations and continue to grow themselves. As a result, growth of 3.5 to 4 % is predicted for the international construction markets. Even better growth expectations beckon for companies in the sector of specialist foundation engineering, since construction is taking place in increasingly confined urban areas. This calls for increasingly taller buildings, which in turn require extensive foundation work. In addition, stationary and flowing traffic must be ever-increasingly transferred below ground, which also leads to growth in specialist foundation engineering. Moreover, many buildings and infrastructural projects no longer involve new construction but are converted or expanded instead. The necessary preparatory ground works are greatly increasing, since unusual types of construction are required and the work has to be done in very confined conditions. We can therefore anticipate a basically favorable trend that is merely slowed down by the negative world events.

Although business has become much more difficult from a global perspective, an international focus is the only alternative for a specialist company like ours. This is because Germany will not be able to maintain its leading position in today's global economy forever. There are too many risks in the German economy that can very quickly lead to downturns.

These include too much dependence on the automotive industry, the ongoing difficult situation for energy suppliers and the continued volatility of the banks. Therefore, the fundamentally correct approach is to have an international focus and not be dependent on individual markets. The world will continue to develop positively over the long term. As a result, opportunities will continue to outweigh risks.

A GENERAL VIEW OF OUR MARKETS

The construction markets continue to show good growth: The construction sector in particular benefits from an enormous need to catch up with backlogs in the rising economic countries, but also in the established industrial nations. Constantly increasing urbanization and growing infrastructural needs are leading to increasingly large-scale building schemes, which offer many interesting project opportunities to the construction industry. The amount of construction undertaken in the economically established countries was clearly inadequate for many years. It is realized today that buildings too must constantly be adapted to population needs and economic requirements. This applies not only to traffic infrastructure but also to residential and public buildings, dams or flood protection facilities.

Construction statistics Germany – Change 2016/2015

in %	Revenues	Order intake	Employees
Residential construction	8.5	17.0	---
Commercial construction	3.9	11.9	---
Public construction	6.4	16.3	---
Total	6.3	14.6	2.4

Source: Central Federation of the German Construction Industry

The companies of the BAUER Group can read the general trend from their very good order backlog, which is evenly distributed over all regions of the world. Sales of construction machinery are directly linked to the situation on construction markets, so that favorable sales opportunities can be expected in this sector too in coming years.

Besides the general trends, current developments and future perspectives on construction markets in the various regions around the world vary considerably:

Germany

The German construction market will continue to see positive growth over the coming years. Residential construction is being driven up primarily by low interest rates, but also by government subsidies. The considerable additional housing needs of refugees also play a significant role here. Public sector construction is benefiting from a huge backlog of infrastructure work, for which administrative budgets are now providing considerably more funds. Last year, the increase in construction volume in this area was still significantly hampered by a lack of planning capacities and delays in approvals. A reversal of this trend appears to have taken place in the last few months. The pace of commercial construction will depend on the development of the future outlook for the industry.

Europe

Construction markets in Western Europe will remain relatively restrained in coming years. This is largely due to the fact that the investment budgets of these countries remain low. However, there are large infrastructure projects in some countries, such as Switzerland or France with the metro ring around Paris. Other major cities are also planning to upgrade their infrastructure.

Smaller markets in Eastern Europe largely collapsed as a result of the financial crisis. There have recently been signs of a slight upturn, though at a very low level. Poland is investing heavily in road construction.

The crisis embroiling Russia and Ukraine continues to impose a serious burden on the development of both countries. Ukraine is practically incapable of maintaining a construction sector any longer – due to lack of funds. Although Russia is trying to continue funding its building sector, the financial deficits brought about by sanctions and the low oil price are forcing the country to pursue a policy of extreme frugality. Commercial construction has almost completely shut down. It can be assumed that Russia will suffer from the consequences of the crisis for years to come. Equipment sales have recovered slightly, but will also remain at a low level.

Middle East & Central Asia

Intensive construction is still taking place in the oil- and gas-rich countries of the Middle East, such as Saudi Arabia, Qatar and the United Arab Emirates, but the consequences of the budget shortage are already having a clear impact on new projects. However, current construction on subway lines, railway lines, stadiums and other large-scale projects is continuing. However, if oil prices remain low for much longer, cost-cutting

measures will have to be introduced, which would have the largest impact on the construction industry. Construction companies must prepare for this eventuality with preventative measures.

The situation in Iraq and Syria remains extremely problematic. The good news is that the Islamic State has been significantly pushed back. However, it is still unclear whether a politically stable situation will soon be reached and reconstruction work will begin. The neighboring states such as Jordan and Lebanon are also hamstrung by the situation, as a result of which economic development has significantly abated there. In Jordan, numerous international aid organizations are helping to contain the refugee situation. It is expected that construction projects will quickly begin again in a more consistently peaceful environment. As a result, additional projects have been secured, especially in the area of water utilities. Similarly, in Libya, the situation has not yet stabilized to the extent that a new construction market can develop.

In Egypt, the economy is developing in the face of an uncertain future. The huge government spending of the recent years, which can no longer be adequately covered by foreign aid, has led to considerable problems for the government. The local currency was severely devaluated at the end of 2016. However, there are a number of large public construction projects in the country, such as the Cairo Metro, that are heavily funded by foreign financing. As a result of the weak currency, more favorable construction projects are emerging in the private sector.

Asia-Pacific, Far East and Australia

Construction markets in the Far East remain pleasingly stable. Almost every country in the region is undertaking major infrastructure projects. In Hong Kong, an airport expansion project has resulted in good capacity utilization for the construction companies involved. Several more construction phases will follow in the coming years. The same applies to countries such as Singapore and Malaysia, where new subway lines and urban motorways are being built. Economies such as Indonesia and the Philippines are also seeing healthy growth. By contrast, the Australian economy is no longer developing quite so positively. Construction activity has slowed down somewhat.

Geographical breakdown of total Group revenues

in EUR million Total 1,586

The construction sector in China remains at a high level, but due to strong local competition and government regulations, there are hardly any opportunities for foreign companies to operate there. For the construction machinery market, the existing excess capacity is the greatest influencing factor. As a result, several years ago, local manufacturers totally overestimated the potential for the future and built up excessive capacity. With the end of the breakneck growth in construction, sales of construction equipment in China have declined by about 50 % over recent years. This has led to a 28 % decline in the global market. This trend prompted Chinese manufacturers to reduce their capacities significantly last year. Nevertheless, it will take time for markets to find their balance.

America

The US economy is returning to its role as the driver of global growth. A very high level of backlog demand has arisen in many infrastructure areas, due to a lack of adequate investment over recent decades. We continue to expect major efforts over the coming years to make good this deficit, providing a new boost to the economy as a positive side effect. Overall, we regard

the situation as stable and anticipate good opportunities for further growth in both our Construction and Equipment segments. The Canadian construction market is similarly firm. Interesting projects frequently crop up in Central America.

Africa

In Africa, active pursuit of new business is worthwhile even if the overall economic level of these countries does not permit a very great contribution to our total Group revenues. In recent years, the demand for raw materials has declined significantly, which is causing considerable problems in many African countries that are dependent on this business. In particular, the low price of oil has driven countries like Angola and Nigeria into an economic crisis. Hopes for positive trends on the continent have unfortunately not been met.

The current problems in the world have sidelined major issues for the future, such as the environment, demographic change as well as energy and water. These issues are becoming important once again due to increasing social problems in many countries, which are partly the cause of the refugee crisis. These problems can only be resolved through greater efforts on the part of construction industry.

These issues are opening up wide-ranging new opportunities for us too. In operation for several years now, our Resources segment is focused on matters relating to the environment, water and natural resources. We have already successfully handled projects in some countries around the world and expect demand for these services to grow considerably.

COURSE OF BUSINESS

The BAUER Group achieved total Group revenues amounting to EUR 1,586.1 million during the 2016 financial year, 4.2 % below the previous year's value of EUR 1,656.4 million. The previous year's figure included revenues from the divestment and revaluation of businesses of businesses amounting to

EUR 77.8 million. Total Group revenues were roughly on par with the previous year if it were not for this effect. EBIT was EUR 68.3 million (previous year: EUR 90.7 million). The above-mentioned additional revenues also had an effect on the previous year's EBIT figure. Earnings after tax were EUR 14.4 million (previous year: EUR 29.0 million).

The BAUER Group was not able to fully meet its earnings targets for 2016. Despite the fact that many subsidiaries performed well and were within targets, it was not possible to achieve the goals set for the Group due to weak markets and other influencing factors. Our subsidiaries in Malaysia and Hong Kong had the greatest negative impact on total comprehensive income. For a long period, we were expecting a major increase in new orders for which we had to reserve considerable capacity. In Hong Kong, a very large special contract for an airport project was awarded to a competitor who had offered a much lower price. Expenses for a legal dispute caused an additional burden. In Malaysia, the award of three major projects was delayed further and further. As a result, our capacities were not utilized for a long period of time. Postponed orders are not uncommon in the construction industry, but it is rare for them to occur on such a scale in a single region. In total, this resulted in a loss of considerably more than EUR 10 million. This alone explains the difference between the original forecast and the final result. Capacities in Malaysia are now fully utilized, as all expected contracts were awarded.

The numerous other costs for restructuring measures as well as for weak markets and business divisions had already been well considered in our plans, given the upheaval in global markets. Whereas companies such as our Resources subsidiary Esau & Hueber GmbH or our construction company in Angola fell considerably below targets, construction companies in Canada, Egypt and at Wöhr + Bauer GmbH significantly exceeded targets.

Forecast/actual comparison 2016

in EUR million	Forecasts
	18.04.2016	03.11.2016	Actual 2016
Total Group revenues	~ 1,650	< 1,650	1,586
EBIT	~ 75	~ 65	68.3
Earnings after tax	~ 20- 25	~ 10 - 15	14.4

Once our original targets could no longer be met due to these issues, in early November we had to lower the projected targets from the 2015 Annual Report to total Group revenues of slightly below EUR 1.65 billion, EBIT of about EUR 65 million and earnings after tax of approximately EUR 10 to 15 million. We had originally predicted total Group revenues of about EUR 1.65 billion, EBIT of about EUR 75 million and earnings after tax of some EUR 20 to 25 million.

The order backlog of the Group also continued to develop well and grew to EUR 1,008.1 million by the end of 2016, or 1.3 % above the previous year's figure of EUR 995.6 million. All segments contributed to this increase, especially in the fourth quarter, when we were awarded several new specialist foundation engineering projects around the world. It should be noted that due to the sale of shares in the real estate company Wöhr + Bauer GmbH, a high double-digit order

backlog was taken off the books since this company is now no longer included as associated company. This makes the improvement over the previous year even clearer.

Summary

From an operational perspective, 2016 was significantly better than the previous year. After realigning several business areas and leaving several markets, we have initiated a turnaround here, although we are still far from satisfied with our overall result. By the end of the year, we once again managed to achieve a good order backlog that is evenly distributed across our regions. In addition, the market situation in the Equipment segment has also eased. The final months of the year saw a good increase in orders. Many changes in the Group have significantly improved our foundations for growth, allowing us to be optimistic about the future.

Development of total Group revenues by segment

in EUR million (segments after deducting Other/Consolidation)

Total 1,586

CONSTRUCTION SEGMENT

in EUR '000	2015	2016	Change
Total Group revenues	742,862	722,103	-2.8 %
Sales revenues	650,762	614,456	-5.6 %
Order intake	878,436	716,316	-18.5 %
Order backlog	591,059	585,272	-1.0 %
EBIT	13,916	30,385	n/a
Earnings after tax	-7,316	9,463	n/a
Employees (on average over the year)	6,243	6,412	2.7 %

General conditions

As a whole, construction markets worldwide continued to grow in 2016. This growth is additionally propelled by the great need for infrastructural works such as roads, bridges, dams and energy supplies as well as increasing urbanization. Since this construction must be carried out in increasingly complex, troublesome circumstances, the need for specialist foundation engineering services is also expanding, so that we are acting in a market with a promising future.

In addition to Germany, the markets in Europe also performed well overall, although individual development varied greatly. Russia is still very weak, as are other countries in Eastern Europe. The Far East declined somewhat in 2016, while the Middle East continued to have a stable construction market. On the whole, markets around the world are continuing to make positive progress despite many uncertainties and crises.

Significant events

The Construction segment achieved total Group revenues of EUR 722.1 million in the financial year 2016 at 2.8 % below the previous year's level of EUR 742.9 million. EBIT was up from EUR 13.9 million to EUR 30.4 million. Earnings after tax were EUR 9.5 million – up from the previous year's negative figure of EUR -7.3 million.

Our subsidiary in the USA had a decisive impact on the negative results of the previous year. The completion of the Center Hill Dam project created a considerable financial burden and necessitated a realignment of the subsidiary. As a result, performance in the USA remained below expectations in 2016.

The German market performed particularly well in the financial year gone by. Revenue surpassed expectations and earnings were very positive thanks to good capacity utilization. In Europe, we were able to increase our revenues, particularly in England, Austria and Switzerland. The same applies to Central America. Our subsidiaries in Egypt as well as Canada, where capacities are being extremely well utilized in the Diavik project, also performed well. The order situation was also good at our companies in the Middle East – with the exception of Saudi Arabia. The drop in the price of oil did not yet have a serious impact on investments in construction. However, we are continuing to monitor trends here very closely.

The strategic sale of 16.67 % of our shares in Wöhr + Bauer GmbH, including the revaluation of the remaining 16.67 % of our shares, yielded additional earnings of just over EUR 10 million for the segment. In the year under review, the company generated operational earnings attributable to our share that were almost as high as the income from the sale of the shares. All earnings are included in other income due to the sale of shares.

We had to accept negative performance in two markets of the Far East. In Malaysia, the process of awarding contracts for projects was delayed throughout the year, resulting in order shortages with a corresponding financial impact. In Hong Kong, we focused intensively on a large-scale airport expansion project, but we ultimately were not awarded the contract. All in all, this resulted in significant financial burdens. Although our other subsidiaries in the region were well utilized overall, this led to a substantial drop in the segment's performance.

The markets in Russia as well as Angola, which was affected by the low oil price, were still weak. We have adjusted our capacities in both countries to the changes in the market.

We provide civil engineering and remediation services in Germany through SCHACHTBAU NORDHAUSEN GmbH and SPESA Spezialbau und Sanierung GmbH. Due to a lack of public contracts, business was rather sluggish and unsatisfactory for us. There was a significant improvement here in the last months of the year.

Order situation

Order intake was good in the financial year gone by and totaled EUR 716.3 million (previous year: EUR 878.4 million). The decrease is attributed to additional major projects received in 2015, such as in Canada. A much more meaningful figure is the order backlog, which fell by 1.0 % to EUR 585.3 million, down slightly from the previous year (EUR 591.1 million). The order backlog in specialist foundation engineering increased considerably since the previously included order backlog of Wöhr + Bauer GmbH is no longer included in the figures for the 2016 financial year.

We succeeded in winning new orders in all regions of the world. Along with many small and medium-sized building sites, we were again able to add several major projects to our backlog. Overall, the projects are currently well distributed across the existing capacities in the individual regions. Our subsidiary in Malaysia, which was affected by project postponements during the year gone by, received expected orders in the fourth quarter of 2016 and therefore has a high order backlog once again.

Due to a record-level order backlog in specialist foundation engineering and new opportunities around the world, we are entering the current financial year on a very sound footing.

Outlook

Overall performance in the regions of the world remains positive, despite all the existing political and economic disturbances. Our worldwide presence enables us to exploit opportunities in markets with good business conditions and compensate for weaker markets. Our worldwide order backlog remains at a high level.

Geographical breakdown of total Group revenues Construction segment

in EUR million (after deduction of Consolidation)

Total 709

Overall, we are expecting stable to good performance in Germany and in Europe. We are expecting an improvement in performance at our subsidiaries in America, especially in the USA and Canada. We are predicting a decline in the Middle East, whereas we expect significant growth in the Far East thanks to our improved order situation.

In Hong Kong, we are expecting progress in a long-standing legal dispute over the remaining payments for a construction project. It will likely be concluded for the most part in 2017. This should result in a reduction of outstanding receivables.

For 2017, we expect total Group revenues of the segment to be somewhat below the previous year's figure due to the de-consolidation of Wöhr + Bauer GmbH, but EBIT and earnings after tax will be roughly the same as the previous year.

EQUIPMENT SEGMENT

in EUR '000	2015	2016	Change
Total Group revenues	753,083	651,715	-13.5 %
Sales revenues	548,039	542,688	-1.0 %
Order intake	649,108	667,649	2.9 %
Order backlog	128,096	144,030	12.4 %
EBIT	99,441	36,984	-62.8 %
Earnings after tax	65,397	10,946	-83.3 %
Employees (on average over the year)	2,919	2,753	-5.7 %

General conditions

In 2016, the construction machinery markets continued to perform very inconsistently but satisfactorily overall. Demand increased considerably in Europe as well as in Russia, China and India – although in these countries it started from a very low level. The USA, Africa and especially Latin America and the Middle East experienced downturns. The other countries in Asia were also weaker than in 2015.

Changes in the competitive situation in the Chinese market continued during the course of 2016. The large excess production capacities of local competitors have decreased further. In addition, several smaller competitors have left the market. Significantly fewer drilling rig manufacturers from China exhibited at Bauma in Munich in April and in Shanghai in November 2016. We therefore expect the competitive environment to normalize again in the coming years.

As in the previous year, weak raw material prices continued to impact individual product groups in 2016. Demand for well drilling rigs, which are also used for raw material exploration, remained weak.

Significant events

In the financial year gone by, total Group revenues in the Equipment segment fell by 13.5 %, from EUR 753.1 million to EUR 651.7 million. It should be noted that in the previous year, revenues from the divestment and revaluation of businesses totaling EUR 77.8 million were also included in the total Group revenues, as were total revenues from the deep drilling rig business, of which only 51 % were included after it was integrated into the joint venture with Schlumberger in 2016. Sales revenues fell slightly by 1.0 %, from EUR

548.0 million to EUR 542.7 million. As a result of the joint venture with Schlumberger, sales revenues in the deep drilling rig business are no longer included in the figures for 2016, unlike in the previous year. As a result, the figure for 2016 is fully attributable to our core business in specialist foundation equipment and reflects growth in that area. EBIT fell from EUR 99.4 million to EUR 37.0 million. EBIT grew considerably if the aforementioned effects of EUR 77.8 million are subtracted from 2015. Earnings after tax fell from EUR 65.4 million to EUR 10.9 million for the above reasons.

Considering the inconsistent and difficult market environment described under "General conditions", the increase in sales and earnings in core operations shows our strength in the market for specialist foundation equipment and related products.

Sales performance was positive in German and European markets as a whole and in the Asia-Pacific region. America was on track and our sales were stable in China. Significant declines were recorded in the Middle East and Africa. Australia, Latin America, Russia and the neighboring countries of Eastern Europe and Central Asia showed a slight upturn.

With respect to our subsidiaries and individual product groups, sales of anchor drilling rigs and rotary drives were especially good in the past financial year. Growth in our large-scale and special equipment also had a positive impact on earnings. The service and spare parts business has continued to develop into an important area of activity. The production and distribution organization in the Far East once more provided a good contribution to the Group's revenues and earnings. On the other hand, sales in well drilling rigs and mixing plants were weak, partly because of weak raw material markets. A number of

restructuring measures were implemented in this area last year, resulting in good prospects for the future.

In the US, sales were roughly at projected levels. The plant in Conroe, Texas, has been fully integrated into the joint venture with Schlumberger for the production of deep drilling rigs. The sales company for specialist foundation equipment relocated to a new office nearby with storage space. Overall, the joint venture got off to a slower start than expected last year, partly due to the ongoing difficult environment related to the low price of oil. Two rigs were completed and additional orders were received. We expect good growth in this area in the future with more opportunities for new contracts in the coming years.

Last year, we implemented further minor restructuring and adjustments, primarily at subsidiaries, that will help to further improve competitiveness and our earnings situation.

Order situation

Despite fluctuations during the year, order intake was almost exactly in line with the planned level at the end of the year and increased from EUR 649.1 million to EUR 667.6 million. The order backlog was EUR 144.0 million, 12.4 % above the previous year (EUR 128.1 million).

Customers for specialist foundation engineering equipment continue to order at relatively short notice. Only occasional equipment orders for special projects are placed somewhat longer ahead of time. This results in very swift deliveries to customers, so that the order backlog lasts between two and three months throughout the year. Although many machines were delivered again at the end of 2016, the order backlog in December was similar to the backlog during the course of the year, thanks to good order intake recorded in the fourth quarter. The joint venture also has a backlog of orders for the construction of deep drilling rigs.

Outlook

The equipment business was affected by many economic and political issues in 2016. We nevertheless expect growing demand in the coming years as a result of the overall growth of global construction markets. We see market conditions ranging from stable to positive in Europe, the USA, Africa

Geographical breakdown of total Group revenues Equipment segment

in EUR million (after deduction of Consolidation)

Total 615

and the Far East. In China, we anticipate a good development of our business, while the normalization of market conditions can be expected to continue. We expect weaker growth in the Middle East, and the Russian market is expected to be as difficult as it was in 2016.

We are expecting growth in our deep-drilling joint venture with Schlumberger, which is reported using the equity method. This will enable us to improve the utilization of our plant in the USA, which market conditions for specialist foundation engineering equipment did not permit over the last years.

For 2017, we expect slight gains in total Group revenues, EBIT and earnings after taxes in this segment.

RESOURCES SEGMENT

in EUR '000	2015	2016	Change
Total Group revenues	221,609	264,712	19.5 %
Sales revenues	179,319	238,199	32.8 %
Order intake	345,045	267,044	-22.6 %
Order backlog	276,463	278,795	0.8 %
EBIT	-19,807	-3,229	n/a
Earnings after tax	-29,398	-8,452	n/a
Employees (on average over the year)	1,276	1,282	0.5 %

General conditions

The Resources segment is focused on products and services in three areas: water, environment and natural resources. In the environmental area, the market performed well in the financial year gone by. Germany is providing increased orders in the field of remediation, such as land recycling, groundwater treatment, or the disposal of contaminated soils and surfaces. There is also great demand in the Middle East.

In the water area, there was also good demand for brewing and beverage technology as well as water purification plants in the past financial year. The market was relatively weak in Europe and Africa in the area of well engineering materials.

The markets for deep drilling to exploit oil, gas, water and natural resources still proved to be particularly difficult. Heavy downward pressure on raw materials prices continued. As a result, there were hardly any projects in the market. This also resulted in significant excess capacity. This situation had a strong impact on us once again last year, although new orders in Jordan are providing us with better prospects for the future.

Significant events

Total Group revenues in the Resources segment significantly increased by 19.5 % from EUR 221.6 million in the previous year to EUR 264.7 million. EBIT increased from EUR -19.8 million to EUR -3.2 million and earnings after tax were up from EUR -29.4 million to EUR -8.5 million.

Once again, the Resources segment demanded a great deal of effort from us. Restructuring processes that were launched in the last two years and that involved a large number of areas

and products were completed by the end of 2016. This allowed us to start the current business year with a new structure and focus on our core business operations. The most significant change in 2016 was achieved by the merger of BAUER Umwelt GmbH, BAUER Water GmbH and BAUER Resources GmbH. BAUER Resources GmbH is now serving the markets with its environment and water divisions. The new structure gives us an advantage in the execution of large-scale projects and the way we present ourselves to major customers, and will also allow us to improve earnings.

Our environmental business, which has a very good order backlog in stable markets, performed particularly well in the financial year gone by. The large-scale project for Roche Pharma AG in Grenzach-Wyhlen contributed greatly to the increase in revenues in the segment. Our partnership in Oman also made a good contribution to earnings.

The Site Group for Services and Well Drilling Ltd Co. in Jordan was once again affected by the lack of deep drilling projects. Low raw material prices and overcapacity continue to weigh on the market. It was therefore gratifying that new major orders were received in the middle of the financial year under review. These will significantly improve the situation in 2017, but they arrived too late to have a positive effect on 2016 earnings. As a result, a significant loss had to be reported again. Our drilling companies in Africa also secured too few orders because of the market situation and also reported losses. We have withdrawn from Ghana.

A difficult trend was shown above all by our subsidiaries in the water business. The GWE Group, which was restructured in the last two years, still recorded a loss as projected, but

also had to cope with a clearly declining market for well engineering materials. Our subsidiaries that produce systems for brewing and beverage technology as well as for water treatment have a good workload with sufficient orders in a stable market. However, last year, former projects were a greater burden than expected, which meant that higher losses were recorded.

The Resources segment also includes the mining division of SCHACHTBAU NORDHAUSEN GmbH, which chiefly performs restoration and safeguarding of mines. Thanks to the continued good market in Germany, the division once again made a positive contribution to earnings.

Order situation

Order intake in 2016 was EUR 267.0 million, down 22.6 % from the previous year's figure of EUR 345.0 million. This is attributed to the major project awarded in 2015 for the remediation of the Kesslergrube landfill site in Grenzach-Wyhlen, worth over EUR 100 million. The order backlog of EUR 278.8 million was 0.8 % higher than in the previous year (EUR 276.5 million).

The environmental business, which secured further projects, had an especially good order backlog. The subsidiaries that produce water treatment plants and brewing and beverage technology systems also gained new orders and therefore had a good backlog. The marked increase in the order backlog of our deep drilling subsidiary in Jordan, which once again secured major projects, was pleasing. This allows for much better capacity utilization at the subsidiary.

Outlook

In the Resources segment, many more efforts were made to improve cost structures and competitiveness during the past financial year. By reorganizing separate areas into the central company BAUER Resources GmbH, we have established a good footing that will benefit customers and markets in the future.

The environmental business remains positive, with a very good overall order situation and capacity utilization. The major Grenzach-Wyhlen project in Germany is expected to keep us busy until as late as 2020. There are also numerous other oppor-

Geographical breakdown of total Group revenues Resources segment

in EUR million (after deduction of Consolidation)

Total 262

tunities in the market for the current year. The overall order situation in the water business is also good and offers us further opportunities for the future. Earnings should also improve when former burdensome projects are completed.

The difficult market situation in the area of natural resources with low raw material prices and surplus capacities will likely continue. The new projects secured by the subsidiary in Jordan should enable us to significantly reduce current losses.

For 2017, we expect a slight increase in the total Group revenues and positive EBIT in the segment. We still expect a small loss in earnings after tax.

OTHER / CONSOLIDATION SEGMENTS

The Other and Consolidation segments bundle the revenues and earnings of the Group which cannot be allocated to the operating segments. The Other segment essentially comprises the revenues of the parent company BAUER AG itself, generated from a wide variety of administrative services provided to Group subsidiaries.

The Other segment reports EBIT of EUR 6.5 million (previous year: EUR 4.6 million). This includes EUR 4,5 million of dividend payments by Group subsidiaries to the parent company.

Earnings after tax were EUR 4.8 million (previous year: EUR 6.8 million). The segment's revenues are generated mainly by intra-group charges.

The Consolidation segment reflects the consolidation within the Group. The negative EBIT of EUR -2.3 million (previous year: EUR -7.4 million) largely matches the aforementioned dividend payments by Group subsidiaries to BAUER AG. Earnings after tax were EUR -2.4 million (previous year: EUR -6.5 million).

The Dogern Aubecken, a water reservoir which contains more than 2 Mio m³ waters and serves to balance the river Rhine's water levels, is extensively rehabilitated. To ensure the long-term security of the dam structure, BAUER Spezialtiefbau GmbH constructed a cut-off wall, having a thickness of 550 mm and a depth of up to 21 m, using the Mixed-in-Place method. An RG 25 was deployed for this project. >>>

Breakdown of total Group revenues by subsegment

	in EUR million	2015 Revenues	2016 Revenues	Share Year 2016	Change against previous year	Orders in hand
	BAUER Spezialtiefbau GmbH (BST)
Construction	BST, Germany	125.6	137.3	8.7 %	9.3 %	+
	Subsidiaries, Germany	22.8	33.3	2.1 %	46.1 %	•
	BST, international	110.7	76.7	4.8 %	-30.7 %	•
	Subsidiaries, international	543.0	494.5	31.2 %	-8.9 %	+
	BST Group total	802.1	741.8	46.8 %	-7.5 %	+
	SCHACHTBAU NORDHAUSEN GmbH Subsidiaries (SBN)	64.0	64.1	4.0 %	0.2 %	•
	less intra-Group revenues and IFRS adjustments	-123.2	-83.8	-5.3 %
	Construction total	742.9	722.1	45.5 %	-2.8 %	+
	BAUER Maschinen GmbH (BMA)	465.5	429.7	27.1 %	-7.7 %	•
	Equipment subsidiaries	534.4	442.7	27.9 %	-17.2 %	•
	BMA Group total	999.9	872.4	55.0 %	-12.8 %	•
Equipment	SBN	45.7	38.1	2.4 %	-16.6 %	•
	less intra-Group revenues and IFRS adjustments	-292.5	-258.8	-16.3 %
	Equipment total	753.1	651.7	41.1 %	-13.5 %	•
	BAUER Resources GmbH (BRE)	17.4	123.6	7.8 %	n/a	+
	Resources subsidiaries	196.8	129.1	8.1 %	-34.3 %	+
Resources	BRE Group total	214.2	252.7	15.9 %	18.0 %	+
	SBN	37.2	40.8	2.6 %	9.7 %	+
	less intra-Group revenues and IFRS adjustments	-29.8	-28.8	-1.8 %
	Resources total	221.6	264.7	16.7 %	19.4 %	+
	BAUER Aktiengesellschaft (BAG)	38.9	45.6	2.9 %	17.2 %
Other	Other subsidiaries	2.6	3.0	0.2 %	15.4 %
	Total Other/services	41.5	48.6	3.1 %	17.1 %
	less intra-Group revenues and IFRS adjustments	-102.7	-101.0	-6.4 %
	Group total (including non-controlling interests)	1,656.4	1,586.1	100.0 %	-4.2 %	+
	of which: Germany	473.7	481.0	30.3 %	1.6 %
	International	1,182.7	1,105.1	69.7 %	-6.6 %

Notes on the table:

List also includes non-consolidated participations

Evaluation of order backlog in relation to planned revenues:

-- weak; - slightly weak; • adequate; + well adequate; ++ very well adequate; Percentages and totals are calculated on the basis of unrounded starting values Breakdown Germany/international according to country in which accounting figures were allocated. For reasons of complexity the figures are not absolutely precise.

Breakdown of total Group revenues across the companies of the BAUER Group

Shareholdings < 50 % are listed with their revenue share

in EUR million	2015	2016
BAUER Spezialtiefbau GmbH - Group
BAUER Spezialtiefbau GmbH, Schrobenhausen, Germany (BST)	236.3	214.0
Wöhr + Bauer GmbH, Munich, Germany - (sub-group consolidated financial statements)	19.9	29.8
BAUER Funderingstechniek B.V., Mijdrecht, Netherlands	4.6	5.2
BAUER Technologies Limited, Bishops Stortford, Great Britain	10.3	24.4
BAUER Spezialtiefbau Schweiz AG, Baden-Dättwil, Switzerland	9.2	24.7
BAUER Magyarország Speciális Mélyépítö Kft., Budapest, Hungary	9.7	9.7
BAUER ROMANIA S.R.L., Bucarest, Rumania	1.3	1.7
BAUER BULGARIA EOOD, Sofia, Bulgaria	3.9	1.7
BAUER SPEZIALTIEFBAU Gesellschaft m.b.H., Vienna, Austria	22.7	22.8
OOO BAUER Technologie, Moscow, Russian Federation	9.8	17.5
BAUER EGYPT S.A.E. Specialised Foundation Contractors, Cairo, Egypt	37.4	42.3
BAUER LEBANON FOUNDATION SPECIALIST S.a.r.l., Beirut, Lebanon	12.5	9.6
BAUER Georgia Foundation Specialists LCC, Batumi, Georgia	4.3	1.8
BAUER International FZE, Dubai, United Arab Emirates	34.8	32.5
BAUER Geotechnical Specialized Foundation LLC, Abu Dhabi, United Arab Emirates	34.0	34.8
BAUER International Qatar LLC, Doha, Qatar	34.5	25.6
Saudi BAUER Foundation Contractors Ltd., Jeddah, Saudi Arabia	24.0	12.9
BAUER (MALAYSIA) SDN. BHD., Petaling Jaya, Malaysia - (sub-group consolidated financial statements)	76.9	46.5
BAUER Hong Kong Limited, Hong Kong, People's Republic of China	28.2	16.7
BAUER Vietnam Ltd., Ho Chi Minh City, Vietnam	6.0	10.2
BAUER Foundations Philippines, Inc., Quezon City, Philippines	22.8	15.6
P.T. BAUER Pratama Indonesia, Jakarta, Indonesia	12.7	17.2
Thai BAUER Co. Ltd., Bangkok, Thailand	18.1	22.1
BAUER Foundation Australia Pty Ltd., Brisbane, Australia	5.8	10.8
BAUER FOUNDATION CORP., Odessa, United States of America	55.3	17.1
BAUER Foundations Canada Inc., Calgary, Canada	26.3	35.2
BAUER FUNDACIONES PANAMÁ S.A., Panama City, Panama	10.5	11.7
BAUER Fundaciones America Latina S.A., Panama City, Panama	5.0	7.5
BAUER FUNDACIONES DOMINICANA, S.R.L, Santo Domingo, Dominican Republic	7.5	4.4
Other BST shareholdings	15.1	12.8
Joint ventures, Germany - (BST share only)	2.7	3.0
Intra-Group sales	-111.3	-78.4
BST Group total SCHACHTBAU NORDHAUSEN GmbH - Group	690.8	663.4
SCHACHTBAU NORDHAUSEN GmbH, Nordhausen, Germany (SBN)	82.8	70.6
SBN participations	41.8	47.5
Joint ventures SCHACHTBAU NORDHAUSEN GmbH - (SBN share only)	1.9	2.5
SPESA Spezialbau und Sanierung GmbH, Schrobenhausen, Germany	17.3	16.6
Joint ventures SPESA - (SPESA share only)	3.1	5.8
Intra-Group sales	-57.4	-46.7
SBN Group total BAUER Maschinen GmbH - Group	89.5	96.3
BAUER Maschinen GmbH, Schrobenhausen, Germany (BMA)	465.5	429.7
KLEMM Bohrtechnik GmbH, Drolshagen, Germany	46.5	46.0
EURODRILL GmbH, Drolshagen, Germany	13.0	16.2
RTG Rammtechnik GmbH, Schrobenhausen, Germany	33.9	31.0
PRAKLA Bohrtechnik GmbH, Peine, Germany	6.3	7.7

Compared to the breakdown of total Group revenues by segment, in the breakdown of total Group revenues by company the total of the individual groups is shown after consolidation.

in EUR million	2015	2016
BAUER Maschinen GmbH - Group
Olbersdorfer Guß GmbH, Olbersdorf, Germany	7.0	6.6
SPANTEC Spann- & Ankertechnik GmbH, Schrobenhausen, Germany	16.6	8.1
BAUER Deep Drilling GmbH, Schrobenhausen, Germany	31.3	3.6
TracMec Srl, Mordano, Italy	13.0	11.1
BAUER EQUIPMENT UK LIMITED Rotherham, Great Britain	11.5	14.5
BAUER Macchine Italia Srl, Mordano, Italy	7.2	11.0
BAUER MASZYNY POLSKA Sp.z.o.o., Warsow, Poland	4.9	5.4
OOO BAUER Maschinen Russland, Moscow, Russian Federation	6.0	3.6
OOO BAUER Maschinen - Kurgan, Kurgan, Russian Federation	5.2	3.1
OOO BG-TOOLS-MSI, Lyubertsy, Russian Federation	1.6	1.7
BAUER Equipment Gulf FZE, Dubai, United Arab Emirates	9.9	7.0
BAUER Casings Makina Sanayi ve Ticaret Limited Sirketi, Ankara, Turkey	4.4	5.4
BAUER Equipment India Private Limited, Navi Mumbai, India	1.6	2.4
BAUER Technologies Far East Pte. Ltd., Singapore, Singapore - (sub-group consolidated financial statements)	135.2	122.8
NIPPON BAUER Y.K., Tokyo, Japan	5.9	10.2
BAUER Equipment Australia Pty. Ltd., Baulkham Hills, Australia	9.5	8.1
BAUER-Pileco Inc., Conroe, Texas, United States of America	98.0	92.4
BAUER Machinery USA Inc., Conroe, United States of America	45.0	0.5
BAUER Manufacturing Inc., Conroe, United States of America	16.9	21.2
Other BMA participations	4.0	3.1
Intra-Group sales	-251.7	-223.7
BMA Group total	748.2	648.7
BAUER Resources GmbH - Group
BAUER Resources GmbH, Schrobenhausen, Germany (BRE)	17.4	123.6
GWE pumpenboese GmbH, Peine, Germany	49.1	38.5
BAUER Umwelt GmbH, Schrobenhausen, Germany (BMU)	56.6	-
BAUER Water GmbH, Oberndorf a.N., Germany	11.2	-
Esau & Hueber GmbH, Schrobenhausen, Germany	15.4	24.2
GWE POL-Bud Sp.z.o.o, Lodz, Poland	3.4	2.7
FORALITH Drilling Support AG, St. Gallen, Switzerland	2.1	1.7
GWE France S.A.S., Aspiran, France	1.3	1.7
GWE Budafilter Kft., Mezöfalva, Hungary	3.5	3.1
Bauer + Moosleitner Entsorgungstechnik GmbH, Salzburg, Austria	1.9	2.4
BAUER Resources GmbH / Jordan Ltd. Co., Amman, Jordan - (sub-group consolidated financial statements)	22.7	30.3
BAUER Nimr LLC, Maskat-Al Mina, Sultanate of Oman	7.4	8.7
BAUER Emirates Environment Technologies & Services LLC, Abu Dhabi, United Arab Emirates	4.2	2.0
BAUER Technologies South Africa (PTY) Ltd., Cape Town, South Africa - (sub-group consolidated financial statements)	3.0	2.5
BAUER Senegal SARL, Dakar, Senegal	2.5	2.5
BAUER Resources Maroc S.A.R.L., Kenitra, Morocco	1.5	2.5
GWE Tubomin S.A., City of Santiago, Chile	4.3	4.6
Other participations of BRE	4.3	1.5
Joint ventures BAUER Umwelt GmbH - (BMU share only)	2.4	0.2
Intra-Group sales	-25.1	-22.6
BRE Group total	189.1	230.1
BAUER Aktiengesellschaft, Schrobenhausen, Germany (BAG)	38.9	45.6
Other participations of BAG	2.6	3.0
Intra-Group sales	-102.7	-101.0
GROUP TOTAL	1,656.4	1,586.1

III. EARNINGS, FINANCIAL AND NET ASSET POSITION

GROUP EARNINGS POSITION

The earnings position of the Group was characterized by an upward trend in 2016, which represents a turnaround after the very difficult recent years. On the other hand, there were a few negative influences, especially at our subsidiaries in Malaysia and Hong Kong, that had a negative impact on our earnings, causing us to fall short of our targets in this area. The sale of shares and the revaluation of the remaining shares in the Wöhr + Bauer GmbH participation resulted in slight additional gains as compared to operating income. As a result of the sale of shares, Wöhr + Bauer GmbH's earnings contributions of over EUR 10 million are included in other income.

Although overall performance is more positive once again, the earnings position of the company is still well below our expectations. This was due to numerous ongoing disturbances in the world, which caused losses in some regions and markets, thereby obscuring the good results in other countries.

All these effects led to earnings after tax of EUR 14.4 million (previous year: EUR 29.0 million). When figures are compared to the previous year, it should be noted that in 2015 additional earnings from the sale and revaluation of businesses totaling EUR 77.8 million (at EBIT level) are attributable to the deep drilling rig joint venture with Schlumberger and to the sale of shares in another subsidiary.

EBIT fell from EUR 90.7 million to EUR 68.3 million due to additional earnings in the previous year. EBITDA fell by 14.4 % from EUR 185.1 million to EUR 158.4 million, representing 10.6 % (previous year: 11.7 %) of consolidated revenues.

The pre-tax return on equity as the ratio of pre-tax earnings to equity (equity at the start of the period) fell significantly compared to 2015 from 13.5 % to 5.3 % – in particular due to the additional earnings in the previous year. The return

on equity after tax was 3.2 % (previous year: 6.9 %). The return on revenues after tax (relative to the consolidated income statement revenues) decreased from 1.8 % to 1.0 % year-on-year. The decline in return ratios is attributable to the aforementioned additional earnings in the previous year. According to our projections, they will increase again in the current year.

There have been noticeable changes to individual income statement items. This is essentially the result of the abovementioned additional income in the previous year.

The individual income statement items are summarized in the following.

Consolidated revenues fell by 6.3 % against the previous year (EUR 1,587.9 million) to EUR 1,488.6 million. Without the above-mentioned additional earnings in the previous year, the decline would be 1.4 %.

Sales revenues totaled EUR 1,396.9 million, up slightly by 1.3 % compared to the previous year (EUR 1,379.0 million).

Changes in inventories fell significantly by 47.0 % from EUR 29.0 million to EUR 15.4 million.

Other capitalized goods and services for own account dropped by 40.8 % from EUR 22.7 million to EUR 13.5 million due to fewer investments in our own equipment in 2016.

Other income fell very significantly against the previous year, from EUR 157.2 million to EUR 62.9 million. The largest change is the decrease in income from de-consolidation by EUR 62.3 million to EUR 15.6 million. This was related to the joint venture with Schlumberger as well as to SPANTEC Spann- und Ankertechnik GmbH in the previous year; and Wöhr + Bauer GmbH in the financial year under review. Book profits from the disposal of assets (EUR 4.6 million) fell by EUR 11.8 million. Other key

Trend in total Group revenues by quarter

in EUR million	Q1 2016	Q2 2016	Q3 2016	Q4 2016	Full year 2016
BAUER Group	383.217	373.758	389.300	439.854	1,586.129
Construction	159.872	171.991	184.494	205.746	722.103
Equipment	164.964	147.465	153.270	186.016	651.715
Resources	71.547	67.433	66.385	59.347	264.712
Other/Consolidation	-13.166	-13.131	-14.849	-11.255	-52.401

changes to this item related to realized and unrealized foreign currency gains as well as gains from foreign exchange forward contracts, which together fell by EUR 20.2 million to EUR 30.7 million compared to the previous year. Realized and unrealized foreign currency gains and losses as well as gains and losses from foreign exchange forward contracts result from our currency hedge management activities. Fluctuations in hedged and unhedged currencies can cause the corresponding income statement items to vary widely over the years depending on trends. The unbalanced statement of exchange rate shifts results from the situation that exchange rate hedging cannot always be set exactly against the underlying transactions, even though in operational reality they are aligned as closely as possible to each other. The Group's objective is to undertake exchange rate hedging which rules out the possibility of foreign currency gains or losses as far as possible. The countering item in an amount of EUR 32,6 million (realized and unrealized foreign currency losses and losses from foreign exchange forward contracts) is entered under "Other operating expenses". The difference between the gains and losses shows that we experienced overall foreign currency losses of EUR 1.9 million in the year under review (previous year: EUR 7.7 million in losses). The significant exchange rate fluctuations during 2016 – with considerable positive and negative effects depending on the currency – were the cause of these results.

The cost of materials fell by 4.6 % to EUR 718.0 million in the year under review. The decline is more pronounced than the drop in consolidated revenues adjusted for additional earnings of the previous year (-1.6 %). Costs of materials on construction projects vary widely, so comparisons between individual years are only possible to a very limited extent.

The reduction of personnel expenses by 1.7 % to EUR 369.7 million was roughly the same as of the consolidated revenues adjusted for the additional earnings of the previous year. We are striving to reduce personnel expenses further through our cost-cutting program.

Other operating expenses fell by 11.6 % from EUR 274.2 million to EUR 242.5 million. The many individual components of this item develop in very different ways depending on the course of business and the mix of the order portfolio. This item includes the realized and unrealized foreign currency losses and losses from foreign exchange forward contracts described under "Other income", which contributed significantly to a decrease in the item at EUR 25.9 million. Excluding exchange-rate-driven cost changes, the decrease in other operating expenses would be 2.7 %, which is greater than in the consolidated revenues adjusted for the additional earnings of the previous year.

Depreciation of fixed assets fell by 8.2 % to EUR 74.5 million.

Write-downs of inventories due to use reflect the use of rental equipment made available to our customers. This equipment does not form part of the fixed assets, but is recognized under inventories. The reason for this approach is that most of this equipment remains within the company only for a relatively short time. The aim of the rental operation is to subsequently sell the equipment under a rental-purchase agreement. As the equipment has to be financed correspondingly on the Equity and Liabilities side of the balance sheet, its depreciation forms part of the company's EBITDA. As a consequence of the changes in the market following the financial crisis, our customers are increasingly entering into these rental transactions. Depreciation due to use increased by 17.7 % to EUR 15.5 million during the year under review.

Financial income rose from EUR 5.0 million to EUR 5.5 million. At EUR 46.8 million, financial expenses were up from the previous year (EUR 42.0 million), although they include EUR 4.2 million in impairment losses.

EBIT trend by quarter

in EUR million	Q1 2016	Q2 2016	Q3 2016	Q4 2016	Full year 2016
BAUER Group	4.846	13.514	19.656	30.332	68.348
Construction	1.011	4.265	7.327	17.782	30.385
Equipment	5.904	7.464	9.422	14.194	36.984
Resources	-1.592	1.511	3.500	-6.648	-3.229
Other/Consolidation	-0.477	0.274	-0.593	5.004	4.208

The share of the profit or loss of associated companies accounted for using the equity method fell from EUR 2.7 million to EUR -3.0 million. The main reasons for this were start-up losses in the joint venture with Schlumberger as well as the fact that, before the sale of the shares in Wöhr + Bauer GmbH, the company incurred losses that were significantly overcompensated by operating income from real estate divestments. Our shareholding in Oman, SPANTEC Spann- & und Ankertechnik GmbH, as well as the construction joint ventures of the Group have contributed positively to earnings. We expect this item to be positive again in the future.

Income tax expense of EUR 9.6 million was EUR 17.8 million below the previous year's level. The above-mentioned additional earnings had significantly affected this figure in 2015. In the current year, positive and negative influences have roughly equaled out, resulting in a normal tax rate. In future, we expect an income tax burden of between 30 % and 40 % once again. Negative result contributions from subsidiaries in individual countries only have the effect of reducing the tax burden on the Group if it is possible to establish deferred tax assets on the basis of positive tax-related earnings planning. In some cases, this was not possible again last year. On the other hand, corporate restructuring measures had positive effects on taxes.

The earnings after tax attributable to BAUER AG shareholders was EUR 11.3 million (previous year: EUR 29.7 million).

The earnings after tax attributable to non-controlling interests was up from previous years at EUR 3.1 million (previous year: EUR -0.7 million). Fewer negative results were recorded in the current year as a result of restructuring measures. In addition, very good earnings were achieved in Egypt.

GROUP FINANCIAL AND NET ASSET POSITION

The Group's net assets rose by 2.7 %, from EUR 1,656.9 million to EUR 1,701.4 million, mainly as a result of the increase in receivables from construction contracts (PoC) and assets held for sale. The equity ratio of 25.5 % was down from the previous year (27.2 %). The equity ratio has fallen below 30 % as a result of the losses of 2013 and burdens from the revaluation of provisions for pensions, necessitated by the low interest rate, in recent years. We are once again aiming to achieve a value in excess of 30 % in coming years. All investment and growth plans of the business are aligned to this target. The net debt of our company increased slightly by 1.8 % in the year under review. This is roughly at the level of 2013 and only slightly higher than in previous years. However, total Group revenues rose by 5.4 % in relation to 2013. In the coming years, we will work intensively on reducing net debt in relation to net assets. We must stress, however, that in view of the nature of our business and the current economic climate, this will only be possible to a certain extent. The reasons for the considerable rise over recent years following the financial crisis are detailed below:

The level of the net debt in the Group is largely dependent on the level of the working capital. The working capital of our businesses is inevitably relatively high due to the nature of our business model and the special market in which we operate. Our construction projects run for only comparatively short periods of time. As opposed to building construction contractors, who work on longer-running projects, we rarely receive advance payments for the construction project in question meaning that it is very rare for us to generate a positive cash flow over the term of the project. Short construction contracts – the majority of our contracts – require

Exchange rate trend 2016

1 EUR entspricht	Average rate 2015	Average rate 2016
USD	1.1039	1.1040
GBP	0.7236	0.8227
RUB	68.6566	73.1804
CNY	6.9434	7.3488

financing across the Group's many construction sites corresponding to roughly three months' sales of the Construction segment. Consequently, projects are always billed after the work has been completed.

The situation in the Equipment segment is similar. Production lead times for our specialist machinery are around 12 months. Since customers usually only order equipment once they have an actual contract to fulfill, and so expect short delivery lead times from us, we are forced to hold stocks of finished machinery. Moreover, we have a very broad product range and we need to stock spare parts for our customers worldwide, leading to a corresponding increase in the need for financing.

Nevertheless, we believe that the working capital of the BAUER Group is still too high in relation to our business volumes. Our levels of inventories, finished goods and receivables have increased beyond the normal bounds. This is not good, but on the other hand is explainable, because we are aware of the reasons why it is so: they reflect market trends as well as a number of special effects. Furthermore, substantial amounts are imposing a burden, as claims in respect of supplementary work on completed international construction projects are having to be asserted by legal action. Even though the amounts are recognized with due commercial caution in the accounts, they are nevertheless imposing a burden in terms of the indebtedness of the business.

We are aware that the Group's higher financing requirements place greater weight on the question of our self-financing capabilities. Following the loss made in 2013, the equity ratio has fallen too low, so it will have to be increased again in the years ahead. It would be much higher if the hidden reserves were included. Since changing over to IFRS we have used the historical cost model to value land and buildings. With a carrying amount for the land and buildings of EUR 177,8 million, there is a considerable reserve here.

The net debt to EBITDA and EBITDA to net interest coverage ratios agreed with lenders as covenants have worsened since the financial crisis, and especially as a result of the losses incurred in the 2013 financial year. With a value of 4.27 in 2016, we were unable to fully meet the agreed Net Debt to EBITDA ratio for our primary loans. An amicable solution has already been found with all relevant financial partners for all of the affected loans. We expect to meet the agreed ratios once again in the 2017 financial year. The two other agreed covenant ratios – EBITDA to net interest coverage and equity ratio – are sufficiently within the agreed thresholds. In addition to the syndicated loan, the Group has entered into covenants for a number of long-term loans, which were valued as per the 2016 year-end at EUR 193.5 million. The thresholds for the ratio of net debt to EBITDA are between 3.75 and 5.0

Covenants trend

	2015	2016
Net debt/EBITDA	3.59	4.27
EBITDA/net interest coverage	4.99	4.24
Equity ratio in %	27.2	25.5

for these loans. On the whole, we see a sufficient scope for covering our liquidity requirements with credit lines that have been approved but not yet utilized.

The syndicated loan, which was agreed upon in 2014, was renewed for another three years in 2016. It has a volume of EUR 430 million and extends until July 2019 with the option of renewal.

In assessing the Assets side of the consolidated balance sheet, it is important to note that this is composed of a construction element (relating to the Construction and Resources segments) and an equipment element (relating to machinery manufacturing operations). Some specific items relate primarily to the construction element, while others, in contrast, relate to the equipment element. The main items of such kinds are listed in the following:

• Within property, plant and equipment, about two thirds of the land, land rights and buildings item relates to the Equipment segment. On the other hand, about two thirds of the technical equipment and machinery item is attributable to the Construction segment.
• Some 40 % of the raw materials and supplies item is linked to the machinery manufacturing operations of the Equipment segment.
• More than 90 % of the work in progress and finished goods and stock for trade item relates to the Equipment segment, with a small percentage attributable to the Construction and Resources segments. In the Equipment segment, it is essential to successful selling operations to maintain stocks of rental equipment as part of current assets, so that customers can try out the machinery before making their final purchasing decision. Equipment can also be drawn from the pool to cover short-term capacity bottlenecks on construction sites. The machinery in production at the balance sheet date also represents a substantial capital tie-up.
• Receivables from construction contracts (PoC) are attributable to the Construction and Resources segments. The trade receivables item is broken down roughly according to the respective segments' shares of total Group revenues.

Assets Equity and liabilities

EUR 434.1 million (25.5 %)

Equity

Non-current assets EUR 642.2 million (37.7 %) (2015: EUR 618.2 million (37.3 %))

Current assets EUR 1,025.8 million (60.3 %) (2015: EUR 991.3 million (59.8 %))

Liquid funds EUR 33.5 million (2.0 %) (2015: EUR 47.4 million (2.9 %))

(2015: EUR 451.2 million (27.2 %)) Non-current debt EUR 356.8 million (21.0 %) (2015: EUR 533.9 million (32.2 %))

Current debt

EUR 910.5 million (53.5 %) (2015: EUR 671.8 million (40.6 %))

EUR 1,701.4 million EUR 1,701.4 million

These different weightings are barely relevant to inter-period balance sheet comparisons when the rate of growth – either positive or negative – of the business areas is roughly the same.

With regard to the items on the balance sheet, the following material changes should be noted:

On the Assets side:

• The property, plant and equipment and investment property item increased only slightly from EUR 404.4 million to EUR 408.0 million.
• Participations rose from EUR 3.6 million to EUR 9.7 million. This was mainly due to the revaluation of the remaining 16.67 % share in Wöhr + Bauer GmbH of EUR 8.5 million.
• Deferred tax assets increased by EUR 15.7 million to EUR 42.9 million, which, at EUR 11.8 million, is mainly attributable to the usability of tax losses carried forward.
• Inventories stood at EUR 447.3 million and remained at the same level as the previous year (EUR 444.6 million).

• Receivables from construction contracts (PoC)

increased by EUR 25.3 million to EUR 154.8 million. This is offset by a EUR 13.1 million increase in liabilities from construction contracts (PoC) on the equity and liabilities side. Changes in this item result from the percentage of completion of our projects at the year-end closing date.

• Trade receivables decreased by EUR 4.0 million to EUR 340.0 million.
• Other current financial assets decreased by EUR 10.5 million to EUR 18.4 million.
• Assets held for sale were EUR 19.6 million for the first time. These assets are deep drilling rigs for oil and gas that belong to our Resources subsidiary in Jordan. These rigs were put up for sale following the strategic decision to abandon deep drilling services for the oil and gas industry. The deep-drilling joint venture with Schlumberger, formed in 2015, also played a decisive role in this decision.

On the Equity and Liabilities side:

• Equity decreased by EUR 17.1 million to EUR 434.1 million. Earnings after tax (EUR 14.4 million) contributed positively to this change. The decrease was caused by changes in currency rates (EUR 13.8 million), interest-related adjustment of provisions for pensions, – balanced with the corresponding deferred tax assets (EUR 9.1 million) – the market valuation of derivative financial instruments (EUR 0.7 million), changes in the basis of consolidation (EUR 2.2 million), dividend payments (EUR 3.2 million) and other changes (EUR 2.5 million).

• Non-controlling interests decreased by EUR 8.1 million to EUR 4.3 million. This is mainly due to changes in currency rates that have had an effect on the participation in Egypt.

• The non-current portion of liabilities to banks significantly decreased from EUR 376.6 million to EUR 176.8 million. The covenant (net debt to EBITDA) of the syndicated loan and other long-term loans was exceeded as of the balance sheet date. According to IFRS, these loans must be transferred to current liabilities to banks. As explained above, an amicable solution has already been found with all relevant financial partners for all of the affected loans. Therefore, this effect will be reversed again in the first quarter of 2017.

• Long-term provisions for pensions increased by EUR 14.8 million to EUR 127.1 million. The increase is largely due to the lower discount rate of 1.80 % (previous year: 2.35 %). This was supplemented by the annual contribution from current pension commitments.
• The current portion of liabilities to banks increased significantly from EUR 297.7 million to EUR 479.7 million. This was due to the aforementioned transfer of liabilities from long-term liabilities to banks as a result of the covenant being exceeded. This effect will also be reversed again in the first quarter of 2017. Financing decreased by EUR 17.8 million overall in terms of current and non-current debt to banks.
• Liabilities from construction contracts (PoC) increased by EUR 13.1 million to EUR 62.9 million. This is offset by the above-mentioned increase in receivables from construction contracts (PoC) on the assets side.
• Trade payables increased by EUR 17.9 million to EUR 202.9 million.
• Other current liabilities increased by EUR 17.2 million to EUR 88.7 million. This was largely due to tax reasons and customer down payments for equipment.
• Other current financial liabilities increased by EUR 8.2 million to EUR 20.3 million. This is mainly due to liabilities from forward exchange contracts and liabilities to other finance companies.

The ratio of net assets to consolidated revenues increased from 104.3 % to 114.3 %.

Net cash from operating activities shown in the cash flow statement increased substantially from EUR 32.4 million to EUR 124.9 million. The following factors contributed to this change:

• The other non-cash transactions totaled EUR -23.8 million (previous year: EUR -85.3 million).
• Trade receivables changed only slightly by EUR 0.5 million (previous year: EUR -38.8 million).
• The increase in receivables from construction contracts resulted in a capital tie-up of EUR 22.4 million (previous year: EUR -13.9 million).
• The increase in inventories burdened the operating cash flow to the tune of EUR 25,4 million.
• The other current and non-current liabilities changed by EUR 25.2 million compared to the previous year.

Cash flow from investment activity totaled EUR -66.7 million and was EUR 29.2 million higher than in the previous year, mainly due to the decline in revenues from the sale of fixed assets.

Cash flow from financing activities amounted to EUR -64.2 million. The main factors influencing this were loan repayments amounting to EUR 256.9 million, interest payments of EUR 35.6 as well as new indebtedness to banks in the amount of EUR 236.4 million.

The significant change in cash and cash equivalents is attributable to exchange-rate effects of EUR -7.9 million, mainly at the subsidiary in Egypt.

IV. FINANCIAL STATEMENTS OF BAUER AKTIENGESELLSCHAFT

The Group management report and the management report of the parent company BAUER AG are combined. The balance sheet and the income statement of BAUER AG (according to the German Commercial Code, HGB) will thus be explained at this point.

In 2016, BAUER AG reported a net loss for the year of EUR 1.4 million (previous year: EUR 25.2 million). In the previous year, BAUER AG made EUR 29.7 million in shareholder contributions to subsidiaries amounting as a result of extensive restructuring measures in the Resources segment. Measures of the same kind totaling EUR 7.0 million were carried out in 2016 and were the cause of the reported loss.

The following items in the balance sheet and income statement changed significantly during the completed financial year compared to the previous year:

Main changes to the balance sheet:

• Financial assets rose from EUR 116.7 million to EUR 129.3 million, largely due to the increase in shares in affiliated companies. In the current year, BAUER AG increased its shareholding in the subsidiaries BAUER Spezialtiefbau GmbH, BAUER Maschinen GmbH, BAUER Resources GmbH, SCHACHTBAU NORDHAUSEN GmbH and SPESA Spezialbau und Sanierung GmbH from 99 % to 100 %. Until now, the 1 % share was held by the Bauer family because of historical tax-related reasons. In addition, EUR 10.0 million was invested in the capital of BAUER Resources GmbH.
• Receivables and other assets rose from EUR 198.7 million to EUR 240.1 million. This was largely due to the increase in receivables from affiliated companies amounting to EUR 40.9 million. In the 2016 financial year, for strategic reasons, it was decided that the financing of operational subsidiaries would be increasingly handled by BAUER AG instead of the major parent companies of the segments.
• Equity decreased from EUR 133.5 million to EUR 129.5 million. This was caused by the net loss amounting to EUR 1.4 million and dividend payments in 2016 totaling EUR 2.6 million.

• Liabilities increased from EUR 184.2 million to EUR 248.5 million. The main factor responsible for this was growth in liabilities to banks by EUR 98.8 million, due to the aforementioned strategic expansion of BAUER AG's financing activities for the Group. Liabilities to affiliated companies declined by EUR 36.3 million. As of the balance sheet date in the previous year, there were major loans that had been granted by subsidiaries of BAUER AG due to the fact that financing activities were still handled by the major subsidiaries. This was not the case in 2016 as a result of the new financing policy.

Main changes to the income statement:

• Sales revenues, primarily related to charging of administrative services to subsidiaries, increased by EUR 1.8 million to EUR 33.8 million.
• Other operating expenses decreased by EUR 22.0 million to EUR 20.7 million, but were still significantly higher than business operations would warrant. The main reason for this, both in 2015 and 2016, are the aforementioned expenditures by BAUER AG for restructuring measures at the subsidiaries in the Resources segment.
• As a result, operating result was again negative at EUR -8.7 million (previous year: EUR -31.2 million).
• At EUR -1.4 million, net result for the year was also negative (previous year: EUR -25.2 million). EUR 0.1 million was withdrawn from other revenue reserves. Unappropriated net profit decreased from EUR 5.6 million to EUR 1.7 million

The payment of dividends to shareholders is based on the unappropriated net profit of BAUER AG as the parent company, taking into account the Group's consolidated earnings. The dividend policy of BAUER AG is one of continuity, meaning that in principle a dividend should be paid even in difficult years, where financially justifiable. As the Group's holding company, BAUER AG is dependent on the earnings of its subsidiaries, and additionally provides financing to them.

39

Although the earnings generated from the Group's operating activities were clearly positive, we were unable to achieve the targets originally set for 2016. As explained above, earnings after tax in the Group were below expectations. We believe it is appropriate to allow our shareholders to participate in this, so we intend to pay a small dividend. The Management Board will therefore encourage the Supervisory Board to propose a dividend payment of EUR 0.10 (previous year: EUR 0.15) to the shareholders at the Annual General Meeting. As a result, the dividend quota has increased from 8.7 % in the previous

year to 15.2 %. The reduction in the dividend also serves to protect the Group's equity, which we intend to significantly improve in the coming years.

As the Group's holding company, BAUER AG receives earnings in particular from its subsidiaries. In 2017, dividend payments by the subsidiaries will be approximately the same as in 2016, although no additional effects are expected at the present time. Consequently, BAUER AG should once again achieve a profit.

The soil was found to be severely contaminated on the premises of a former gas works in Hersbruck near Nuremberg. To protect the groundwater, Bauer Umwelt drilled replacement bores. A total of approx. 8,000 m³ of soil material were disposed of. >>>

V. SUSTAINABILITY

SUSTAINABILITY IN THE BAUER GROUP

The BAUER Group has summarized key areas of action, which are also the central aspects of sustainability management, under the maxim "BAUER's Triple A": health, safety and environment, quality and ethics as well as performance. The slogan is based on the highest grade given by rating agencies when evaluating the strength of a company. The ultimate responsibility for the company's sustained development and its focus on these issues lies with the Group Management Board and the managing directors of the holding companies.

EMPLOYEES

Any company that wants to enthuse customers all over the world needs satisfied and committed employees. The framework is a varied corporate culture which takes account of different world views and perspectives, experience and characteristics, and combines them under one roof. We are proud of this variety and we are convinced that it represents a significant competitive advantage.

Employee-related data

The companies of the BAUER Group employed an annual average of 10,771 employees all over the world (previous year: 10,738). They are divided up as follows:

• Construction segment: 6,412 employees (previous year: 6,243)
• Equipment segment: 2,753 employees (previous year: 2,919)
• Resources segment: 1,282 employees (previous year: 1,276)
• Other segment: 324 employees (previous year: 300)

The trend in personnel numbers within the Group was in line with our expectations. Fluctuations at subsidiaries are of restructuring. Individual construction projects can cause major fluctuations at international locations.

By the nature of its operations, the workforce of the Construction segment is subject to the greatest fluctuation, depending on the number of major projects being handled in specific countries. Consequently, the biggest growth was at subsidiaries in Egypt (331 employees), Canada (51 employees) and Qatar (44 employees). The number of employees in the US decreased by 85 after completion of the large-scale Center Hill Dam project and the realignment of the subsidiary. In some countries, such as the Philippines, Indonesia and Angola, fewer people were employed during the year under review than in the previous year because of the weaker state of the market. The large order backlog led to an overall increase of employees in Construction and primarily involved personnel recruited for specific projects.

The number of employees in the Equipment segment decreased slightly. The main share of the decline is attributable to the Far Eastern plants (46 employees), the termination of activities in Botswana (30 employees) and our German subsidiary in Peine (32 employees). One of our key goals is to retain the loyalty of our core of long-term employees, which we once more achieved successfully in the past year.

In the Resources segment, the number of employees was reduced further in 2016 due to restructuring measures. This mainly affected the German subsidiary for well engineering materials in Peine (54 employees). In general, the number of employees in the segment increased, which is largely attributed

Employees by segment

to the mining division of SCHACHTBAU NORDHAUSEN GmbH (63 employees), which has a good order situation.

In the Other segment, which mainly comprises BAUER AG, there was a slight increase in employees, which is partly due to the centralization of several functional areas of the subsidiaries.

Training and education

Whether in the industrial, technical or commercial area – our apprentices can expect to receive a varied education which is practical and future-oriented. Year after year, we train numerous young people in about 20 different professions. In 2016, we trained 238 people (previous year: 245). And because we know that our workforce is our greatest potential, continuing education plays an important role with us, right from the apprenticeship phase. The targeted qualification of our workforce is becoming increasingly important at the same time. After all, in view of digitization, the production processes in our company are also becoming ever more complicated, and the requirements on the functions of our machines are growing more demanding.

BAUER Training Center GmbH represents a source of expert advice for our employees, customers and partners as well as external interested parties in all questions relating to further and continuing education. Its guiding objective is to constantly improve and professionalize its training and expand its scope in response to demand. The budget of the BAUER Training Center GmbH amounted to about EUR 2.6 million in 2016 (previous year: EUR 2.5 million). A total of 594 (previous year:

3,835 3,948 4,050 4,216 ^{240 248} 10,264 245 238 10,405 10,738 10,771 6,189 6,209 6,443 6,317 12,000 10,000 8,000 6,000 4,000 2,000 0 2013 2014 2015 2016

Employees by employment type Employees by region

Diversity

The employees of the BAUER Group literally come from all over the world. Our staff included employees from 80 different nations in 2016 – people from widely varying cultural and ethnic groups who strive on every continent to achieve our common goals. They shape our corporate culture with their different outlooks and viewpoints, experiences and traits. The promotion of diversity has therefore been firmly rooted in our corporate goals for many years. We offer all persons the same opportunities to contribute to the success of the company, regardless on their origin, religion, age, gender or sexual orientation.

In both the hiring and further development of our employees, we attach great value to an assessment based exclusively on their personality and qualification. Approximately 10 % of the Group's employees were women in 2016, which essentially reflects the technical nature of our business and the low number of women applying for such careers.

CAPITAL INVESTMENTS

In view of the general economic situation, we kept our capital investments in 2016 at a relatively low level compared with previous years, roughly approximating the level of amortization. This was made possible by the extensive investments devoted to our plants in previous years. The pace of technological progress in our business has accelerated, however, so that any

Industrial Salaried staff Apprentices Germany Europe (other) Middle East & Central Asia Far East & Australia Americas Africa

future increase of our revenues will demand higher investments once more.

In the Construction segment, further investments were made in equipment to meet the market demand for ever more powerful machinery to handle specialist projects. For years now, we have seen a trend toward increasingly large-scale international infrastructure projects which foster growing demand for specialist foundation engineering works that can only be carried out by ever-larger machinery. This demands higher individual investments, but also opens up new market opportunities for us. We have also concentrated specifically on investments to equip our construction sites with modern communications technology.

In the Equipment segment, the investments were chiefly channeled into modernizing the equipment available to the production sites. Major investments in our plants and production facilities are not necessary at this time.

Investments in the Resources segment in 2016 were also at a low level. The investments went into the modernization of existing production systems.

In the 2016 financial year, the BAUER Group invested a total of EUR 95.8 million (previous year: EUR 91.0 million) in intangible assets and property, plant and equipment. Depreciation of fixed assets across the Group totaled EUR 74.5 million (previous year: EUR 81.1 million). Write-downs of inventories due to use Group-wide totaled EUR 15.5 million (previous year: EUR 13.2 million).

Additions to the property, plant and equipment assets of BAUER AG in the 2016 financial year totaled EUR 3.6 million (previous year: EUR 6.5 million), against depreciation of EUR 3.2 million (previous year: EUR 2.9 million).

We will again keep investments in balance with amortizations in 2017.

RESEARCH AND DEVELOPMENT

The BAUER Group once again invested substantial sums in developing new construction methods and machinery as well as for research purposes in financial 2016. The accent here is on the new and further development of different equipment

for specialist foundation engineering as well as the matching drilling tools and add-on units. This is flanked by the new development and optimization of construction site applications and methods.

Research and development work in the BAUER Group is organized on a decentralized basis. In companies belonging to BAUER Maschinen GmbH, each major product group has its own development unit that concentrates entirely on the corresponding equipment, such as rotary or anchor drilling rigs. Within BAUER Maschinen GmbH, the diversified product range is divided into business areas that constantly develop their equipment lines and ensure innovation in their area. The central development department develops the technologies and components of a machine that are used in several product groups. Basic research work is also located in the central development department. Development work in the BAUER Maschinen GmbH subsidiaries is grouped into the system described above.

Our construction areas also have their own development capacities. In particular, BAUER Spezialtiefbau GmbH maintains a department for construction technology which develops new methods and conducts fundamental research.

To promote research that might be of Group-wide importance, internal and external orders for research work are placed via the BAUER Forschungsgemeinschaft (research community). Simple ideas sometimes give rise to outstanding new techniques that help our companies to achieve technological advances.

This type of overall organization for research and development work has proven highly effective. Rapid decisions and great flexibility allow all products to be kept at the cutting edge, while new ideas and market requirements can be implemented quickly.

Increasing digitalization, which affects both the equipment and the construction segment, will be a central theme in our development activities for the coming years. As part of our "digital construction" initiative, we are working intensively on networking a wide range of construction site data and various processes and applications with our central databases in order to make workflows more efficient and ensure

that experience from past construction projects is available to us all over the world. This will enable us to better assess the challenges of future projects.

We are also developing new applications for our equipment in order to ensure visually appealing data presentation and widely available, efficient data management for our customers. Applications for the tablet PC that is included in many PremiumLine rigs were enhanced and web-based access to the data was also expanded.

Assistance systems are increasingly being used in machines. The adaptive speed assistant, which is used in kelly drilling, was presented at Bauma 2016. This innovative technology automatically determines the optimal winch speed when extending or retracting the kelly bar. This increases drilling performance, reduces wear and also prevents damage.

We successfully demonstrated our development achievements in the areas of productivity, energy and noise with our machinery exhibits at Bauma in Munich. Compared to the exhibits we showed at Bauma 2013, our machines were 10 % more productive, had a 20 % lower diesel consumption rate and caused 50 % less noise emissions. We have further intensified our efforts to make improvements in these areas in recent years.

One example of reduced noise emissions is the soundproofed SilentVibro vibrator from RTG Rammtechnik GmbH, which was also presented at Bauma. The SilentVibro can significantly reduce noise in the working area of the machine. This is achievable with a variety of measures, such as soundproofing of the spring yoke and encapsulation of the front area, including the hydraulic motors.

Over the past several years, we have persistently worked toward the goal of higher efficiency with a significant reduction in fuel consumption. Many of our rigs, including the duty-cycle crane series, are now equipped with the energy efficiency package (EEP). The 100th machine with EEP was delivered to our customers in 2016. With the optional EEP professional package, energy efficiency can be increased even further. Both packages together result in a reduction in fuel consumption, by up to 30 % in comparison to predecessor models, making it an investment that quickly pays off for customers.

For many years now, our products and services have extended well beyond the bounds of specialist foundation engineering. The BAUER Group today is an equipment manufacturer and service provider in all fields dealing with ground and groundwater. Pursuing that strategy, many units within the Group have been undertaking additional development work, such as to design new pipes for underground engineering installations, to advance water purification based on a wide variety of methods, and to produce modern materials for use in geotechnical applications. A state-of-the-art system of innovation management is practiced with great intensity by all Group units.

In the Equipment segment we invest a good 3.3 % (including internal and project-related expenditure) of the corresponding portion of total Group revenues in research and development. A staff of 190 people are involved in this field, as well as outside consulting engineers and interns. Research and development activities are routinely reviewed and maintained at a high level to keep pace with the ever increasing rate of change in market demands.

Research and development in the BAUER Group

		2015			2016
	Construction Equipment		Resources	BAUER Group	Construction Equipment		Resources	BAUER Group
Total Group revenues (in EUR million)	733.8	705.1	217.5	1,656.4	708.9	615.1	262.1	1,586.1
Expenses for R&D (in EUR million)	2.8	23.0	1.2	27.0	3.2	20.2	1.3	24.7
as % of total Group revenues	0.4	3.3	0.6	1.6	0.5	3.3	0.5	1.6
Group employees	6,243	2,919	1,276	10,738	6,412	2,753	1,282	10,771
R&D employees	39	186	12	237	41	190	13	244

Research and development expenditure in the Construction segment is 0.5 % of total Group revenues, as well as in the Resources segment. We are investing considerable further resources to prepare and design construction sites. These expenses are leading to a general increase in the expertise base of the segments.

HEALTH SAFETY ENVIRONMENT (HSE)

The BAUER Group has firmly anchored health, safety & environment (HSE) as a central element of its business activity throughout the entire value-added chain. In 2011, we introduced global standards, thus creating a uniform HSE management system for all companies of the BAUER Group. By constantly reviewing our performance and comparing it against our set goals and targets, we seek to continuously improve our HSE system, and therefore to consistently minimize our accident and damage rates.

For us, the health and safety of our employees takes top priority. Our goal is to create a working environment which not only protects against workplace-related dangers but also reinforces their health resources and their performance capabilities. Standards and guidelines for health and safety in the BAUER Group are defined in cooperation with the Managing Directors and the Management Board. In addition, regular HSE training courses are held to reinforce the awareness of the topic of health and safety throughout the company. A program developed by the HSE department for carrying out health and safety audits within the company also helps the subsidiaries of the BAUER Group to build up their HSE policy to the Group standard.

Regular reviews and audits confirm the consistent implementation of our safety standards. Through certifications such as OHRIS, OHSAS 18001, AMS-Bau and SCC, we ensure that our safety policies meet the requirements of the International Labor Organization (ILO).

QUALITY

The quality of our products, services and equipment is the most important differentiating criteria which sets our company apart from its international competition. Not only does this include product quality in the narrower sense, but also the quality of the organization and procedures ranging from procurement through to production and sale, followed by customer service. Quality orientation in each of these subprocesses determines how we act and is the driving force for continuous improvement in our productive capacities.

A quality management system that is continuously monitored by key performance indicators and audits ensures that the most demanding quality requirements are met in our company. It is based on the ISO 9001 international standard as well as the relevant legal and industrial standards, and is aligned with the requirements of our customers to a significant extent. The findings from these audits and reviews are incorporated into our regular training programs. By these means, we validate the quality of our processes and create the basis for systematic, continuous improvement.

Involving our employees is a basic prerequisite for achieving the quality targets that we have defined for ourselves. This is where our managers bear a particular responsibility, since they set the example to promote quality awareness in our company. In this way, we achieve a situation in which our employees on all levels make quality their concern, and ultimately put our quality management approach into practice as part of their everyday working life.

VI. LEGAL DISCLOSURES

REMUNERATION REPORT

The Remuneration Report sets forth the system of remuneration paid to the members of the Management Board and the total amounts paid to them, and explains the underlying principles and amount with regard to the remuneration paid to the Supervisory Board.

Remuneration of the Management Board

The Management Board of BAUER AG normally consists of three members, but it temporarily had four members in the year under review. Effective October 1, 2016, Mr. Peter Hingott, who has held management roles in the Group for several years, was appointed to the Management Board as a successor to Mr. Heinz Kaltenecker, who left the Management Board as of December 31, 2016. The Supervisory Board sets the overall levels of remuneration paid to the individual members of the Management Board, based on proposals submitted by the Presidial and Personnel Committee. The plenary Supervisory Board approves the remuneration system for the members of the Management Board following prior consultations in the Presidial and Personnel Committee.

The system of remuneration paid to the members of the Management Board did not change from the previous year. The overall levels of remuneration paid to the individual members are set on the basis of a performance assessment. This process assures that the overall remuneration is appropriate to the duties and performance of the Management Board member concerned and to the situation of the company. The remuneration paid to each Management Board member is composed of non-performance-related components, chiefly a fixed basic salary, paid in equal monthly installments, and a performance-related component in the form of a variable annual bonus. This is set by the Supervisory Board on the basis of short and long-term evaluation criteria, in which case the short-term evaluation criteria are equally weighted with the long-term ones when setting the variable remuneration.

The criteria for setting the fixed remuneration to members of the Management Board are the assignment of duties, the performance of the respective Management Board member, the economic position of the Group and its profitability and ongoing future prospects.

Maximum limits are imposed on the total remuneration paid. The variable remuneration paid to each member of the Management Board is limited by an individually defined maximum bonus level. This maximum is the upper limit of potential bonus payment in the normal course of business, and is paid in full if all set goals are attained. If business performance is exceptionally good, the said levels may be surpassed by up to 1.8 times.

The short-term criteria applied in setting the variable remuneration elements are the performance of the respective Management Board members in the past financial year and the economic position of the Group in respect of attainment of budget targets in the year under review, particularly the attainment of earnings and revenue targets, taking into account general economic trends.

The long-term criteria applied in setting the variable remuneration elements are the success and future prospects of the Group and the performance of the Management Board in respect of these criteria. This assessment judges the decisionmaking of the Management Board in terms of sustainable business development over the past three financial years and the effects of this decision-making in achieving long-term stability for the business. Criteria applied here are long-term earnings and revenue prospects, sustainable personnel development in accordance with the future prospects of the Group, the development of the corporate culture, the development of intra-group collaboration, the safeguarding of corporate harmony, strategic market and product development, risk and security management, long-term financial stability, and the quality of key financial indicators relative to the prevailing economic conditions.

In assessing the appropriateness of the remuneration paid to the Management Board, the variable remuneration is set and compared in proportion to the fixed basic salary. Furthermore, the fixed and variable portions respectively, and the overall remuneration paid, are compared against the normal levels of remuneration received by management board members of other stock market quoted companies, and other companies operating in the same sector, or companies similar in other ways, in Germany (horizontal comparison). A vertical comparison is carried out on two levels: firstly, the salaries of the Management Board members are compared against those of the directors of the major BAUER Group subsidiaries; secondly, they are assessed relative to salary grade A VIII stipulated in the collective pay agreement applicable within

the Group within the industry-wide framework of salary and training remuneration to salaried staff and foremen in the construction sector.

The remuneration is further set so as to remain competitive with that generally paid to highly qualified management staff on the market as a whole.

The Annual General Meeting held on June 23, 2016 resolved that the BAUER AG financial statements and the Group consolidated financial statements for the financial years 2016 to 2020 would contain no disclosures of the remuneration paid to individual Management Board members, thereby applying the legal authority assigned to it by section 286, subsection 5 and section 314, subsection 3 of the German Commercial Code (HGB).

The total remuneration paid to members of the Management Board (including roles on committees of subsidiaries) in the year under review, excluding allocations to pension provisions, was EUR 1,542 thousand (previous year: EUR 1,274 thousand). Of that total, EUR 1,392 thousand (previous year: 1,124 thousand) was not performance-related and EUR 150 thousand (previous year: 150 thousand) was performance-based. The total remuneration includes benefits in kind arising from the private use of a company car and reimbursement of expenses for each member of the Management Board, as well as group accident insurance premiums and employer's liability insurance association contributions. The increase in the remuneration of the Management Board is attributable to the fact that the total remuneration of all members of the Management Board (including functions in committees of subsidiaries) is reported for the whole year, even though the Management Board had four members for only three months, as Mr. Peter Hingott joined the Board on October 1, 2016 and Mr. Heinz Kaltenecker retired on December 31, 2016.

The company pension scheme for Management Board members incurred pension service costs totaling EUR 137 thousand (previous year: 155 thousand). The baseline salary defined for calculating retirement benefits is significantly lower in all contracts than the basic salary. Calculated in accordance with IAS 19, the defined benefit obligation entailed by all pension commitments to members of the Management Board at the year-end was EUR 6,485 thousand (previous year: EUR 5,537 thousand).

The contracts of Management Board members include individual severance clauses regulating the specific terms of premature termination, with settlements oriented to the length of service of the Management Board member concerned and gauged so as not to exceed the sum of two years' remuneration for any one Management Board member. No provisions for compensation in the event of a takeover offer being made have been agreed with the members of the Management Board.

Remuneration of the Supervisory Board

The Supervisory Board of BAUER AG comprises 12 members. Calculation of the remuneration paid to the members of the Supervisory Board is specified in detail in the Articles of Association of BAUER AG. Each member of the Supervisory Board receives a basic annual fee of EUR 18 thousand, payable in December of each financial year, plus reimbursement of outof-pocket expenses and any sales tax (VAT) liability incurred in performing the duties of a Supervisory Board member. The chairman of the Supervisory Board receives twice that amount of remuneration, and the deputy chairman 1.5 times the amount. The basic remuneration amounts are increased by 10 % for each membership of a Supervisory Board committee, provided that the committee in question was convened at least twice in the financial year. Membership of the Mediation Committee is excluded from these remuneration provisions. Changes to the Supervisory Board and/or its committees are taken into account in the remuneration proportionate to the respective member's time in office, and rounded up or down to full months based on the standard commercial rule. The members of the Supervisory Board receive no performance-related pay.

The net remuneration paid to all the members of the Supervisory Board in the 2016 financial year totaled EUR 261 thousand (previous year: EUR 254 thousand).

Other

No loans or advances were paid to members of executive bodies of the company in the year under review, nor were any liabilities entered into in their favor. As a matter of principle, no securities-oriented incentive systems exist for members of the Management Board or Supervisory Board of BAUER AG, or for Group employees in Germany. BAUER AG provides D&O (directors and officers) group insurance cover in respect of liability for economic loss to the members of executive

in EUR '000	2015	2016
Chairman
Dr. Klaus Reinhardt	38	40
Deputy Chairman
Robert Feiger	27	27
Shareholder representatives
Dr.-Ing. Johannes Bauer	20	20
Dipl.-Ing. (FH) Rainer Schuster	18	10
Dipl.-Ing. (FH) Elisabeth Teschemacher	18	20
Gerardus N. G. Wirken	20	20
Prof. Dr. Manfred Nussbaumer	20	20
Dipl.-Kffr. Andrea Teutenberg	-	10
Employee representatives
Dipl.-Volkswirt Norbert Ewald	20	10
Dipl.-Kfm. (FH) Stefan Reindl	18	18
Regina Andel	18	18
Dipl.-Ing. Gerold Schwab	20	10
Reinhard Irrenhauser	18	19
Rainer Burg	-	9
Maria Engfer-Kersten	-	10
Total *	254	261

Remuneration Supervisory Board (not including sales tax proportion and reimbursement of expenses)

* rounded

bodies of BAUER AG and of all affiliates in Germany and internationally in which a majority share is held. The D&O policy includes an appropriate excess for the insured parties. For the members of the Management Board, the minimum excess stipulated by law of 10 % of the loss up to at least an amount representing one and a half times the fixed annual remuneration of the Management Board member concerned was agreed in the D&O insurance policy in the year under review.

The members of the Management Board are required to limit the extent to which they take on Supervisory Board mandates and other administrative or voluntary functions outside of the company. The members of the Management Board may not, without the consent of the Supervisory Board, carry out any trade or business or conduct, on their own or a third-party's account, any dealings in the sector in which the company operates. Further, they may not, without the consent of the Supervisory Board, become a management board member, director or personally liable shareholder of any other trading company. This ensures that no conflict arises with the assigned duties of the Management Board member either in relation to time commitment or to remuneration received. No separate remuneration is paid for the assumption of executive or supervisory mandates on the boards of Group companies.

STATUTORY DISCLOSURES REGARDING TAKEOVERS

The following disclosures are made pursuant to section 315, subsection 4 and section 289, subsection 4 of the German Commercial Code (HGB) as per December 31, 2016.

Composition of subscribed capital

The subscribed capital (share capital) of BAUER AG remains unchanged at EUR 73,001,420.45 and is divided into 17,131,000 no-nominal-value bearer shares, representing a pro rata amount of approximately EUR 4.26 per share of the total share capital. The company does not hold its own shares. Each share entails equal rights, and entitles the holder to one vote at the Annual General Meeting, with the exception of share categories precluded from voting by law pursuant to section 136 of the German Stock Corporation Act (AktG) and section 28 of the German Securities Trading Act (WpHG). Shares with special rights entailing supervisory powers were not issued. Employees holding a capital share in BAUER AG exercise their supervisory rights like other shareholders in accordance with the statutory provisions and the Articles of Association.

As in the previous year, 51.81 % of the shares were in free float. The members of the Bauer family and the BAUER Stiftung, Schrobenhausen, own a total of 8,256,246 no-nominalvalue shares in BAUER AG on the basis of a pool agreement, representing a 48.19 % share in the company. The pool agreement provisions include binding voting commitments as well as restrictions on the transferability of pool members' shares. No other direct or indirect holdings of BAUER AG share capital exceeding 10 % of the voting rights are known to the company.

Authority of the Management Board to issue or buy back shares

Article 4, paragraph 4 of the company's Articles of Association states that the Management Board is authorized, with the consent of the Supervisory Board, to increase the share capital once or more than once up to June 22, 2021 by up to a total of EUR 7.3 million by the issue of new nonominal-value bearer shares against cash and/or non-cash contributions (2016 authorized capital). To that end, the Management Board is authorized, with the consent of the Supervisory Board, to exclude the legal subscription rights of shareholders in the following cases:

• in the case of capital increases in return for non-cash contributions, particularly for the purpose of acquiring companies, parts of companies, investments in companies and other assets or claims for the acquisition of assets, including receivables from companies or their group companies, or for the purpose of company mergers;
• in the event of capital increases against cash contributions where the issue amount of the new shares issued is not materially below the market price of the already quoted shares at the time of definitive setting of the issue price and the shares issued excluding shareholders' subscription rights pursuant to section 186, subsection 3, clause 4 AktG do not in total exceed 10 % of the existing share capital either at the time this authority takes effect or at the time of exercising this authority. Shares which have

been or are to be sold or issued in direct or corresponding application of section 186, subsection 3, clause 4 AktG while this authority is in place until such time as it is exercised, pursuant to other authorities, excluding subscription rights, are to be set off against the said 10 % limit;

• to compensate fractional amounts resulting during capital increases in return for cash and/or non-cash contributions due to the subscription ratio;
• to implement so-called scrip dividends where shareholders are offered an option to pay in their dividend entitlement (in full or part thereof) as non-cash contribution in return for the issuance of new shares from the authorized capital 2016.

By resolution of the Ordinary Annual General Meeting held on June 26, 2014, the company was authorized to acquire treasury stock, over a limited period up to June 25, 2019, representing up to a total of 10 % of the company's share capital at the time the resolution was passed. The shares shall be acquired at the discretion of the Management Board by means of a public tender offer or by way of the stock market. If the acquisition is effected by way of the stock market, the acquisition price (excluding ancillary costs) may be no more than 10 % above or 20 % below the price determined by the opening auction on the trading day for shares in the company in Xetra trading (or a comparable successor system) on the Frankfurt Stock Exchange. If the acquisition is effected by means of a public tender offer, the purchase price or the limits of the purchase price span per share (excluding ancillary costs) may be no more than 10 % above or 20 % below the average of the closing prices per share in the company in Xetra trading (or a comparable successor system) on the three trading days prior to the day of issue of the public tender offer. If not insignificant variations of the decisive share price occur after the day of issue of the public tender offer, the purchase price may be adjusted.

The Management Board shall be authorized to appropriate shares in the company acquired pursuant to the above authorizations for all legally admissible purposes. Consequently, the acquired shares may also in particular be sold by means other than by way of the stock market or by means of an offer to the shareholders, if the shares are sold for cash at a price (excluding ancillary costs) not materially below the stock market price of shares of the company carrying the

same rights at the time of the sale in Xetra trading (or a comparable successor system). The shares may also be sold in return for non-cash payment, provided this is done for the purpose of effecting company mergers or acquiring companies, parts of companies, shareholdings in companies or other assets. The aforementioned shares may be redeemed without need of a further Annual General Meeting in order to approve the redemption or its execution. With regard to use of the bought-back shares, the authorization provides, in specific cases, for legal rights of subscription of shareholders to be excluded. The facility to acquire treasury stock has not been utilized to date.

Appointment and termination of appointment of Management Board members, amendments of the Articles of Association

The appointment and termination of appointment of members of the Management Board of BAUER AG is regulated by sections 84 and 85 of the German Stock Corporation Act (AktG) and sections 30 ff. of the German Co-determination Act (MitbestG) in conjunction with Articles 5 and 6 of the company's Articles of Association. Pursuant to the company's Articles of Association, the Management Board comprises at least two persons, who are appointed by the Supervisory Board for a maximum term of office of five years. After Mr. Heinz Kaltenecker's departure from the Management Board at the end of the financial year, the Management Board comprises three members appointed by the Supervisory Board and a Chairman of the Management Board, as well as a Labor Director. It is permissible to re-appoint or extend the appointment of a member of the Management Board for a further maximum term of office of five years. Any appointment or re-appointment requires a decision by the Supervisory Board, which may be taken no earlier than one year prior to the end of the relevant term of office. The Supervisory Board may rescind an appointment to the Management Board or an appointment as chairman for good cause. The Presidial and Personnel Committee of the Supervisory Board prepares the Supervisory Board's decisions on the appointment and termination of appointment of Management Board members and concerns itself with the long-term planning of successor members for appointment to the Management Board.

In accordance with section 119, subsection 1 clause 5 and with section 179 AktG, the amendment of the Articles of Association is passed by the Annual General Meeting with a majority of at least three quarters of the share capital represented at the vote. Pursuant to Article 12 of the Articles of Association, the Supervisory Board is authorized to pass amendments to the Articles of Association which relate only to its wording. The Supervisory Board is further authorized to adapt the wording of Article 4 of the Articles of Association (amount and division of the share capital) following full or partial execution of the increase in share capital or on expiration of the authorization period according to the respective utilization of the authorized capital.

Change of control

BAUER AG, together with other Group companies, has concluded a syndicated loan agreement providing a credit line of up to EUR 430 million; this contains provision for the lender to terminate its loan commitments in the event of a change of control or if control is gained by a third party. As defined by this syndicated loan agreement, a change of control is defined as a situation in which the total shareholding held by the pooled members of the Bauer family directly amounts to less than 40 % of the capital shares or voting rights in BAUER AG. A third party gains control if, overall, more than 50 % of the capital shares or voting rights in BAUER AG is held directly or indirectly by one or more persons acting jointly (with the exception of the pooled members of the Bauer family).

Furthermore, several long-term loans with balances totaling EUR 149.6 million as per the balance sheet date, agreed by BAUER AG together with other Group companies as the borrower and guarantor, provide for a right of termination for cause by the lender in the event of a change of control in BAUER AG. A change of control is considered to have taken place where a third party, not forming part of the circle of existing main shareholders, directly or indirectly acquires control of at least 30 % of voting shares or the majority of outstanding share capital of BAUER AG. Any loaned amounts would have to be repaid in the event of termination. The terminated credit line would no longer be available for new borrowing.

Additional short- and long-term loan agreements also exist within the Group which provide for a right of termination for cause, at market terms, in the event of a change of control.

BAUER AG has not made any agreements with the members of the Management Board regarding provisions for compensation in the event of a takeover offer.

VII. RISK AND OPPORTUNITY REPORT

RISK REPORT

BASIC PRINCIPLE OF RISK MANAGEMENT

As part of our business activities, we are exposed to risks that are inseparably linked with our operations. Running a business requires taking risks. True risks result from unforeseeable events that can bring both hazards and opportunities along with them. Therefore, at Bauer, risk management means not just reducing the hazards but also knowing how to take advantage of the opportunities. The goals of risk management include safeguarding our business objectives, initiating measures early on and reducing the costs of risk. Risk management involves identifying, analyzing, evaluation and monitoring existing and anticipated risks along the entire value chain and devising actions to deal with them. This involves assessing external risks for our company as well as those that arise internally. Our risk management is based on an essentially risk-averse approach which aims to safeguard us against impending risks rather than to grasp opportunities for short-term gain. We never take risks that threaten the existence of the company.

Risk management system

Our risk management system regulates the handling of risks within the BAUER Group. It defines a uniform methodology applicable to all segments and their member companies. It is continually reviewed and adjusted as required.

Our risk management system is an integral element of our overall management system and, like all our management systems, serves as an instrument of value- and successoriented corporate governance. Audits routinely verify its implementation and management reviews continuously improve its efficacy. Furthermore, our auditors annually review the extent to which our early risk-warning system is capable of detecting existentially threatening risks in good time. The process steps involved in risk management are: identification, assessment, control of measures, and monitoring.

For the identification of risks, risk categories have been defined and specific areas of risk have been assigned. This defines areas of focus. Risk categories defined by the BAUER Group are: strategic risks; market risks; financial market risks; political and legal risks; organizational and governance risks; risks arising from the value creation chain; and risks of the supporting processes. These risks are grouped as latent risks and managed in a unified process within the framework of our risk management system. Conversely, project risks are managed by an additional, independent process according to their nature and significance.

The process of identifying and assessing latent risks is reviewed biannually at working sessions of the relevant Group company managements and is implemented jointly with departmental and central function heads as well as individual specialists. This process ensures that potential new and familiar risks and opportunities are submitted for review at management level. Structured risk identification is followed by risk assessment based on a scale of relevance.

Relevant risks above a certain threshold value are quantified based on scenarios. Planning risks are estimated on the basis of empirical values, applying standard deviations. Risks from within the subgroups are consolidated at Group level.

Following assessment, risk-specific management measures are defined. Where possible and useful, we have taken out appropriate insurance cover in respect of potential damage and liability risk, in order to reduce our risk exposure and avoid, or at least minimize, potential losses. Responsibility for monitoring the particular risks lies with the risk managers of the operative areas.

The effects of individual risks are aggregated in the context of corporate planning by means of risk simulation. This means that the income statement for a given financial year is played through several thousand times in independent simulations based on random figures (Monte Carlo simulation).

Yearly reports are submitted to the Management Board and Supervisory Board. To communicate acute risks, the routine risk analysis is supplemented by immediate reporting. Our risk management system covers both risks and opportunities.

Handling of project risks

Project risks are the principal performance risks, and thus are an integral element in the work of the Construction and Resources segments, wherever construction work or plant assembly is carried out on the customer's premises. Associated risks, such as in relation to the ground and resulting from the individual character of each individual project – including contract, timetable and damage risks – can thus accumulate detrimentally in specific cases in such a way that they may threaten the existence, if not of the Group as a whole, at least potentially of smaller subsidiary companies. In respect of all relevant projects above low threshold values, prior to submission of quotes all conceivable risks and opportunities are systematically identified, analyzed and assessed, and appropriate measures are defined to minimize risks and track opportunities. In ongoing projects, the risks relating to continuous project controlling and project management are analyzed; this means they are identified, evaluated and have measures applied to them.

Each project is assigned to a risk class and organizationally escalated according to its risk class, and is thus subject to a strict approval process. Risk classification is based, firstly, on defined checklists applying the K.O. principle, in order to prevent inadvertent assignment to an inappropriately low risk class. Secondly, it is based on potential harm identified in relation to the project, with the worst-case outcome serving as the decisive factor. The risk classes defined by this process are taken into account at fixed cost surcharges to cover the identified risks.

The system has been developed over a number of years across the corporate units faced by the relevant project risks and expanded to apply to the relevant operations.

Risks

In the following we set forth potential risks which may have a significant impact on our financial and earnings position and on our reputation, and assess the relevance to our business. The breakdown follows the same risk categories as we apply in our risk management system. The areas of risk are aggregated. Unless otherwise specified, all risks set out in the following relate to all our segments.

STRATEGIC RISKS

Segmental structure

We counter the strategic risks arising from the segmental structure of the Group by dividing it internationally into separate Construction, Equipment and Resources segments, thereby pursuing the aim of greater independence from the economic cycles of the construction industry.

The Equipment segment's move into deep drilling and the manufacture of machinery for mining applications will further reduce its dependence on the construction sector. We class the risks associated with the structure of our business as medium.

Brands, image, PR

The Bauer brand carries a cachet for purchasers, especially in the Equipment segment, because it is known for high quality. Negative influences on our image, whether due to publications about accidents at work or quality and service defects for example, can result in falling demand for our machines. In some countries there is also a risk of counterfeiting, which has an influence on the quality image of the Bauer brand. We minimize this risk by, among other measures, our highly developed quality and HSE management system. We regard the risk of damage to our image as a moderate one.

MARKET RISKS

Selling market risks

It has always been one of our key strategic principles to counter risks on our selling markets by means of a multisegment organization. Whereas our machinery manufacturing business is still heavily influenced – if at a delay – by economic trends in the construction sector, the establishment of the Resources segment has enabled us to isolate part of our

Relevance scale of the BAUER Group

Relevance	Definition	Identified risks
1	Insignificant to low risk	Risks with this relevance are identified
2	Medium risk	in our business
3	Significant risk
4	Serious risk	We do not see risks with this relevance in our business
5	Critical risk

business from the effects of construction cycles much more effectively. Our strategy of spreading business in each segment across a large number of markets worldwide further reduces the overall risk, so that no serious risk is posed to the Group as a whole in the event of any weakening or collapse of individual regional markets. Moreover, in the event of a regional market downturn our network strategy in the Construction segment enables us to relocate our capacities rapidly to another country and continue operations at the new location. This strategy has proven effective during various regional crisis situations in the past, in which it cushioned negative impacts on the overall result. Our Resources segment has also already expanded on an international scale. We rate risks associated with our selling markets as medium.

Competitive environment

In the Equipment segment especially, we operate in highly competitive and price-sensitive markets. The repeated stagnation of the Chinese construction market since 2012 has seen demand for new machinery decline, in some cases disproportionately dramatically. The resultant overcapacity in the country has placed prices and margins under heavy pressure at times. A number of Chinese competitors have already been forced out of market. We have implemented intensive cost-cutting measures in order to lastingly improve our competitiveness in China. For example, all production was relocated to Tianjin. Furthermore, the after-sales service has been expanded further in all markets as a stabilizing factor for new business.

Despite the overcapacity and associated pressure on margins in China, we were able to maintain our market position based on the recognized high quality and still clear technical edge of our machinery. This risk is still rated as low in the short term, but medium in the medium term.

Risks of market development

High levels of public sector debt in the USA, as well as in some EU member-states, significant interventions by some central banks as well as uncertainty as to the stability of markets in specific countries and the phases of significant downturn on the market in China and the other BRIC nations influence our appraisals of the macro-economic situation.

The significant drop in the oil price may well be easing pressure on importing countries' balances of trade, but in the long term

it will restrict the purchasing power and investment appetite of the oil producing countries in the Middle East and Russia. If the oil price remains low for a long period, this could also have a negative effect on demand for deep drilling rigs and services for the oil industry, as well as on infrastructure expenditure by oil-producing countries.

The Group Management Board and the directors of the three operating segments routinely consider projections based on specific scenarios to estimate the impact of any given market development risks on the company in question and on the Group as a whole. Any necessary and relevant measures are derived from these analyses and implemented in full. The risks to the market development are currently assessed to be moderate.

FINANCIAL MARKET RISKS

Financial stability and liquidity

Several long-term loans are covered by covenants linked to pre-determined financial variables. These are primarily the ratio of net debt to EBITDA, the ratio of EBITDA to net interest coverage, and the equity ratio.

In addition to the earnings situation of the Group as a whole, higher financing requirements in particular may pose an increased covenant risk. This applies, for example, to changes in inventories in the Equipment segment. In order to reduce that risk, active selling of surplus stocks is initiated and production volumes are reduced as necessary. Both the earnings situation and the debt situation will be improved by combining measures such as the introduction of value analysis methods as well as intensive working capital reporting.

The risk of financial instability and supply shortages on international financial markets was countered by renewing a syndicated loan agreement. This agreement ensures the medium-term liquidity supply for the Group of companies, and is an important tool for countering turbulence in the financial markets.

The risk in the area of "financial stability and liquidity" is classified as a medium risk.

Foreign exchange risks

Where possible and available, we counter foreign exchange

risks by financing our international holdings in their respective local currency. Transaction risks (foreign currency risks arising from the current cash flow) are minimized in all business divisions by means of suitable rate hedging instruments. The remaining currency risks are evaluated as medium.

Participations, acquisitions, financial assets

The valuations of the shares in associated companies contain goodwill items, the values of which are subject to the risk from future company developments. Should these future expectations fail to materialize, it may become necessary to apply write-downs. We estimate that the risk of needing to undertake a write-down on the goodwill is a moderate one.

POLITICAL AND LEGAL RISKS

Compliance

For the BAUER Group, acting responsibly and in keeping with the law is a fundamental principle underpinning our commercial success, the quality of our products and services and our sustainable ongoing development. We place the utmost value in upholding social conventions and in complying with applicable laws and business standards, so as to minimize the risk of non-compliance. For us, compliance means observing all applicable laws, rules and regulations. Legally compliant, ethical and socially sustainable action is the cornerstone of our values management system. This will be applied to ensure staff are aware of our fundamental values as soon as they are hired. Special training courses enable them to extend their knowledge. A special software program ensures that we do not do business with any companies cited on an EU or US sanctions list.

In summary, we are of the opinion that our existing values management system provides us with an efficient means of keeping our compliance risk to a low level.

Political and legal environment

Ongoing political unrest in the Middle East is impeding willingness to invest in the countries immediately affected, and often beyond. Declining sales volumes in the Equipment segment and a decline in revenues in the Construction and Resources segments are the consequences. In some countries, there is also a risk that the government will intervene more heavily in company affairs. This in turn can lead to increased costs and time investments.

Contract risks

Our Construction and Resources segments primarily provide construction, drilling and environmental services. The underlying projects are almost always prototypes executed in each case on the basis of customized contracts. The resultant risks are subject to stringent management routines, and so can be rated as low.

Current legal cases

Legal disputes arise almost exclusively from our provision of services, in particular in the project business. Judicial disputes exist with regard to clients, suppliers and business partners, and in the majority of cases they relate to remuneration, claimed deficiencies in performance, or delays in completing a project. By their very nature, it is impossible to say for certain how the court or arbitration proceedings we are involved in will turn out. Nevertheless, following careful examination, we assume that adequate provision has been made in the balance sheet for all legal disputes.

VALUE CREATION RISKS

Research and development risks

As a technology leader, particularly in our Equipment segment, we counter any possible weakening of our market position by means of continuous research and development. Although the booming markets in the Far East and the resultant new competitors are sharpening the innovative pressures, we have to date succeeded in maintaining the necessary edge as a technology leader.

Moreover, there is a risk of incurring additional costs in this context due to development and design mistakes necessitating modifications. This risk is minimized by a structured, multi-stage product creation process.

Thanks to our great innovative strength and transparent product creation process, we rate the risks in relation to research and development as being currently medium.

Acquisition, sales and contract negotiations

The risks of miscalculating quotations and of warranting technical characteristics which cannot be fulfilled are minimized by the strict application of the dual-control principle, and can basically be regarded as low.

Materials management and procurement

Thanks to our long-standing and successful policy in our machinery manufacturing operations of planning well ahead to safeguard supplies of components which may be subject to bottlenecks, and based on additional measures we have taken and on our ability to have time-critical components made within the Group in the event of a bottleneck, the risks in terms of procurement currently remain classed as low. We also estimate the reliance on subcontractors or individual suppliers in our segments as a low risk.

Production and order fulfillment

Technical failures arising from design errors or miscalculations of statics in the project business can result in significant delays, both on the company's own construction projects and on our customers' projects. In the BAUER Group, the risks resulting from this represent an inherent component of our project business. Consequently, designs and statics are predominantly produced in our own design bureaus by experienced employees.

A further risk in order fulfillment is entailed by the selection and application of drilling techniques. Misjudging ground conditions can likewise result in increased risk costs. Disturbances to the project timetable must be identified by the project manager and communicated at an early stage. The management is aware of these risks, and relies on experienced project and production managers in all segments. In spite of all the precautions taken when carrying out projects, there is still a risk of management errors, which can drive up costs, especially in major projects. All the listed risks are subjected to a threat and opportunity analysis at project level in the Construction and Resources segments.

Project risks are essentially the principal performance risks in the Construction and Resources segments, especially as each project has its own individual characteristics. Although we work on the assumption that our projects are costed with due diligence, the possibility cannot be definitively ruled out that, on finally billing the customer, lower earnings will ultimately be generated. As a result of the trend for projects to increase in size and complexity, the resulting risks must be assessed as medium.

Supplements and claims management

Especially in respect of complex construction works, we are

increasingly seeing parties resort to legal action when disputes arise in relation to contract interpretation as well as additional works and supplements. Clients' representatives are increasingly rarely authorized to resolve conflicts by mutual consent. As a result, final project settlement is increasingly being delayed by legal action, and additional costs are being incurred. We manage this risk by professional management of supplemental requirements in the course of the construction project, and based on full documentation of the work carried out. Despite all efforts, the outcomes of some negotiations on supplemental requirements pose a residual risk to the company. The risks arising from supplemental requirements are rated as medium.

RISKS OF SUPPORTING PROCESSES

Information technology (IT)

Security to prevent data loss or unauthorized access, as well as to safeguard system and data availability, is ensured by means of state-of-the-art hardware and software and building services technology, so IT risks are classed as low.

Quality risks

Great attention is paid to the quality of work done in all areas of the business. This is safeguarded by employing well-trained staff and by means of a long-established quality management system which has been in place for many years. In the Equipment segment, parts with poor quality are rejected through systematic quality control upon goods receipt. Many of our Group companies are certified, and are audited on a regular basis. We therefore rate quality risks as low.

Accounting-related system of internal controls and risk management

Consolidated accounting risks comprise risks in respect of accounting, valuation and recognition. To counteract them, the accounting functions of the parent company as well as of BAUER Spezialtiefbau GmbH, BAUER Maschinen GmbH and BAUER Resources GmbH are managed centrally at the registered office in Schrobenhausen. This allows business transactions to be handled in a standardized way.

The accounting functions for the other subsidiaries are usually managed by decentralized in-house commercial departments. Our subsidiaries are assisted by external accountants and auditors as well as by the participation controllers of BAUER Spezialtiefbau GmbH, BAUER Maschinen GmbH and BAUER Resources GmbH, so as to ensure properly qualified financial reporting in accordance with the relevant national or international accounting regulations. Furthermore, statements are subjected to auditing in accordance with the relevant national regulations.

In order to draw up the monthly Group reporting as well as quarterly statements and the consolidated financial statements according to international accountancy regulations (IFRS), the subsidiaries use a uniform Group chart of accounts.

The individual financial statements are drawn up either based on an accounting guideline applicable throughout the Group or are applied to the regulations of the accounting guideline in the course of adjustment entries by the corresponding accountancy regulations under national law.

At the major Group companies, the success of each individual department is mapped as a central management instrument by means of an expense distribution sheet. This reveals any non-conformance to annual budgets. At project level, a monthly reconciliation is carried out to cross-check the actual figures against the cost accounting and site management budgets. Our judgment and experience tells us that self-monitoring and establishing dual control principles are the effective elements of our system of internal controls.

The individual Group companies and departments are monitored and controlled on a monthly basis by the central commercial departments in the respective segments and are then reviewed by Group Accounting further reducing the accounting, valuation and reporting risks.

The consolidated figures are in turn checked on a monthly basis against the figures from the annual Group-wide planning process and analyzed on the basis of Group key performance indicators (KPIs). Any necessary correction of non-conformance to plan is implemented promptly by the managers of the units concerned.

The annual financial statements and the year-end consolidated financial statements are audited by auditors in accordance with the applicable legal requirements and standards, and are reviewed by the Supervisory Boards established in the

various business units as part of their duty of supervision. These figures and information reports are regularly submitted to the Management Board and the Supervisory Board of BAUER AG from Group Accounting function on a monthly basis.

The IT systems employed in these procedures are protected by appropriate security systems against unauthorized access and data loss. Based on the systematic multi-segment structuring of the Group's accounting process, with its redundant control instances, we are able to classify the resultant risks as low.

OVERALL RISK

At present, no individual or aggregated risks can be detected that could threaten the existence of the BAUER Group in the 2017 financial year. The management sees no change in the overall risk situation, in view of future business prospects among other factors.

OPPORTUNITY REPORT

The opportunities arising are classified in parallel with the detailing of risks. In this context, too, the areas of opportunity have been aggregated. Unless otherwise specified, all opportunities set out in the following relate to all our segments.

STRATEGIC OPPORTUNITIES

Over the years, the Group has built up expertise through handling projects in areas associated with its core business, and has developed synergy effects from this which today shape the Resources segment.

These include the environmental technology business which deals with treating contaminated ground and groundwater, and has taken on an increasingly international character since its beginnings more than 25 years ago. A similar business grew out of the first use of specialist foundation engineering equipment for diamond exploration. Today, bore holes are dug for all kinds of natural resources. In the water business, we also develop high-quality products for expanding wells and for close-to-the-surface geothermal energy applications, as well as for treating and purifying drinking water, process water and industrial waste water.

By merging these three areas into the Resources segment, we are addressing some of the most important issues of the 21st century. Moreover, Resources is less dependent on the economic cycles of our traditional Construction and Equipment segments.

In order to bring about the internationalization of the Resources segment, we are utilizing the experience of our long-standing organizational units in the other two segments.

In the event of a regional market downturn, our network strategy in the Construction segment will enable us to relocate our capacities rapidly to another country and continue operations at the new location. This leads to speed and cost advantages in our project business.

MARKET OPPORTUNITIES

Constantly increasing urbanization and growing infrastructural needs are leading to increasingly large-scale building schemes, which offer many interesting project opportunities to the construction industry – and especially the companies in the specialist foundation engineering sector. The construction sector in particular benefits from an enormous need to catch up with backlogs in the rising economic countries, but also in the established industrial nations. This applies not only to traffic infrastructure but also to residential and public buildings, dams or flood protection facilities. Moreover, building is taking place in urban areas where space is increasingly at a premium. This demands progressively higher buildings, which calls for extensive foundation work. In addition, stationary and flowing traffic must be ever-increasingly transferred below ground, which also leads to growth in specialist foundation engineering.

Opportunities for deep drilling technology have increased further through the establishment of a joint venture with Schlumberger during the previous year. In the joint venture, a new generation of highly modern deep drilling rigs for use with oil and gas drilling rigs will be developed and constructed for Schlumberger and third parties. Overall, we are convinced that deep drilling technology will make an important positive contribution to our earnings in future.

In the Resources segment, we have succeeded in expanding out of our traditional sphere of pollution remediation into industrial process water treatment, and thus attracting customers in the automotive, chemicals, oil and gas industries. The demanding quality requirements combined with large quantities of industrial process waters occurring in oil production, against a background of ever more stringent environmental standards, offer additional outstanding market opportunities for our products and services.

VALUE CREATION OPPORTUNITIES

Development and innovation

Development and innovation are systematically integrated into many standard processes within the Group. Their efficiency is monitored as part of the quality management system. It is also ensured that customers' wishes are understood as being opportunities, and are translated into innovations for our products and services in a timely manner. The capacities of our engineering offices are systematically being strengthened by resources from countries with high levels of education allied to low labor costs, such as India.

Innovation is possible at practically every point within our business processes. Our employees are best placed to know where improvements are achievable in their particular sphere of work. In order to collate and make use of the many good suggestions which our employees submit, we have devised a system for the unbureaucratic recording, evaluation, implementation and rewarding of their suggested improvements, which has been in turn rewarded by a number of good ideas.

Project opportunities

Regardless of national and global market cycles, projects often arise in otherwise weak markets which we as a corporation are extremely well equipped to handle thanks to the mix of our products and services portfolio. Examples of this are processes for retrofitting of core seals in earthwork dams, or for the longterm, environmentally compatible treatment and disposal of industrial process water.

The resultant projects in some cases entail very large lot units. When contracted, we are able to manage them successfully by converging our global resources and based on our many years of experience in handling large-scale projects.

Supplements and claims management

The assertion of requirements and supplements does not only entail risks, but also the opportunity to achieve better earnings than originally specified in the contract based on changes to the ordered construction services or supplemental work ordered by the client. On projects involving high potential for changes, this can result in a substantial improvement in earnings. We attempt to exploit such opportunities by professional management of supplemental requirements in the course of the construction project.

OVERALL OPPORTUNITIES

We are seeing a steady improvement in our opportunities on global markets as our Resources segment becomes increasingly well established. This is also being boosted by new, innovative products. Our strategy of systematically interlinking our mainly small and medium-sized globally operating units to create efficient networks is enabling us more and more effectively to generate speed and cost benefits from the associated economies of scale. All in all, we see the opportunities for our Group's worldwide business increasing once again in 2017.

Ghelma AG installed piles with diameters up to 880 mm and depths of up to ten meters for the construction of a shipping pier on Lake Thun, Switzerland. A BG 18 H was used on a pontoon. >>>

59

VIII. FORECAST REPORT

As was already explained in the Business Report, the BAUER Group operates in markets which display good underlying growth rates. As a result of the enormous pent-up demand for construction activities existing in the world, we are of the opinion that this situation will not change over the coming years, in spite of the turbulence that is affecting global markets. Nevertheless, it will be necessary to respond to shifts in the market focus by displaying great flexibility. For example, it is to be expected that construction activities and, as a result, demand for new machinery in the oil and gas-dependent markets will decrease in the next few years. In established industrial nations, both should increase as these countries can now invest in new construction projects because their financial position has improved again. Developing countries will continue to show the greatest growth rates in construction in the coming years so that they can reach their own goals. These include countries such as Indonesia or the Philippines.

Our excellent order backlog at the end of 2016 indicates that we are successfully exploiting the opportunities presented by the markets. Furthermore, there are many interesting major projects all over the world which will enable us to maintain this high level. In the Construction and Resources segments, we are able to achieve relatively high order backlogs as a result of the longer project durations.

The order backlog in the Equipment segment is rather low, however. This is not set to change in coming years. Equipment customers interested in special construction machinery tend only to order machines when they have a particular project to carry out. The ongoing excess capacity in the market means that there is still an inventory of finished equipment for sale. Given the short order lead times, it is difficult to accomplish equipment planning in line with future demand – above all because components and parts have got to be ordered several months ahead of production. We are responding to this development with a corresponding platform strategy and appropriate standardization measures, and in this way we are attempting to make production more flexible and reduce the inventory level. We expect this situation to continue to affect our business.

The past few years have been very difficult for our Group. We had to accept financial setbacks because of several difficult projects in the construction and well drilling sectors. The many political and economic disturbances in the world

during the past few years also meant that we had to cope with economic problems in some of our markets and were not able to compensate for individual problems. Substantial expenditures for restructuring measures were also necessary. In the Equipment segment, excess capacities resulted from the enormous boom ahead of the financial market crisis. We too invested in new plants before the crisis began. However, our Chinese competitors completely misjudged the development of demand for construction equipment, resulting in an expansion of production capacity that could have satisfied global demand many times over. For us, it was very challenging to keep sales in the Equipment segment stable, but we succeeded through much hard work. However, as a result, we were unable to maintain earnings at our previous high levels.

On the other hand, we can also list many positive aspects. Despite these developments, we were able to build up an excellent order backlog. Our business in oil and gas drilling rigs is now on a promising path thanks to the joint venture with Schlumberger. Despite the competitive situation described above and the approximately 28 % decline in the global equipment market from 2012 to 2015, we managed to keep our sales nearly stable during this period. We consider it a great success that we were able to increase sales in specialist foundation engineering equipment in 2016. Our research and development efforts ensure our leading position in this market segment. We have better aligned our business to completely new market conditions through many reorganization measures in recent years.

Business in our relatively new Resources segment is largely back on a good path for the future. This applies to all activities in the environmental area. Reorganization measures are beginning to have an effect in the well engineering materials area. Our companies in the water business were still burdened with former projects that will not have a significant impact on the future. After a long dry spell, we now have a good order backlog in Jordan that will also help us to improve our well drilling business.

Nevertheless, earnings in 2016 were lower than expected. We will therefore continue to work intensively on improving earnings. Whereas in recent years we concentrated on making operational changes, last year we began to focus on further areas. These include personnel as well as purchasing, production and measures to reduce working capital. We can still see good opportunities for improvement in all areas. We are very confident that we will achieve our goals thanks to the improved market situation, the excellent efforts on the part of our employees and the measures described above.

In addition, over the past few years, we succeeded in dealing with a number of problems that arose from the numerous crises and weak markets around the world. We also corrected some of our own mistakes and misjudgments during this time. This has allowed us to refocus our efforts on our core business operations and achieve new success.

The possibilities offered by the digitalization of our products and services are one special area of focus for the future. We will continue to equip our machines with electronic systems in order to ensure further economic advantages for ourselves and our customers. The cross-linking of our own sites and projects continues to be a top priority and "big data" also offers many new opportunities for our companies.

In view of these general conditions, it is our opinion that our business model will prove robust in 2017 as well. In our planning we have attempted to evaluate all known threats and opportunities, thinking through both positive and negative scenarios as well as possible. Overall, we are confident that our planning for 2017 is realistic. This applies to all segments as well as the Group as a whole. From an operational standpoint, 2016 was already much better than the two previous years, and we are once again experiencing a positive trend that we will strengthen even further.

Nevertheless, we are obliged to point out that specialist foundation engineering and our other businesses are exposed to greater risk than the business activities undertaken by most other companies. Our activity always contains a factor that cannot be perfectly analyzed in advance – the subsoil or the ground itself. Even after conducting extensive and detailed preliminary ground surveys, some factors which were not detectable will occur on a regular basis. They can impede construction works in a wide variety of ways, and in some cases also cause financial losses. We are continuously working hard to optimize our approach to risk, so as to avoid the issues that have impacted on us over recent years.

Of course, an opportunity can also arise if the ground has been assessed too negatively prior to starting construction works. Our construction sites can then also generate additional profit.

There is currently no need to change the Group's basic strategic objective. The strategy comprising the Construction, Equipment and Resources segments will continue to dictate the direction of the Group over the coming years. We are not planning any major acquisitions at present, as we are intending to strengthen our capital base especially over the years ahead.

Based on the information available to us at the time of completing this report, we forecast that total Group revenues for the 2017 financial year will be around EUR 1.7 billion. We forecast earnings after tax of about EUR 23 to 28 million and EBIT of about EUR 75 million.

We are continuing to plan for growth of between 3 % and 8 % in total Group revenues for the coming years.

Comparison: 2016 actual/2017 forecast

in EUR million	Actual 2016	Forecast 2017
Total Group revenues	1,586	~ 1,700
EBIT	68.3	~ 75
Earnings after tax	14.4	~ 23 - 28

We still expect to make a loss in the first quarter, in line with seasonal norms, though it will be balanced out over the following quarters. The trend over the full year will thus be in line with patterns in our business seen in earlier times. The reason for this is that fewer machines can be invoiced at the start of the year, because customers do not start buying equipment until the construction season gets underway. In the Construction segment, the winter period has a big impact on a number of our markets.

Our balance sheet ratios have changed markedly over recent years. This is illustrated most clearly by the increase in working capital, which also resulted in a substantial increase in net debt. This trend was largely attributable to the extremely competitive environment in our Equipment segment, where inventories increased significantly due to shorter lead times. We expect to gradually improve our balance sheet ratios in the coming years through our programs for reducing working capital.

The improved performance of the markets should also support these efforts. Over the coming years, we will be making great efforts to increase our equity ratio back to more than 30 %.

Although the earnings generated from the Group's operating activities were clearly positive, we were unable to achieve the targets originally set for 2016. Nevertheless, we believe it is appropriate to allow our shareholders to participate in this, so we intend to pay a small dividend. The Management Board will therefore encourage the Supervisory Board to propose a dividend payment of EUR 0.10 (previous year: EUR 0.15) to the shareholders at the Annual General Meeting. As a result, the dividend quota has increased from 8.7 % in the previous year to 15.2 %. In the medium term, the dividend quota should

be about 25 to 30 % of the reported earnings after tax. The reduction in the dividend also serves to protect the Group's equity, which we intend to significantly improve in the coming years.

We do not see any existential risk or relevant risk to future progress in our trading environment. However, the global economy remains marked by great change, which may also have a negative impact on our situation again. We should point out that future forecasts are based on assumptions and estimates made by the company management. Such assumptions and estimates always entail a degree of uncertainty and risk, which may mean that actual performance differs from that forecast.

Schrobenhausen, March 31, 2017 BAUER Aktiengesellschaft

Prof. Thomas Bauer Chairman of the Management Board

Dipl.-Betriebswirt (FH) Hartmut Beutler Peter Hingott

The Bauer Share

Uncertainty leaves its mark

Compared to the previous year, few crises were resolved in 2016, while new ones emerged. The political and economic situation is marked by growing uncertainty.

Global economic growth has slowed. This is mainly due to a decline in growth in the industrialized nations. Growth was down from the previous year in the Eurozone, where it was 1.7 %, and the USA, which recorded 1.6 %. Russia, Brazil and South America as a whole are still in a recession. As an exception among the major industrialized nations, Germany saw an improvement in growth, which reached 1.7 %.

Alongside unresolved hot spots such as Russia/Ukraine, a continued slowdown in China and international terrorism, an array of new uncertainties have also had a major impact on growth. Great Britain voted for Brexit and US voters elected Donald Trump, a nationalist and protectionist, as president. Nationalists also could gain influence in Europe in the 2017 elections.

The only turnaround was in the price of oil. At the beginning of 2016, oil prices were still below USD 30 per barrel, but rose to more than USD 55 during the course of the year, partly because OPEC agreed to decrease output.

There was also a turnaround in interest rates in the USA. The Federal Reserve raised the prime rate slightly to 0.5 - 0.75 %.

In March 2017, the next increase came with 0.25 %. A similar move by the ECB is not foreseeable at this time.

It remains unclear how the economy will perform given this environment of growing political uncertainty.

Sharp drop in Bauer share price

The Bauer share price fell sharply in 2016. It was down 33.6 % as of the end of the year, although the Dax (+11.6 %) and SDAX (+6.5 %) indices were up.

The share price dropped from EUR 17.40 to EUR 13.13 in the first few weeks of January and reached its lowest point in the first half of the year by mid-February. After a temporary recovery and reaching EUR 15.84 in early March, the share price began to fall slowly but steadily.

It then plummeted from about EUR 14 to below EUR 12 in June. This occurred during a period of continued selling pressure, which lasted until the end of the year.

The share price remained relatively stable between EUR 12 and EUR 13 until early November, when renewed pressure to sell shares drove the price down to EUR 9.45, its lowest level in the year, on 2 December.

After a slight recovery towards the end of the year, the stock price closed out the year at EUR 11.40.

Performance of the Bauer Share

In early 2017, there was a quick and significant turnaround. Selling pressure abated, and the share price rose to EUR 14.90 in just a few days of trading. Until the end of March, the share price was volatile and finished out the first quarter at EUR 14.25.

Communication and dialog with shareholders

Regular dialog with the capital market and shareholders is the primary objective of our investor relations activities.

The Management Board engages with domestic and foreign investors mainly at roadshows and capital market conferences. Key destinations include Frankfurt, London, Helsinki, Copenhagen, Munich and New York.

As in the previous year, four analysts regularly reported on Bauer shares in 2016. At the end of the year, three analysts voted "hold" and one voted "buy". The average target share price quoted was EUR 12.63.

Particularly our private shareholders used the Annual General Meeting in June to obtain information from the Chairman of the Board about the company's situation. Around 450 shareholders and guests attended the meeting in Schrobenhausen in 2016.

Dividend policy

Our dividend strategy is fundamentally oriented to the goals of providing shareholders with an appropriate and fair participation in the success of the business, maintaining continuity, and safeguarding the equity ratio.

Share information

ISIN / WKN	DE0005168108 / 516810
Trading symbol	B5A
Trading segment	Frankfurt, Prime Standard
Share indexes	CDAX, GEX, DAXPlus Family
Class of share	No-nominal-value individual bearer shares
Share capital	EUR 73,001,420.45
Number of shares	17,131,000
Shareholder structure	Bauer family 48.19 %, free float 51.81 %

We did not meet the goals were originally set for 2016. Earnings after tax in the Group were below expectations.

As a result, we must continue to strike a careful balance between continuity and shareholder participation on the one hand, and safeguarding our equity ratio on the other.

The Management Board will therefore encourage the Supervisory Board to propose a dividend payment of EUR 0.10 (previous year: EUR 0.15) to the shareholders at the Annual General Meeting. As a result, the dividend quota has increased from 8.7 % in the previous year to 15.2 %.

More information:

http://ir.bauer.de

KEY FIGURES	2013	2014	2015	2016
Earnings per share (in EUR)	-0.99	0.85	1.73	0.66
Dividend per share (in EUR)	0	0.15	0.15	0.10 *
Dividend total (in EUR '000)	0	2,570	2,570	1,713 *
Year-end price (in EUR)	18.81	13.35	17.40	11.40
Annual high (in EUR)	23.05	20.04	19.20	17.16
Annual low (in EUR)	17.33	11.75	13.85	9.45
Market capitalization at year-end (in EUR '000)	322,234	228,699	298,079	195,293
Average daily trading volume (units)	39,017	26,984	25,570	18,173

* Proposed; subject to the consent of the Annual General Meeting on June 29, 2017

Corporate Governance Report

AND DECLARATION ON CORPORATE GOVERNANCE

The Management Board, also on behalf of the Supervisory Board, submits the following report in accordance with Article 3.10 of the German Corporate Governance Code. The Corporate Governance Report also includes the Declaration on Corporate Governance pursuant to Articles 289a and 315 subsection 5 of the German Commercial Code (HGB), which forms part of the Combined Management Report for the 2016 financial year.

Declaration of Conformity 2016

In the year under review, based on preliminary work by the Presidial and Personnel Committee, the Management Board and Supervisory Board reviewed the company's compliance with the German Corporate Governance Code. On December 9, 2016 the Management Board and Supervisory Board passed the following declaration of conformity:

"Since the last declaration in December 2015 the company has complied with, and currently complies with, each of the recommendations of the "Government Commission of the German Corporate Governance Code" as published by the German Federal Ministry of Justice in the official section of the electronic version of the German Federal Gazette ("Bundesanzeiger"), with the following exceptions:

• 1. Contrary to Article 3.8 an excess of at least 10 percent of the loss up to at least an amount representing one and a half times the fixed annual remuneration of Management Board and Supervisory Board members is not agreed for D&O insurance for the Supervisory Board. As a result of the moderate remuneration provisions for the Supervisory Board in the Articles of Association, a corresponding excess for the Supervisory Board is not approved. Even without a corresponding excess, the Supervisory Board members will perform their duties responsibly.
• 1. Contrary to Article 4.1.5 there is no appropriate inclusion or participation of women arranged for in the filling of management positions. In particular, the introduction of a quota for women is not supported in order to ensure equal opportunities. These positions should be filled regardless of gender so that neither the female gender nor the male gender is favoured or discriminated against. In addition, a candidate should not suffer any disadvantage on the grounds of racial or ethnic origin, religion or belief.
• 1. The individualized disclosures of the benefits, the remuneration and the pension benefits awarded to each member of the Management Board are not individualized for each member of the Management Board in the remuneration report as the Annual General Meeting dated June 23, 2016 resolved on the omission of the disclosures according to section 285, no. 9, letter a, sentences 5 to 8, section 315a subsection 1 and section 314, subsection 1, no. 6, letter a, sentences 5 to 8 of the German Commercial Code (HGB) and therefore the disclosures required under Article 4.2.5 would contradict such shareholder resolution.
• 1. Contrary to Articles 5.1.2 and 5.4.1, no age limit for members of the Management Board or Supervisory Board and no time limit to the length of membership in the Supervisory Board are specified. Expertise and performance as well as independence cannot be determined on the basis of rigid age limits or length of membership. Upon the appointment of new Management Board and Supervisory Board members or upon prolongation of their membership at the end of the statutory term of office, the persons in the Supervisory Board and the Annual General Meeting who bear responsibility for selecting suitable members will take account of the age and the independence of the chosen person when reaching their decision, alongside assessing their skills.
• 1. Contrary to Article 7.1.2, the consolidated financial statements at December 31, 2015 were made public within 109 days rather than 90 days of the end of the financial year. As a result of the international structure of the Group, the completion and consolidation of the separate financial statements take a considerable amount of time. In the interests of conscientious accounting processes, efforts to improve the accounting procedures continue.

Furthermore, BAUER Aktiengesellschaft already conforms largely to the additional suggestions of the German Government Commission on the Corporate Governance Code."

Roles of the Management Board and Supervisory Board

German company law prescribes a dual system of management for BAUER AG, characterized by a strict separation of personnel between the Management Board as the executive management body and the Supervisory Board as the supervising body. Moreover, the company's Articles of Association and the rules of procedure governing the work of the Supervisory Board and of the Management Board also lay down the basic structures of their collaboration.

The Management Board is assigned independent responsibility for managing the company. Notwithstanding the joint overall responsibility of the Management Board, each member of the Management Board acts on his or her own responsibility within his or her assigned portfolio of functions. Measures and transactions of a division of the Management Board that are of extraordinary importance for the company or a business unit, or which are associated with an extraordinary financial risk, require the prior approval of the entire Management Board. The Chairman of the Management Board coordinates the work of the Management Board. The Management Board members report on a regular basis to the Chairman of the Management Board in respect of all material matters and on the course of business within their assigned functions. A member of the Management Board has been appointed Labor Director, and is responsible to an increased extent for human resources and social policy topics in the company. The Management Board defines the corporate strategy, agrees it in consultation with the Supervisory Board, and ensures that it is implemented. The Management Board provides the Supervisory Board and its subcommittees information by way of monthly reports, by conference calls and at routine meetings, as well as at extraordinary meetings, in respect of all matters of relevance to the company.

The Supervisory Board appoints the Management Board. In doing so, it considers not only the relevant professional qualification of its members but also – given the international nature of the business – the diversity of its composition. The Supervisory Board also sets the overall level of remuneration paid to the Management Board, regularly reviews remuneration levels, and specifies the remuneration paid to individual members of the Management Board. It appoints, supervises and advises the Management Board, and participates in decisions of fundamental significance to the company. The company's Articles of Association stipulate relevant transactions and undertakings which require the consent of the Supervisory Board. Duties of the Supervisory Board include reviewing the annual financial statements of the company, the consolidated financial statements and the parent company

and Group Management Report, as well as proposals for the appropriation of net profit available for distribution. The Chairman of the Supervisory Board coordinates the work of the Supervisory Board, chairs its meetings and represents the Supervisory Board externally. The Supervisory Board regularly reviews the efficacy of its activities.

Composition of the Supervisory Board

Pursuant to the German Co-Determination Act, the Supervisory Board of BAUER AG comprises 12 members, with half of them being appointed by the employees and the other half by the Annual General Meeting. The Supervisory Board includes a sufficient number of independent members who have no business or personal links to the company, to its executive bodies, to any controlling shareholder or to any company associated with any such shareholder which may give grounds for a material and not merely temporary conflict of interests. Moreover, all members of the Supervisory Board are obligated to immediately disclose to the Supervisory Board any conflicts of interest as and when they arise. No conflicts of interest were disclosed to the Supervisory Board by any of its members during the year under review.

The Supervisory Board of BAUER AG currently comprises four women and eight men and therefore, since the re-elections in June of the year under review, each half of the Supervisory Board is comprised of at least 30 % women and at least 30 % men pursuant to Section 92 subsection 2 of the German Stock Corporation Act.

The following objectives must be taken into account by the Nominations Committee and by the Supervisory Board when proposing candidates for election to the Supervisory Board at the Annual General Meeting:

• The Supervisory Board shall be composed such that its members collectively possess the necessary skills, knowledge and professional experience to carry out its assigned role in a correct and proper manner.

• The appointment of shareholders' representatives to the Supervisory Board shall take due account of the Group's fundamental character as a family business, giving due consideration to the implications of that character in terms of the corporate culture, whereby two members shall be appointed from the Bauer family, provided the candidates are suitable.

• At least two of the shareholders' representatives on the Supervisory Board shall have substantial experience in the management of construction and/or construction machinery manufacturing companies.

• At least one of the shareholders' representatives on the Supervisory Board shall possess specialist skills and experience in the application of financial reporting standards and the implementation of internal control procedures.
• The employees' representatives on the Supervisory Board will be elected in accordance with the provisions of the German Employees' Co-determination Act.
• The Supervisory Board shall include not more than four members in total who have business or personal links to BAUER AG, to its executive bodies, to any controlling shareholder or to any company associated with any such shareholder which may give grounds for a material and not merely temporary conflict of interests.
• Supervisory Board posts shall, subject to provisions of the applicable laws, be filled on merit, regardless of gender so that neither men nor women are preferred or disadvantaged. Moreover, when appointments are made to the Supervisory Board, a candidate shall not be disadvantaged for reason of race, ethnic origin, religion or world view.

According to the German Stock Corporation Act, the Supervisory Board of BAUER AG must be comprised of at least 30 % women and at least 30 % men. During the re-elections in the financial year under review, all legal requirements and objectives were taken into account when candidates were proposed for election to the Supervisory Board at the Annual General Meeting, and no age limit or time limit to the length of membership in the Supervisory Board was to be applied in accordance with the exception published in the declaration of conformity. The current composition of the Supervisory Board fully meets the objectives of the Supervisory Board and the legal requirements.

Composition and roles of the subcommittees

The Supervisory Board has established four standing committees constituted from among its members. The Supervisory Board subcommittees and their roles and procedures are laid down in the rules of procedure governing the Supervisory Board. The chairmen of the various committees submit regular reports on their work to the plenary Supervisory Board meetings.

The Presidial and Personnel Committee comprises the Chairman of the Supervisory Board as well as one Supervisory Board member elected by the shareholder representatives and one by the employee representatives respectively. Its role includes preparing the way for Supervisory Board decisions relating to the setting of overall remuneration to individual Management Board members and to the remuneration system for the Management Board in general, as well as responsibility for establishing, amending and terminating service contracts with the members of the Management Board. It also discusses corporate governance matters.

The Audit Committee comprises three members elected by the Supervisory Board by a majority of the votes cast, with two members proposed by the Supervisory Board members of the shareholders and one member proposed by the Supervisory Board member of the employees. The Chairman of the Audit Committee is elected by the Supervisory Board at the suggestion of the shareholders' representatives. The Chairman of this committee is an independent member of the Supervisory Board possesses specific knowledge and experience in the application of accounting policies and audit procedures, and is neither a former member of the company's Management Board nor the Chairman of the Supervisory Board. The role of the Audit Committee is in particular to monitor accounting procedures and to review the efficiency of the system of internal controls, the risk management system and the internal auditing system including compliance. The Audit Committee prepares the proposal of the Supervisory Board to the Annual General Meeting concerning the appointment of auditors, and assess their independence. It undertakes a preliminary review of the annual financial statements of the parent company and the consolidated financial statements of the Group together with the Combined Management Report, as well as preparing the proposal on appropriation of unappropriated net profit and consulting on the audit reports with the auditors. It also reviews the half-year interim report and quarterly statements.

The Nominations Committee comprises three shareholder representative members of the Supervisory Board. The Chairman and the Deputy Chairman of the Nominations

Committee are proposed and elected by the Supervisory Board members of the shareholders. The task of the Nominations Committee is to submit to the Supervisory Board proposals of suitable candidates to be put forward to the Annual General Meeting for election to the Supervisory Board.

The Mediation Committee, constituted pursuant to the German Co-determination Act, comprises two shareholder representative and two employee representative members respectively. The Mediation Committee is only convened if a proposed candidate for appointment as a member of the Management Board has not obtained the majority vote required by the German Co-determination Act.

In his report to the Annual General Meeting, the Chairman of the Supervisory Board summarizes the work of the Supervisory Board and its subcommittees over the past financial year. The Report of the Supervisory Board for the 2016 financial year is published in the company's Annual Report on pages 68 to 69. This report is thereby quoted by way of reference.

Determination of the female quota in the Management Board and executive levels

The Supervisory Board determined a female target quota of 0 % for the Management Board until June 30, 2017. This target has been met by the current Management Board structure. The Management Board specified a female target quota of 22.2 % rounded in the top executive level beneath the Management Board until June 30, 2017 and 27.3 % rounded until June 30, 2017 for the second executive level beneath the Management Board. These targets were also met at the end of the reporting year.

Corporate Governance and Compliance

The company's system of corporate governance is based on German law, specifically on legislation governing public limited companies, corporate co-determination and capital markets, as well as on the company's Articles of Association. The company's Articles of Association are published on the company website at www.bauer.de, in the "Investor Relations" section under "Corporate Governance". The Management Board employs the Corporate Management Manual implemented throughout the Group as its central instrument of management. This manual also stipulates the framework guidelines and management principles applicable for the Group as well as its basic values. A code of conduct has also been published on the company's website to ensure that all BAUER Group employees conduct themselves in compliance with the rules.

An appropriate system of risk management and of internal controls is established within the company. The essential features of the control and risk management system are set out in the Risk Report forming part of the Combined Management Report. Internal auditing systems monitor compliance with laws and standards across the Group. The Management Board regularly updates the Supervisory Board on existing risks and risk trends, as well as on internal auditing procedures.

SHAREHOLDERS AND TRANSPARENCY

The company provides regular and timely information relating to the position of the company and in respect of material changes to the business. The company's website contains comprehensive information. In addition, electronic distribution systems and the German Federal Gazette ("Bundesanzeiger") are used to ensure timely communication with our shareholders and with the public at large.

The Annual General Meeting passed a resolution, with the necessary three-quarters majority, stipulating that the remuneration paid to members of the Management Board shall not be disclosed individually. Consequently, as has been the policy to date, only the remuneration paid to the Management Board in total and the structure of the remuneration system are disclosed in the Remuneration Report on pages 45 to 47 of the company's Annual Report.

As of December 31, 2016, Members of the Management Board at the year-end held 1,742,022 (previous year: 1,742,022) shares in the company, corresponding to 10.17 % (previous year: 10.17 %) of the share capital of BAUER AG. On the same date, members of the Supervisory Board held a total of 1,297,151 (previous year: 1,310,531) Bauer shares, corresponding to 7.57 % (previous year: 7.65 %) of the company's share capital. No company share option schemes or similar stock incentive programs existed during the past financial year.

Report of the Supervisory Board 2016

The Supervisory Board regularly monitored the work of the Management Board during the 2016 financial year on the basis of the detailed reports provided by the Management Board in written and verbal form, and provided support in the form of advice. The Management Board discharged its duties to provide the Supervisory Board with regular, prompt and comprehensive information about all questions of strategy, planning, company development, risk development and compliance that are relevant to the company and the Group. Between the meetings, the Management Board submitted monthly written reports on all important business transactions and financial indicators of the Group and the company. The Chairman of the Supervisory Board was also in regular contact with the Management Board, and gathered information as appropriate relating to the course of business and key transactions.

There were no indications of conflicts of interest among members of the Management Board or Supervisory Board requiring immediate notification of the Supervisory Board and disclosure to the Annual General Meeting.

Re-elections for the Supervisory Board were held in the financial year under review. At the Annual General Meeting, Mrs. Andrea Teutenberg was elected to succeed Mr. Rainer Schuster as of June 23, 2016. As of the same date, employees elected Mrs. Maria Engfer-Kersten and Mr. Rainer Burg to the Supervisory Board, which requires employer/employee participation on equal terms. They replaced Mr. Norbert Ewald and Mr. Gerold Schwab.

Main focus of consultations in Supervisory Board meetings

During the year under review, four regular plenary sessions were also held in addition to a constituents meeting after re-elections. With the exception of Mr. Ewald, who attended half of the Supervisory Board meetings during his term in office, all Supervisory Board members attended more than half of the Supervisory Board meetings during their term.

Several times last year, the Supervisory Board discussed the enforcement of supplementary claims for major projects and the development of earnings in the segments and individual

subsidiaries. Current business performance, order backlog development and developments in the markets in the Construction, Equipment, and Resources segments were discussed at all Supervisory Board meetings.

At the annual financial review meeting in April relating to the annual parent company and consolidated financial statements for the 2015 financial year, also attended by the auditors, a detailed review was undertaken of the respective financial statements and associated management and audit reports, taking into due consideration the report from the Audit Committee, and the proposal of the Management Board with regard to the appropriation of earnings. During this meeting, the Supervisory Board discussed the call for bids for the audit of financial statements, re-elections to the Supervisory Board, the remuneration system, the remuneration of the Management Board and the invitation to the Annual General Meeting.

During the second session of the financial year, the Supervisory Board focused on the extension of the syndicated loan and corporate restructuring in the Group.

During the September session, Mr. Peter Hingott was appointed as a member of the Management Board and Group restructuring, cost-cutting measures and medium-term consolidated balance sheet planning were discussed.

During the Supervisory Board session in December in the year under review, an updated declaration of conformity with the German Corporate Governance Code was passed, corporate finances and measures for improving earnings growth were discussed. The employee bonus framework as well as the Labor Director appointment were also approved. Other topics included a review of corporate planning, the annual plan for 2017 and the corporate strategy.

Work carried out by the subcommittees

There are four committees of the Supervisory Board. The Mediation Committee was not required to convene because of its terms of reference. The chairpersons submitted regular reports on the main content of the subcommittee meetings to the plenary Supervisory Board meetings. None of the

committee members attended only half or less than half of the committee meetings during their term in office.

Three meetings of the Presidial and Personnel Committee were convened. At those meetings, preparations were made for the decision of the Supervisory Board relating to the setting of the salaries and performance bonuses of the members of the Management Board and to the structuring of its remuneration system, as well as to the performance bonus framework. These meetings also focused on the declaration of conformity with the German Corporate Governance Code, the appointment of Mr. Peter Hingott to the Management Board and succession planning for the Management Board.

The Nominations Committee held two meetings to find candidates and prepare Supervisory Board nominations to be presented at the Annual General Meeting.

The Audit Committee held three conference calls and three meetings in the financial year. The committee reviewed the audit of the quarterly statements, the half-year interim report and, in the presence of the auditors, the audit of the annual financial statements of the parent company and the consolidated financial statements of the Group. It also scrutinized the Management Board's proposal regarding the appropriation of earnings as well as the call for bids for the audit of financial statements. It also prepared the appointment of the auditor, including a review of the examination of the auditor's impartiality, and discussed corporate financing. In addition, a special session was held to discuss project management for largescale projects, risk management and internal auditing measures.

Auditing of 2016 annual and consolidated financial statements

The annual financial statements of BAUER AG to December 31, 2016 and the consolidated financial statements of the Group, as well as the Combined Management Report, including the Group accounts, were audited by the auditors elected by the Annual General Meeting and duly appointed by the Supervisory Board, PricewaterhouseCoopers AG Wirtschaftsprüfungsgesellschaft, Stuttgart. The accounts were certified by the auditors without reservation. The Audit Committee subjected the

audit documentation and reports to thorough scrutiny. The Committee reported on its review to the Supervisory Board. The auditors attended the meeting of the Audit Committee as well as the annual financial review meeting of the plenary Supervisory Board.

The audit documentation and reports from the auditors were provided to all members of the Supervisory Board in good time for scrutiny. The Supervisory Board duly noted and concurred with the findings of the auditors' review of the parent company and Group consolidated financial statements and the Combined Management Report. On conclusion of the Supervisory Board's review, no objections were raised. The annual financial statements of BAUER AG and the consolidated financial statements of the Group were approved by the Supervisory Board at its financial review meeting on April 10, 2017. The annual financial statements of BAUER AG were thereby confirmed. Following prior consultations by the Audit Committee, the Supervisory Board concurred with the proposal of the Management Board regarding the appropriation of net profit available for distribution.

On behalf of the Supervisory Board, I would like to thank the members of the Management Board, all the Group's employees and the employee representatives within all Group companies for their great commitment throughout the past financial year.

Schrobenhausen, April 2017 The Supervisory Board

Dr. Klaus Reinhardt Chairman of the Supervisory Board

Balance sheet and income statement of BAUER Aktiengesellschaft in accordance with HGB (German Commercial Code)

Income statement of BAUER Aktiengesellschaft 72

Balance sheet of BAUER Aktiengesellschaft as at December 31, 2016 73

2016

Income statement of BAUER Aktiengesellschaft

	in EUR '000	12M/2015 *	12M/2016
1.	Sales revenues	32,065	33,824
2.	Other capitalized goods and services for own account	0	0
3.	Other operating income	5,013	6,651
		37,078	40,475
4.	Cost of materials	-6,176	-7,265
5.	Personnel expenses	-16,553	-17,972
6.	Amortization of intangible assets and depreciation of property, plant and equipment	-2,875	-3,169
7.	Other operating expenses	-42,714	-20,730
		-68,318	-49,136
	Operating result	-31,240	-8,661
8.	Income from investments	3,960	4,460
9.	Other interest and similar income	9,949	11,772
10.	Interest and similar expenses	-6,988	-8,106
Financial result		6,921	8,126
	Result from operating activities	-24,319	-535
11.	Income tax expense	-826	-863
12.	Other taxes	-19	-38
13.	Net loss for the period	-25,164	-1,436
14.	Profit carried forward	33,350	5,616
15.	Withdrawals from other revenue reserves	0	103
16.	Dividend payment	-2,570	-2,570
17.	Unappropriated net profit	5,616	1,713

* The presentation and breakdown of the income statement have been adjusted to the regulations of the German Commercial Code (HGB) that were amended as a result of the Accounting Directive Implementation Act (BilRUG); Prior-year fi gures have been changed accordingly

Balance sheet of BAUER Aktiengesellschaft as at December 31, 2016

Assets

	in EUR '000	Dec. 31, 2015	Dec. 31, 2016
A.	Fixed assets
I.	Intangible assets	3,693	4,506
II.	Property, plant and equipment	5,808	5,241
III.	Financial assets	116,745	129,325
		126,246	139,072
B.	Current assets
I.	Inventories Raw materials and supplies	44	45
II.	Receivables and other assets (of which receivables from affiliated companies)	198,682 (197,556)	240,079 (238,487)
III.	Cash at banks	273	6,923
		198,999	247,047
C.	Prepayments and deferred charges	1,061	940
D.	Deferred tax assets	1,080	1,094
		327,386	388,153

Equity and liabilities

	in EUR '000	Dec. 31, 2015	Dec. 31, 2016
A.	Equity
I.	Subscribed capital	73,001	73,001
II.	Capital reserve	39,781	39,781
III.	Revenue reserves	15,100	14,997
IV.	Unappropriated net profit (of which profit carried forward: EUR 5,616 thousand; previous year: EUR 33,350 thousand)	5,616	1,713
		133,498	129,492
B.	Provisions (of which provisions for pensions)	9,662 (8,165)	10,177 (8,740)
C.	Liabilities (of which liabilities payable to affiliated companies)	184,226 (38,543)	248,484 (2,263)
		327,386	388,153

Consolidated Financial Statements in accordance with IFRS

76	Consolidated Statement of Comprehensive Income
77	Consolidated Cash Flow Statement
78	Consolidated Balance Sheet at December 31, 2016
80	Consolidated statement of changes in equity
81	Notes to the consolidated financial statements
81	General notes
106	Segment reporting
108	Explanatory notes to the income statement
113	Explanatory notes to the balance sheet
144	Other disclosures
162	List of shareholdings of the BAUER Group
166	Assurance by the legal representatives

76 Consolidated Income Statement

167 Audit opinion

In the southern states of the USA, a Bauer Maschinen customer carried out ground improvements for the expansion of a large industrial plant. A BG 30 was used to construct single mixing columns up to 2,400 mm in diameter using the SCM method.

Consolidated Income Statement and Statement of Comprehensive Income

Income Statement

	in EUR '000	Notes	12M/2015	12M/2016
1.	Sales revenues	(7)	1,378,991	1,396,881
2.	Changes in inventories		28,994	15,359
3.	Other capitalized goods and services for own account	(8)	22,748	13,472
4.	Other income	(9)	157,213	62,864
	Consolidated revenues		1,587,946	1,488,576
5.	Cost of materials	(10)	-752,532	-717,992
6.	Personnel expenses	(11)	-376,118	-369,700
7.	Other operating expenses	(12)	-274,235	-242,495
	Earnings before interest, tax, depreciation and amortization (EBITDA)	185,061	158,389
8.	Depreciation and amortization a) Depreciation of fixed assets	(13)	-81,143	-74,509
	b) Write-downs of inventories due to use	(14)	-13,195	-15,532
	Earnings before interest and tax (EBIT)		90,723	68,348
9.	Financial income	(15)	4,972	5,540
10.	Financial expenses	(16)	-41,982	-46,824
11.	Share of the profit or loss of associated companies accounted for using the equity method		2,672	-3,021
	Earnings before tax (EBT)		56,385	24,043
12.	Income tax expense	(17)	-27,393	-9,629
	Earnings after tax	28,992	14,414
	of which attributable to shareholders of BAUER AG		29,715	11,302
	of which attributable to non-controlling interests		-723	3,112

in EUR		12M/2015	12M/2016
Basic earnings per share	(18)	1.73	0.66
Diluted earnings per share	(18)	1.73	0.66
Average number of shares in circulation (basic)		17,131,000	17,131,000
Average number of shares in circulation (diluted)		17,131,000	17,131,000

Statement of Comprehensive Income

in EUR '000	12M/2015	12M/2016
Earnings after tax	28,992	14,414
Income and expenses which will not be subsequently reclassified to profit and loss
Revaluation of commitments arising from employee benefits after termination of employment	6,543	-12,736
Deferred taxes on that revaluation with no effect on profit and loss	-1,819	3,605
Income and expenses which will be subsequently reclassified to profit and loss
Market valuation of derivative financial instruments	1,024	793
Included in profit and loss	-834	-1,763
Deferred taxes on financial instruments with no effect on profit and loss	-53	272
Exchange differences on translation of foreign subsidiaries	6,733	-13,770
Other comprehensive income	11,594	-23,599
Total comprehensive income	40,586	-9,185
of which attributable to shareholders of BAUER AG	40,891	-5,470
of which attributable to non-controlling interests	-305	-3,715

Consolidated Cash Flow Statement

in EUR '000	12M/2015	12M/2016
Cash flows from operational activity:
Earnings before tax	56,385	24,043
Depreciation of property, plant and equipment and intangible assets	81,143	74,509
Depreciation of financial assets	162	4,209
Write-downs of inventories due to use	13,195	15,532
Financial income	-4,972	-5,540
Financial expenses	41,820	42,615
Other non-cash transactions and results of de-consolidations	-85,281	-23,780
Dividends received	1,168	1,583
Income from the disposal of property, plant and equipment and intangible assets	-15,371	-1,845
Income from associated companies accounted for using the equity method	2,672	-3,021
Change in provisions	1,474	-136
Change in trade receivables	-38,763	489
Change in receivables from construction contracts	13,872	-22,373
Change in other assets and in prepayments and deferred charges	4,648	11,501
Change in inventories	-38,028	-25,371
Change in trade payables	13,174	21,963
Change in liabilities from construction contracts	16,874	14,042
Change in other current and non-current liabilities	-12,068	13,078
Cash and cash equivalents generated from day-to-day business operations	52,104	141,498
Income tax paid	-19,679	-16,619
Net cash from operating activities	32,425	124,879
Cash flows from investment activity:
Acquisition of property, plant and equipment and intangible assets	-82,027	-79,073
Proceeds from the sale of property, plant and equipment and intangible assets	53,803	12,521
Consolidation scope-related change in financial resources	-9,268	-123
Net cash used in investing activities	-37,492	-66,675
Cash flows from financing activity:
Raising of loans and liabilities to banks	213,371	236,373
Repayment of loans and liabilities to banks	-159,173	-256,943
Repayment of liabilities from finance lease agreements	-7,804	-8,555
Disbursements for the acquisition of additional shares in subsidiaries	610	0
Dividends paid	-3,143	-3,174
Interest paid	-38,593	-35,573
Interest received	3,851	3,700
Net cash used in financing activities	9,119	-64,172
Changes in liquid funds affecting payments	4,052	-5,968
Influence of exchange rate movements on cash	1,519	-7,975
Total change in liquid funds	5,571	-13,943
Cash and cash equivalents at beginning of reporting period	41,835	47,406
Cash and cash equivalents at end of reporting period	47,406	33,463
Change in cash and cash equivalents	5,571	-13,943

2016

Consolidated Balance Sheet at December 31, 2016

Assets

	in EUR '000 Notes	Dec. 31, 2015	Dec. 31, 2016
A.	Non-current assets
I.	Intangible assets (19)
	1. Concessions, industrial property rights and similar rights and values and licenses to such rights and values	9,350	8,857
	2. Capitalized software costs	11	2
	3. Capitalized development costs	18,094	16,781
		27,455	25,640
II.	Property, plant and equipment and investment property (19)
	1. Land, land rights and buildings	184,232	177,818
	2. Investment property	784	0
	3. Technical equipment and machinery	187,313	189,383
	4. Other equipment, factory and office equipment	26,365	25,955
	5. Payments on account and assets in course of construction	5,662	14,821
		404,356	407,977
III.	Investments accounted for using the equity method (19)	132,553	129,252
IV.	Participations (19)	3,613	9,730
V.	Deferred tax assets (20)	27,190	42,907
VI.	Other non-current assets (21)	7,722	8,256
VII.	Other non-current financial assets (22)	15,355	18,412
		618,244	642,174
B.	Current assets
I.	Inventories (23)
	1. Raw materials and supplies	155,718	151,489
	2. Finished goods and work in progress and stock for trade	288,911	295,837
		444,629	447,326
II.	Receivables and other assets (24)
	1. Receivables from construction contracts (PoC)	129,478	154,802
	2. Trade receivables	343,933	339,993
	3. Receivables from enterprises in which the company has participating interests	3,272	6,473
	4. Payments on account	5,364	3,870
	5. Other current assets	33,381	30,574
	6. Other current financial assets	28,901	18,364
		544,329	554,076
III.	Effective income tax refund claims	2,300	4,771
IV.	Cash and cash equivalents (25)	47,406	33,463
V.	Assets held for sale (26)	0	19,608
		1,038,664	1,059,244
		1,656,908	1,701,418

Equity and liabilities

	in EUR '000 Notes	Dec. 31, 2015	Dec. 31, 2016
A.	Equity (27)
I.	Subscribed capital	73,001	73,001
II.	Capital reserve	38,404	38,404
III.	Other revenue reserves and unappropriated net profit	327,437	318,462
	Equity of BAUER AG shareholders	438,842	429,867
IV.	Non-controlling interests	12,368	4,264
		451,210	434,131
B.	Non-current debt (28)
I.	Liabilities to banks	376,628	176,754
II.	Liabilities from finance lease agreements	12,652	19,127
III.	Provisions for pensions (29)	112,284	127,081
IV.	Other non-current liabilities	7,262	7,556
V.	Other non-current financial liabilities	4,414	3,983
VI.	Deferred tax liabilities (20)	20,664	22,296
		533,904	356,797
C.	Current debt (30)
I.	Liabilities
	1. Liabilities to banks	297,677	479,746
	2. Liabilities from finance lease agreements	8,945	10,460
	3. Advances received for orders	10,392	13,893
	4. Liabilities from construction contracts (PoC)	49,882	62,949
	5. Trade payables	184,991	202,913
	6. Liabilities to enterprises in which the company has participating interests	1,017	2,449
	7. Other current liabilities	71,503	88,696
	8. Other current financial liabilities	12,078	20,291
		636,485	881,397
II.	Provisions
	1. Effective income tax obligations	16,955	11,213
	2. Provisions (31)	16,113	15,373
	3. Current portion of provisions for pensions (29)	2,241	2,507
		35,309	29,093
		671,794	910,490
		1,656,908	1,701,418

2016

79

Consolidated statement of changes in equity from January 1, 2015 to December 31, 2016

in EUR '000				Other revenue reserves and unappropriated net profit
	Subscribed capital	Capital reserve	Revenue reserves	Foreign currency translation	Hedging transactions reserve	Non controlling interests	Total
As of Jan. 1, 2015	73,001	38,404	286,112	3,149	-1,358	19,617	418,925
Earnings after tax	0	0	29,715	0	0	-723	28,992
Exchange differences on translation of foreign subsidiaries	0	0	0	6,359	0	374	6,733
Revaluation of commitments arising from employee benefits after termination of employment	0	0	6,487	0	0	56	6,543
Market valuation of derivative financial instruments	0	0	0	0	186	4	190
Deferred taxes with no effect on profit and loss	0	0	-1,804	0	-52	-16	-1,872
Total comprehensive income	0	0	34,398	6,359	134	-305	40,586
Changes in basis of consolidation	0	0	-3,253	0	0	-1,079	-4,332
Dividend payments	0	0	-2,570	0	0	-573	-3,143
Other changes	0	0	3,065	1,401	0	-5,292	-826
As at Dec. 31, 2015	73,001	38,404	317,752	10,909	-1,224	12,368	451,210
As of Jan. 1, 2016	73,001	38,404	317,752	10,909	-1,224	12,368	451,210
Earnings after tax	0	0	11,302	0	0	3,112	14,414
Exchange differences on translation of foreign subsidiaries	0	0	0	-6,947	0	-6,823	-13,770
Revaluation of commitments arising from employee benefits after termination of employment	0	0	-12,731	0	0	-5	-12,736
Market valuation of derivative financial instruments	0	0	0	0	-970	0	-970
Deferred taxes with no effect on profit and loss	0	0	3,604	0	272	1	3,877
Total comprehensive income	0	0	2,175	-6,947	-698	-3,715	-9,185
Changes in scope of consolidation	0	0	-1,250	0	0	-988	-2,238
Dividend payments	0	0	-2,570	0	0	-604	-3,174
Other changes	0	0	315	0	0	-2,797	-2,482
As of Dec. 31, 2016	73,001	38,404	316,422	3,962	-1,922	4,264	434,131

81

Notes to the consolidated financial statements

GENERAL NOTES

GENERAL INFORMATION RELATING TO THE GROUP

BAUER Aktiengesellschaft, Schrobenhausen (referred to in the following as BAUER AG) is a stock corporation under German law. Its registered office is at BAUER-Strasse in Schrobenhausen, and the company is entered in the Register of Companies of Ingolstadt (HRB 101375).

The BAUER Group is a provider of services, equipment and products dealing with ground and groundwater. The Group markets its products and services all over the world. The operations of the Group are divided into three segments: Construction, Equipment and Resources.

BAUER AG is listed in the Prime Standard of the German stock market.

1. BASIS OF PREPARATION

The consolidated financial statements of BAUER AG were prepared applying section 315a of the German Commercial Code (HGB) in accordance with International Financial Reporting Standards (IFRS), as applicable in the EU. The consolidated financial statements were prepared on the basis of historical cost, limited by the market-value valuation of available-for-sale financial assets and by the fair-value valuation of financial assets and liabilities (including derivative financial instruments) affecting net income. The previous year's figures have been determined according to the same principles.

The BAUER Group's financial year is the calendar year.

The consolidated financial statements were prepared in euros. Unless otherwise specified, all amounts are quoted in thousands of euros (EUR '000).

The income statement was prepared using the nature of expenses method and covers the period from January 1 to December 31.

2. BASIS OF CONSOLIDATION

The basis of consolidation includes BAUER AG and all major subsidiaries. Subsidiaries are all companies over which the parent has control in terms of financial and corporate policy. This is routinely accompanied by a voting rights share of over 50 %. When assessing whether control is exerted, the existence and effect of potential voting rights currently exercisable or convertible are considered.

Subsidiaries are not consolidated if their business operations are dormant or minor and they are, individually and as a whole, of minor importance for conveying a picture of the true and fair view of the net assets, financial and earnings situations as well as the cash flows of the BAUER Group. They are recognized in the consolidated financial statements with their respective acquisition costs, taking into account any necessary impairments and value recovery adjustments.

In 2016, 111 (previous year: 122) companies were consolidated into the Group's annual financial statements in 2016. In the financial year, 2 (previous year: 6) companies were included in the basis of consolidation for the first time. Since the beginning of 2016, 12 (previous year: 4) companies were de-consolidated due to merger, sale and discontinuation of operations. This was mainly due to the change in status of Wöhr + Bauer GmbH as a result of the disposal of a shareholding. Joint ventures are not included in the number of consolidated companies due to the short-term nature of these projects.

	Main business	Regis tered office	Number of com share	panies with 100 %		Number of com panies with a share less than 100 %		Number of associated companies		Number of joint ventures		Total
			Dec. 31 2015	Dec. 31 2016	Dec. 31 2015	Dec. 31 2016	Dec. 31 2015	Dec. 31 2016	Dec. 31 2015	Dec. 31 2016	Dec. 31 2015	Dec. 31 2016
Con struction segment	Specialist Foundation Engi neering, Project Development	Global	28	34	8	4	12	1	0	1	48	40
Equipment segment	Equipment Manufacture and Sales	Global	22	27	8	5	1	2	3	2	34	36
Resources segment	Environment and Environmental Technology	Global	25	24	6	3	2	2	3	2	36	31
'Other' segment	Central services	Global	4	4	0	0	0	0	0	0	4	4
Total			79	89	22	12	15	5	6	5	122	111

The following overview shows the number of subsidiaries by segment (without construction joint ventures):

If the quality assessment of a new subsidiary finds that the company is immaterial in terms of the operative segment or Group, it may not be included in the consolidated financial statements.

Consequently, the non-inclusion of any one company must not result in material changes to the Group's net asset, financial and earnings position, nor must it mask any other materially relevant trends.

In a small number of cases, companies are fully consolidated into the financial statements of BAUER AG even though that company holds less than 50 % of their voting rights. This is the result of state restrictions which stipulate that foreign investors may not hold more than 50 % of the voting rights in domestic companies. In such cases BAUER AG makes use of so-called agency constructions, whereby more than 50 % of the voting rights are commercially held in the company concerned, thus allowing for full consolidation.

Subsidiaries are included in the consolidated financial statements (fully consolidated) from the point at which control, or the option of control, is transferred to the Group. They are de-consolidated at the point when control ends. Companies of which BAUER AG is able, directly or indirectly, to exercise a significant influence on the said companies' financial and operating policy decisions (associated companies) are consolidated according to the equity method. This related to 5 companies as of December 31, 2016 (previous year: 15). Joint ventures were likewise consolidated according to the equity method. The main subgroups and companies included in the consolidated financial statements are listed in the Major Participations section. The disclosures in accordance with Section 313, Subsection 2 HGB are grouped in a separate list of holdings. This will be published as part of the Notes to the financial statements of BAUER Aktiengesellschaft in the electronic version of the official Gazette Bundesanzeiger of the Federal Republic of Germany. Subsidiaries with differing balance sheet dates compile interim financial statements as per the Group balance sheet date. BAUER Corporate Services Private Limited and BAUER Equipment India Private Limited prepare their annual financial statements for March 31 due to local statutory requirements.

Application of section 264, subsection 3 of the German Commercial Code (HGB)

Section 264, subsection 3 of the German Commercial Code (HGB) has been exercised for the following companies: PRAKLA Bohrtechnik GmbH KLEMM Bohrtechnik GmbH EURODRILL GmbH GWE pumpenboese GmbH BAUER Resources GmbH ESAU & HUEBER GmbH

Application of section 291, subsection 1 of the German Commercial Code (HGB)

BAUER Resources GmbH and PRAKLA Bohrtechnik GmbH have utilized the exemption option under section 291, subsection 1 of the German Commercial Code (HGB) and has not prepared a consolidated financial statement and management report.

Changes at subsidiaries

Construction segment

Changes in the percentage of group investment in associated companies

As per the agreement of December 14, 2016, BAUER Spezialtiefbau GmbH sold 16.67 % of its shares in Wöhr + Bauer GmbH to Roeck Beteiligungs GmbH and Wöhr Beteiligungs GmbH.

BAUER Spezialtiefbau GmbH retained 33.33 % of its shares in Wöhr + BAUER GmbH. These shares were accounted for as a share in an associated company. As per the agreement of December 14, 2016, BAUER Spezialtiefbau GmbH sold 16.67 % of its shares to the other shareholders for EUR 8,500 thousand (payment received in December 2016). The Group's remaining 16.67 % share, which had a fair value of EUR 8,500 thousand at the time of sale, was classified as a financial instrument in the "Available-for-Sale" category. The fair value was determined using a discounted cash flow method and various multiple methods. The estimated cash flows for the next 5 years as well as an interest rate of 11.98 % were used as a basis. Payment flows for the 5-year period were extrapolated based on a constant annual growth rate of 1 %. Income was recorded in the group income statement as a result of the sale and is allocated as follows:

in EUR '000
Sales revenues
Plus: fair value of remaining share (16.67 %)	8,500
Minus: carrying amount of the participation at the time of loss of controlling interest
Recognized income

Profit is recorded under other operating income.

The reported profit resulted in EUR 116 thousand in actual tax expenditures.

Equipment segment

In the fourth quarter of the 2016 financial year, BAUER Maszyny Polska Sp.z.o.o. was included in the Group financial statements for the first time. The company was previously not consolidated owing to its minor importance.

BAUER DE-WET EQUIPMENT (PROPRIETARY) LIMITED was de-consolidated in the fourth quarter of 2016 due to cessation of business operations.

On December 12, 2016, BAUER Maschinen GmbH purchased the remaining 10 % of the shares in PRAKLA Bohrtechnik GmbH. Shares with a value of EUR 400 thousand (share in the carrying amount of the net assets of PRAKLA Bohrtechnik GmbH) were transferred to BAUER Maschinen GmbH in the process. On December 20, 2016, BAUER Maschinen GmbH surrendered and transferred 85 % of its shares in KLEMM Bohrtechnik GmbH to PRAKLA Bohrtechnik GmbH by means of a capital increase against non-cash contributions. BAUER Maschinen GmbH has retained 15 % of the shares in KLEMM Bohrtechnik GmbH.

Resources segment

On June 29, 2016, BAUER Resources GmbH sold 100 % of the shares in HGC Hydro-Geo-Consult GmbH, Freiberg to G.E.O.S Ingenieurgesellschaft mbH. The company was then de-consolidated.

The de-consolidation did not have a significant impact on the net asset, financial and earnings position of the BAUER Group. As a result, disclosures in accordance IFRS 10 and IAS 7 were not made.

In the fourth quarter of the 2016 financial year, BAUER Resources Saudi LLC was included in the consolidated financial statement for the first time. The company was previously not consolidated owing to its minor importance.

'Other' segment

As of August 24, 2016, BAUER Aktiengesellschaft acquired the remaining 1 % of the shares in BAUER Maschinen GmbH, BAUER Spezialtiefbau GmbH, BAUER Resources GmbH, SCHACHTBAU NORDHAUSEN GmbH and SPESA Spezialbau und Sanierung GmbH from BAUER Anteilspool GbR or BAUER Handelsgesellschaft. As a result, BAUER Aktiengesellschaft holds a 100 % share in each of these companies as of August 24, 2016.

3. CONSOLIDATION POLICIES

The assets and liabilities of the German and foreign companies included in the consolidated financial statements are stated according to the uniform accounting policies applicable throughout the BAUER Group. Mutual receivables and liabilities as well as expenses and income between consolidated companies are eliminated. Consolidated inventories and fixed assets are adjusted by existing intra-group balances. Consolidation affecting net income is subject to deferral of taxes, with deferred tax assets and liabilities being offset against each other provided the payment period and tax creditor are the same. In respect of subsidiaries consolidated for the first time, the identifiable assets, liabilities and contingent liabilities of the acquired companies were recorded at their applicable fair values at the time of acquisition. Goodwill occurring on initial consolidation is capitalized and subjected to a yearly impairment test; an excess of the net fair value of the acquired net assets over cost is recognized in the income statement immediately at the time of initial consolidation in accordance with IFRS 3. Consolidation according to the equity method is subject to the same principles. If the pro-rata loss in an associated company is equal to or greater than the carrying amount of the participating interest, no further losses are recognized, unless a consolidated Group company has entered into obligations or made payments on behalf of the associated company.

Non-controlling interests are a part of earnings and net assets which is not allocable to the Group. Earnings pertaining to these interests are therefore recognized separately from the share in earnings allocable to the shareholders of the parent company in the income statement. In the balance sheet, these earnings are recognized in equity, separately from the equity allocable to the shareholders of the parent company. The acquisition of non-controlling interests and changes to the shareholding of the parent company in a subsidiary which do not lead to a loss of control are reported as equity transactions in the balance sheet.

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

In the consolidated financial statements, assumptions and estimates must be made which influence the amounts and recognition of assets and liabilities, income and expenses recorded, as well as contingent liabilities. Assumptions and estimates are primarily used for determining the useful life of fixed assets, discounted cash flows during impairment tests, and assessing the feasibility of deferred tax assets, recoverability of receivables and the recognition of provisions for legal proceedings, pensions and other benefit commitments, taxes, warranties and guaranties. The actual values may differ from the estimates made.

5. PRINCIPLE ACCOUNTING POLICIES

5.1. Changes in accounting policies

It was obligatory to apply the following standards and interpretations for the first time in the financial year:

Annual improvements to IFRS, cycle 2012 - 2014

The "Annual improvements to IFRS cycle 2012 - 2014" apply to the followings standards:

• IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
• IFRS 7 Financial Instruments: Disclosures
• IAS 19 Employee Benefits
• IAS 34 Interim financial reporting

Details of the amendments:

• IFRS 5 – Non-cur rent Assets Held for Sale and Dis con tin ued Op er a tions:

This amendment clarifies that a direct reclassification from "held for sale" to "for distribution to owners" does not negate the relevant classification, disclosure and measurement provisions of IFRS 5. The measurement provisions of IFRS 5.27-29, which now also apply explicitly to assets (or disposal groups) previously classified as "for distribution to owners," only apply if the criteria for classification as "available for sale" or "for distribution to owners" are no longer met without directly exchanging the two categories.

• IFRS 7 – Financial Instruments: Disclosures

According to IFRS 7.42C (c), the obligation of a divesting company to transfer payments received from divested financial assets to the purchaser of the receivables does not constitute a continuing involvement as defined by the disclosure provisions of IFRS 7.42E-H if the criteria for a forward contract as defined by IAS 39 are met. Until now, it was not clear what this means for servicing agreements (payment and debt collections, etc.).

The IASB has now clarified that servicing agreements in which the divesting company still retains a share of the opportunities or risks arising from the performance of the divested receivables are grounds for continuing involvement under IFRS 7. For example, withholding a servicing commitment until a servicing charge is paid may constitute a continuing involvement. This is especially the case if the servicing fee depends on the amount of the payments received or the date of payment. Similarly, a fixed servicing fee, which does not have to be paid in full due to payment problems with the transferred financial assets, is presumed to constitute a continuing involvement for the purposes of disclosure requirements. This assessment is valid regardless of whether the agreed servicing fee is considered reasonable compensation for the services to be rendered. Another clarification pertains to the application of amendments to IFRS 7: Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities. It is made clear that amendments to IFRS 7 do not result in any explicit disclosure requirements for interim reports. Nevertheless, the additional disclosures must be provided in abridged interim financial statements in accordance with IAS 34 if required by IAS 34 (e.g. because of the provision under IAS 34.15 et seq. that requires disclosures of all events and transactions that are necessary for understanding the changes in the net asset, financial and earnings position since the end of the last financial year).

• IAS 19 - Employee Benefits

The interest rate used for discounting performance-based pension obligations in accordance with IAS 19R.83 is determined on the basis of market returns for premium corporate bonds as of the balance sheet date. In countries without a liquid market for such corporate bonds, the market returns for government bonds applicable on the balance sheet date should instead be used.

From the wording "in countries without a liquid market" it was partly deduced that the depth of a market in a currency zone (e.g. Eurozone) could only be determined at the country level. In the new publication, the IASB clarifies that the depth of the market for premium corporate bonds is to be assessed on a "currency basis," in which case corporate bonds from the entire Eurozone are included in the Eurozone. If a company decides that there is no liquid market for premium corporate bonds on the basis of the currency zone, the company must switch to government bonds. Here too, the respective currency zone must be used as a basis.

• IAS 34 – Interim Financial Reporting

IAS 34.16A requires certain disclosures in the notes to the interim report, as long as that they are not already provided "elsewhere in the interim report." The IASB now makes it clear that information "elsewhere in the interim report" may be information that is either in another place in the interim report or in other documents referenced in the interim report. The prerequisite for the latter, however, is that the other documents are accessible to the recipients of the interim report at the same time and under the same conditions as the interim report itself.

The new regulations are to be applied on a prospective or retrospective basis, depending on the specific amendment.

The directive on the adoption of annual amendments of the IFRS by the EU (endorsement) was published in the Official Journal of the EU on December 16, 2015.

Amendments to IFRS 10 – Consolidated Financial Statements, and IAS 28 – Investments in Associates and Joint Ventures

The IASB published amendments to IFRS 10 and IAS 28 on September 11, 2014. These amendments eliminate an inconsistency between the two standards. For example, IFRS 10 currently requires recognition of the full profit or loss resulting from the loss of control over a subsidiary that becomes part of a joint venture or associated company. In contrast, IAS 28 requires that profits or losses for non-financial assets invested in associated companies or joint ventures are recognized only in the amount of the shares held by other investors.

According to recently published amendments, profits and losses of investors are to be recognized in the full amount whenever the transaction (i.e. the transfer of a subsidiary into a joint venture or associated company with loss of control over the subsidiary) affects a business as defined by IFRS 3 – Business Combinations. If this is not the case, and the transaction relates to assets that are not a business operation, only the proportional profit (in the amount of the shares of other investors) must be recorded.

The amendments are to be applied on a prospective basis as of January 1, 2016. However, in December 2015, the IASB postponed the mandatory initial adoption date of the amendments to a date yet to be determined.

The reason for the postponement of the initial adoption date was an unexpected conflict between the planned new provision and the existing provision of IAS 28.32. Specifically, adoption of IAS 28.32 can mean that if a share in a former subsidiary is retained, which represents grounds for significant influence or joint control, the pending proportional profit elimination must be reversed against the carrying amount of the retained share. This is always the case if the costs of investing in the new associated company or joint venture are less than the fair value of the proportional net assets of the company. In addition to resolving this conflict, the IASB will decide on further necessary amendments to IAS 28 its more comprehensive research project on the equity method. As a result, the IASB decided to make no changes to IAS 28 at this time, but rather to postpone the adoption date of the amendments to IFRS 10 and IAS 28 until the research project on the equity method has been completed. Nonetheless, it will still be possible to adopt the amendments on a voluntary basis. The amendments cannot be used by IFRS-EU auditors at the present time because the EU has not yet endorsed the amendments.

Amendment to IFRS 11 – Joint Arrangements; Acquisitions of Interests in Joint Operations

The amendments to IFRS 11 clarify that acquisitions and additional acquisitions of interests in joint operations that constitute a business as defined by IFRS 3 – "Business Combinations" are reported in accordance with the accounting rules for business combinations in IFRS 3 and other applicable IFRS standards, provided they do not conflict with the provisions of IFRS 11. As a consequence, the following applies in the amount of the interest in a joint operation:

• The identifiable assets and liabilities acquired are measured at the fair value at the time of the transaction; although if additional interests are acquired while maintaining joint control, interests held up to this point are not re-measured;
• Any goodwill or deferred taxes arising from the first-time recognition of assets and liabilities must be recognized;
• The cash-generating unit to which the goodwill has been allocated must be subject to an impairment test as defined by IAS 36 – "Impairment of Assets" at least once a year and if indications of impairments exist;
• Transaction costs must be recognized in net income; and
• Disclosures regarding business combinations, as required by IFRS 3 and other standards, must be reported.

The amendments do not apply if the reporting company and the parties involved are under the joint control of one ultimate controlling party.

The new regulations apply on a prospective basis for interests acquired in reporting periods beginning on or after January 1, 2016.

The directive on the adoption of the amendments to IFRS 11 by the EU (endorsement) was published in the Official Journal of the EU on November 25, 2015.

2016

Amendments to IAS 16 – Property, Plant and Equipment and IAS 38 – Intangible assets – Clarification of Acceptable Methods of Depreciation and Amortization

The aim of the amendments to IAS 16 and IAS 38 is to clarify which methods are appropriate for the depreciation of property, plant and equipment and intangible assets.

In principle, property, plant and equipment and intangible assets must be depreciated in such a way as to reflect the consumption of the company's expected future economic benefits embodied in the asset. In this regard, the IASB has now made it clear that depreciation of property, plant and equipment based on sales revenues of the goods produced using these assets does not constitute this method and is therefore not appropriate, since sales revenues depend not only on the consumption of the asset, but also on other factors such as sales volume, price or inflation. This clarification is also included in IAS 38 for the amortization of intangible assets with a limited useful life. However, the IASB has also included a rebuttable presumption in this regard. As a result, revenue-based depreciation of intangible assets with a limited useful life is permitted in the following two exceptional cases:

• The "value" of the asset can be expressed directly by the sales generated, or
• It can be shown that there is a strong correlation between the revenue generated and the value of the intangible asset.

The first case only applies if the predominant limiting factor in use of an intangible asset is a revenue threshold. Examples cited include a concession for the exploitation of a gold mine that expires when certain sales revenues resulting from the sale of the gold are reached, and the right to operate a toll road that expires when a certain toll revenue is reached.

The IASB explains that the basis for the determination of an appropriate depreciation method for intangible assets is always the determination of the predominant limiting factor. For example, this factor could be a time limit on usage, a limit on the number of units produced, or as in the above examples, a predetermined amount of revenue. However, the IASB also notes that a different basis can be used provided that it better reflects the consumption of the intangible asset.

Furthermore, the IASB clarifies that a decline in the sales prices of goods and services produced with property, plant and equipment as well as intangible assets can be indicative of their economic obsolescence and therefore indicative of a decline in the economic benefits of assets necessary for production.

The directive on the adoption of the amendments by the EU (endorsement) was published in the Official Journal of the EU on December 3, 2015.

Amendments to IAS 27 – Separate financial statements – Equity method in Separate Financial Statements

As a result of amendments to IAS 27, investments in subsidiaries, joint ventures and associated companies can also be reported in IFRS separate financial statements using the equity method.

As a result, companies now have the following options for including such companies in separate financial statements:

• Recognition under amortized costs;
• Recognition as available-for-sale financial instruments pursuant to IAS 39 Financial Instruments: Recognition and Measurement or, in the future, pursuant to IFRS 9 – "Financial Instruments (pending EU endorsement) and
• Recognition using the equity method.

The directive on the adoption of the amendments by the EU (endorsement) was published in the Official Journal of the EU on December 23, 2015.

Amendments to IAS 16 – Property, Plant and Equipment and IAS 41 – Agriculture – Agriculture: Bearer Plants

"Bearer plants" are classified as those that

• Are used in the production of agricultural produce,
• Are expected to bear produce for more than one period; and
• Have a remote likelihood of being sold as living plants or consumed as agricultural produce

Examples include grapevines, olive trees and tea or cotton plants.

The published amendments to IAS 16 and IAS 41 clarify that these plants, similar to self-constructed assets, are to be recognized as acquisition or production costs until they reach maturity, and then reported using the cost or revaluation model in accordance with IAS 16. Accounting in accordance with IAS 41 is no longer permitted.

Upon adoption of the amendment, the fair value of such plants may be recognized as a "deemed cost" under acquisition/ manufacturing costs.

The disclosures required under IAS 8.28(f) do not have to be provided for the current period.

The directive on the adoption of the amendments by the EU (endorsement) was published in the Official Journal of the EU on November 24, 2015.

Amendments to IAS 1 – Presentation of Financial Statements as part of the Disclosure Initiative

The Amendment Standard, published at the end of 2014, implements the following proposals for amendments to IAS 1 as part of the Disclosure Initiative.

Materiality and aggregation of items

Amendments to IAS 1 seek to place stronger emphasis on the concept of materiality in order to address practical application problems. The aim of the clarifications is to minimize immaterial information in IFRS financial statements while encouraging the reporting of relevant information.

With this aim in mind, the IASB clarifies that the concept of materiality applies to all parts of IFRS financial statements, especially the notes. This will prevent irrelevant information from being moved from other parts of the financial statement to the notes. Similarly, the IASB clarifies that immaterial information must not be presented separately, even when a specific disclosure is required in an IFRS (for example, if the minimum line items necessary for the balance sheet must be presented). However, it is also necessary to assess whether further information is required beyond the explicit disclosure requirements so that the reader can gain a better understanding of the company's assets, financial and earnings position.

Furthermore, financial information should not be obscured by aggregating relevant and irrelevant information or by aggregating material items that are dissimilar in character or function.

2016

Subtotals

According to IAS 1.55 and 1.85, additional subtotals must be presented in the balance sheet and the statement of comprehensive income if such a disclosure is relevant to an understanding of the company's assets, financial situation or earnings position. According to amendments IAS 1.55A and 1.85A, when an entity presents such subtotals, these subtotals must:

• Be comprised of line items made up of amounts recognized and measured in accordance with IFRS;
• Be presented and labeled in a clear and understandable manner;
• Be consistent from period to period;
• Not be displayed in the balance sheet and statement of comprehensive income with more prominence than the subtotals and totals explicitly required in IFRS.

Structure of notes

IAS 1.114 states that "a company (...) must normally present notes in (...) [a specified] order that helps the reader to understand the financial statement and compare it to those of other companies." In order to counter the often widespread perception that IAS 1.114 requires a certain structure for notes by using the word "normally", the wording of IAS 1.114 has been adjusted and alternatives have been added to the existing example for the structure of the notes. For example, notes could be structured according to the relevance of individual information for gaining an understanding of the assets, financial and earnings position of the company. Notes could also be structured according to objective factors, for example by cohesively presenting all information related to assets that are measured at fair value. Furthermore, the amendment explicitly clarifies that companies should consider the effects on the understandability and comparability of their IFRS financial statements when defining the order of notes.

Disclosure of accounting methods

Regarding the obligation to disclose significant accounting policies and the resulting question of what constitutes "significant," the IASB has decided to delete the examples in IAS 1.120 and to include clarifications instead. According to these clarifications, when determining which accounting policies to disclose, companies should consider the nature of their business and the policies about which readers are likely to expect information.

Equity method

In addition to the aforementioned changes resulting from the Disclosure Initiative, provisions for the recognition of interest in associated companies and joint ventures under other comprehensive income (OCI) in the statement of comprehensive income have been added to IAS 1.82A. They clarify that the net income from associated companies and joint ventures has to be reported as a stand-alone item in the statement of comprehensive income, disaggregated solely by whether or not amounts will be reclassified (recycled) to the income statement at a future point in time. This change in the wording of IAS 1.82A makes it clear that the income from associated companies and joint ventures does not need to be broken down according to the nature of the expenses or income.

The directive on the adoption of the amendments by the EU (endorsement) was published in the Official Journal of the EU on December 19, 2015.

The following new accounting standard was adopted by the EU and was to be applied for the first time as of January 1, 2016:

Amendments to IFRS 10, IFRS 12, and IAS 28 – Investment Entities – Applying the consolidation exception

The Amendment Standard "Investment Entities – Applying the consolidation exception" addresses various questions concerning the application of the exemption from consolidation requirements for investment companies.

Through various standards amendments, IASB clarifies that the exemption from the obligation to prepare consolidated financial statements in accordance with IFRS 10.4(a) also applies to parent companies that are themselves subsidiaries of an investment company. The IASB also clarifies that an investment company must recognize all subsidiaries that themselves meet the criteria of an investment company at fair value This also applies if the subsidiaries provide investment services. In addition, the IASB clarifies that a non-investment company that includes an investment company as an associate or joint venture in the consolidated financial statement using the equity method may retain the fair value measurement of subsidiaries applied by the associated company or joint venture. Herein the lies the difference between standard amendments recently adopted and the draft published in June 2014, which allowed for retention of the fair value measurement only in the case of an associate company. Unlike the draft, the Amendment Standard included an amendment to IFRS 12 – Disclosures on Interests in Other Entities. It clarifies that investment companies that measure their subsidiaries at fair value fall within the scope of IFRS 12.

The directive on the adoption of the amendments by the EU (endorsement) was published in the Official Journal of the EU on September 23, 2016.

The effects of the amendments listed have no significant influence on the consolidated financial statements of BAUER AG.

The following new accounting standard has not yet been adopted by the EU and has not yet been applied:

IFRS 14: Regulatory Deferral Accounts

Under IFRS 14 – Regulatory Deferral Accounts, a company that is a first-time adopter of IFRS may, with certain restrictions, continue to record regulatory deferral accounts that the company recorded in its financial statements using its previous accounting methods. This applies to the first IFRS financial statements as well as subsequent financial statements. Regulatory deferral accounts and amendments to them must be separately shown in the presentation of the financial situation and in the income statement or other total comprehensive income. Furthermore, certain disclosures are required.

IFRS 14 was issued in January 2014 and applies to reporting periods beginning on or after January 1, 2016.

Moreover, the IASB and the IFRIC have adopted further standards, interpretations and amendments, as listed below, some of which were not yet bindingly applicable, or had not yet been recognized by the EU, in financial year 2016. The BAUER Group had not implemented early application of these standards by December 31, 2016.

Standard/Interpretation/Amendment	To be applied as of	Adopted by the EU
Amendment to IAS 7, disclosures in notes	2017	No
Amendment to IAS 12, recognition of deferred tax assets in unrealized losses	2017	No
Annual improvement of IFRS (cycle 2014 - 2016)	2017	No
Amendment to IFRS 2, clarifications regarding measurement and classification	2018	No
Amendment to IFRS 4, postponement of IFRS 9 and applying the overlay approach	2018	No
IFRS 9; Financial Instruments	2018	Yes
IFRS 15; Revenue from Contracts with Customers	2018	Yes
Clarification of IFRS 15; Revenue from Contracts with Customers	2018	No
IFRIC 22, Foreign-currency transactions and advance consideration	2018	No
Amendment to IAS 40 – Transfers of investment property	2018	No
IFRS 16, Leasing relationships	2019	No

Initial application of the standards is planned as from the point they are recognized and adopted by the EU.

IFRS 15 will replace the provisions of IAS 18 Revenue, as well as those of IAS 11 – Construction Contracts. The new standard does not differentiate between different order and service types, but instead puts in place uniform criteria of when sales revenues are to be realized in terms of time and period for a service provision. This is the case when the client attains the power of disposition over the agreed goods and services and can capitalize on this. First-time adoption is mandatory for financial years beginning on or after January 1, 2018, although earlier adoption is possible. BAUER AG will not avail itself of the right to adopt the amendment earlier.

The potential effects of adopting IFRS 15 are currently being analyzed and the following issues have been identified:

• Multi-component transactions: Determine whether legally independent contracts are to be summarized in the balance sheet
• Reassess of revenue recognition, taking into account transfer of control

At the present time, we do not foresee significant changes in the presentation of revenues in the consolidated financial statements of BAUER AG. The same applies to contract modifications, changes to the contract scope and/or price, including supplements. These modifications may only be taken into account in the transaction price if variable revenue components are highly probable, meaning that there will not be a significant reversal of these revenues in the future.

Based on current analyses, customer-specific construction contracts, which are currently accounted for using the percentage-of-completion method, will allow for period-based recognition of sales revenues in the future. Furthermore, changes in reporting methods and additional disclosures in notes will be necessary. Once the exact consequences have been established, the Management Board will decide whether the retrospective method or the cumulative effect method will be used.

IFRS 16 will replace IAS 17 – Leases, IFRIC 4 – Establishing if an agreement contains a leasing relationship, SIC 15 – Operating leasing relationships – Incentives as well as SIC 27 – Assessment of the profitability of transactions in the legal form of leasing relationships. The new standard does not undertake any classification in finance and operating leasing relationships for lessees, instead basically all leasing relationships are included in the balance sheet in the form of usage rights and leasing liabilities. There will be no major changes to lessor accounting compared to IAS 17. In contrast to IAS 17, IFRS 16 stipulates more extensive details on the appendices.

Potential effects of the first-time adoption of IFRS 16 – Leasing Relationships are currently being analyzed It is to be expected that the remaining minimum lease payments from operating lease relationships will result in further capitalization of rights of use and the recognition of liabilities.

IFRS 9 – Financial Instruments changes the accounting rules for the classification and measurement of financial assets, for impairment of financial assets and for hedge accounting. The adoption of IFRS 9 is expected to have an impact on the classification and measurement of financial assets of the Group as a result of new measurement categories, but is unlikely to have a material impact on the classification and measurement of financial liabilities. Although an in-depth assessment of the impact is still pending, the introduction of the new valuation categories will result in changes with respect to interests and other long-term financial assets currently measured at cost. They are to be recognized at fair value according to the requirements for classification and measurement under IFRS 9. The revised regulations for reporting the impairment of financial instruments will tend to result in an increase in provisioning through use of the expected loss model rather than the incurred loss model currently in use. In terms of hedge accounting, there will be a wider range of designation options, more complex valuation methods and simpler methods for verifying effectiveness. Although an in-depth assessment of the effects are still pending, the existing hedge accounting methods are still permissible. On the other hand, changes are expected in the area of effectiveness measurement. As a result, there will be no significant effects on hedge accounting. When the BAUER Group adopts IFRS 9 for the first time, it plans to apply the modified retrospective method, according to which cumulative effects of the changeover must be recorded in the opening balance sheet for 2018. In addition, much more extensive disclosures in notes will be required.

BAUER AG does not expect any of the other standards to have any material impact on the consolidated financial statements.

5.2. Significant accounting policies

Foreign currency translation

Foreign currency transactions are translated in the financial statements of BAUER AG and the consolidated subsidiaries at the rates applying on the dates of the transactions. The financial statements of the foreign companies belonging to the BAUER Group are translated into euros according to the functional currency concept. Accordingly, assets and liabilities are translated at the rate applying on the balance sheet date and the income statement items at the average rate. The resulting differences from the currency translation are recorded as other income and recognized cumulatively in the provision for currency translation losses stated under equity until the foreign operations are sold.

1 EUR corresponds to		Annual average value		Balance sheet date value
		2015	2016	2015	2016
Egypt	EGP	8.5293	11.1682	8.4192	19.1589
Argentina	ARS	10.4092	16.4949	14.1386	16.8235
Australia	AUD	1.4787	1,4852	1.4894	1.4617
Bulgaria	BGL	1.9558	1.9559	1.9558	1.9561
Chile	CLP	727.6212	742.3758	772.0222	704.9368
China	CNY	7.0724	7.3488	6.9434	7.3443
Georgia	GEL	2.5284	2.6209	2.6140	2.8083
Ghana	GHS	4.2281	4.4024	4.1725	4.5018
Great Britain	GBP	0.7236	0.8227	0.7350	0.8581
Hong Kong	HKD	8.5570	8.5683	8.4422	8.1945
India	INR	70.9623	74.3119	72.3087	71.8220
Indonesia	IDR	14,862.6723	14,707.1687	15,046.6072	14,192.1525
Japan	JPY	133.5525	120.4284	131.1173	123.5816
Jordan	JOD	0.7822	0.7823	0.7724	0.7498
Canada	CAD	1.4239	1.4598	1.5125	1.4230
Qatar	QAR	4.0194	4.0197	3.9659	3.8480
Lebanon	LBP	1,665.1715	1,664.8954	1,642.5471	1,593.6847
Malaysia	MYR	4.3409	4.5736	4.6730	4.7406
Morocco	MAD	10.8081	10.8407	10.7831	10.6705
Mexico	MXP	17.6440	20.6246	18.9240	21.8430
New Zealand	NZD	1.5914	1.5819	1.5914	1.5169
Oman	OMR	0.4250	0.4250	0.4193	0.4068
Panama	PAB	1.1039	1.1040	1.0892	1.0568
Peru	PEN	3.5349	3.7300	3.7081	3.5491
Philippines	PHP	50.3376	52.5996	51.2554	52.5416
Poland	PLN	4.1810	4.3638	4.2636	4.4180
Romania	RON	4.4403	4.4947	4.5229	4.5427
Russia	RUB	68.6566	73.1804	80.4168	64.7667
Saudi Arabia	SAR	4.1416	4.1407	4.0886	3.9637
Sweden	SEK	9.3339	9.4761	9.1831	9.5656
Switzerland	CHF	1.0631	1.0894	1.0822	1.0754
Singapore	SGD	1.5198	1.5245	1.5397	1.5265
South Africa	ZAR	14.2607	16.0580	16.9831	14.4954
Taiwan	TWD	35.0744	35.5641	35.8330	34.0622
Thailand	THB	37.9774	38.9178	39.2530	37.8475
Turkey	TRY	3.0361	3.3394	3.1815	3.7288
Hungary	HUF	309.4268	311.4683	315.2762	310.1667
United Arab Emirates	AED	4.0545	4.0549	4.0004	3.8815
United States of America	USD	1.1039	1.1040	1.0892	1.0568
Vietnam	VND	24,240.1659	24,695.6697	24,498.2509	24,048.4597

The following table shows the exchange rates applied for the currency translation:

2016

Intangible assets

Intangible assets are capitalized at cost and amortized according to the straight-line method over the projected useful life of 3 to 10 years.

Assets which have an indefinite useful life, such as goodwill, are not subjected to scheduled amortization but are impairment tested each year, or when relevant indications arise. The goodwill is the amount by which the acquisition cost of the acquisition exceeds the fair value of the Group's shares in the net assets of the acquired entity at the date of acquisition. Goodwill created by acquisition is recognized under "Intangible assets". Goodwill resulting from the acquisition of an associated company is included in the carrying amount of investments in associated companies and consequently is not impairment-tested separately, but within the overall carrying amount. The recognized goodwill undergoes an annual impairment test is recognized at cost less accumulated write-downs. Write-ups are impermissible. Gains and losses from the sale of a company comprise the carrying amount of goodwill allocated to the company to be disposed of.

Assets subject to scheduled depreciation or amortization are tested for impairment if any events or changes of circumstances indicate that the carrying amount may no longer be achievable.

Impairment in the amount of the carrying amount exceeding the attainable amount is recognized. The attainable amount is the higher amount of the applicable fair value of the asset less selling costs and the value in use. For the impairment test, assets are grouped at the lowest level for which cash flows can be separately identified (cash-generating units). With the exception of goodwill, a test is performed on each balance sheet date in respect of non-cash assets for which in the past an impairment was recognized as to whether a value recovery adjustment is required.

Research and development costs are generally charged as expenditure in the financial year in which they occurred, in accordance with IAS 38. Exceptions to this are certain development costs which are capitalized where it is probable that a future economic benefit will be drawn from the development project and the costs incurred can be measured reliably. In addition, the following criteria in accordance with IAS 38.57 must be met:

• Technical feasibility of completion of the intangible asset so that it will be available for use or sale
• Intention to complete the intangible asset and to use or sell it
• Ability to use or sell the intangible asset
• Evidence of how the intangible asset will generate probable future economic benefits
• The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset
• The ability to measure reliably the expenditure attributable to the intangible asset during its development

The manufacturing cost includes all costs directly attributable to the development process as well as appropriate portions of development-related overheads. The assets in development are subjected to an annual impairment test and valued at their original cost less cumulative depreciation. Amortization is undertaken according to the straight-line method as from start of production over the intended term of the developed models. The projected useful life is between 3 and 6 years. Impairment losses on intangible assets are recognized to the higher of the value in use or net realizable value. If the preconditions for an impairment no longer exist, reversals of impairment – except for goodwill – are undertaken.

Property, plant and equipment

According to IAS 16, property, plant and equipment is valued at cost, less scheduled straight-line depreciation based on the pro-rata temporis method, unless in exceptional cases some other method of depreciation more effectively reflects the usage. The following table provides an overview of the useful lives:

Asset	Economic life
Land	Unlimited
Buildings and other structures	3 to 60 years
Technical equipment and machinery	3 to 21 years
Other equipment, factory and office equipment	2 to 21 years

Impairment losses on property, plant and equipment are recognized in accordance with IAS 36 where the value in use or fair value less cost to sell of the asset concerned has fallen below the carrying amount. If the reasons for an impairment recognized in previous years no longer exist, a corresponding reversal of impairment is applied.

Both impairment losses and scheduled depreciation are recognized under the "Depreciation of fixed assets" item. The level of impairment losses is explained in accordance with IAS 36 under "Non-current assets".

Leasing

The BAUER Group acts as both a lessee and a lessor. Leasing relationships are classified according to IAS 17 based on the distribution of opportunity and risk between the lessor and lessee.

Leasing relationships in which most of the opportunity and risk linked to ownership of the leased item remains with the lessor are classified as operating leases. Where the lessee has most of the opportunity and risk, the agreement is classified as a finance lease.

a) Accounting for lessee transactions

Payments made in connection with an operating lease (net after taking into account incentive payments by the lessor) are recognized in the income statement by straight-line depreciation over the term of the lease.

Assets from finance leases are capitalized at the start of the lease term at the lower of the fair value of the leased item and the present value of the minimum lease payments. A leasing liability is recognized under "Current and non-current debt". Each lease installment is split into an interest and a repayment portion, so that the leasing liability is subject to a consistent interest rate. The interest portion of the lease installment is recognized as affecting expenditure in the income statement. The property, plant and equipment asset held under a finance lease is written down over the shorter of the economic life of the asset or the lease term.

b) Accounting for lessor transactions

A lease is an agreement whereby the lessor assigns to the lessee the right to use an asset for a specific period of time against a payment or series of payments.

Assets leased by the customer in the form of operating leases are assigned on the balance sheet according to their nature. Income from leases is recognized by the straight-line method over the term of the agreement. In the BAUER Group, mainly operating leases are entered into as the lessor.

2016

Government grants

Government grants for assets including non-monetary benefits at fair value are recognized on the balance sheet as accruals on the Equity and Liabilities side (Investment allowance) or, on determining the carrying amount of the asset, are deducted from the Assets side (Invest subsidy).

Business combinations

Acquisitions of subsidiaries are accounted for in accordance with IFRS 3 based on the acquisition method. The cost of the acquisition corresponds to the fair value of the assets contributed, the equity instruments issued and the liabilities created and/or transferred at the transaction date. Assets, liabilities and contingent liabilities identifiable in the course of a business combination are measured on initial consolidation at their fair values at the acquisition date. The amount by which the acquisition cost exceeds the Group's share of the net assets measured at their fair value is stated as goodwill. The non-controlling interests are valued either at cost (Partial Goodwill method) or at fair value (Full Goodwill method). The available option can be exercised on a case-by-case basis. BAUER Group policy is to apply the Partial Goodwill method. If the acquisition cost is less than the net assets of the acquired subsidiary measured at their fair value, the difference is recognized directly in the income statement. Transaction costs directly linked to a business combination are recognized in the income statement. In the event of successive acquisitions, the differences between the carrying amount and the applicable fair value of the shares previously held are recognized as affecting net income at the time of acquisition. Existing contracts with the acquired entity at the time of acquisition, except those under the terms of IAS 17 and IFRIC 4, are analyzed and reclassified where appropriate.

Borrowing costs

Borrowing costs linked directly to the acquisition, construction or production of qualifying assets in accordance with IAS 23 are included in the cost of the asset in question for the period until start of use of the asset. No borrowing costs were capitalized in the financial year. Testing as to whether an asset is a qualifying asset is carried out according to internally stipulated materiality limits for projects and installations. If the said materiality limits are exceeded, borrowing costs for qualified assets are capitalized. Other financing costs are recognized as ongoing expenditure under "Financial expenses".

Investment Property

Land and buildings maintained in order to generate rental income are accounted for at amortized cost in accordance with IAS 40, with the useful lives applied for depreciation (straight-line according to the pro rata temporis method) corresponding to those of the property, plant and equipment used by the company itself. An evaluation by an independent expert to determine the applicable fair value of the Investment Property was not undertaken. The measurement is derived from current market prices for similar property. This method is part of level 2 of the fair value hierarchy stated in IFRS 13.

Investments accounted for using the equity method

Associated companies

According to IAS 28, an associated company is any entity over which the investor has significant influence, though not control. This routinely means voting shares of between 20 and 50 %.

Shares in associated companies are valued at-equity and recognized initially at cost. The Group's shares in associated companies include the goodwill created by the acquisition (less cumulative impairment).

The Group's share in the profits and losses of associated companies is reported in the income statement as from the time of acquisition. The shares in the other comprehensive income of the associated company are also reported proportionally in the Group's other income, broken down by amounts reclassified to the income statement in a later period and amounts that are not reclassified. Cumulative changes after acquisition are set off against the carrying amount of the investment. If the Group's share in the losses of an associated company is equal to or more than the Group's shareholding in the said associate, including other unsecured claims, the Group recognizes no additional losses, unless it has entered into obligations or made payments on behalf of the associated company.

Non-realized gains from transactions between Group companies and associated companies are eliminated according to the Group's share in the associated company. Non-realized losses are likewise eliminated, unless the transaction implies an impairment of the transferred asset.

Joint ventures

Joint ventures are joint arrangements in which the parties exercise joint control and have claims to the net assets of the arrangement. The contractually agreed joint control of the arrangement jointly manages the venture. This is only the case if decisions regarding the material activities require the unanimous approval of the parties involved in the joint control. Joint arrangements recognized at equity include joint ventures as well as the Arbeitsgemeinschaften ("ARGE") consortia specific to Germany, with there being a difference between ARGE consortia and umbrella ARGE consortia. Both consortia are subject to the regulations of IFRS 11.

Assets are provided for and invoiced to ARGE provision consortia in the form of employees, material or equipment. The results generated by the provision consortia are recognized in the balance sheet using the equity method, in accordance with IAS 28. They are recognized in the balance sheet as investments accounted for using the equity method and as income from investments accounted for using the equity method in the income statement.

An umbrella consortium, on the other hand, is always recognized without any effect on profit and loss. The compensation claims between umbrella consortium and customer are identical to the compensation claims between the individual consortia and the umbrella consortium. The umbrella consortium transfers all payments received from the customer in full to the individual consortia. BAUER as a partner in an umbrella consortium accounts for the assets at its disposal and the liabilities it itself incurs, as well as its own expenditures, and recognizes the income from such activities on a pro-rata basis in its sales revenues.

Ongoing settlements from and to consortia are recognized in receivables or liabilities to joint ventures.

Joint operations

Joint operations are joint arrangements in which the parties assume joint control and hold rights in the assets as well as obligations with regard to the liabilities of the arrangement. The contractually agreed joint control of the arrangement jointly controls the arrangement. This is only the case if decisions regarding the material operations require the unanimous approval of the parties involved in the joint control.

Any operations performed by the BAUER Group as part of a joint operation relating to its share in the joint operation are recognized in the following items:

• Its assets, including its share in jointly held assets
• Its liabilities, including its share in jointly incurred liabilities

2016

• Its income from the sale of its share in the products of the joint operation
• Its share in income from the sale of products or services by the joint operation, and
• Its expenses, including its share in any jointly incurred expenses

For transactions such as the acquisition of assets by a Group company, gains and losses are recognized in the amount of the Group share of other joint operations only once the assets are sold to third parties.

Financial instruments

a) Primary financial instruments

In the BAUER Group, primary financial instruments are assigned as financial assets to the following categories:

• Loans and Receivables (LaR)
• Available-for-Sale (AfS)

The "Loans and Receivables" category includes current and non-current financial assets.

The "Available-for-Sale" category includes marketable securities as well as equity portions which are not consolidated or not recognized by the equity method. For those equity portions there is no active market, and no fair value can be reliably determined for them, so the shares are valued at cost. We have no intention of selling them. If there are objective indications that an impairment has occurred in these equity instruments, the amount of the valuation allowance is calculated as the difference between the carrying amount of the financial asset and the present value of the expected future cash flows that are discounted taking into account an appropriate market return. Such value allowances may not be reversed.

Financial assets held for sale are non-derivative financial assets classified as available for sale and those not classified as one of the other categories of financial assets stated. They are recognized at fair value both when initially entered and in the subsequent periods.

Assets classified as held for sale are impairment-tested at each balance sheet date in relation to objective criteria (such as significant financial difficulties of the debtor, high probability of insolvency proceedings being initiated against the debtor, loss of an active market in the financial assets). Any impairment expenditure incurred because a fair value is less than the carrying amount is recognized affecting net income. Where impairment of the fair values of assets held for sale was previously stated not affecting net profit in the equity, it must be eliminated from the equity up to the amount of the measured impairment and recognized in the income statement. If subsequent valuation reveals that the fair value has objectively increased due to events occurring after entry, the impairment is reversed in the corresponding amount. Recovery in the value of debt instruments is recognized in the income statement. Impairment affecting equity instruments held for sale and recognized at cost must not be reversed.

Primary financial instruments as financial liabilities are assigned to the following category:

• Financial Liabilities Measured at Amortized Cost (FLAC) or Other Financial Liabilities

The "Financial Liabilities Measured at Amortized Cost" category includes liabilities to banks, trade payables as well as other current and non-current debt and current and non-current financial liabilities.

Receivables and liabilities in the "Financial Liabilities Measured at Amortized Cost" and "Loans and Receivables" categories are initially recognized at the applicable fair value, including transaction costs directly attributable to acquisition of the financial asset or incurring of the financial liability, and subsequently measured at amortized cost, applying the effective interest rate method. The amortized cost of a financial asset or liability is calculated, applying the effective interest rate method, from the historical cost less the repayments made, plus or less the cumulative amortization of any difference between the original amount and the amount repayable at the final due date, and also less depreciation and impairment or plus appreciation and value recovery adjustment.

In the case of current receivables and liabilities, the amortized cost always corresponds to the nominal amount, or the amount repayable. Cash and cash equivalents comprise credit balances with banks as well as petty cash stocks, and are valued at amortized cost.

In the case of financial assets or liabilities recognized in the income statement at fair value, the initial fair-value valuation excludes the transaction costs. Financial liabilities are derecognized when they have been paid or the obligation has been extinguished. Items are initially recorded on the performance date. In the case of financial assets, derecognition of potential default risks is affected by value adjustments in separate valuation allowance accounts. Financial assets are derecognized if the rights to payments from the financial assets have expired or been transferred, and the Group has essentially transferred all risks and opportunities associated with ownership, or the essential opportunities and risks have neither been transferred nor retained, but right of disposal has been transferred. If there are doubts as to the collectability of receivables, they are valued at amortized cost less appropriate single valuation allowances or a flat-rate allowance. Impairment of trade receivables is recognized when there are objective signs (such as disputed contract variations, missed payments or insolvencies) indicating that the amounts due will not be collectable in full. The impairment is recognized in the income statement by way of a valuation allowance account. They are derecognized at the same time as the corresponding impaired receivable. All other impairments are written off directly and likewise recognized in the income statement. The fair value option provided by IAS 39 was not exercised.

b) Derivative financial instruments

A derivative is a financial instrument or contract within the area of applicability of IAS 39, which cumulatively meets the following criteria:

• which varies in value based on changes in a specific interest rate, price of a financial instrument, commodity price, exchange rate, price or interest rate index, credit rating or credit index, or some similar variable, provided in the case of a non-financial variable the variable is not specific to one party to the contract;
• which requires no payment in return for acquisition, or one which, compared to other forms of contract expected to react similarly to changes in market conditions, is lower;
• which is settled at a later date.

In the BAUER Group, free-standing derivative financial instruments are assigned as financial assets to the following category:

• Financial Assets Held for Trading or "FAHfT"
• Free-standing derivative financial instruments as financial liabilities are assigned to the following category:
• Financial Liabilities Held for Trading or "FLHfT"

Changes in value of derivatives not forming part of a cash flow hedge are stated under other operating income or expenses in the case of foreign exchange forward contracts or options or, in the case of interest-rate swaps, are recognized in the income statement under financial expenses or income

The free-standing derivative financial instruments of the "Financial Assets Held for Trading" and "Financial Liabilities Held for Trading" categories include fair values of interest rate swaps, foreign exchange options, cross-currency swaps and foreign exchange forward contracts not included in hedge accounting or not meeting the hedge accounting conditions.

In the BAUER Group, derivative financial instruments (interest rate swaps, foreign exchange options, cross-currency swaps and foreign exchange forward contracts) are entered into solely to hedge against interest rate and currency risks. No deals are made without an underlying transaction.

In the case of derivatives included in hedge accounting, when hedging expected future transactions (cash flow hedges) the effective portion of the gain or loss from a hedging instrument is initially recognized in the equity, taking into account deferred taxes, and is only recognized in the income statement when the underlying hedged transaction is realized. The ineffective portion of the hedge transaction is recognized in the income statement immediately. The derivative financial instruments are stated at their fair values as assets or liabilities. Items are initially recorded on the trading date. In the 2016 financial year, hedge accounting was used for cash flow hedges. The market values of the derivatives are calculated on the basis of the conditions prevailing at the balance sheet date, such as interest or exchange rates, and applying recognized models, such as discount cash flow or option price models. The fair values of the foreign exchange forward contracts are defined on the basis of current reference prices, taking into account forward premiums and discounts. The fair values of the interest rate swaps are determined on the basis of discounted future payment flows, applying the market interest rates applicable to the respective residual terms of the derivatives.

Inventories

Inventories of finished goods and work in progress and stock for trade as well as raw materials and supplies are valued at manufacturing cost or at the lower net realizable value on the balance sheet date in accordance with IAS 2.

The net realizable value is the estimated achievable selling price in the ordinary course of business less the estimated costs through to completion and the estimated necessary selling costs.

Raw materials and supplies are valued mainly at floating average cost. Where the machinery and accessories classified as finished goods and stock for trade and primarily held for sale, are hired out for a short period as a secondary sales promotion measure, the following factors are considered in determining their net realizable values:

• Hire period
• Useful life of the machines
• Damage and inoperability

Where the net realizable value of previously written-down inventories has increased, corresponding value recovery adjustments are made. The manufacturing cost includes all direct costs of the manufacturing process. The level of impairment losses on inventories is explained in accordance with IAS 2 under "Inventories".

Construction contracts

Construction contracts are accounted for by the percentage of completion method in accordance with IAS 11. The sales are recognized according to the progress of work based on the percentage of completion method. The applicable percentage of completion is determined according to the costs incurred (cost-to-cost method). Where the cumulative return (contract costs and pro-rata result) exceeds the payments on account in individual cases, the construction contracts are recognized as assets under "Receivables from construction contracts (PoC)". If a negative balance remains after deduction of the payments on account, it is recognized as a liability under "Liabilities from construction contracts (PoC)". Expected losses on a contract are accounted for in full at the time they are identified, by adjustments to the valuation of any existing receivables or by the creation of a provision. Construction contracts undertaken in joint ventures are valued according to the percentage of completion method. Receivables from joint ventures also include the pro-rata result from the contract.

Receivables from joint ventures also include the pro-rata result from the contract. Expected losses are covered by write-downs or liabilities as appropriate, and are taken into account in the contract result.

Cash and cash equivalents

Cash and cash equivalents comprise cash and sight deposits with an original term of no more than three months.

Assets classified as held for sale

Long-term assets held for sale and the associated liabilities are measured in accordance with IFRS 5 and reported separately as current assets. Assets held for sale are assets that can be sold in their current state and are very likely to be sold. The sale must be anticipated within one year from the date of reclassification. These may be individual assets, groups of assets (disposal groups) or corporate assets (discontinued operations). Assets held for sale are no longer amortized, but are recognized at their fair value less costs to sell, if this value is lower than the book value.

Deferred taxes

In accordance with IAS 12, deferred taxes are taken into account in respect of variations between the valuations of assets and liabilities according to IFRS and their corresponding tax bases in the amount of the projected future tax charge or refund. In addition, deferred tax assets are recognized for future advantages arising from tax losses carried forward, provided it is probable that they will be realized.

Deferred taxes arising from temporary differences in connection with investments in subsidiaries and associated companies are recognized, unless the date of reversal of the temporary differences can be determined by the Group and it is likely that the temporary differences will not be reversed again in the foreseeable future because of this effect.

According to IAS 12.74, deferred tax assets and liabilities are to be offset if a legally enforceable right to set off current tax assets against current tax liabilities exists. Offsetting should also be carried out if the deferred tax assets and liabilities relate to income taxes levied by the same tax authority in respect of:

• either the same taxable entity or

• different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

2016

The tax expenditure for the period comprises current and deferred taxes. Taxes are reported in the income statement, unless they relate to items recognized directly in the equity or in the other comprehensive income. In this case; the taxes are likewise recognized in the equity or in the other comprehensive income.

In Germany, deferred taxes are stated on the basis of corporation tax, the "solidarity surcharge" and trade tax, in a range of 26.90 to 32.14 % (previous year: 26.90 % and 31.69 %). Outside Germany, tax rates of between 0.00 % and 38.15 % are applied (previous year: 0.00 % and 38.15 %).

Provisions

a) Provisions for pensions

The BAUER Group operates a number of provisions for pensions in Germany and internationally.

Typically, such plans define an amount of pension benefit which employees will receive on retirement and which is normally dependent on one or more factors (such as age, years of service and salary).

The provisions for pensions on the balance sheet corresponds to the cash value of the defined benefit obligation (DBO) at the balance sheet date, less the fair value of the plan assets. The DBO is calculated annually by an independent actuary applying the projected unit credit method. The cash value of the DBO is calculated by discounting the expected future inflow of funds at the interest rate of industrial bonds of the highest credit rating. The industrial bonds are denominated in the currency of the disbursements, and have terms corresponding to the pension commitments. In countries where the market in such bonds is insufficiently developed, government bonds are applied.

Actuarial gains and losses based on experience-related adjustments to actuarial assumptions are recognized in the "Other comprehensive income" in the equity in the period in which they occur. Post-employment expenditure is recognized in staff cost and the interest portion of the addition to provisions in financial expenses.

Under the contribution-based provisions for pensions, the entity concerned makes payments to pension institutions which are stated in the personnel expenses.

b) Provisions for tax purposes

Tax provisions include liabilities from current income taxes. Income tax provisions are balanced against corresponding tax refund claims, provided they arise in the same tax territory and are identical in nature and in terms of due date.

c) Other provisions

The other provisions are created in accordance with IAS 37 where a present obligation arises from a past event, a relevant claim is more likely than unlikely, and the amount of the claim can be reliably estimated. The provisions are stated at their performance amount, and are not netted against profit contributions. Long-term provisions are recognized at present value. Provisions are created only for legal or constructive obligations to third parties.

Income and expenses

Sales revenues and other incomes are realized in accordance with IAS 18 on performance of the supply or service or on transfer of risk to the customer, as appropriate.

Dividend income is recognized at the date on which the right to receipt of payment is created. Dividends received are recognized as income from operating investments under "Financial income". Operating expenses are recognized as affecting net income when the supply or service is claimed or at the time they are caused, as appropriate. Financial income and expenses are recognized when incurred.

Income from service contracts is recognized according to the degree of completion.

6. SEGMENT REPORTING

Reporting on the segments of the BAUER Group was implemented in accordance with IFRS 8, as in the previous year. The internal organizational and management structure and the internal system of reporting to the Management Board and Supervisory Board dictate the segmentation employed by the BAUER Group.

The BAUER Group comprises the Construction, Equipment and Resources segments. Transactions between the segments are conducted at market prices.

SCHACHTBAU NORDHAUSEN GmbH is the only Group company to operate in all three segments. The assets and liabilities and income statement items of SCHACHTBAU NORDHAUSEN GmbH are assigned to the relevant segments.

Construction

The core business of the Construction segment is specialist foundation engineering. Complete excavation pits and foundation works, often in difficult subgrade conditions, are carried out for major infrastructure projects and buildings. In order to offer customers a full range of services, the companies of the BAUER Group additionally offer other construction services, often involving a major specialist foundation engineering element. Examples of this include bridges, environmental engineering, remediation and building renovation projects. The Construction segment is founded on the close interlinking of all construction activities.

Equipment

In the Equipment segment, machinery for all specialist foundation engineering processes and for deep drilling is developed and manufactured for worldwide distribution. The specialist foundation engineering equipment can be employed to produce large-diameter and small-diameter bores for piles, diaphragm walls, anchors, injections and wells. The deep drilling equipment can be employed to drill for geothermal energy, oil and gas. Equipment for ramming and ground improvement is also manufactured. The range is supplemented by a wide selection of add-on units and ancillary equipment, covering all the processes involved in specialist foundation engineering.

Resources

The Resources segment brings together all the Group companies providing products and services relating to the remediation and extraction of natural resources essential to human life. They include environmental technology companies involved in the treatment of ground and groundwater as well as companies involved in exploration drilling and mining of raw materials and drilling of wells and geothermal energy sources. This segment also includes companies which manufacture and sell materials for the engineering of bore holes, specifically for wells and geothermal energy sources.

Other

The Other segment comprises the central services (accounting, human resources, IT etc.) provided by BAUER AG to the Group companies as well as other units not assignable to the separately listed segments, providing services such as in-house and external education and training and centralized research and development.

Consolidation

The intersegmental consolidation effects are grouped here under Consolidation. This includes offsetting of intra-group sales between the segments as well as income and expenses and interim results. The intersegmental consolidation effects are adjusted within the respective segments.

The segment earnings after tax reflect the financial income and expenses as well as the net earnings of shares valued atequity and the income tax expenditure. The segments' assets and liabilities incorporate all the assets and liabilities of the Group. The non-current assets stated in the segment report by region comprise intangible assets, property, plant and equipment and investment property.

Total Group revenues, consolidated revenues and sales revenues with third parties

The consolidated revenues reflect the performance of all the companies included in the basis of consolidation. The total Group revenues represent the revenues of all the companies forming part of our Group. The difference between the consolidated revenues and the total Group revenues is derived from the revenues of the associated companies, from our subcontractor shares in joint ventures, and from the revenues of non-consolidated companies.

The sales revenues with third parties are allocated to the business segments according to the customer's location. No one customer accounts for more than 10 % of total sales.

No breakdown of sales revenues by product and service, or by groups of comparable products and services, was available as per the balance sheet date.

Segment reporting

Intangible assets Property, plant and equipment

SEGMENT REPORT BY BUSINESS SEGMENT		Construction		Equipment
in EUR '000		2015	2016		2015	2016
Total revenues (Group)		742,862	722,103		753,083	651,715
Sales revenues with third parties		650,762	614,456		548,039	542,688
Sales revenues between business segments		18,568	15,995		52,458	41,535
Changes in inventories		105		-197	30,230	16,194
Other capitalized goods and services for own account		585		647	4,979	4,337
Other income		25,680	30,188		113,164	24,457
Consolidated revenues		695,700	661,089		748,870	629,211
Earnings before interest, tax, depreciation and amortization (EBITDA)		62,336	72,731		131,353	71,243
Depreciation of fixed assets		-48,420	-42,346		-18.717	-18,727
Write-downs of inventories due to use		0		0	-13,195	-15,532
Earnings before interest and tax (EBIT)		13,916	30,385		99,441	36,984
Financial income		2,306	2,183		1,768	1,579
Financial expenses		-14,009	-13,768		-20,903	-19,455
Share of the profit or loss of associated companies accounted for using the equity method		171	-2,530		226	-3,650
Income tax expense		-9,700	-6,807		-15,135	-4,512
ADDITIONAL INFORMATION ON THE INCOME STATEMENT
Impairment losses on fixed assets		-89		-57	-765	-967
Major non-cash segment items
Impairment losses on financial assets		-13		-425	0	-3,304
Impairment losses on inventories		-656	-1,025		-11,295	-8,474
Allocation of value allowance of receivables		-3,490	-3,123		-8,967	-8,365
Reversal of value allowance of receivables		0		0	4,321	7,518
ADDITIONAL INFORMATION ON THE BALANCE SHEET
SEGMENT ASSET DEC. 31.		616,089	634,135		818,061	779,328
of which shares in associated companies accounted for using the equity method		9,430	5,274		90,975	87,890
of which capital investments in fixed assets		58,183	54,147		18,775	26,802
SEGMENT LIABILITIES DEC. 31.		483,534	485,669		540,036	511,565
SEGMENT REPORT BY REGION	Germany		EU (excl. Germany)			Europe (other)
in EUR '000	2015	2016	2015	2016	2015	2016
Total revenues (Group)	473,727	481,053	161,910	218,011	70,766	94,985
Sales revenues with third parties	340,407	394,661	155,438	217,070	67,199	68,831

and investment property, Dec. 31 230,580 226,069 19,627 22,258 12,978 20,306

Resources			Other		Consolidation	Group
2015	2016	2015	2016	2015	2016	2015	2016
221,609	264,712	41,492	48,590	-102,634	-100,991	1,656,412	1.586,129
179,319	238,199	871	1,538			1,378,991	1.396,881
2,756	2,562	32,425	37,556	-106,207	-97,648	0	0
-1,341	-638	0	0	0	0	28,994	15,359
839	526	0	0	16,345	7,962	22,748	13,472
18,753	5,391	6,987	7,996	-7,371	-5,168	157,213	62,864
200,326	246,040	40,283	47,090	-97,233	-94,854	1,587,946	1,488,576
-8,206	7,785	7,577	9,809	-7,999	-3,179	185,061	158,389
-11,601	-11,014	-3,011	-3,284	606	862	-81,143	-74,509
0	0	0	0	0	0	-13,195	-15,532
-19,807	-3,229	4,566	6,525	-7,393	-2,317	90,723	68,348
1,235	1,419	10,287	11,793	-10,624	-11,434	4,972	5,540
-11,206	-12,422	-6,488	-12,613	10,624	11,434	-41,982	-46,824
2,275	3,159	0	0	0	0	2,672	-3,021
-1,895	2,621	-1,537	-869	874	-62	-27,393	-9,629
-29,398	-8,452	6,828	4,836	-6,519	-2,379	28,992	14,414

-10	-44	0	0	0	0	-864	-1,068
-149	-480	0	0	0	0	-162	-4,209
-198	-85	0	0	0	0	-12,149	-9,584
-1,899	-14,286	0	0	0	0	-14,356	-25,774
562	639	0	0	0	0	4,883	8,157

269,254	315,812	362,055	430,804	-408,551	-458,661	1,656,908	1.701.418
32,249	36,088	0	0	-101	0	132,553	129,252
8,823	11,761	6,522	3,736	-1,325	-652	90,978	95,794
237,562	286,531	201,241	268,743	-256,675	-285,221	1,205,698	1,267,287

Middle East and Central Asia		Asia-Pacific, Far East and Australia		Americas		Africa		Group
2015	2016	2015	2016	2015	2016	2015	2016	2015	2016
227,679	197,339	347,788	283,910	297,392	235,602	77,150	75,229	1,656,412	1,586,129
186,019	185,486	337,701	268,760	221,809	193,854	70,418	68,219	1,378,991	1,396,881
47,825	47,747	84,121	85,626	24,217	23,876	12,463	7,735	431,811	433,617

EXPLANATORY NOTES TO THE INCOME STATEMENT

7. SALES REVENUES

The sales revenues generated in the amount of EUR 1,396,881 thousand (previous year: EUR 1,378,991 thousand) include revenues arising from application of the percentage of completion method and revenues from the sale and hiring-out of equipment and accessories.

The sales revenues from the application of the percentage of completion method amounted to EUR 714,983 thousand in the financial year (previous year: EUR 697,066 thousand). Revenue from leased equipment and accessories amounted to EUR 21,898 thousand (previous year: EUR 20,170 thousand) in the financial year, sales revenues and reductions in income totaled EUR 660,357 thousand (previous year: EUR 664,862 thousand).

With regard to the presentation and breakdown of sales revenues by operating segment and region, please refer to the notes on segment reporting (see item 6).

Sales revenues provide only an incomplete picture of the performance in the financial year. Figures are therefore transferred to total Group revenues in the following sections:

in EUR '000	2015	2016
Sales revenues	1,378,991	1,396,881
Changes in inventories	28,994	15,359
Other capitalized goods and services for own account	22,748	13,472
Other income	157,213	62,864
Consolidated revenues	1,587,946	1,488,576
Subcontractor share ARGEN	10,158	11,570
Revenues of associated companies and joint ventures	45,322	84,165
Revenues of non-consolidated companies	34,742	24,825
Intra-group revenues	-21,756	-23,007
Total revenues (Group)	1,656,412	1,586,129

Sales revenues also include EUR 8,663 thousand in out-of-period income (previous year: EUR 3,724 thousand) resulting from final invoice agreements in the Construction segment, where final invoices, for example, may include supplementary items which have not yet been finally negotiated with the customer and ordered. These may prove uncertain. A revenue correction is applied to these amounts. Should the uncertain amount turn out to be recoverable, the corresponding revenue will be realized.

8. OTHER CAPITALIZED GOODS AND SERVICES FOR OWN ACCOUNT

in EUR '000	2015	2016
Income from other capitalized goods and services for own account	22,748	13,472

9. OTHER INCOME

2015	2016
16,411	4,567
50,827	30,674
1,434	1,652
263	290
5,216	6,276
77,896	15,608
10,382	10,073
157,213	62,864

The realized and unrealized foreign currency gains as well as gains from foreign exchange forward contracts stated under "Other income" totaling EUR 30,674 thousand (previous year: EUR 50,827 thousand) arose in connection with the global currency hedging strategy and the underlying currency postings. In this context, the income is countered by realized and unrealized foreign currency losses as well as losses from foreign exchange forward contracts totaling EUR 32,582 thousand (previous year: EUR 58,501 thousand), stated under "Other operating expenses."

Additionally, the other operating income mainly comprises income from benefits in money's worth, other reimbursements of expenditure as well as other income spread across the consolidated companies which is of minor importance in the individual instances.

10. COST OF MATERIALS

in EUR '000	2015	2016
Expenses for raw materials and supplies and purchased goods	511,539	454,224
Expenses for purchased services	240,993	263,768
Total	752,532	717,992

11. PERSONNEL EXPENSES

The expenses for retirement benefits include the expenditure on benefits as well as the allocations to provisions for pensions excluding the interest portion, which is stated under "Interest and similar expenses".

in EUR '000	2015	2016
Wages and salaries	317,893	311,463
Social security contributions	51,608	52,146
Expenses for retirement benefits	6,617	6,091
Total	376,118	369,700

The employer's pension contributions in the financial year totaled EUR 21,406 thousand (previous year: EUR 21,758 thousand). These are contribution-based schemes, as explained under 5.2 Significant accounting policies. Of that total, EUR 17,554 thousand (previous year: EUR 16,995 thousand) relate to Germany and EUR 3,852 thousand (previous year: EUR 4,763 thousand) to Group companies outside of Germany. The wages and salaries include severance payments in the amount of EUR 647 thousand (previous year: EUR 1,560 thousand).

12. OTHER OPERATING EXPENSES

in EUR '000	2015	2016
Losses from disposal of property, plant and equipment	1,042	2,723
Rents and leases	27,152	22,593
Energy, heating, water	6,385	4,711
Vehicle costs	7,646	6,363
Property, motor and transport insurance	10,411	9,657
Other operating expenses	35,604	28,391
Administrative expenses	40,619	42,829
Distribution costs	35,844	32,999
Other employee-related expenses	19,408	15,525
Realized and unrealized currency losses and losses from foreign exchange forward contracts	58,501	32,582
Income from impairment of receivables	9,424	17,609
Bank charges	2,732	3,714
Duties	2,028	2,663
Accrued expenses	1,394	6,725
Additional other operating expenses	16,045	13,411
Total	274,235	242,495

The "Additional other operating expenses" mainly comprise allocations to and reversal of provisions affecting net income as well as additional other operating expenses spread across the consolidated companies which are of minor importance in the individual instances. The other employee-related expenses include education and training costs, grants and gifts, travel and relocation expenses, and other project-specific personnel costs. Other operating expenses include income of EUR 15,156 thousand (previous year: EUR 12,750 thousand) resulting from the reversal of provisions, impairment of receivables, derecognition of liabilities and written-off receivables. Currency gains are countered by realized and unrealized foreign currency losses as well as losses from foreign exchange forward contracts totaling EUR 32,582 thousand (previous year: EUR 58,501 thousand), stated under "Other operating income."

13. DEPRECIATION AND AMORTIZATION

Depreciation is as follows:

in EUR '000	2015	2016
Amortization of intangible assets	10,143	8,209
Depreciation of property, plant and equipment	71,000	66,300
Total	81,143	74,509

Impairments of fixed assets are explained under item 19.2, Property, plant and equipment and investment property.

14. WRITE-DOWNS OF INVENTORIES DUE TO USE

Write-downs of inventories due to use in the financial year totaled EUR 15,532 thousand (previous year: EUR 13,195 thousand). This related to write-downs of used machinery temporarily hired out to customers as sales promotion measures. Write-downs of used machinery disposed of in the 2016 financial year are included in these figures.

FINANCIAL RESULT

15. FINANCIAL INCOME

The financial income is broken down as follows:

in EUR '000	2015	2016
Income from operating investments	59	280
Other interest and similar income	3,798	3,468
Income from changes in fair values of interest rate swaps	1,115	1,792
Total	4,972	5,540

16. FINANCIAL EXPENSES

The financial expenses are broken down as follows:

in EUR '000	2015	2016
Interest and similar expenses	36,486	36,036
Impairment losses on financial assets	162	4.209
Losses from changes in fair values of interest rate swaps	2,905	3,798
Interest portions of allocations to provisions for pensions and similar obligations	2,429	2,781
Total	41,982	46,824

The interest from finance leases included under "Interest and similar expenses" in the financial year totaled EUR 877 thousand (previous year: EUR 869 thousand). The financial result includes interest income from financial assets in an amount of EUR 3,418 thousand (previous year: EUR 3,762 thousand) and interest expenses from financial liabilities in an amount of EUR 35,545 thousand (previous year: EUR 35,779 thousand) which were not measured at fair value affecting profit and loss. Of the impairment losses on financial assets of EUR 4,209 thousand (previous year: EUR 162 thousand), EUR 425 thousand (previous year: EUR 13 thousand) relates to the Construction segment, EUR 3,304 (previous year: EUR 0 thousand) to the Equipment segment and EUR 480 thousand (previous year: EUR 149 thousand) to the Resources segment.

17. INCOME TAX EXPENSE

The income tax expense is broken down as follows:

in EUR '000	2015	2016
Actual taxes	21,438	19,612
Deferred taxes	5,955	-9,983
Total	27,393	9,629

The theoretical tax rate is 28.08 % (previous year: 28.08 %).

2016

Reconciliation from expected to actual income tax expenditure

The expected tax expenditure is below the recorded tax expenditure. The reasons for the difference between the expected and recorded tax expenditure are as follows:

in EUR '000	2015	2016
Earnings before tax (EBT)	56,385	24,043
Theoretical tax expenditure 28.08 % (previous year: 28.08 %)	15,833	6,751
Differences in tax rate	1,313	1,747
Taxation effects of non-deductible expenses and tax-free income	-10,481	-1,190
Effects of variations in the tax calculation base	1,594	3,141
At-equity valuation of associated companies	-750	848
Out-of-period tax payments/refunds for previous years	977	312
Effects of deferred tax assets in respect of losses carried forward and temporary differences	18,950	-1,941
Other	-43	-39
Income tax expense	27,393	9,629

The tax effects of the non-deductible expenses and tax-free earnings contain effects from transitional and de-consolidations to the amount of EUR -1,982 thousand (previous year: EUR -12,153 thousand).

Internal disbursements result in taxation effects after December 31, 2016 totaling EUR 35 thousand (previous year: EUR 31 thousand).

18. EARNINGS PER SHARE

The earnings per share are calculated by dividing the earnings after tax attributable to the shareholders of BAUER AG by the weighted average number of ordinary shares outstanding. Earnings per share amount to the following values:

	2015	2016
Earnings after tax attributable to the shareholders of BAUER AG, in EUR '000	29,715	11,302
Number of shares from Jan. 1 to Dec. 31	17,131,000	17,131,000
Weighted average number of shares in circulation in financial year (basic)	17,131,000	17,131,000
Weighted average number of shares in circulation in financial year (diluted)	17,131,000	17,131,000
Basic earnings per share in EUR	1.73	0.66
Diluted earnings per share in EUR	1.73	0.66

EXPLANATORY NOTES TO THE BALANCE SHEET

The breakdown of the fixed asset items summarized on the balance sheet and their development is presented in the fixed asset movement schedule on the following pages.

NON-CURRENT ASSETS

19. FIXED ASSETS

19.1 Intangible assets

in EUR '000			Internally generated intangible assets
Cost of purchase/cost of manufacturing	Licenses, software and similar rights and values	Goodwill	Capitalized software costs	Capitalized development costs	Total
Jan. 1, 2015	33,537	2,186	289	45,568	81,580
Change in basis of consolidation	-443	0	0	-10,514	-10,957
Additions	3,019	0	0	4,792	7,811
Disposals	205	0	207	303	715
Transfers	1	0	0	0	1
Currency adjustment	309	0	0	-9	300
Dec. 31, 2015	36,218	2,186	82	39,534	78,020

in EUR '000

Capitalized Total development costs 21,323 47,140
-6,038 -6,343
6,328 10,143
165 561
0 0
-8 186
21,440 50,565
18,094 27,455

in EUR '000 Licenses, software and similar rights and values Goodwill Internally generated intangible assets Cost of purchase/cost of manufacturing Total Capitalized software costs Capitalized development costs Jan. 1, 2016 36,218 2,186 82 39,534 78,020 Change in basis of consolidation -1,680 0 0 -170 -1,850 Additions 3,045 0 0 4,223 7,268 Disposals 172 0 42 934 1,148 Transfers 00000 Currency adjustment 309 0 0 15 324 Dec. 31, 2016 37,720 2,186 40 42,668 82,614

in EUR '000	Internally generated intangible assets Licenses, software
Accumulated depreciation	and similar rights and values Goodwill		Capitalized software costs	Capitalized development costs	Total
Jan. 1, 2016	26,868	2,186	71	21,440	50,565
Change in basis of consolidation	-1,325	0	0	-151	-1,476
Additions	3,217	0	9	4,983	8,209
Disposals	118	0	42	392	552
Transfers	5	0	0	-5	0
Currency adjustment	216	0	0	12	228
Dec. 31, 2016	28,863	2,186	38	25,887	56,974
Carrying amount, Dec. 31, 2016	8,857	0	2	16,781	25,640

The changes to the basis of consolidation mainly comprise intangible assets from the de-consolidation of BAUER-DE WET EQUIPMENT (PROPRIETARY) LIMITED with a carrying amount of EUR 354 thousand. In the previous year, the changes in the basis of consolidation included BAUER Deep Drilling GmbH with a carrying amount of EUR 4,165 thousand.

Of the total research and development costs and patent costs incurred in 2016, EUR 4,401 thousand (previous year: EUR 4,936 thousand) met the capitalization criteria in accordance with IFRS. The following amounts were recognized in net income:

in EUR '000	2015	2016
Research costs and non-capitalized development costs	19,470	17,137
Amortization of development costs and patents	6,528	5,162
Research and development costs recognized in net income	25,998	22,299

19.2 Property, plant and equipment and investment property

in EUR '000				Other Equipment,	Payments on account and
Acquisition or Manufacturing costs	Land and Buildings	Investment Property	Technical Equipment	Factory and Office Equipment	assets in course of construction	Total
Jan. 1, 2015	306,192	1,734	513,190	75,297	8,213	904,626
Change in basis of consolidation	-28,058	0	-4,431	-407	-401	-33,297
Additions	4,499	15	59,539	11,083	8,031	83,167
Disposals	4,378	0	66,925	7,318	30	78,651
Transfers	4,794	0	4,766	146	-9,707	-1
Currency adjustment	3,994	0	17,562	1,392	-444	22,504
Dec. 31, 2015	287,043	1,749	523,701	80,193	5,662	898,348

in EUR '000				Other Equipment,	Payments on account and
Accumulated depreciation	Land and Buildings	Investment Property	Technical Equipment	Factory and Office Equipment	assets in course of construction	Total
Jan. 1, 2015	99,616	930	306,981	50,190	0	457,717
Change in basis of consolidation	-4,209	0	-3,359	-459	-64	-8,091
Additions	9,661	35	52,350	8,954	0	71,000
Disposals	2,745	0	29,002	5,846	0	37,593
Transfers	0	0	0	0	0	0
Currency adjustment	488	0	9,418	989	64	10,959
Dec. 31, 2015	102,811	965	336,388	53,828	0	493,992
Carrying amount Dec. 31, 2015	184,232	784	187,313	26,365	5,662	404,356
of which finance lease, carrying amount Dec. 31, 2015	1,687	0	16,231	5,940	0	23,858

in EUR '000				Other Equipment,	Payments on account and
Acquisition or Manufacturing costs	Land and Buildings	Investment Property	Technical Equipment	Factory and Office Equipment	assets in course of construction	Total
Jan. 1, 2016	287,043	1,749	523,701	80,193	5,662	898,348
Change in basis of consolidation	-1,310	0	1,419	-551	0	-442
Additions	3,357	0	59,042	9,769	16,358	88,526
Disposals	4,808	1,749	35,873	6,991	359	49,780
Transfers	1,540	0	4,692	647	-6,879	0
Currency adjustment	-87	0	-8,302	-1,029	39	-9,379
Dec. 31, 2016	285,735	0	544,679	82,038	14,821	927,273

in EUR '000	Land and	Investment	Technical	Other Equipment, Factory and	Payments on account and assets in course
Accumulated depreciation	Buildings	Property	Equipment	Office Equipment	of construction	Total
Jan. 1, 2016	102,811	965	336,388	53,828	0	493,992
Change in basis of consolidation	-235	0	-83	-410	0	-728
Additions	8,453	32	49,211	8,604	0	66,300
Disposals	3,010	997	22,026	5,620	0	31,653
Transfers	0	0	-412	412	0	0
Currency adjustment	-102	0	-7,782	-731	0	-8,615
Dec. 31, 2016	107,917	0	355,296	56,083	0	519,296
Carrying amount, Dec. 31, 2016	177,818	0	189,383	25,955	14,821	407,977
of which finance lease, carrying amount Dec. 31, 2016	0	0	24,607	6,641	0	31,248

Changes to the basis of consolidation in 2015 comprise disposals of property, plant and equipment from the de-consolidation of BAUER Manufacturing LLC in the amount of EUR 26,271 thousand, SPANTEC Spann- & Ankertechnik GmbH in the amount of EUR 425 thousand, and BAUER Deep Drilling GmbH in the amount of EUR 97 thousand, as well additions from the initial consolidation of BAUER Equipment India Private Limited, BAUER Equipment Australien Pty. Ltd., BAUER Resources Maroc S.A.R.L. and BAUER Resources Senegal SARL with an addition of property, plant and equipment totaling EUR 1,587 thousand.

Changes to the basis of consolidation in 2016 mainly comprise disposals of property, plant and equipment from the deconsolidation of BAUER-DE WET EQUIPMENT (PROPRIETARY) LIMITED totaling EUR 1,586 thousand, HGC Hydro-Geo-Consult GmbH totaling EUR 127 thousand as well as additions from the initial consolidation of BAUER Maszyny Polska Sp.z.o.o and BAUER Resources Saudi LLC, with an addition of property, plant and equipment totaling EUR 1,993 thousand.

There are purchase options, which will be executed, for the majority of buildings and equipment subject to finance lease contracts. The underlying interest rates of the contracts vary between 1.17 % and 7.75 % (previous year: 1.43 % and 7.50 %), depending on the market and time of the conclusion of the contract. The lease payments due in the future and their present values are stated in the following table:

in EUR '000	Remaining term 2015 Remaining term 2016
	under 1 year 1 to 5 years		over 5 years	Total	under 1 year 1 to 5 years		over 5 years	Total
Minimum lease payments	9,606	13,120	0	22,726	11,235	19,650	332	31,217
Interest portions	661	468	0	1,129	775	803	52	1,630
Present value	8,945	12,652	0	21,597	10,460	18,847	280	29,587

Investment property was sold in the financial year at a price of EUR 800 thousand. It includes a hotel owned by SCHACHTBAU NORDHAUSEN GmbH, leased to third parties. SCHACHTBAU NORDHAUSEN GmbH also has a contractual obligation to maintain the property. An evaluation by an independent expert to determine the applicable fair value of the Investment Property was not undertaken. The measurement is derived from current market prices for similar property. This method is part of level 2 of the fair value hierarchy stated in IFRS 13. The market value in the previous year was EUR 784 thousand.

No rental income (previous year: EUR 51 thousand) was generated in the reporting period, which is directly offset by operating expenses in the amount of EUR 43 thousand (previous year: EUR 14 thousand).

Items of property, plant and equipment have a carrying amount of EUR 92,104 thousand (previous year: EUR 112,090 thousand) and are subject to encumbrances such as mortgages and chattel mortgages. There are also common restraints on disposal on leased assets, which are attributable to the Group (finance lease) in accordance with IAS 17 and amount to EUR 31,247 thousand (previous year: EUR 23,858 thousand).

No borrowing costs were capitalized in the financial year (previous year: none). Fixed assets were impaired by a total of EUR 1,068 thousand (previous year: EUR 864 thousand) in the financial year. Of these impairments, EUR 57 thousand (previous year: EUR 89 thousand) related to the Construction segment, EUR 967 thousand (previous year: EUR 765 thousand) to the Equipment segment and EUR 44 thousand (previous year: EUR 10 thousand) to the Resources segment. Of the amount, EUR 947 thousand (previous year: EUR 768 thousand) pertained to intangible assets and EUR 121 thousand (previous year: EUR 96 thousand) to property, plant and equipment. The majority of impairments on intangible assets relates to capitalized development costs in the amount of EUR 489 thousand at KLEMM Bohrtechnik GmbH and MAT Mischanlagentechnik, branch offices of BAUER Maschinen GmbH, in the Equipment segment.

The expected market development for various internally developed devices was the key factor in this respect. Impairment losses on property, plant and equipment pertain to technical equipment and machinery to the amount of EUR 94 thousand and to company and office equipment to the amount of EUR 2 thousand. The impairments were applied on the basis of the recoverable amount. For the capitalized development costs, this corresponded with the value in use. A discount rate of 7.00 % (previous year: 7.72 %) was applied in the financial year. The recoverable amount of other non-financial assets regularly corresponded with the fair value less cost to sell. This method is part of level 1 of the fair value hierarchy stated in IFRS 13.

19.3 Investments recognized using the equity method

The balance sheet approaches of the joint ventures and associated companies developed as follows:

in EUR '000	Dec. 31, 2015	Dec. 31, 2016
Shares in joint ventures accounted for using the equity method	94,232	92,489
Shares in associated companies accounted for using the equity method	38,321	36,763
Total	132,553	129,252

The following table provides an overview of the changes in shares accounted for using the equity method:

in EUR '000	Associated Companies		Joint ventures
Cost of purchase/cost of manufacturing	2015	2016	2015	2016
Jan. 1	40,916	40,506	4,175	94,232
Additions	0	3,800	90,863	235
Disposals	0	1,428	1,563	444
Profit/loss attributable	758	-2,347	757	-334
Dividend payments	-1,168	-1,583	0	-1,200
Transfers	0	0	0	0
Currency adjustment	0	0	0	0
Dec. 31	40,506	38,948	94,232	92,489

in EUR '000	Associated Companies		Joint ventures
Accumulated depreciation	2015	2016	2015	2016
Jan. 1	2,185	2,185	0	0
Additions	0	0	0	0
Disposals	0	0	0	0
Transfers	0	0	0	0
Currency adjustment	0	0	0	0
Dec. 31	2,185	2,185	0	0
Carrying amount Dec. 31	38,321	36,763	94,232	92,489

a) Joint ventures

The amounts stated in the financial information for joint ventures are recognized in the annual financial statements prepared in accordance with local financial reporting standards, corrected by any adjustments to IFRS.

These are the material joint ventures:

Financial year 2015:

Name	Company's activities	Registered office	Capital share	Valuation method
SPANTEC Spann- & Ankertechnik GmbH	Production	Schrobenhausen, Germany	40%	At equity
BAUER Manufacturing LLC	Production	Conroe, USA	51%	At equity
BAUER Deep Drilling GmbH	Production	Schrobenhausen, Germany	51%	At equity

Financial year 2016:

Name	Registered office Company's activities		Capital share	Valuation method
SPANTEC Spann- & Ankertechnik GmbH	Production	Schrobenhausen, Germany	40%	At equity
BAUER Manufacturing LLC	Production	Conroe, USA	51%	At equity
BAUER Deep Drilling GmbH	Production	Schrobenhausen, Germany	51%	At equity

Summarized financial information on the material joint ventures (before consolidation):

BALANCE SHEET		SPANTEC Spann- & Ankertechnik GmbH		BAUER Manufacturing LLC	BAUER Deep Drilling GmbH
in EUR '000	2015	2016	2015	2016	2015	2016
Non-current assets	5,473	4,641	26,683	28,759	15,504	15,309
Current assets	8,246	9,013	42,037	68,891	52,799	56,108
of which cash and cash equivalents	4,299	1,115	24,676	15,287	34,172	31,416
Total assets	13,719	13,654	68,720	97,650	68,303	71,417
Non-current liabilities	153	0	16	42	495	716
of which non-current financial liabilities	0	0	16	42	23	0
Current liabilities	1,325	1,087	18,671	52,907	17,887	23,073
of which current financial liabilities	0	0	0	0	10	10
Total liabilities	1,478	1,087	18,687	52,949	18,382	23,789

INCOME STATEMENT in EUR '000 SPANTEC Spann- & Ankertechnik GmbH BAUER Manufacturing LLC BAUER Deep Drilling GmbH 2015 2016 2015 2016 2015 2016 Sales revenues 5,854 20,467 511 19,111 245 2,333 Scheduled depreciation and amortization -105 -341 -51 -1,453 -81 -1,954

Earnings before interest and tax 1,825 2,079 -248 -7,058 -283 -3,780 Interest income 9 79 0 44 0 0 Interest expense -25 -7 -12 -2 0 -10 Income tax expense -469 -1,323 0 0 79 1,061

Earnings after tax 1,340 3,330 -260 -7,016 -204 -2,729 Other comprehensive income 0 0 0 0 -68 10 Total comprehensive income 1,340 0 -260 -7,016 -272 -2,719

Non-current and current financial liabilities do not contain any trade payables and provisions.

The amounts stated in the financial information for joint ventures are recognized in the annual financial statements prepared in accordance with local financial reporting standards, corrected by any adjustments to IFRS.

Group 0 1,200 0 0 0 0

Summarized financial information on the immaterial joint ventures (before consolidation):

Dividends distributed to the BAUER

BALANCE SHEET		Immaterial joint ventures
in EUR '000	Dec. 31, 2015	Dec. 31, 2016
Non-current assets	986	1,246
Current assets	57,402	61,723
of which cash and cash equivalents	2,150	2,182
Total assets	58,388	62,969
Non-current liabilities	0	270
of which non-current financial liabilities	0	270
Current liabilities	52,460	54,478
of which current financial liabilities	29,662	33,530
Total liabilities	52,460	54,748

Non-current and current financial liabilities do not contain any trade payables and provisions.

INCOME STATEMENT		Immaterial joint ventures
in EUR '000	2015	2016
Sales revenues	64,418	87,315
Scheduled depreciation and amortization	-2,141	-507
Earnings before interest and tax	1,884	4,070
Interest income	9	0
Interest expense	-53	-53
Income tax expense	-20	-34
Earnings after tax	1,820	3,983
Dividends distributed to the BAUER Group	0	0

Reconciliation to the summarized financial information on joint ventures

The proportional carrying amount of the joint ventures can be offset and reconciled as follows:

Financial year 2015:

in EUR '000	SPANTEC Spann- & Ankertechnik GmbH	BAUER Manufacturing LLC	BAUER Deep Drilling GmbH	Immaterial joint ventures
Net assets of joint ventures	12,241	50,032	49,921	5,941
Share in joint ventures according to investment quota	4,897	25,516	25,460	3,293
Goodwill and other adjustments	5,839	18,724	10,500	3
Carrying amount reported in the balance sheet	10,736	44,240	35,960	3,296

Financial year 2016:

in EUR '000	SPANTEC Spann- & Ankertechnik GmbH	BAUER Manufacturing LLC	BAUER Deep Drilling GmbH	Immaterial joint ventures
Net assets of joint ventures	12,567	44,700	47,628	8,735
Share in joint ventures according to investment quota	5,027	22,798	24,290	4,647
Goodwill and other adjustments	5,841	19,606	10,278	2
Carrying amount reported in the balance sheet	10,868	42,404	34,568	4,649

Fair values of material joint ventures:

in EUR '000	Dec. 31, 2015	Dec. 31, 2016
SPANTEC Spann- & Ankertechnik GmbH	25,500	25,500
BAUER Manufacturing LLC	86,429	86,429
BAUER Deep Drilling GmbH	70,714	70,714

These Fair values are based on data of the financial year 2015.

We did not state the fair value of our immaterial joint ventures as there is no listed market price.

The risk arising from the joint and several liability in the case of a shareholder defaulting is secured by mutual guarantees issued within the joint venture. There are no other obligations or material restrictions.

b) Associated companies

The amounts stated in the financial information for associated companies are recognized in the annual financial statements prepared in accordance with local financial reporting standards, corrected by any adjustments to IFRS.

These are the material associated companies:

Financial year 2015:

Name	Company's activities	Registered office	Capital share
Wöhr + Bauer GmbH	Project development	Munich, Germany	33.33 %
NDH Entsorgungsbetreibergesellschaft mbH	Disposal	Bleicherode, Germany	25.00 %
TERRABAUER S. L.	Specialist foundation engineering	Madrid, Spain	30.00 %
BAUER Nimr LLC	Water treatment and soil remediation	Maskat, Al Mina, Sultanate of Oman	49.00 %

Financial year 2016:

Name	Company's activities	Registered office	Capital share
NDH Entsorgungsbetreibergesellschaft mbH	Disposal	Bleicherode, Germany	25.00 %
TERRABAUER S. L.	Specialist foundation engineering	Madrid, Spain	30.00 %
BAUER Nimr LLC	Water treatment and soil remediation	Maskat, Al Mina, Sultanate of Oman	52.50 %

BAUER Nimr LLC is classified as an associated company despite having a majority of voting rights because it cannot assert control over business and financial policy under the partnership agreement.

BALANCE SHEET	Wöhr + Bauer GmbH			NDH Entsorgungsbe treibergesellschaft mbH		TERRABAUER S. L.		BAUER Nimr LLC
in EUR '000		Dec. 31, 2015 Dec. 31, 2016		Dec. 31, 2015 Dec. 31, 2016		Dec. 31, 2015* Dec. 31, 2016		Dec. 31, 2015 Dec. 31, 2016
Non-current assets	56,795	-	17,040	15,731	-	-	43,074	41,423
Current assets	101,161	-	28,532	30,640	-	-	11,660	19,048
of which cash and cash equivalents	2,275	-	24,098	23,836	-	-	2,013	9,400
Total assets	157,956	-	45,572	46,371	-	-	54,734	60,471
Non-current liabilities	87,658	-	0	0	-	-	36,563	34,570
of which non-current financial liabilities	36,125	-	0	0	-	-	22,146	34,167
Current liabilities	53,706	-	41,056	41,704	-	-	8,560	7,979
of which current financial liabilities	35,980	-	2,833	2,860	-	-	2,845	3,161
Total liabilities	141,364	-	41,056	41,704	-	-	45,123	42,549

Summarized financial information for all associated companies (amounts before consolidation):

* Financial information was unavailable on the balance sheet date

INCOME STATEMENT	Wöhr + Bauer GmbH		NDH Entsorgungsbe treibergesellschaft mbH		TERRABAUER S. L.		BAUER Nimr LLC
in EUR '000	2015	2016	2015	2016	2015 *	2016	2015	2016
Sales revenues	17,217	-	22,951	21,162	-	-	11,026	17,720
Scheduled depreciation and amortization	-1,924	-	-3,223	-3114	-	-	-242	-423
Earnings before interest and tax	-2,700	-	1,451	1,222	-	-	5,725	6,013
Interest income	2	-	52	14	-	-	2,148	1,961
Interest expense	-927	-	-271	-404	-	-	-3,209	-2,872
Income tax expense	1,372	-	-648	-315	-	-	-699	-722
Earnings after tax	-2,322	-	584	517	-	-	3,965	4,380
Earnings after tax in proportion to sharp	-774	-	146	129	-	-	1,943	2,416
Other comprehensive income	0	-	0	0	-	-	0	0
Total comprehensive income	-2,322	-	584	517	-	-	3,965	4,380
Dividends distributed to the BAUER Group	100	-	247	146	-	-	821	1,437

* Financial information was unavailable on the balance sheet date

BALANCE SHEET		Immaterial associated companies
in EUR '000		Dec. 31, 2015	Dec. 31, 2016
Non-current assets		51	55
Current assets		228	259
of which cash and cash equivalents		4	9
Total assets		279	314
Non-current liabilities		18	22
of which non-current financial liabilities		0	0
Current liabilities		130	125
of which current financial liabilities		0	0
Total liabilities		148	147

Summarized financial information for associated companies, which are immaterial on their own (amounts before consolidation):

INCOME STATEMENT		Immaterial associated companies
in EUR '000	Dec. 31, 2015	Dec. 31, 2016
Sales revenues	853	785
Scheduled depreciation and amortization	-24	-25
Earnings before interest and tax	9	42
Interest income	0	0
Interest expense	-2	-2
Income tax expense	0	-4
Earnings after tax	7	36
Earnings after tax for the period in proportion to share	2	11
Dividends distributed to the BAUER Group	0	0

Offsetting and reconciliation to the summarized financial information on associated companies

The proportional carrying amount of the associated companies can be offset and reconciled as follows:

Financial year 2015:

in EUR '000	Wöhr + Bauer GmbH	NDH Entsorgungsbe treibergesellschaft mbH	BAUER Nimr LLC	Immaterial associated companies
Net assets of associated companies	16,592	4,516	9,611	131
Share in associated companies according to investment quota	5,530	1,129	4,710	39
Goodwill and other adjustments	-17	0	16,904	1
Cash value of concession arrangement	0	0	8,162	0
Currency adjustment	0	0	1,863	0
Carrying amount reported in the balance sheet	5,513	1,129	31,639	40

Financial year 2016:

in EUR '000	NDH Entsorgungsbe treibergesellschaft mbH	BAUER Nimr LLC	Immaterial joint ventures
Net assets of associated companies	4,667	17,922	167
Share in associated companies according to investment quota	1,167	9,409	50
Goodwill and other adjustments	-55	16,651	0
Cash value of concession arrangement	0	7,615	0
Currency adjustment	0	1,926	0
Carrying amount reported in the balance sheet	1,112	35,601	50

The other adjustments pertain to temporal differences in reporting.

There were no obligations and material restrictions or risks with regard to the shares in associated companies on the balance sheet date.

19.4 Participations

in EUR '000	Participations
Cost of purchase/cost of manufacturing	2015	2016
Jan. 1	4,429	4,429
Additions	0	9,662
Disposals	0	11
Profit/loss attributable	0	0
Dividend payments	0	0
Transfers	0	-230
Currency adjustment	0	0
Dec. 31	4,429	13,850

in EUR '000		Participations
Accumulated depreciation	2015	2016
Jan. 1	816	816
Additions	0	3,304
Disposals	0	0
Transfers	0	0
Currency adjustment	0	0
Dec. 31	816	4,120
Carrying amount Dec. 31	3,613	9,730

The gain in investment impairments relates to equity interests for which there is no active market and which are categorized as "available for sale." In the financial year, investments in the amount of EUR 3,304 thousand (previous year: 0) were impaired. The impairment loss resulted from the difference between the carrying amount of the investment and the present value of the expected future cash flows.

20. DEFERRED TAXES

Deferred tax assets and liabilities pertained to the following balance sheet items:

in EUR '000	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016
	Deferred tax assets			Deferred tax liabilities
Intangible assets	389	685	18,364	12,566
Property, plant and equipment	123	260	8,814	6,425
Inventories	876	253	2,229	4,694
Receivables and other assets	2,521	374	4,511	5,672
Provisions for pensions	18,340	21,868	562	576
Liabilities	7,027	8,612	2,711	2,383
Tax losses carried forward	13,617	19,330	0	0
Consolidation	5,366	6,514	4,542	4,969
Offsetting	-21,069	-14,989	-21,069	-14,989
Net amount	27,190	42,907	20,664	22,296

In the table above, deferred tax assets to the amount of EUR 1,454 thousand (previous year: EUR 222 thousand) and deferred tax liabilities in the amount of EUR 548 thousand (previous year: EUR 11 thousand) are included in liabilities, which is part of hedge accounting. In addition, deferred tax assets in the amount of EUR 18,319 thousand (previous year: EUR 14,637 thousand) and deferred tax liabilities in the amount of EUR 0 thousand (previous year: EUR 0 thousand) are included in provisions for pensions for the actuarial gains and losses recognized in equity. The deferred tax assets and deferred tax liabilities, which were generated as a result of hedge reserves and actuarial profits and losses, were included in the equity.

The share of current deferred tax assets in respect of losses carried forward amounts to EUR 5,533 thousand (previous year: EUR 6,848 thousand) and the share of deferred tax liabilities to EUR 10,164 thousand (previous year: 8,267 thousand).

The tax losses carried forward at the end of the year are as follows:

in EUR '000	Dec. 31, 2015	Dec. 31, 2016
Domestic losses (corporation tax)	80,325	100,170
Foreign losses	120,225	116,089
Total	200,550	216,259
Of which losses carried forward deductible for limited periods *	88,164	77,131

* Previous year's fi gures changed; BAUER Foralith AG, Switzerland, was not included in the fi gures

No deferred taxes were recognized for unusable losses carried forward in the amount of EUR 142,827 thousand (previous year: EUR 161,045 thousand) due to the medium-term income tax target.

The share of current deferred tax assets in respect of losses carried forward amounted to EUR 5,048 thousand (previous year: EUR 1,339 thousand) in the financial year.

Deferred tax liabilities arising from temporary differences in connection with investments in subsidiaries and associated companies are only recognized if the date of reversal of the temporary differences can be determined by the Group and it is likely that the temporary differences will not be reversed again in the foreseeable future because of this effect. This is not presently the case. There are temporary differences in the amount of EUR 1,566 thousand (previous year: EUR 1,767 thousand) in connection with shares in subsidiaries, for which no deferred tax liabilities were recognized.

21. OTHER NON-CURRENT ASSETS

The other non-current assets comprise the following items:

in EUR '000	Dec. 31, 2015	Dec. 31, 2016
Claims from backup insurance	4,550	4,459
Sundry other non-current assets	3,172	3,797
Total	7,722	8,256

The additional other non-current assets did not incur any interest in the financial and previous year.

They also include assets arising from continuing involvements totaling EUR 1,269 thousand (previous year: EUR 1,537 thousand). As in the previous year, the other non-current assets were neither impaired nor overdue in the year under review.

Within BAUER Group, trade receivables and services in the amount of EUR 16,032 thousand (previous year: EUR 16,263 thousand) were sold to third parties within the scope of receivables sales agreements. Continuing involvement comprises the maximum amount of the remaining risk, consisting of late payment and default risks, which the BAUER Group would have to pay to the buyer.

The corresponding liability amounts to EUR 1,396 thousand (previous year: EUR 1,691 thousand), and is stated under "Other non-current liabilities." The difference reflects the fair value of the guarantees resulting from the remaining risk and the servicing, and is recognized in net income.

22. OTHER NON-CURRENT FINANCIAL ASSETS

The other non-current financial assets comprise the following:

in EUR '000	Remaining term Dec. 31, 2015		Remaining term Dec. 31, 2016
	1 to 5 years	over 5 years	1 to 5 years	over 5 years
Sundry other non-current financial assets	1,565	10,550	3,403	11,288
Shares in non-consolidated subsidiaries	3,240	0	3,721	0
Total	4,805	10,550	7,124	11,288

The additional other non-current assets contain receivables from derivatives and other non-current financial assets The derivatives are presented in item 37 under "Other disclosures." The item also contains a loan receivable from BAUER Nimr LLC in the amount of EUR 10,874 thousand (previous year: EUR 10,550 thousand). As in the previous year, the other non-current financial assets were neither impaired nor overdue in the year under review. Non-consolidated subsidiaries do not include non-listed companies for which there is no active market. They are recognized as acquisitions costs. There were no disposals of non-listed companies in the year under review nor in the previous year. Depreciation totaled EUR 905 thousand (previous year: EUR 162 thousand) during the financial year.

2016

CURRENT ASSETS

23. INVENTORIES

The inventories comprise the following items:

in EUR '000	Dec. 31, 2015	Dec. 31, 2016
Raw materials and supplies	155,718	151,489
Finished goods and work in progress and stock for trade	288,911	295,837
Total	444,629	447,326

Of the inventories, EUR 138,887 thousand (previous year: EUR 144,066 thousand) are stated at net realizable value. The impairment losses on inventories against the net realizable value affecting net expenditure in the financial year totaled EUR 25,116 thousand (previous year: EUR 25,344 thousand).

They are divided up as follows:

in EUR '000	Dec. 31, 2015	Dec. 31, 2016
Write-downs of inventories due to use	13,195	15,532
Impairment losses on inventories	12,149	9.584
Total	25,344	25.116

The rate of hire during the financial year was higher than in the previous year. Write-downs of used machinery due to use therefore increased from EUR 13,195 thousand to EUR 15,532 thousand. Inventory decreased at the end of the financial year due to the sale of leased machines to consumers.

The impairment losses on inventories include both impairment losses on new and used machinery (stated under "Changes in inventories") and on warehouse inventories (stated under "Cost of materials"). Most of the impairment losses relate to the machinery which was not hired out, and are attributable to the Equipment segment. The impairments were applied on the basis of the recoverable amount. This regularly corresponded to the fair value less cost to sell. This method is part of level 1 of the fair value hierarchy stated in IFRS 13.

The finished goods and stock for trade include machinery and accessories produced internally by the Equipment segment and intended primarily for sale.

We differentiate essentially between two forms of machinery and accessories (referred to in the following as "machinery"):

New machines

These are machines manufactured in the financial year or in earlier years which are available for sale but have not yet been hired out. These machines are valued at manufacturing cost or at the lower net realizable value on the balance sheet date.

Used machines

Used machines are machines which are primarily up for sale and which have been temporarily hired out as a secondary sales promotion measure during the financial year or in earlier years. New machines automatically become used machines the first time they are hired out.

When hiring out machinery, the net realizable value is determined from the manufacturing cost less the write-downs due to use and impairment losses on inventories.

In the case of a new machine, or a used machine which has not been hired out, the reduction in value against the net realizable value is recognized by means of an impairment loss.

The sale and hire of machinery relates solely to the Equipment segment.

The following chart sets out the carrying amount before impairment of the used machinery and accessories along with the rate of hire status on the balance sheet date:

in EUR '000	Dec. 31, 2015	Dec. 31, 2016
Carrying amount of used machines *	62,706	44,252
of which hired out	33,150	21,409
of which not hired out	29,556	22,843

* The prior-year fi gures have been adjusted since two major companies specifi ed acquisition costs instead of carrying amounts for 2015

In the financial year, apart from the usual retentions of title, inventories totaling EUR 0 thousand (previous year: EUR 460 thousand) with terms up until the year 2016 were provided as security for loans. The securities provided can only be claimed by the lending banks in the event of definitive failure to fulfill contractual obligations, such as defaulting on interest and loan payments or failure to meet agreed financial targets. No claims on securities provided are foreseeable.

24. RECEIVABLES AND OTHER ASSETS

Construction contracts

The construction contracts measured according to the percentage of completion method developed as follows:

in EUR '000	Dec. 31, 2015	Dec. 31, 2016
Contract costs incurred (plus profits, less losses) for projects not yet completed	783,992	855,139
less down-payments	704,396	763,286
Balance	79,596	91,853
of which: Receivables from construction contracts (PoC)	129,478	154,802
of which: Liabilities from construction contracts (PoC)	49,882	62,949

Development of receivables and other assets

The receivables and other assets comprise the following:

in EUR '000	Dec. 31, 2015	Dec. 31, 2016
Receivables from construction contracts (PoC)	129,478	154,802
Trade receivables	343,933	339,993
Receivables from enterprises in which the company has participating interests	3,272	6,473
Payments on account	5,364	3,870
Other current assets	33,381	30,574
Other current financial assets	28,901	18,364
Total	544,329	554,076

The "Trade receivables" balance sheet item includes long-term receivables totaling EUR 5,942 thousand (previous year: EUR 8,845 thousand).

The following table presents the changes in valuation allowances to current receivables:

in EUR '000	Dec. 31, 2015 *	Dec. 31, 2016
Valuation allowance at start of financial year	9,671	14,510
Change in basis of consolidation	0	858
Currency adjustment	576	40
Allocation	10,764	9,886
Reversal	4,883	8,156
Consumption	1,618	5,117
Valuation allowance at end of financial year	14,510	12,020

* Previous year fi gures adjusted; correction valuation allowance of the construction segment

The valuation allowance for doubtful trade receivables of EUR 12,020 thousand (previous year: EUR 14,510 thousand) was calculated taking into account individual risks and on the basis of past experience in relation to payment default. Value adjustments were applied in respect of individual claims as well as on a portfolio flat-rate basis. The individual value adjustments were translated into flat-rate percentages spread across the age structure of the receivables. The determination of valuation allowances for uncertain receivables primarily bases on estimates and evaluations of individual claims, incorporating considerations of the creditworthiness and late-payment record of the customer concerned as well as current economic trends and historical experience in relation to default.

No receivables from construction contracts were impaired in the financial year (previous year: none).

The following table presents an analysis of the due dates of gross carrying amounts of trade receivables:

in EUR '000	Carrying amount Dec. 31, 2015	Carrying amount Dec. 31, 2016
Trade receivables (gross carrying amount)	358,443	352,013
Valuation allowance in respect of trade receivables	14,510	12,020
Trade receivables (net carrying amount) of which neither impaired nor overdue at closing date of which not impaired at closing date and overdue in the following time bands:	343,933 4,198 120,009	339,993 13,484 106,832
- less than 30 days	39,841	30,539
- between 30 and 60 days	11,737	8,116
- between 60 and 90 days	4,273	5,595
- more than 90 days	64,158	62,582

The above table includes trade receivables as well as receivables from joint ventures. With regard to the trade receivables which were neither impaired nor delayed in payment, there were no indications at the balance sheet date that the debtors concerned will not fulfill their payment obligations. Credit ratings are derived from an active system of claims management with reference to the relevant credit history and from continuous monitoring of the creditworthiness of our customers based on information obtained from both internal and external sources. Other current assets were neither impaired nor overdue in the year under review. Other current assets mainly comprise miscellaneous tax refund claims and claims against employees and against welfare benefit funds as well as accrued interest and insurance premiums and other prepayments and deferred charges.

A total of EUR 87 thousand (previous year: EUR 83 thousand) monetary assets were deposited as collateral for potential future warranties for construction activities. The current portion of the receivables from foreign exchange forward contracts included in the current financial assets in the financial year totaled EUR 661 thousand (previous year: EUR 2,853 thousand).

In financial year 2016, total impairments amounted to EUR 25,774 thousand (previous year: EUR 14,356 thousand). Contained in this are EUR 15,888 thousand (previous year: EUR 3,592 thousand) of impairments for uncollectable receivables.

25. CASH AND CASH EQUIVALENTS

The cash and cash equivalents totaling EUR 33,463 thousand (previous year: EUR 47,406 thousand) include credit balances at banks and petty cash stocks.

26. ASSETS CLARIFIED FOR SALE

Assets held for sale amounted to EUR 19,608 thousand as of December 31, 2016 (previous year: 0). These include technical equipment and machinery that are allocated to the Resources segment as well as accessories that can no longer be used for future orders in the oil and gas sector. The sale is expected to be completed in the first half of 2017. The reclassification of technical equipment and machinery to assets held for sale did not have any impact on the net assets, financial position or earnings position.

27. SHAREHOLDERS' EQUITY

The shareholder structure of BAUER AG is as follows:

in EUR '000	Dec. 31, 2015			Dec. 31, 2016
	%	EUR '000	%	EUR '000
Bauer family	48.19	35,182	48.19	35,182
Free float	51.81	37,819	51.81	37,819
Total	100.00	73,001	100.00	73,001

Please refer to the Notes to the Financial Statements of BAUER AG (published in the Federal Gazette (Bundesanzeiger)) on December 31, 2016 for reports on the participations in BAUER AG.

Composition of subscribed capital

The subscribed capital (share capital) of BAUER AG amounts to EUR 73,001,420.45 and is divided into 17,131,000 no-nominalvalue bearer shares, representing a pro-rata amount of approximately EUR 4.26 per share of the total share capital. The shares have no nominal value. Each share entails equal rights, and entitles the holder to one vote at the Annual General Meeting, with the exception of share categories precluded from voting by law pursuant to section 136 of the German Stock Corporation Act (AktG) and section 28 of the German Securities Trading Act (WpHG).

As in the previous year, 51.81 % of the shares were in free float. The members of the Bauer family and a charitable foundation own a total of 8,256,246 no-nominal-value shares in BAUER AG on the basis of a pool agreement, representing a 48.19 % share in the company. The pool agreement provisions include binding voting commitments as well as a right of pre-emption of pool participants if any member of the pool sells shares to third parties. No other direct or indirect holdings of BAUER AG share capital exceeding 10 % of the voting rights are known to the company.

None of the shareholders have special rights entailing controlling powers. Nor does any voting rights control exist on the part of the employees holding shares in the capital.

2016

Authority of the Management Board to issue or buy back shares

Section 4, subsection 4 of the company's Articles of Association authorizes the Management Board, with the consent of the Supervisory Board, to increase the share capital once or more than once up to June 22, 2021 by up to a total of EUR 7.3 million by the issue of no-nominal-value shares against cash and/or non-cash contributions. To that end, the Management Board is authorized, with the consent of the Supervisory Board, to exclude the legal subscription rights of shareholders in the following cases:

• in the case of capital increases in return for non-cash contributions, particularly for the purpose of acquiring companies, parts of companies, investments in companies and other assets or claims for the acquisition of assets, including receivables from companies or their group companies, or for the purpose of company mergers;
• in the event of capital increases against cash contributions where the issue amount of the new shares issued is not materially below the market price of the already quoted shares at the time of definitive setting of the issue price and the shares issued excluding shareholders' subscription rights pursuant to section 186, subsection 3, clause 4 AktG do not in total exceed 10 % of the existing share capital either at the time this authority takes effect or at the time of exercising this authority. Shares which have been or are to be sold or issued in direct or corresponding application of section 186, subsection 3, clause 4 AktG while this authority is in place until such time as it is exercised, pursuant to other
• authorities, excluding subscription rights, are to be set off against the said 10 % limit; • to compensate fractional amounts resulting during capital increases in return for cash and/or non-cash contributions due to
• the subscription ratio,
• to implement so-called scrip dividends where shareholders are offered an option to pay in their dividend entitlement (in full or part thereof) as non-cash contribution in return for the issuance of new shares from the approved capital 2016.

The Supervisory Board is authorized to amend Article 4 of the Articles of Association accordingly following complete or partial execution of the increase in share capital or on expiration of the period of authority.

By resolution of the Ordinary Annual General Meeting held on June 26, 2014, the company was authorized to acquire treasury stock, over a limited period up to June 25, 2019, representing up to a total of 10 % of the company's share capital at the time the resolution was passed. The shares shall be acquired at the discretion of the Management Board by means of a public tender offer or by way of the stock market. If the acquisition is effected by way of the stock market, the acquisition price (excluding ancillary costs) may be no more than 10 % above or 20 % below the price determined by the opening auction on the trading day for shares in the company in Xetra trading (or a comparable successor system) on the Frankfurt Stock Exchange. that if the acquisition is effected by means of a public tender offer, the purchase price or the limits of the purchase price span per share (excluding ancillary costs) may be no more than 10 % above or 20 % below the average of the closing prices per share in the company in Xetra trading (or a comparable successor system) on the Frankfurt Stock Exchange on the three trading days prior to the day of issue of the public tender offer. If not insignificant variations of the decisive share price occur after the day of issue of the public tender offer, the purchase price may be adjusted.

The Management Board shall be authorized to appropriate shares in the company acquired pursuant to the above authorizations for all legally admissible purposes. Consequently, the acquired shares may also in particular be sold by means other than by way of the stock market or by means of an offer to the shareholders, if the shares are sold for cash at a price (excluding ancillary costs) not materially below the stock market price of shares of the company carrying the same rights at the time of the sale in Xetra trading (or a comparable successor system). The shares may also be transferred to third parties, provided this is done for the purpose of acquiring companies, parts in companies or investments in companies or other assets or effecting company mergers.

The aforementioned shares may be withdrawn without need of a further resolution by the Annual General Meeting. With regard to use of the bought-back shares, the authorization provides, in specific cases, for legal rights of subscription of shareholders to be excluded. The facility to acquire treasury stock has not been utilized to date.

The remaining equity of the BAUER Group developed as follows:

in EUR '000	Dec. 31, 2015	Dec. 31, 2016
I. Capital reserve	38,404	38,404
II. Other revenue reserves and unappropriated net profit	327,437	318,462
	365,841	356,866
III. Non-controlling interests	12,368	4,264
Total	378,209	361,130

In the financial year a dividend of EUR 0.15 (previous year: EUR 0.15) per share was paid to the shareholders.

Capital reserve

The capital reserve essentially comprises amounts that exceeded the book value of the nominal value when shares were issued, as well as expenses for the issue of shares.

Other revenue reserves and unappropriated net profit

Other revenue reserves and unappropriated net profit include past earnings of the companies included in the consolidated financial statements, insofar as they were not distributed. In addition, revaluations of liabilities from benefits to employees after termination of employment totaling EUR -66,042 thousand (previous year: EUR -53,311 thousand) and related deferred taxes with no effect on profit and loss totaling EUR 18,568 thousand (previous year: EUR 14,964 thousand) were recognized in Revenue reserves.

This line item also includes cumulative differences from the translation of financial statements for foreign subsidiaries with no effect on profit and loss totaling EUR 3,962 thousand (previous year: EUR 10,909 thousand) and cumulative gains from the switch to IFRS of EUR 10,387 thousand (previous year: EUR 10,387 thousand).

This line item also includes the cumulative effects of the valuation of derivative financial instruments not affecting profit and loss (reserves from hedging transactions) totaling EUR -1,922 thousand (previous year: EUR -1,224 thousand). The hedging transactions reserve includes the effective portion of the changes in the value of derivatives that were designated in a cash flow hedge.

27.1 Non-controlling interests

a) Details on the not wholly owned subsidiaries in which material non-controlling interests are held

These are the material non-controlling interests of BAUER Group:

in EUR '000			Dec. 31, 2015		Dec. 31, 2016
Group company	Non-controlling interests	Share holding in %	Sharehold ing in EUR '000	Profit/loss attributable in EUR '000	Share holding in %	Sharehold ing in EUR '000	Profit/loss attributable in EUR '000
BAUER EGYPT S.A.E., Cairo, Egypt	Various natural persons	44.25	13,068	2,584	44.25	7,312	3,371
BAUER Casings Makina Sanayi ve Ticaret Limited Sirketi, Ankara, Turkey	Emiroglu Makina	40.00	1,278	303	40.00	1,328	358
Site Group for Services and Well Drilling Ltd. Co., Amman, Jordan	Oweis family	16.67	-7,218	-2,376	16.67	-8,693	-1,412
Individual immaterial subsidiaries with non-controlling interests			5,240	-1,234		4,317	795
Total			12,368	-723		4,264	3,112

The previous year's financial statements separately stated BAUER Maschinen GmbH, BAUER-DE WET EQUIPMENT (PROPRIETARY) LIMITED and PRAKLA Bohrtechnik GmbH with a share in capital of EUR 1,010 thousand and a share in earnings of EUR -1,410 thousand.

Below is the summarized financial information for each Group company with material non-controlling interests corresponding to the amounts before Group-internal elimination:

BALANCE SHEET	BAUER Casings			BAUER EGYPT S.A.E.	Site Group
in EUR '000			Dec. 31, 2015 Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2016
Non-current assets	578	2,321	8,431	5,258	21,502	18,605
Current assets	3,078	3,516	31,267	18,794	73,318	82,733
Non-current liabilities	59	1,840	136	375	0	0
Current liabilities	401	670	10,031	6,948	96,225	103,249

INCOME STATEMENT BAUER Casings			BAUER EGYPT S.A.E.	Site Group
in EUR '000	2015	2016	2015	2016	2015	2016
Sales revenues	4,264	4,864	37,182	41,898	10,377	30,218
Earnings before interest and tax	949	1,189	7,291	9,963	-9,162	-2,174
Earnings before tax	950	1,120	8,075	10,759	-14,465	-8,032
Earnings after tax	759	895	5,841	7,618	-14,664	-8,486
Profit/loss attributable to non-controlling interests	303	358	2,584	3,371	-2,376	-1,412
Profit/loss attributable to shareholders of BAUER AG	456	537	3,257	4,247	-12,288	-7,074
Dividends distributed to non-controlling interest	-87	-86	-446	-518	0	0

CASH FLOW STATEMENT	BAUER Casings		BAUER EGYPT S.A.E.		Site Group
in EUR '000	2015 2016 2015 2016		2015	2016
Cash flow from operating activities	394	273	3,108	4,187	-25,176	-82
Cash flow from investing activities	-155	-1,949	-7,429	-2,861	42,164	7,086
Cash flow from financing activities	-343	1,651	-194	274	-16,170	-7,798
Influence of exchange rate movements on cash	-27	-17	387	-8,855	42	37
Changes in cash and cash equivalents with an effect on liquidity	-131	-42	-4,128	-7,255	860	-757

b) Changes in shareholdings in the Group's subsidiaries

On December 12, 2016, BAUER Maschinen GmbH purchased the remaining 10 % of the shares in PRAKLA Bohrtechnik GmbH. As a result, the shares of BAUER Maschinen GmbH in PRAKLA Bohrtechnik GmbH are 100 %. Shares with a value of EUR 400 thousand (share in the carrying amount of the net assets of PRAKLA Bohrtechnik GmbH) were transferred to BAUER Maschinen GmbH in the process. The transferred shares were included in Revenue reserves (after being offset with the amount by which the non-controlling interests were adjusted) in the amount of EUR 69 thousand. On December 20, 2016, BAUER Maschinen GmbH surrendered and transferred 85 % of its shares in KLEMM Bohrtechnik GmbH to PRAKLA Bohrtechnik GmbH by means of a capital increase against non-cash contributions. BAUER Maschinen GmbH has retained 15 % of the shares in KLEMM Bohrtechnik GmbH.

As of August 24, 2016, BAUER Aktiengesellschaft acquired the remaining 1 % of the shares in BAUER Maschinen GmbH, BAUER Spezialtiefbau GmbH, BAUER Resources GmbH, SCHACHTBAU NORDHAUSEN GmbH and SPESA Spezialbau und Sanierung GmbH from BAUER Anteilspool GbR or BAUER Handelsgesellschaft. This means that BAUER Aktiengesellschaft holds a 100 % share in each of these companies as of August 24, 2016. Shares with a value of EUR 2,565 thousand (share in the carrying amount of the net assets of the aforementioned companies) were transferred to BAUER Aktiengesellschaft in the process. The transferred shares were included in Revenue reserves (after being offset with the amount by which the non-controlling interests were adjusted) in the amount of EUR 249 thousand.

27.2 Additional disclosures regarding capital management

The object of Bauer's capital management is to safeguard a strong financial profile. In particular, it aims to provide shareholders with appropriate dividend payments and to safeguard servicing of capital on behalf of lenders. We also aim to provide ourselves with adequate financial resources to sustain our growth strategy. The risk profile is actively managed and monitored. This is focused primarily on key indicators such as the equity ratio, net debt and net result for the period for the period.

in EUR '000	Dec. 31, 2015	Dec. 31, 2016
Equity	451,210	434,131
Equity ratio	27.23 %	25.52 %
Earnings after tax	28,992	14,414
Net debt	664,988	676,898
Financial indebtedness	712,394	710,361
Liquid funds	47,406	33,463
Net debt / EBITDA	3.59	4.27
EBITDA / net interest coverage	4.99	4.24

The key indicators are presented below:

Financial liabilities include long-term and short-term liabilities to banks, liabilities from finance lease agreements and other financial liabilities. Net interest coverage includes the financial result, adjusted for income from operating investments. As part of the capital management strategy covering the subsidiaries of the BAUER Group, it is ensured that member companies are provided with an equity base in line with local requirements. Our aim in doing this is to provide the necessary flexibility in terms of finance and liquidity. As of December 31, 2016, BAUER AG did not meet the agreed Net Debt / EBITDA ratio for major loan agreements. As a result, some liability items could have become due under the terms of the contract and are reported independently of the original contract period under current liabilities to credit institutions. The reclassification amounted to EUR 180,375 thousand as of the reporting date. An amicable solution has already been found with all relevant financial partners for all of the affected loans. At the end of the first quater 2017 the liabilities will be recognized as non-current again. Please see the disclosures in the Group management report.

NON-CURRENT LIABILITIES

28. NON-CURRENT DEBT

The non-current portions of the liabilities comprise the following:

Remaining term Dec. 31, 2015			Remaining term Dec. 31, 2016
1 to 5 years	over 5 years	1 to 5 years	over 5 years
363,166	13,462	164,286	12,468
12,652	0	19,127	0
7,262	0	7,556	0
4,414	0	3,983	0
387,494	13,462	194,952	12,468

in EUR '000	Fair value		Interest rate margin
	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016
Liabilities to banks	384,999	228,690	0.50 - 11.2 %	0.50 - 11.2 %
Liabilities from finance lease agreements	12,652	19,127	1.43 - 7.50 %	1.17 - 7.75 %
Other non-current financial liabilities	4,409	3,983	3.5 - 12.5 %	3.97 - 7.93 %
Total	402,060	251,800	-	-

The other non-current debt include non-current portions of liabilities from obligations in respect of service anniversary payments and liabilities from continuing involvements.

Other non-current financial liabilities mainly include the market value of the derivatives as well as other liabilities to financing companies (see notes to the financial instruments in item 37).

29. PROVISIONS FOR PENSIONS

The BAUER Group operates a number of provisions for pensions in Germany and internationally. The provisions for pensions of the companies in Schrobenhausen recognized on the consolidated balance sheet cover most (96 %) of the balance sheet value. Those companies are governed by the occupational pension scheme of Bauer Spezialtiefbau GmbH constituted on July 1, 1992 as amended by the in-company agreement dated November 18, 1998. In it, the company grants all employees who joined by March 31, 1998 and their surviving dependents a retirement pension and invalidity benefit as well as a widow's/ widower's pension. Employees qualify for the retirement pension on reaching the standard retirement age, or on prior qualification for a pension from the statutory pension fund. The pension payable amounts to 0.225 % of the employee's pensionable earnings

for each pensionable year of service, plus 0.075 % of pensionable earnings for each pensionable year of service completed before January 1, 1999; plus, for the portion of pensionable earnings above the contribution assessment limit in the statutory pension fund, 0.375 % plus 0.125 % for each pensionable year of service completed before January 1, 1999. In the case of scheme members who are not members of the Zusatzversorgungskasse des Baugewerbes (construction industry ancillary benefits fund): For each pensionable year of service, 0.3 % of the employee's pensionable earnings plus 0.1 % of pensionable earnings for each pensionable year of service completed before January 1, 1999; plus, for the portion of pensionable earnings above the contribution assessment limit in the statutory pension fund, 0.3 % plus 0.1 % for each year of service completed before January 1, 1999.

The widow's/widower's pension amounts to 50 % of the attained entitlement. Benefits are also promised to surviving dependent children in various forms. Vesting and transitional arrangements are also in place. The risks entailed by the pension schemes are mainly those commonly associated with provisions for pensions in terms of potential variations in the discount interest rate and, to a lesser extent, inflation trends as well as longevity.

The calculations are based on the following actuarial assumptions:

in %	Dec. 31, 2015
	Germany	Indonesia	Philippines	Taiwan
Interest rate	2.35	6.00	5.03	1.63
Future salary increases	3.00	10.00	5.00	3.00
Future pension increases	2.00	-	-	-

in %	Dec. 31, 2016
	Germany	Indonesia	Philippines	Taiwan
Interest rate	1.80	8.30	5.03	1.13
Future salary increases	3.00	10.00	5.00	3.00
Future pension increases	2.00	-	-	-

Provisions for pensions in Germany are calculated biometrically applying the 2005 G Graduated Life Tables compiled by Professor Dr. Heubeck. The interest rate applied for discounting the future payment obligations is always determined on the basis of the return on top company bonds. Outside of Germany, the underlying biometric probability of death is based on published national statistics and empirical data.

The provision for pensions and similar obligations recognized in the balance sheet is calculated as follows:

in EUR '000	Dec. 31, 2015	Dec. 31, 2016
Present value of commitments financed by a fund	3,930	4,535
Fair value of plan assets	-751	-931
Plan deficit	3,179	3,604
Present value of commitments not financed by a fund	111,346	125,984
Total deficit of define benefit plan commitments	114,525	129,588
Effect of asset ceiling	-	-
Recognized provision	114,525	129,588

Our customer Costruzioni Generali Xodo used a BG 39 during the remediation project for the train station building in Cortina d'Ampezzo, Italy. Piles up to 1,000 mm in diameter were drilled up to a depth of 41 m.

The defined benefit obligation and the plan assets developed as follows in the previous year:

in EUR '000	Present value of commitment	Fair value of plan assets	Total	Effect of asset ceiling	Total
Date: Jan 1, 2015	119,161	-657	118,504	-	118,504
Current service costs	2,838	-	2,838	-	2,838
Interest expense/income	2,429	-37	2,392	-	2,392
Post-employment expenditure, gains and losses from payment in lieu	-	-	-	-	-
Total	124,428	-694	123,734	-	123,734
Revaluation:
Income from plan assets excluding amounts contained in the above interest	-	39	39	-	39
Actuarial gains and losses arising from adjustments to demographic assumptions	-	-	-	-	-
Actuarial gains and losses arising from adjustments to financial assumptions	-8,267	-	-8,267	-	-8,267
Empirical value-based adjustments	1,686	-	1,686	-	1,686
Changes in the effect of limitation of a defined benefit plan on the asset ceiling, excluding amounts contained in the interest	-	-	-	-	-
Total	-6,581	39	-6,542	-	-6,542
Exchange rate movements	30	-6	24	-	24
Contributions:
Employer	-	-90	-90	-	-90
Beneficiary employee	-	-	-	-	-
Payments from the plan:
Ongoing payments	-	-	-	-	-
Benefits (not fund-financed)	-2,292	-	-2,292	-	-2,292
Other effects	-309	-	-309	-	-309
Date: Dec. 31, 2015	115,276	-751	114,525	-	114,525

The defined benefit obligation and the plan assets developed as follows during the financial year:

in EUR '000	Present value of commitment	Fair value of plan assets	Total	Effect of asset ceiling	Total
Date: Jan 1, 2016	115,276	-751	114,525	-	114,525
Current service costs	2,531	-	2,531	-	2,531
Interest expense/income	2,781	-49	2,732	-	2,732
Post-employment expenditure, gains and losses from payment in lieu	-	-	-	-	-
Total	120,588	-800	119,788	-	119,788
Revaluation:
Income from plan assets excluding amounts contained in the above interest	-	2	2	-	2
Actuarial gains and losses arising from adjustments to demographic assumptions	-	-	-	-	-
Actuarial gains and losses arising from adjustments to financial assumptions	12,919	-	12,919	-	12,919
Empirical value-based adjustments	-648	-	-648	-	-648
Changes in the effect of limitation of a defined benefit plan on the asset ceiling, excluding amounts contained in the interest	-	-	-	-	-
Total	12,271	2	12,273	-	12,273
Exchange rate movements	101	-31	70	-	70
Contributions:
Employer	-	-102	-102	-	-102
Beneficiary employee	-	-	-	-	-
Payments from the plan:
Ongoing payments	-	-	-	-	-
Benefits (not fund-financed)	-2,441	-	-2,441	-	-2,441
Other effects	-	-	-	-	-
Date: December 31, 2016	130,519	-931	129,588	-	129,588

The fair value of the plan assets can be allocated to the following categories:

in EUR '000	Dec. 31, 2015	Dec. 31, 2016
Qualifying insurance contracts	246	255
Money market fund and pension fund	466	633
Cash and cash equivalents	39	43
Total	751	931

No market price quotations exist for the qualifying insurance contracts.

The key actuarial assumptions applied in determining the defined benefit plan commitment are the discount interest rate, expected salary increases and expected pension increases.

The sensitivity of the overall pension commitment to variations in the weighted primary assumptions is:

in EUR '000		Effect on commitment
	Variation in assumption	Increase in assumption	Decrease in assumption
Discount interest rate	+/- 0.5 %	118,082	143,532
Future salary increases	+/- 0.5 %	133,233	126,764
Future pension increase	+/- 0.5 %	138,617	121,175
		Increase in assumption by 1 year	Decrease in assumption by 1 year

Probability of death	136,796	124,128

The above sensitivity analysis is based on a variation in one assumption while all other assumptions remain constant. It is unlikely that this will occur in reality, and variations in some assumptions may correlate. The sensitivity for life expectancy is reached using general (age-independent) factors for a reference person with a life expectancy of one year higher or one year lower. In calculating the sensitivity of the defined benefit plan commitment to variations in actuarial assumptions, the same method was applied as that used to measure the provisions for pensions on the balance sheet. The present value of the defined benefit plan commitments was calculated by the Projected Unit Credit method as at the end of the reporting period.

The methods and categories of assumption applied in preparing the sensitivity analysis have not changed relative to the prior period. The defined benefit plan commitments and plan assets by country are as follows:

in EUR '000	Dec. 31, 2015
	Germany	Indonesia	Philippines	Taiwan	Total
Present value of commitments	113,724	1,079	269	204	115,276
Fair value of plan assets	-246	-466	0	-39	-751
Total	113,478	613	269	165	114,525
Effect of asset ceiling	-	-	-	-	-
Total	113,478	613	269	165	114,525

in EUR '000		Dec. 31, 2016
	Germany	Indonesia	Philippines	Taiwan	Total
Present value of commitments	128,627	1,465	302	125	130,519
Fair value of plan assets	-255	-633	0	-43	-931
Total	128,372	832	302	82	129,588
Effect of asset ceiling	-	-	-	-	-
Total	128,372	832	302	82	129,588

The present value of the defined benefit plan commitment is distributed as follows among the plan members:

in EUR '000	Dec. 31, 2015	Dec. 31, 2016
Active scheme members	71,423	79,563
Deferred beneficiaries	6,365	7,538
Retired employees	37,488	43,418
Total	115,276	130,519

The weighted average term of the provisions for pensions is 19.84 years (previous year: 19.44 years).

Pension payment in financial year 2017 are expected to amount to EUR 2,765 thousand (previous year: EUR 2,518 thousand). Of that total, EUR 2,765 thousand (previous year: EUR 2,518 thousand) is projected to be contributed by the employer. Contributions to the external plan assets totaling EUR 109 thousand (previous year: EUR 90 thousand) are expected for 2017.

The following table provides an overview of the due dates of the undiscounted pension payments:

in EUR '000	under 1 year	1 to 5 years	6 to 10 years	Dec. 31, 2016 Total
Pension payments	2,765	13,193	20,398	36,356

CURRENT DEBT

30. CURRENT DEBT

in EUR '000	Dec. 31, 2015	Dec. 31, 2016
Liabilities to banks	297,677	479,746
Liabilities from finance lease agreements	8,945	10,460
Advances received for orders	10,392	13,893
Liabilities from construction contracts (PoC)	49,882	62,949
Trade payables	184,991	202,913
Liabilities to enterprises in which the company has participating interests	1,017	2,449
Other current liabilities	71,503	88,696
Other current financial liabilities	12,078	20,291
Total	636,485	881,397

The "Trade payables" balance sheet item includes long-term payables totaling EUR 1,204 thousand (previous year: EUR 791 thousand).

The other current debt mainly comprise obligations in respect of outstanding invoices, flexitime and holiday credits, employer's liability insurance associations, the compensation levy for the shortfall in handicapped employees, performance bonuses as well as other tax liabilities and liabilities in respect of social security.

The other current financial liabilities mainly comprise obligations to leasing and finance companies. The fair values virtually match the carrying amounts. The interest rate margin on current debt to banks is 0.5 to 11.89 % (previous year: 0.75 to 11.20 %).

31. OTHER PROVISIONS

The other provisions have developed as follows in the financial year:

in EUR '000	Dec. 31, 2015	Dec. 31, 2016
Date: Jan. 1	15,880	16,113
Change in basis of consolidation	0	0
Currency adjustment	185	40
Allocation	5,114	4,856
Reversal	3,127	3,194
Consumption	1,939	2,442
Date: Dec. 31	16,113	15,373

The other provisions comprise the following:

in EUR '000	Dec. 31, 2015	Dec. 31, 2016
Risk from contract processing and warranties	14,763	14,375
Litigation	1,350	998
Total	16,113	15,373

The provisions for risk from contract processing and warranties include all risks arising from carrying out specialist foundation engineering work and from the sale of machinery, equipment and tools for specialist foundation engineering, with the associated services. These primarily relate to warranty obligations and to other uncertain commitments. The risk from contract processing and warranties is determined specific to project/construction site.

The provisions for risks arising from contract processing and warranties and provisions for litigation are predicted to be used up during 2017. The provisions for litigation relate for the most part to provisions for legal disputes on supplementary receivables.

32. CONTINGENT LIABILITIES

Contingent liabilities are liabilities not yet recognized in the financial statements, which are recognized in the amount of the maximum possible exposure on the balance sheet date.

in EUR '000	Dec. 31, 2015	Dec. 31, 2016
Liabilities from guarantees	112,035	52,428

In the construction industry, it is common and essential practice to issue various guarantees to secure obligations arising from construction contracts. These guarantees are usually issued by banks or credit insurance companies (guarantors), and essentially guarantee quotations, contract performance, prepayments and warranty commitments. In the event of a guarantee being given, the guarantors have a right of recourse against the Group. A risk of a guarantee being implemented exists only when the underlying contractual obligations are not duly met.

The contingent liabilities were mainly in relation to the securing of contract performance, to warranty obligations and to advance payments. Liabilities from guarantees exist to third parties. In addition, we are subject to joint and several liability in respect of all joint ventures in which we participate.

Maturities of payments for liabilities are not expected.

33. OTHER FINANCIAL OBLIGATIONS

in EUR '000	Remaining term
	under 1 year 1 to 5 years			over 5 years
	Dec. 31, 2015	Dec. 31, 2015	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016
Minimum lease payments from operating leases	9,784	8,990	12,636	10,824	303	1,313
Other financial obligations	13,385	9,481	7,225	5,539	6,435	4,026

The operating leases relate mainly to mutual agreements about factory and office equipment, as well as to technical equipment and machinery which were added in the financial year and are classified as operating leases. The BAUER Group is committed to rental agreements of unlimited term totaling monthly EUR 506 thousand (previous year: EUR 1,342 thousand). The other financial obligations mainly include limited-term property rentals and leases.

34. DISCONTINUED OPERATIONS

There are no plans to discontinue business operations under the terms of IFRS 5.

35. EVENTS AFTER THE BALANCE SHEET DATE

As of December 31, 2016, BAUER AG did not meet the agreed Net Debt / EBITDA ratio for major loan agreements. As a result, some liability items could have become due under the terms of the contract and are reported independently of the original contract period under current liabilities to credit institutions. The reclassification amounted to EUR 180,375 thousand as of the reporting date. An amicable solution has already been found with all relevant financial partners for all of the affected loans. At the end of the first quater 2017 the liabilities will be recognized as non-current again. In addition, no events subject to mandatory reporting in accordance with IAS 10 or DRS 20 occurred after December 31, 2016.

OTHER DISCLOSURES

36. CASH FLOW STATEMENT

The funds shown in the cash flow statement comprise only the cash and cash equivalents stated on the balance sheet. The cash flow statement details payment flows, broken down by inflow and outflow of funds from operating activities and from investing and financing activities.

The cash flow from operating activities is derived indirectly from the earnings before tax. The pre-tax profit is adjusted by non-cash transactions. The cash flow from operating activities is produced taking account of the changes in working capital. Investing activities include additions to property, plant and equipment and to financial assets and intangible assets, as well as income from the sale of assets. Financing activities include outflows of cash and cash equivalents arising from dividend payments as well as the change in other financial indebtedness.

The changes in balance sheet items applied for the preparation of the cash flow statement are not directly derivable from the balance sheet, as the effects of currency translation and changes in the basis of consolidation, as well as the allocation and elimination of value adjustments on trade receivables, do not affect payments and are stripped out.

37. FINANCIAL INSTRUMENTS

In its business operations and financing activities the BAUER Group is subject in particular to fluctuations in exchange rates and interest rates. It is the company's policy to exclude, or at least limit, these risks by entering into hedge transactions. All hedging measures are controlled and executed centrally by BAUER AG. Application of the segregation-of-duties approach ensures that there is an adequate split between the trading and execution functions. The segregation-of-duties approach is implemented by spreading functions across the Management Board (financial reporting) and the corporate departments (operational handling). All derivatives transactions are entered into only with banks of the highest possible credit rating.

MARKET RISKS

Foreign exchange rate risks

Foreign exchange rate risks under the terms of IFRS 7 are created by financial instruments which are denominated in a currency different to the functional currency and are of a monetary nature. Exchange rate-related differences when converting financial statements into the Group currency are ignored. All non-functional currencies in which the BAUER Group enters into financial instruments are classed, as a matter of principle, as relevant risk variables.

The existing foreign exchange forward contracts and cross-currency swaps safeguard our currency hedging strategy. Within the BAUER Group, the primary monetary financial instruments are either denominated directly in functional currency or are largely transferred into the functional currency by means of derivatives. In view of the usually short-term maturity of the instruments too, possible changes in exchange rates have only very minor effects on earnings or equity.

For the purposes of sensitivity analysis, foreign exchange rate risks arising from monetary financial instruments which were not concluded in the functional currencies of the individual member companies of the BAUER Group are included in the analysis.

Quantification of foreign exchange risk in case of exchange rate shifts of +/- 10 %:

in EUR '000 on Dec. 31, 2015	USD	AUD	CAD
Overall effect of +10% on OCI	12,375	321	0
Overall effect of -10% on OCI	-15,123	-392	0
Overall effect of +10% on income statement	2,632	0	-88
Overall effect of -10% on income statement	-3,373	0	107

in EUR '000 on Dec. 31, 2016	USD	AUD	CAD
Overall effect of +10% on OCI	11,669	633	0
Overall effect of -10% on OCI	-13,803	-759	0
Overall effect of +10% on income statement	2,436	0	-688
Overall effect of -10% on income statement	-2,916	0	840

The sensitivity effects in 2016 primarily related to the US dollar, Australian dollar and Canadian dollar. The Russian ruble was no longer listed due to insignificant sensitivity effects. No concentrations of risk exist.

Interest rate risks

The interest rate risk of the Group is based on financial liabilities with floating interest rates (as well as the short-term credit line). The existing interest rate swaps serve to safeguard our financing and interest rate hedging strategy. Agreements exist in respect of swaps from variable to fixed interest rates in order to exclude the risk of fluctuation in market interest rates. Changes in market interest rates affect the interest results of variable-rate primary financial instruments of which the interest payments are not hedged by derivatives, and consequently are included in the calculation of earnings-related sensitivity.

Changes in market interest rates of interest rate derivatives (interest rate swaps, interest rate/currency swaps) which are not embedded in a hedging relationship pursuant to IAS 39 have effects on financial income and expenses (net valuation based on adjustment of financial assets to applicable fair value) and so are included in the calculation of earnings-related sensitivity. The effects of changes in market interest rates of interest rate derivatives to which hedge accounting is applied are recognized in the OCI.

Quantification of risk of change in interest rate in case of interest rate shifts of +/- 100 base points:

in EUR '000	Dec. 31, 2015	Dec. 31, 2016
Overall effect of +100 base points on OCI	558	317
Overall effect of -100 base points on OCI	-162	-33
Overall effect of +100 base points on income statement	-82	-1,185
Overall effect of -100 base points on income statement	-114	1,022

Raw material risks

Raw material risks to which the BAUER Group is exposed in respect of availability and potential fluctuations in price on the market are excluded, or limited, by means of supply promises and fixed pricing agreements entered into with suppliers prior to execution of contracts. The raw material risk relates mainly to steel.

Liquidity risks

The liquidity risk is managed by means of business planning, which ensures that the necessary funds to finance operating activities and current and future capital investments are made available at the appropriate time, in the required currency, and at optimum cost, in all Group companies. In liquidity risk management, the liquidity requirement arising from operating activities, from investment activities and from other financial measures is determined in the form of a banking report and a liquidity plan.

Liquidity is guaranteed at all times by means of a liquidity forecast focused on a fixed planning horizon and by unused lines of credit and guarantee facilities.

The following tables present the contractually agreed and undiscounted interest payments and capital repayments in respect of primary financial liabilities of the BAUER Group:

in EUR '000	Carrying amount Dec. 31, 2015	Cash flow 2016	Cash flow 2017 to 2020	Cash flow 2021 et seq.
Liabilities to banks	674,305	314,778	380,250	14,641
Liabilities from finance lease agreements	21,597	9,570	13,165	0
Other liabilities	78,765	71,503	4,295	2,967
Other financial liabilities (excluding derivatives)	9,689	9,200	528	0
Liabilities from construction contracts (PoC)	49,882	49,882	0	0
Trade payables	184,991	184,200	791	0
Liabilities to enterprises in which the company has participating interests	1,017	1,017	0	0

in EUR '000	Carrying amount, Dec. 31, 2016	Cash flows 2017	Cash flows 2018 to 2021	Cash flow 2022 et seq.
Liabilities to banks	656,500	498,576	178,145	13,200
Liabilities from finance lease agreements	29,587	11,094	19,332	628
Other current liabilities	96,252	88,696	4,462	3,093
Other financial liabilities (excluding derivatives)	15,872	15,647	233	0
Liabilities from construction contracts (PoC)	62,949	62,949	0	0
Trade payables	202,913	201,709	1,202	2
Liabilities to enterprises in which the company has participating interests	2,449	2,450	0	0

There were no instances of defaulting on interest payments or capital repayments in the period under review. In addition, no concentrations of risk exist. It is not to be expected that liabilities arising from sureties (contingent liabilities) will result in significant actual liabilities, and thus in significant cash flows, for which no provisions have yet been made.

in EUR '000 on Dec. 31, 2015	Carrying amount	2016	2017 to 2020	From 2021
Liabilities from foreign exchange forward contracts	3,375	-2,654	-2,188	0
Outflow of cash and cash equivalents	-	-74,496	-37,330	0
Inflow of cash and cash equivalents	-	71,842	35,142	0
Liabilities from interest rate swaps	3,428	-1,714	-2,766	-1,505
Outflow of cash and cash equivalents	-	-1,714	-2,766	-1,505
Inflow of cash and cash equivalents	-	0	0	0

The due dates of derivative financial instruments based on outflow and inflow of cash and cash equivalents are as follows:

in EUR '000 on Dec. 31, 2016	Carrying amount	2017	2018 to 2021	From 2022
Liabilities from foreign exchange forward contracts	5,314	-4,057	-1,400	0
Outflow of cash and cash equivalents	-	-141,639	-18,925	0
Inflow of cash and cash equivalents	-	137,582	17,525	0
Liabilities from interest rate swaps	3,088	-1,158	-2,323	-1,373
Outflow of cash and cash equivalents	-	-1,158	-2,323	-1,373
Inflow of cash and cash equivalents	-	0	0	0

To calculate the cash inflows from interest rate swaps the conditions as per December 31, 2016 were applied.

Risk of default

The risk of default is managed at Group level. Default risks arise from cash and cash equivalents, derivative financial instruments and deposits at banks and financial service companies. Only banks and financial services companies with the highest possible credit ratings are selected as partners. No credit limit was exceeded in the reporting period. The management expects no defaults on the part of these business partners.

The risk of default on financial assets exists in terms of the risk of failure of a contract party and thus to a maximum in the amount of the carrying amount of the exposure to the said party. A presentation of the carrying amounts and the resultant maximum risk of default per category is given in the table starting on page 150. The risk arising from primary financial instruments is countered by means of valuation allowances for bad debt, and in Germany also by means of credit insurance cover. As derivative financial instruments are entered into only with banks with the highest possible credit ratings, and the risk management system sets limits for each party, the actual risk of default is negligible. No concentrations of risk exist.

Other disclosures relating to financial instruments

The Group has taken up loans with variable interest rates and hedged against its interest rate-related cash flow risk by means of swaps. Such interest rate swaps have the commercial effect of converting variable-interest loans into fixed-interest loans. In these interest rate swaps, the Group agrees with other parties to swap the difference between the fixed and variable interest rates derived from the agreed nominal amounts at regular intervals.

The nominal volumes and market values of the derivative financial instruments are as follows:

in EUR '000		Nominal volume		Fair value
	Dec. 31, 2015	Dec. 31, 2016		Dec. 31, 2015		Dec. 31, 2016
			Positive	Negative	Positive	Negative
Interest rate swaps
of which in hedge accounting	27,214	23,643	0	-336	0	-226
of which not in hedge accounting	102,150	54,950	0	-3,092	0	-2,862
Foreign exchange forward contracts
of which in hedge accounting	144,156	136,079	2,643	-1,633	371	-3,865
of which not in hedge accounting	70,848	71,876	809	-1,742	317	-1,449
Foreign exchange forward options
of which in hedge accounting	0	0	0	0	0	0
of which not in hedge accounting	0	5,000	0	0	349	0
Cross currency swaps
of which in hedge accounting	0	0	0	0	0	0
of which not in hedge accounting	1,841	1,105	108	0	100	0

Net result by valuation category

The following table sets out the net profits and losses (before tax) on financial instruments stated in the income statement, broken down by valuation category as per IAS 39:

in EUR '000	Dec. 31, 2015 *	Dec. 31, 2016
Loans and receivables *	-8,431	-21,723
Financial liabilities measured at amortized cost	-35,618	-30,785
Available-for-sale financial assets	-162	-4,209
Held for trading	-8,984	-7,424
Total	-53,195	-64,141

* Prior-year fi gures have been changed; the net results from impairments in the Construction segment have been removed

The net result of the "Loans and Receivables" category includes results from the creation and reversal of value adjustments in respect of trade receivables, results from bank fees, impairments of uncollected receivables as well as interest income.

The net result of the "Financial Liabilities Measured at Amortized Cost" category includes the result from interest expenditure to third parties, for current and non-current loans as well as guaranty commissions.

Net available for sale financial assets contain amortization on financial assets. Equity shares in companies are valued at cost and are not included.

The net result of the "Financial Assets and Liabilities Held for Trading" category includes results from foreign exchange forward contracts and options, as well as results from changes to the fair values of interest rate swaps.

In the table below the included impairments are evident:

in EUR '000	Dec. 31, 2015	Dec. 31, 2016
Impairment for Loans and Receivables	-9,461	-17,605
Impairment for Avarlable for Sale Financial Assets	-162	-4,209
Total	-9,623	-21,814

Carrying amounts and fair values

The fair value of a financial instrument is the consideration for which an asset might be exchanged, or a debt paid, between informed, willing and mutually independent parties. Where financial instruments are quoted on an active market – such as in particular shares held and bonds issued – the price quoted on the market in question is the fair value. If no active market exists, the fair value is determined by financial valuation methods.

The fair values of foreign exchange forward contracts and cross-currency swaps are measured separately at their respective forward prices and discounted to the reference date based on the corresponding interest rate curve. The market prices of foreign exchange forward options are determined by recognized option models.

The fair values of the interest swaps correspond to the respective market value as determined by appropriate financial valuation methods, such as by discounting expected future cash flows.

For cash and cash equivalents, current trade receivables and other current assets, current trade payables and other current debt, owing to their short remaining terms the carrying amount should be adopted as a realistic estimate of the fair value.

The fair values of non-current financial assets and of other non-current financial liabilities correspond to the cash values of the payment flows linked to the assets, taking into account the applicable interest rate parameters, which reflect changes in the terms and expectations of the market and of the respective parties.

The fair values of financial instruments are determined on the basis of one of the methods set out on the three following levels:

• Level 1: Quoted prices (adopted unchanged) on active markets for identical assets and liabilities
• Level 2: Directly or indirectly observable input data for the asset or liability other than quoted prices as per level 1
• Level 3: Applied input data which does not originate from observable market data for measurement of the asset and liability (non-observable input data)

There were no transfers between the levels during the year. If circumstances arise necessitating a reclassification, it is undertaken at the end of the reporting period.

Other disclosures relating to hedging transactions

In financial year 2016, changes in equity due to cash flow hedges in the amount of EUR -970 thousand (previous year: EUR 190 thousand) before taxes and in the amount of EUR -698 thousand (previous year: EUR 137 thousand) after taxes were recognized as hedge reserve in equity without any effect on profit and loss. An amount of EUR 1,763 thousand (previous year: EUR 834 thousand) was recognized in profit and loss from the hedge reserve created with no effect on net income in the equity Fair value changes resulting from the derivative financial instruments held on December 31, 2016 were recognized in equity (increase) in the amount of EUR 793 thousand (previous year: EUR 1,024 thousand). In addition, the changes in deferred taxes in the amount of EUR 272 thousand (previous year: EUR -53 thousand) were recognized in equity (increase) without any effect on profit and loss. Future transactions in foreign currencies secured by hedging and changes in market interest rates are expected to be realized by 2020 at the latest. Gains and losses on future contracts in foreign currency and interest rates at December 31, 2016 included in the hedge reserve in the OCI are recognized in the income statement in the period in which the hedged planned transaction impacts on the income statement.

The prospective effectiveness is measured according to the Critical Term Match method and the retrospective effectiveness according to the Dollar Offset method based on the Hypothetical Derivatives method.

Offsetting Financial Assets and Financial Liabilities

a) Financial assets

The following financial assets are subject to offsetting, enforceable master-netting arrangements or similar arrangements.

in EUR '000					Related amounts, which are not offset in the balance sheet
	Gross financial assets recognized	Gross financial lia bilities offset on the balance sheet	Net amount of financial assets recognized on the balance sheet	Financial instruments	Cash securities received	Net amount
Date: Dec. 31, 2015
Derivative financial assets	3,560	0	3,560	-1,662	-	1,898
Cash and cash equivalents	47,406	0	47,406	-4,000	-	43,406
Total	50,966	0	50,966	-5,662	-	45,304

Date: Dec. 31, 2016

Derivative financial assets	1,136	0	1,136	-438	-	698
Cash and cash equivalents	33,463	0	33,463	-2,416	-	31,047
Total	34,599	0	34,599	-2,854	-	31,745

b) Financial liabilities

The following financial liabilities are subject to offsetting, enforceable master-netting arrangements or similar arrangements.

in EUR '000				Related amounts, which are not offset in the balance sheet
	Gross financial liabilities recognized	Gross amount of financial assets offset on the balance sheet	Net financial liabil ities recognized on the balance sheet	Financial instruments	Cash securities paid	Net amount
Date: Dec. 31, 2015
Derivative financial liabilities	6,803	0	6,803	-1,662	-	5,141
Current-account overdrafts	216,891	0	216,891	-4,000	-	212,891
Total	223,694	0	223,694	-5,662		218,032
Date: Dec. 31, 2016
Derivative financial liabilities	8,402	0	8,402	-438	-	7,964
Current-account overdrafts	168,922	0	168,922	-2,416	-	166,506
Total	177,324	0	177,324	-2,854		174,470

The "Financial instruments" column lists the amounts which are subject to master-netting arrangements but are not netted on the balance sheet because the preconditions for offsetting are not met. The "Cash securities received" column lists the amounts of cash and financial instrument securities received relative to the sum total of assets and liabilities which do not meet the criteria for netting on the balance sheet.

Within the Group, financial instruments are classified in the same way as the respective balance sheet items. No fair value was stated for current financial instruments and financial instruments recognized at cost in accordance with IFRS 7.29. The following table presents a progression of the classes to the categories of IAS 39 and the respective market values:

in EUR '000
		Measurement benchmark Carrying amount			Loans and receivables/ other financial liabilities
		Dec. 31, 2015	Dec. 31, 2016		Dec. 31, 2015 Dec. 31, 2016
NON-CURRENT ASSETS
Participations	at cost	3,613	9,730	0	0
Other non-current financial assets		15,355	18,412
	at fair value	707	476	0	0
	at amortized cost	11,408	14,215	11,408	14,215
	at cost	3,240	3,721	0	0
CURRENT ASSETS
Receivables from construction contracts	at amortized cost	129,478	154,802	129,478	154,802
Trade receivables	at amortized cost	343,933	339,993	343,933	339,993
Receivables from enterprises
in which the company has participating interests	at amortized cost	3,272	6,473	3,272	6,473
Other current financial assets		28,901	18,364
	at fair value	2,853	661	0	0
	at amortized cost	26,048	17,703	26,048	17,703
Cash and cash equivalents	at amortized cost	47,406	33,463	47,406	33,463
Total financial assets		571,958	581,237	561,545	566,649

	Balance sheet valuation as per IAS 39				Not allocated to any IAS 39 category						Measure
Available for Sale			Financial Assets and Liabilities Held for Trading		Derivatives in hedge accounting		Recognition in the balance sheet in accordance with IAS 17		Fair value as per IFRS 7 and IFRS 13
	Dec. 31, 2015 Dec. 31, 2016		Dec. 31, 2015 Dec. 31, 2016		Dec. 31, 2015 Dec. 31, 2016	Dec. 31, 2015 Dec. 31, 2016		Dec. 31, 2015 Dec. 31, 2016		with IFRS 13
3,613	9,730	0	0	0	0	0	0	n/a	n/a	n/a
0	0	108	450	599	26	0	0	707	476	2
0	0	0	0	0	0	0	0	9,960	13,198	3
3,240	3,721	0	0	0	0	0	0	n/a	n/a	n/a
0	0	0	0	0	0	0	0	n/a	n/a	n/a
0	0	0	0	0	0	0	0	n/a	n/a	n/a
0	0	0	0	0	0	0	0	n/a	n/a	n/a
0	0	809	317	2,044	344	0	0	2,853	661	2
0	0	0	0	0	0	0	0	n/a	n/a	n/a
0	0	0	0	0	0	0	0	n/a	n/a	n/a
6,853	13,451	917	767	2,643	370	0	0	13,520	14,335

in EUR '000
	Measurement benchmark	Carrying amount			Loans and receivables/ other financial liabilities
		Dec. 31, 2015	Dec. 31, 2016		Dec. 31, 2015 Dec. 31, 2016
NON-CURRENT LIABILITIES
Liabilities to banks	at amortized cost	376,628	176,754	376,628	176,754
Liabilities from finance lease agreements	at fair value	12,652	19,127	0	0
Other non-current financial liabilities		4,414	3,983
	at fair value	3,925	3,758	0	0
	at amortized cost	489	225	489	225
CURRENT DEBT
Liabilities to banks	at amortized cost	297,677	479,746	297,677	479,746
Liabilities from finance lease agreements	at fair value	8,945	10,460	0	0
Liabilities from construction contracts	at amortized cost	49,882	62,949	49,882	62,949
Trade payables	at amortized cost	184,991	202,913	184,991	202,913
Liabilities to enterprises
in which the company has participating interests	at amortized cost	1,017	2,449	1,017	2,449
Other current financial liabilities		12,078	20,291
	at fair value	2,878	4,644	0	0
	at amortized cost	9,200	15,647	9,200	15,647
Total financial liabilities		948,284	978,672	919,884	940,683

	Balance sheet valuation as per IAS 39			Not allocated to any IAS 39 category
Available Financial Assets and for Sale Liabilities Held for Trading				Derivatives in hedge accounting	Recognition in the balance sheet in accordance with IAS 17		Fair value as per IFRS 7 and IFRS 13		Measure ment level in accordance with
Dec. 31, 2015 Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2016				Dec. 31, 2015 Dec. 31, 2016	Dec. 31, 2015 Dec. 31, 2016		Dec. 31, 2015 Dec. 31, 2016		IFRS 13
0	0	0	0	0	0	0	0	384,999	223,460	3
0	0	0	0	0	0	12,652	19,127	12,652	19,127	n/a
0	0	2,470	2,702	1,455	1,056	0	0	3,925	3,758	2
0	0	0	0	0	0	0	0	484	225	3
0	0	0	0	0	0	0	0	n/a	n/a	n/a
0	0	0	0	0	0	8,945	10,460	n/a	n/a	n/a
0	0	0	0	0	0	0	0	n/a	n/a	n/a
0	0	0	0	0	0	0	0	n/a	n/a	n/a
0	0	0	0	0	0	0	0	n/a	n/a	n/a
0	0	2,364	1,605	514	3,039	0	0	2,878	4,644	2
0	0	0	0	0	0	0	0	n/a	n/a	n/a
0	0	4,834	4,307	1,969	4,095	21,597	29,587	404,938	251,214

2016

38. EXECUTIVE BODIES

In the year under review the Supervisory Board comprised the following members:

Shareholder representatives

• Shareholder representatives
• Dr. Klaus Reinhardt, General (retd.), Starnberg, chairman
• Dr.-Ing. Johannes Bauer, Schrobenhausen Civil engineer with BAUER Designware GmbH, Schrobenhausen
• Prof. Dr.-Ing. E.h. Manfred Nussbaumer M.Sc., retired civil engineer
• Supervisory Board Leonhardt, Andrä and Partner Beratende Ingenieure VBI AG, Stuttgart, member
• Dipl.-Ing. (FH) Rainer Schuster, Haag an der Amper (until June 23, 2016), retired civil engineer
• Dipl.-Ing. (FH) Elisabeth Teschemacher, née Bauer, Schrobenhausen Self-employed in real estate management, building rehabilitation and construction consulting
• Dipl.-Kffr. Andrea Teutenberg, Berlin (since 23 June, 2016) CEO of Orange 12 GmbH, Berlin
• Gerardus N. G. Wirken, Breda, Netherlands Freelance consultant for strategy, managerial accounting and accounting, Supervisory Board of Winters Bouw- en Ontwikkeling B.V., Breda, Netherlands, Chairman

Employee representatives

• Robert Feiger, Neusäss, Deputy Chairman

Chairman of the Federal Executive Committee of the IG Bauen-Agrar-Umwelt industrial trade union, Frankfurt am Main Supervisory Board, Zusatzversorgungskasse des Baugewerbes AG, Wiesbaden, member

• Regina Andel, Ellrich

Chair of the Works Council, SCHACHTBAU NORDHAUSEN GmbH, Nordhausen

• Rainer Burg, Gerolsbach (since June 23, 2016) Concrete technologist at BAUER Spezialtiefbau GmbH, Schrobenhausen
• Maria Engfer-Kersten, Hanover (since June 23, 2016) Union secretary of IG BCE Industriegewerkschaft Bergbau, Chemie, Energie, Hanover
• Dipl.-Volkswirt Norbert Ewald, Bad Vilbel (until June 23, 2016) Member of the Management Board at Zusatzversorgungskasse des Steinmetz- und Steinbildhauerhandwerks VVaG, Wiesbaden
• Reinhard Irrenhauser, Schrobenhausen Works Council Chairman at BAUER Maschinen GmbH, Schrobenhausen, Supervisory Board of BAUER Maschinen GmbH, Schrobenhausen
• Dipl.-Kfm. (FH) Stefan Reindl, Schrobenhausen Human Resources Director of BAUER Aktiengesellschaft, Schrobenhausen Advisory Board, BAUER Training Center GmbH, Schrobenhausen, Chairman
• Dipl.-Ing. Gerold Schwab, Kernen (until June 23, 2016) Civil Engineer in the Technical Division of BAUER Spezialtiefbau GmbH, Schrobenhausen

2016

Management Board

• Prof. Dr.-Ing. E.h. Dipl.-Kfm. Thomas Bauer, Schrobenhausen, Chairman Functions: Participations, IT, core process management, HSE, quality management, Supervisory Board of BAUER Spezialtiefbau GmbH, Schrobenhausen, Chairman Supervisory Board of BAUER Maschinen GmbH, Schrobenhausen, Chairman of Supervisory Board of SCHACHTBAU NORDHAUSEN GmbH, Nordhausen, Chairman of Supervisory Board of BAUER Resources GmbH, Schrobenhausen, Chairman of Supervisory Board of BAUER EGYPT S.A.E., Cairo, Chairman Administrative Board, Maurer SE, Munich, member (since Nov 21, 2016) • Dipl.-Betriebswirt (FH) Hartmut Beutler, Schrobenhausen Functions: Finance, legal and insurance, corporation communications, facility management, media design, Supervisory Board of Raiffeisenbank Schrobenhausen e.G., Schrobenhausen, Chairman Supervisory Board, BAUER Resources GmbH, Schrobenhausen, member Supervisory Board, SCHACHTBAU NORDHAUSEN GmbH, Nordhausen, Deputy Chairman (since Jan 12, 2017)
• Dipl.-Ing. Heinz Kaltenecker, Schrobenhausen (until Dec 31, 2016) Supervisory Board of BAUER Resources GmbH, Schrobenhausen, Chairman (until Dec 5, 2016) of Supervisory Board of BAUER Spezialtiefbau GmbH, Schrobenhausen, Deputy Chairman (until Dec 31, 2016) of Supervisory Board, BAUER Maschinen GmbH, Schrobenhausen, Deputy Chairman (until Dec 31, 2016) Supervisory Board, SCHACHTBAU NORDHAUSEN GmbH, Nordhausen, Deputy Chairman (until Dec 31, 2016) • Peter Hingott, Schrobenhausen (since Oct 1, 2016)
• Functions: Participations, Accounting, Human Resources, Corporate Purchasing Supervisory Board of BAUER Spezialtiefbau GmbH, Schrobenhausen, member (since Jan 12, 2017), Supervisory Board of BAUER Maschinen GmbH, Schrobenhausen, member (since Jan 12, 2017) Administrative Board, BAUER Emirates Environment Technologies & Services LLC, Abu Dhabi, Supervisory Board member, BAUER Nimr LLC, Maskat/Oman, Chairman

Administrative Board, BAUER Resources GmbH / Jordan Ltd. Co., Amman, Jordan, Chairman of Administrative Board, Site Group for Services and Well Drilling Ltd. Co., Amman, Jordan, Administrative Board, BAUER Resources Chile Limitada, Santiago de Chile/Chile, Chairman

The total remuneration paid to members of the Management Board in the year under review, excluding allocations to pension provisions, was EUR 1,542 thousand (previous year: EUR 1,274 thousand). Of that total, EUR 1,392 thousand (previous year: EUR 1,124 thousand) was not performance-related and EUR 150 thousand (previous year: EUR 150 thousand) was performancerelated. The total remuneration includes benefits in kind arising from the private use of a company car and reimbursement of travel expenses for each member of the Management Board, as well as pro-rata group accident insurance premiums and employer's liability insurance association contributions. The increase in the remuneration of the Management Board is attributable to the fact that the total remuneration of all members of the Management Board (including functions in committees of subsidiaries) is reported for the whole year, even though the Management Board had four members for only three months, as Mr. Peter Hingott joined the Board on October 1, 2016 and Mr. Heinz Kaltenecker retired on December 31, 2016. The company pension scheme for Management Board members incurred pension service costs totaling EUR 137 thousand (previous year: EUR 155 thousand). The pensionable earnings serving as the basis for calculating pension levels are significantly lower than the basic salary in all contracts. Calculated in accordance with IAS 19, the defined benefit obligation entailed by all pension commitments to members of the Management Board at the year-end was EUR 6,485 thousand (previous year: EUR 5,537 thousand). Former members of the management bodies of the parent company received total remuneration of EUR 0 thousand (previous year: 0) in return for duties performed on behalf of the parent company.

The remuneration paid to the Supervisory Board for the 2016 financial year totaled EUR 261 thousand (previous year: 254 thousand) and was distributed as follows:

in EUR '000	2015	2016
Chairman
Dr. Klaus Reinhardt	38	40
Deputy Chairman
Robert Feiger	27	27
Shareholder representatives
Dr.-Ing. Johannes Bauer	20	20
Dipl.-Ing. (FH) Rainer Schuster	18	10
Dipl.-Ing. (FH) Elisabeth Teschemacher	18	20
Gerardus N. G. Wirken	20	20
Prof. Dr. Manfred Nussbaumer	20	20
Dipl.-Kffr. Andrea Teutenberg	-	10
Employee representatives
Dipl.-Volkswirt Norbert Ewald	20	10
Dipl.-Kfm. (FH) Stefan Reindl	18	18
Regina Andel	18	18
Dipl.-Ing. Gerold Schwab	20	10
Reinhard Irrenhauser	18	19
Rainer Burg	-	9
Maria Engfer-Kersten	-	10
Total *	254	261

* rounded

39. RELATED PARTY DISCLOSURES

Related parties under the terms of IAS 24 are parties that the reporting enterprise has the ability to control or exercise significant influence over, or parties that have the ability to control or exercise significant influence over the reporting enterprise. Transactions with related parties are defined as the transfer of resources, services or obligations between the reporting entity and

a related party, regardless of whether an invoice is issued in respect of the transaction or not.

Members of the Management Board of BAUER AG are members of Supervisory Boards and Management Boards of other companies with which BAUER AG maintains relations in the course of its ordinary business operations. Related persons received pensions totaling EUR 85 thousand (previous year: EUR 55 thousand) in respect of former employment within the BAUER Group. The members of the Supervisory Board, by virtue of their role as employees, received remuneration totaling EUR 482 thousand (previous year: EUR 483 thousand). Lease and service contracts and contracts of employment (except for the remuneration to members of the Management Board disclosed) exist with members of the Management Board, including close family, in respect of which remuneration to an amount of EUR 833 thousand (previous year: EUR 1,032 thousand) was paid.

Loan commitments to the BAUER Foundation existed totaling EUR 1,000 thousand (previous year: EUR 1,000 thousand), for which interest amounting to EUR 55 thousand (previous year: EUR 55 thousand) was paid.

At the end of the financial year no loan commitments existed to shareholders of BAUER AG.

The key relationships between fully consolidated Group companies and related parties are set out in the following table:

in EUR '000	Associated companies		Non-consolidated companies		Joint ventures
	2015	2016	2015	2016	2015	2016
Income	7,325	4,483	20,620	4,137	10,834	23,801
Purchased services	1,389	2,435	2,558	5,524	0	5,041
Receivables and other assets (Dec. 31)	794	479	12,490	8,956	35,751	35,086
Liabilities (Dec. 31)	701	131	3,859	1,706	1,102	5,737
Valuation allowance of receivables	0	0	1,927	145	22,887	22,624
Expenditure for uncollectable and uncertain receivables	328	0	1,088	145	6,314	3,343

The purchased services essentially comprise all expenses incurred with related parties during the financial year.

Transactions with related parties are conducted at standard market terms.

The receivables and other assets include uncollectable receivables as well as financial assets in respect of related parties.

40. JOINT OPERATIONS

The material joint ventures are listed below:

Financial year 2015:

Project	Company's activities	Registered office	Shareholding
Barangaroo Project	Specialist foundation engineering	Sydney, Australia	50 %
Deep-Bauer Foundation Inc.	Specialist foundation engineering	Calgary, Canada	44 %

Financial year 2016:

Project	Company's activities	Registered office	Shareholding
Barangaroo Project	Specialist foundation engineering	Sydney, Australia	50 %
Deep-Bauer Foundation Inc.	Specialist foundation engineering	Calgary, Canada	44 %

41. FEES AND SERVICES OF THE AUDITORS

The fee paid to the auditors and recorded as expenditure in the financial year is broken down as follows:

PricewaterhouseCoopers AG:

in EUR '000	2015	2016
Fees for auditing services	723	740
Fees for other certification	14	18
Fees for tax advice	75	118
Fees for other services	79	10
Total	891	886

In addition, Roland Jehle GmbH Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft was engaged to audit the major German capital corporations included in the Group's consolidated financial statements.

The fees for this recognized in the financial year are broken down in accordance with Section 285, Paragraph 17 and Section 314, Subsection 1, Paragraph 9 HGB as follows:

in EUR '000	2015	2016
Fees for auditing services	39	49
Fees for other certification	2	2
Fees for tax advice	7	5
Fees for other services	0	0
Total	48	56

42. DECLARATION OF CONFORMITY TO THE GERMAN CORPORATE GOVERNANCE CODE

The management Board and Supervisory Board of BAUER AG issued the Declaration of conformity prescribed by Paragraph 161 AktG on December 9, 2016 and made it permanently available for shareholders at www.bauer.de.

43. AVERAGE NUMBER OF EMPLOYEES

	2015	2016
Salaried staff	4,050	4,216
Germany	2,001	1,986
International	2,049	2,230
Industrial & trades	6,443	6,317
Germany	1,920	1,840
International	4,523	4,477
Apprentices	245	238
Total number of employees	10,738	10,771

44. AUTHORIZATION FOR ISSUE OF THE CONSOLIDATED FINANCIAL STATEMENTS

The Management Board has submitted the consolidated financial statements to the Supervisory Board for authorization for issue (the Supervisory Board meeting is scheduled for April 10, 2017).

45. PROPOSAL ON APPROPRIATION OF UNAPPROPRIATED NET PROFIT

The Management Board and Supervisory Board of BAUER AG propose to resolve to distribute a dividend of EUR 0.10 per dividend-bearing share to the shareholders from unappropriated net profit in financial year 2016 in the amount of EUR 1,713,100.00. At 17,131,000 dividend-bearing no-nominal-value shares, this corresponds to a dividend of EUR 1,713,100.00. Any partial amount relating to non-dividend-bearing no-nominal-value shares will also be carried forward to new account.

Schrobenhausen, March 31, 2017

The Management Board

Chairman of the Management Board

Prof. Thomas Bauer Dipl.-Betriebswirt (FH) Hartmut Beutler Peter Hingott

2016

List of shareholdings of the BAUER Group pursuant to Section 313 of the German Commercial Code (HGB) as of December 31, 2016

	NAME AND REGISTERED OFFICE OF COMPANY	Currency	Capital share in %
1.	Fully consolidated companies BAUER Aktiengesellschaft	EUR
A.	Germany
	BAUER Spezialtiefbau GmbH, Schrobenhausen, Germany	EUR	100.00
	BAUER Maschinen GmbH, Schrobenhausen, Germany	EUR	100.00
	SCHACHTBAU NORDHAUSEN GmbH, Nordhausen, Germany	EUR	100.00
	SPESA Spezialbau und Sanierung GmbH, Schrobenhausen, Germany	EUR	100.00
	BAUER Resources GmbH, Schrobenhausen, Germany	EUR	100.00
	BAUER Training Center GmbH, Schrobenhausen, Germany	EUR	100.00
	BAUER Designware GmbH, Schrobenhausen, Germany	EUR	100.00
	KLEMM Bohrtechnik GmbH, Drolshagen, Germany	EUR	100.00
	EURODRILL GmbH, Drolshagen, Germany	EUR	100.00
	WW Beteiligung GmbH, Schrobenhausen, Germany	EUR	100.00
	RTG Rammtechnik GmbH, Schrobenhausen, Germany	EUR	100.00
	PRAKLA Bohrtechnik GmbH, Peine, Germany	EUR	100.00
	Olbersdorfer Guß GmbH, Olbersdorf, Germany	EUR	75.00
	Schachtbau Nordhausen Bau GmbH, Nordhausen, Germany	EUR	100.00
	SCHACHTBAU NORDHAUSEN Stahlbau GmbH, Nordhausen, Germany	EUR	100.00
	MMG Mitteldeutsche MONTAN GmbH, Nordhausen, Germany	EUR	100.00
	PURE Umwelttechnik GmbH, Schrobenhausen, Germany	EUR	100.00
	BAUER Foralith GmbH, Schrobenhausen, Germany	EUR	100.00
	GWE pumpenboese GmbH, Peine, Germany	EUR	100.00
	Esau & Hueber GmbH, Schrobenhausen, Germany	EUR	100.00
B.	EU excluding Germany
	GWE Budafilter Kft., Mezöfalva, Hungary	HUF	100.00
	BAUER Ambiente S.r.l., Milan, Italy	EUR	100.00
	BAUER SPEZIALTIEFBAU Gesellschaft m.b.H., Vienna, Austria	EUR	100.00
	BAUER Technologies Limited, Bishops Stortford, Great Britain	GBP	100.00
	BAUER RENEWABLES LIMITED, Bishops Stortford, Great Britain	GBP	100.00
	BAUER EQUIPMENT UK LIMITED, Rotherham, Great Britain	GBP	100.00
	BAUER Magyarország Speciális Mélyépítö Kft., Budapest, Hungary	HUF	100.00
	BAUER ROMANIA S.R.L., Bucharest, Rumania	RON	100.00
	BAUER BULGARIA EOOD, Sofia, Bulgaria	BGN	100.00
	BAUER Funderingstechniek B.V., Mijdrecht, Netherlands	EUR	100.00
	BAUER Maszyny Polska Sp.z.o.o., Warsaw, Poland	PLN	100.00
	BAUER Foundations (IRL) Ltd., Bishops Stortford, Great Britain	EUR	100.00
	GWE France S.A.S., Aspiran, France	EUR	100.00
	TracMec Srl, Mordano, Italy	EUR	100.00
	BAUER Macchine Italia Srl, Mordano, Italy	EUR	100.00
	FAMBO Sweden AB, Eslöv, Sweden	SEK	100.00
	GWE POL-Bud Sp.z.o.o, Lodz, Poland	PLN	100.00

	NAME AND REGISTERED OFFICE OF COMPANY		Capital share in %
	Continued: B. EU excluding Germany
	BAUER RESOURCES SPAIN S.A., Leganes, Spain	EUR	100.00
	BAUER Resources UK Ltd., Beverley, Great Britain	GBP	100.00
C.	Europe (other)
	BAUER Spezialtiefbau Schweiz AG, Baden-Dättwil, Switzerland	CHF	100.00
	FORALITH Drilling Support AG, St. Gallen, Switzerland	CHF	100.00
	OOO BAUER Maschinen - Kurgan, Kurgan, Russian Federation	RUB	65.00
	OOO BAUER Maschinen SPb, St. Petersburg, Russian Federation	RUB	100.00
	OOO BG-TOOLS-MSI, Ljuberzy, Russian Federation	RUB	55.00
	OOO BAUER Maschinen Russia, Moscow, Russian Federation	RUB	100.00
	OOO BAUER Technologie, Moscow, Russian Federation	RUB	100.00
	BAUER Georgia Foundation Specialists LCC, Tbilisi, Georgia	GEL	100.00
D.	Middle East & Central Asia
	Saudi BAUER Foundation Contractors Ltd., Jeddah, Saudi Arabia	SAR	100.00
	BAUER LEBANON FOUNDATION SPECIALISTS S.a.r.l., Beirut, Lebanon	USD	100.00
	BAUER International FZE, Dubai, United Arab Emirates	AED	100.00
	BAUER International Qatar LLC, Doha, Qatar	QAR	49.00 *
	BAUER Equipment Gulf FZE, Dubai, United Arab Emirates	AED	100.00
	BAUER Emirates Environment Technologies & Services LLC, Abu Dhabi, United Arab Emirates	AED	49.00 *
	BAUER Resources GmbH / Jordan Ltd. Co., Amman, Jordan - (sub-group consolidated financial statements)	USD	100.00
	Site Group for Services and Well Drilling Ltd. Co., Amman, Jordan	USD	83.33
	Site Group for Services and Well Drilling Ltd. Co., Ramallah, Palestine	USD	100.00
	Site Drilling Ltd. Co., Limassol, Cyprus	USD	100.00
	BAUER Casings Makina Sanayi ve Ticaret Limited Sirketi, Ankara, Turkey	TRY	60.00
	BAUER Corporate Services Private Limited, Mumbai, India	INR	100.00
	BAUER Geotechnical Specialized Foundation LLC, Abu Dhabi, United Arab Emirates	AED	100.00
	BAUER Equipment India Private Limited, Navi Mumbai, India	INR	100.00
E.	Asia-Pacific, Far East and Australia
	BAUER (MALAYSIA) SDN. BHD. - (subsidiary consolidated financial statements), Petaling Jaya, Malaysia	MYR	100.00
	BAUER Foundations Australia Pty Ltd, Brisbane, Australia	AUD	100.00
	P.T. BAUER Pratama Indonesia, Jakarta, Indonesia	IDR	100.00
	BAUER Services Singapore Pte Ltd, Singapore	EUR	100.00
	BAUER Hong Kong Limited, Hong Kong, People's Republic of China	HKD	100.00
	BAUER Vietnam Ltd., Ho Chi Minh City, Vietnam	VND	100.00
	BAUER Foundations Philippines, Inc., Quezon City, Philippines	PHP	100.00
	BAUER Technologies Far East Pte. Ltd. - (subsidiary consolidated financial statements), Singapore	EUR	100.00
	BAUER EQUIPMENT SOUTH ASIA PTE. LTD., Singapore	EUR	100.00
	BAUER Technologies Taiwan Ltd., Taipei, Taiwan	TWD	99.88
	BAUER Tianjin Technologies Co. Ltd., Tianjin, People's Republic of China	CNY	100.00
	BAUER Equipment Hong Kong Ltd., Hong Kong, People's Republic of China	EUR	100.00

	NAME AND REGISTERED OFFICE OF COMPANY	Currency	Capital share in %
	Continued: E. Asia-Pacific, Far East and Australia
	BAUER Equipment (Malaysia) Sdn. Bhd., Shah Alam, Malaysia	MYR	100.00
	Shanghai BAUER Technologies Co. Ltd., Shanghai, People's Republic of China	CNY	100.00
	BAUER Equipment (Shanghai) Co. Ltd., Shanghai, People's Republic of China	CNY	100.00
	NIPPON BAUER Y.K., Tokyo, Japan	JPY	100.00
	Inner City (Thailand) Company Limited, Bangkok, Thailand	THB	49.00 *
	Thai BAUER Co. Ltd., Bangkok, Thailand	THB	73.99
	BAUER Equipment Australia Pty. Ltd., Baulkham Hills, Australia	AUD	100.00
F.	Americas
	BAUER FUNDACIONES PANAMÁ S.A., Panama City, Panama	USD	100.00
	BAUER MEXICO, S.A. DE C.V., Mexico City, Mexico	MXP	100.00
	BAUER Resources Canada Ltd., Edmonton, Canada	CAD	100.00
	BAUER Foundations Canada Inc., Calgary, Canada	CAD	100.00
	BAUER FOUNDATION CORP., Odessa, Florida, United States of America	USD	100.00
	BAUER Resources Chile Limitada - (subsidiary consolidated financial statements), Santiago de Chile, Chile	CLP	100.00
	GWE Tubomin S.A., Santiago de Chile, Chile	CLP	60.00
	BAUER Machinery USA Inc., Conroe, United States of America	USD	100.00
	BAUER-Pileco Inc., Woodlands, United States of America	USD	100.00
G.	Africa
	BAUER EGYPT S.A.E. Specialised Foundation Contractors, Cairo, Egypt	EGP	55.75
	BAUER Technologies South Africa (PTY) Ltd. (subsidiary consolidated financial statements), Midrand, South Africa	ZAR	100.00
	MINERAL BULK SAMPLING NAMIBIA (PTY) LTD, Windhoek, Namibia	NAD	100.00
	MINERAL BULK SAMPLING SOUTH AFRICA (PTY) LTD, Midrand, South Africa	ZAR	100.00
	BAUER RESOURCES GHANA LIMITED, Accra, Ghana	GHS	100.00
	BAUER Resources Maroc S.A.R.L., Kenitra, Morocco	MAD	100.00
	BAUER Resources Senegal SARL, Dakar, Senegal	XOF	100.00
2. A.	Companies in the expanded basis of consolidation Germany
	Harz Hotel Grimmelallee Nordhausen Beteiligungsgesellschaft mbH, Nordhausen, Germany	EUR	100.00
	Schacht- und Bergbau Spezialgesellschaft mbH, Mülheim an der Ruhr, Germany	EUR	50.00
	pumpenboese Beteiligungs- und Verwaltungs GmbH, Peine, Germany	EUR	100.00
B.	International
	First Asian Limited, Hong Kong, People's Republic of China	HKD	100.00
	BAUER Ukraine TOV, Kiev, Ukraine	UAH	100.00
	BAUER Angola Lda., Luanda, Angola	AOA	100.00
	BAUER Specialized Foundation Contractor India Pvt. Ltd., New Delhi, India	INR	100.00
	BAUER Fondations Spéciales EURL, Algiers, Algeria	DZD	100.00
	BAUER Leasing Services LLC, Odessa, United States of America	USD	100.00
	BAUER Cimentaciones Costa Rica S.A., Alajuela, Costa Rica	CRC	100.00
	BAUER Engineering International Ltd., Dubai, United Arab Emirates	AED	100.00

	NAME AND REGISTERED OFFICE OF COMPANY	Currency	Capital share in %
	Continued: B. International
	BAUER Libyan Egyptian Specialized Corporate for Technical Engineering Works, Tripoli, Libya	LYD	36.00
	BAUER FUNDACIONES DOMINICANA, S.R.L., Santo Domingo, Dominican Republic	DOP	100.00
	TOO BAUER KASACHSTAN, Almaty, Kazakhstan	KZT	100.00
	BAUER Fundaciones Colombia S.A.S., Bogota, Colombia	COP	100.00
	BAUER Fundaciones America Latina S.A., Panama City, Panama	USD	100.00
	BAUER Iraq for Construction Contracting LLC, Baghdad, Iraq	IQD	100.00
	BAUER Special Foundations FZE, Dubai, United Arab Emirates	AED	100.00
	BAUER Maschinen Ukraine TOV, Kiev, Ukraine	UAH	100.00
	BRASBAUER Equipamentos de Perfuração Ltda., Sao Paulo, Brazil	BRL	60.00
	BAUER Equipamentos do Brasil – Comércio e Importacao Ltda., Sao Paulo, Brazil	BRL	100.00
	BAUER Equipamientos de Panama S.A., Panama City, Panama	PAB	100.00
	BAUER Maschinen Canada Ltd., Acheson, Canada	CAD	100.00
	BAUER Parts HUB (Singapore) Pte. Ltd., Singapore	EUR	100.00
	BAUER Machines SAS, Strasbourg, France	EUR	100.00
	OOO TRAKMECHANIKA, Yaroslavl, Russian Federation	RUB	100.00
	GERMAN WATER & ENERGY PAKISTAN (PRIVATE) LIMITED, Islamabad, Pakistan	PKR	100.00
	GWE Togo S.A., Lomé, Togo	XOF	97.90
	BAUER Resources Saudi LLC, Al Khobar, Saudi Arabia	SAR	100.00
3. A.	Associated companies and joint ventures Germany
	TMG Tiefbaumaterial GmbH, Emmering, Germany	EUR	50.00
	NDH Entsorgungsbetreibergesellschaft mbH, Bleicherode, Germany	EUR	25.00
	Grunau und Schröder Maschinentechnik GmbH, Drolshagen, Germany	EUR	30.00
	SPANTEC Spann- & Ankertechnik GmbH, Schrobenhausen, Germany	EUR	40.00
	BAUER Deep Drilling GmbH, Schrobenhausen, Germany	EUR	51.00
B.	International
	TERRABAUER S. L., Madrid, Spain	EUR	30.00
	Bauer + Moosleitner Entsorgungstechnik GmbH, Salzburg, Austria	EUR	50.00
	BAUER Nimr LLC, Maskat - Al Mina, Sultanate of Oman	OMR	52.50
	BAUER Manufacturing LLC, Conroe, United States of America	USD	51.00
	TOO SCHACHTBAU Kazakhstan, Almaty, Kazakhstan	KZT	50.00
4.	Enterprises in which the company has participating interests
A.	Germany
	Wöhr + Bauer GmbH, Munich, Germany	EUR	16.65
	Nordhäuser Bauprüfinstitut GmbH, Nordhausen, Germany	EUR	20.00
	Stadtmarketing Schrobenhausen e.G., Schrobenhausen, Germany	EUR	4.13
B.	International
	OAO Mostostrojindustria, Moscow, Russian Federation	RUB	15.00

* Commercial ownership is 100 %

The complete list of shareholdings in accordance with section 313 of the German Commercial Code (HGB) is published in the electronic version of the official Gazette Bundesanzeiger of the Federal Republic of Germany.

2016

Assurance by the legal representatives

We hereby assure that, to the best of our knowledge, the consolidated financial statements give a true and fair view of the net assets, financial position and earnings of the company in accordance with the accounting principles applicable to financial reporting, and that the Combined Management Report depicts the course of business, including the earnings and overall situation of the Group, in such a way that a true and fair view is conveyed and the material opportunities and risks of the foreseeable development of the Group are set out.

Schrobenhausen, March 31, 2017

The Management Board

Chairman of the Management Board

Prof. Thomas Bauer Dipl.-Betriebswirt (FH) Hartmut Beutler Peter Hingott

"We have audited the consolidated financial statements prepared by BAUER Aktiengesellschaft, Schrobenhausen, comprising the balance sheet, the income statement and statement of comprehensive income, statement of changes in equity, cash flow statement and the notes to the consolidated financial statements, together with the Group management report for the financial year from January 1 to December 31, 2016. The preparation of the consolidated financial statements and the Group management report in accordance with the IFRS, as adopted by the EU, and the additional requirements of German commercial law pursuant to § (Article) 315a, Abs. (paragraph) 1 HGB ("Handelsgesetzbuch": German Commercial Code) are the responsibility of the parent company's Management Board. Our responsibility is to express an opinion on the consolidated financial statements and the Group management report, based on our audit.

We conducted our audit of the consolidated financial statements in accordance with § 317 HGB and the generally accepted German standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the 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 accountingrelated 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 those entities included in consolidation, the determination of the entities to be included in consolidation, the accounting and consolidation policies used and significant estimates made by the company's Management Board, as well as evaluating the overall presentation of the consolidated financial statements and the 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 the IFRS as adopted by the EU and the additional requirements of German commercial law pursuant to Paragraph 315a, Sub-paragraph 1 HGB, and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The Group management report is consistent with the consolidated financial statements, complies with the law, and as a whole provides a suitable view of the Group's position, and suitably presents the opportunities and risks of future development."

Stuttgart, March 31, 2017

PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft (auditing firm)

Auditor Auditor

Klaus Neubarth ppa. Bernd Adamaszek

IMPRINT

Published by

BAUER Aktiengesellschaft BAUER-Strasse 1 86529 Schrobenhausen, Germany www.bauer.de

Photos

BAUER Group Press photo Roche (p. 3)

Contact

Investor Relations BAUER Aktiengesellschaft BAUER-Strasse 1 86529 Schrobenhausen, Germany Tel.: +49 8252 97-1218 Fax: +49 8252 97-2900 investor.relations@bauer.de

Registered place of business

86529 Schrobenhausen, Germany Registered at the District Court of Ingolstadt under HRB 101375

Print

Mayer & Söhne Druck- und Mediengruppe GmbH & Co. KG, Aichach

http://ir.bauer.de

This Annual Report is published in German and English.

Construction Equipment Resources

BAUER Spezialtiefbau GmbH, the original parent company of the BAUER Group, has been a major driving force in the development of specialist foundation engineering, and carries out projects all over the world. Bauer Spezialtiefbau is organized on a regional basis in Germany, and operates on all the world's continents with over 50 subsidiaries and branch offices. Market trends have meant that most of the company's revenues are now generated outside of Germany. Bauer has major subsidiaries and branch offices in the United Arab Emirates, Malaysia, Egypt and the USA among other locations. Bauer Spezialtiefbau has built up networks in numerous regions across the world, enabling it to acquire and execute contracts both in the countries in which it is represented and in neighbouring countries, using its own machinery and inhouse engineering consultancy. In addition to the predominant field of specialist foundation engineering, Group companies SCHACHTBAU NORDHAUSEN GmbH, SPESA Spezialbau und Sanierung GmbH and Wöhr + Bauer GmbH also carry out general construction activities such as civil engineering, environmental engineering and project development.

The BAUER Maschinen Group is the world market leader in the development and manufacture of specialist foundation engineering equipment. BAUER Maschinen GmbH – the holding company for a number of subsidiaries – designs and builds heavy-duty drilling rigs, trench cutters, grab systems, vibrators and deep drilling rigs, as well as the related tooling, at its plants in Schrobenhausen, Aresing and Edelshausen. The company also operates manufacturing facilities in the USA, Russia, China, Malaysia, Italy, Singapore and Turkey. It is supplied with components from within the BAUER Group by Schachtbau Nordhausen and Olbersdorfer Guß. The BAUER Maschinen Group operates a global sales and service network.

The Resources segment is focused on products and services in the areas of water, environment and natural resources. BAUER Resources GmbH is the holding company, under the umbrella of which the subsidiaries operate as full-service providers. The competence centers of Industrial Waste Water Treatment, Automation, Remediation & Waste Treatment, Drilling Technologies, Water Well Design & Construction and Constructed Wetlands pool their expertise and support the subsidiaries in carrying out projects.

>>>

Consolidated statement of profit or loss

in EUR '000	12M/2015	12M/2016	Change
Sales revenues	1,378,991	1,396,881	1.3 %
Changes in inventories	28,994	15,359	-47.0 %
Other capitalized goods and services for own account	22,748	13,472	-40.8 %
Other income	157,213	62,864	-60.0 %
Consolidated revenues	1,587,946	1,488,576	-6.3 %
Cost of materials	-752,532	-717,992	-4.6 %
Personnel expenses	-376,118	-369,700	-1.7 %
Other operating expenses	-274,235	-242,495	-11.6 %
Earnings before interest, tax, depreciation and amortization (EBITDA)	185,061	158,389	-14.4 %
Depreciation of fixed assets	-81,143	-74,509	-8.2 %
Write-downs of inventories due to use	-13,195	-15,532	17.7 %
Earnings before interest and tax (EBIT)	90,723	68,348	-24.7 %
Financial income	4,972	5,540	11.4 %
Financial expenses	-41,982	-46,824	11.5 %
Share of the profit or loss of associated companies accounted for using the equity method	2,672	-3,021	n/a
Earnings before tax (EBT)	56,385	24,043	-57.4 %
Income tax expense	-27,393	-9,629	-64.9 %
Earnings after tax	28,992	14,414	-50.3 %

Consolidated balance sheet

Assets in EUR '000	Dec. 31, 2015	Dec. 31, 2016	Change
Non-current assets
Intangible assets	27,455	25,640	-6.6 %
Property, plant and equipment and investment property	404,356	407,977	0.9 %
Investments accounted for using the equity method	132,553	129,252	-2.5 %
Participations	3,613	9,730	n/a
Deferred tax assets	27,190	42,907	57.8 %
Other non-current assets	7,722	8,256	6.9 %
Other non-current financial assets	15,355	18,412	19.9 %
	618,244	642,174	3.9 %
Current assets
Inventories	444,629	447,326	0.6 %
Receivables and other assets	544,329	554,076	1.8 %
Effective income tax refund claims	2,300	4,771	n/a
Cash and cash equivalents	47,406	33,463	-29.4 %
	0	19,608	n/a
	1,038,664	1,059,244	2.0 %
	1,656,908	1,701,418	2.7 %

Equity and liabilities in EUR '000	Dec. 31, 2015	Dec. 31, 2016	Change
Equity
Equity of BAUER AG shareholders	438,842	429,867	-2.0 %
Non-controlling interests	12,368	4,264	-65.5 %
	451,210	434,131	-3.8 %
Non-current debt
Provisions for pensions	112,284	127,081	13.2 %
Financial liabilities	393,694	199,864	-49.2 %
Other non-current liabilities	7,262	7,556	4.1 %
Deferred tax liabilities	20,664	22,296	7.9 %
	533,904	356,797	-33.2 %
Current debt
Financial liabilities	318,700	510,497	60.2 %
Other current liabilities	317,785	370,900	16.7 %
Effective income tax obligations	16,955	11,213	-33.9 %
Provisions	18,354	17,880	-2.6 %
	671,794	910,490	35.5 %
	1,656,908	1,701,418	2.7 %

In the "Change" column, there may be differences from the Group key figures as a result of roundings and a different representation between thousands of EUR and millions of EUR.

Financial calendar 2017

April 13, 2017	Publication Annual Report 2016 Annual Press Conference Analysts' Conference
May 15, 2017	Quarterly Statement Q1 2017
June 29, 2017	Annual General Meeting
August 11, 2017	Half-Year Interim Report to June 30, 2017
November 14, 2017	Quarterly Statement 9M/Q3 2017

BAUER Aktiengesellschaft BAUER-Strasse 1 86529 Schrobenhausen, Germany www.bauer.de