ElringKlinger AG — Annual Report 2014

Apr 2, 2015

Annu a l Re port 2014

pure process

Key Figures ElringKlinger Group

(IFRS)

		2014	20134	2012	2011	2010	2009	2008
Order intake	€ million	1,418.6	1,284.4	1,134.8	1,089.0	886.6	612.9	621.3
Order backlog	€ million	688.2	595.4	456.0	448.4	333.1	242.2	208.6
Sales revenue	€ million	1,325.8	1,150.1	1,127.2	1,032.8	795.7	579.3	657.8
Cost of sales	€ million	967.4	824.5	815.0	744.2	557.0	426.3	464.2
Gross profit margin		27.0%	28.3%	27.7%	27.9%	30.0%	26.4%	29.4%
EBITDA	€ million	233.4	238.65	218.0	247.96	198.2	134.5	137.4
EBIT1	€ million	154.0	164.25	138.6	151.16	116.0	63.3	75.8
EBIT margin		11.6%	14.3%5	12.3%	14.6%6	14.6%	10.9%	11.5%
Earnings before taxes	€ million	153.1	148.95	123.6	136.66	94.0	49.4	60.0
Net income	€ million	110.6	111.25	89.2	97.66	68.6	34.8	43.2
Net income attributable to
shareholders of ElringKlinger AG	€ million	105.7	105.45	85.7	94.96	65.6	33.2	39.8
Net cash from operating activities	€ million	149.9	119.0	112.3	74.5	126.2	148.8	98.2
Net cash from investing activities	€ million	-168.0	-126.4	-108.2	-147.4	-128.1	-93.6	-211.7
Net cash from financing activities	€ million	20.1	14.7	-13.3	35.4	74.0	-49.3	116.9
Operating free cash flow2	€ million	-12.4	-4.2	8.2	-10.5	-1.9	58.2	-37.6
Balance sheet total	€ million	1,558.8	1,392.1	1,268.6	1,217.6	991.3	772.3	764.5
Equity	€ million	775.2	701.3	642.2	610.1	522.3	318.3	288.1
Equity ratio		49.7%	50.4%	50.6%	50.1%	52.7%	41.2%	37.7%
Return on equity after taxes		15.0%	16.6%5	14.2%	17.2%6	16.3%	11.5%	15.2%
Return on total assets after taxes		8.2%	9.2%5	8.2%	9.9%6	9.2%	6.4%	8.2%
Return on Capital Employed
(ROCE)		12.4%	14.4%5	13.3%	16.7%6	15.2%	8.8%	13.6%
Earnings per share	€	1.67	1.665	1.35	1.506	1.11	0.58	0.69
Dividends paid	€ million	34.83	31.7	28.5	36.7	22.2	11.5	8.6
Dividend per share	€	0.553	0.50	0.45	0.58	0.35	0.20	0.15

¹ EBIT corresponds to operating result (excl. currency effects)

² Net cash from operating activities minus net cash from investing activities (excluding acquisitions)

³ Proposal to the Annual General Shareholders' Meeting 2015

⁴ Prior-year figures restated in accordance with IFRS 11

5 including one-time gain from assumption of control of ElringKlinger Marusan Corporation (EUR 17.6 million before taxes; EUR 12.7 million after taxes)

⁶ including one-time gain from sale of Ludwigsburg industrial park (EUR 22.7 million before taxes; EUR 16.5 million after taxes)

Highlights of the Year 2014

January

Entry into lightweight automotive engineering

ElringKlinger received its first large-scale order to make innovative polymer-metal hybrid components, in addition to supplying the required tooling technology. The new production method combines hydroforming with plastic injection molding in a single step and has the potential to shape the future of lightweight construction. From 2015 the company will supply front-end carriers and cockpit cross-car beams made using the new hybrid hydroforming technology.

July

Takeover boosts fuel cell expertise

ElringKlinger AG's acquisition of a 75% stake in new enerday GmbH (Neubrandenburg, Germany) gives it access to wide-ranging development and production expertise for complete fuel cell systems. New enerday specializes in high-temperature fuel cells that generate electricity and heat from natural gas, liquid gas, bioethanol and diesel for numerous applications, e.g. in yachts, mobile homes and holiday homes.

September

Automechanika proves successful

The focus of the Aftermarket division's booth at Automechanika, the leading international automotive trade show held in September 2014 in Frankfurt/Main, was on its "Elring – das Original" brand and on "Partnership" within the wholesale/retail industry. One of the highlights of the event was the presentation of a new online training tool, "Elring Academy," for the division's partners in vehicle workshops and the retail aftermarket. Visitors were also shown the new augmented reality app, which allows users to look into a vehicle via a screen in order to examine the components made by ElringKlinger.

May

Work begins on new factory in Suzhou (China)

25 kilometers from its current site in Suzhou, the new factory will provide ElringKlinger China Ltd. with a solid foundation from which to drive further growth in the world's biggest automotive market. The site will include an ultra-modern production facility for shielding components, lightweight plastic modules and products made of high-performance plastics for the Engineered Plastics division. The new factory is scheduled to begin operation in 2015 and is a clear reflection of the Group's strong growth in Asia.

July

New factory opens in South Korea

Production of cylinder-head and specialty gaskets, heat shields and plastic housing modules began in July 2014 in Gumi, known as South Korea's Silicon Valley. The new factory reflects a top priority for the ElringKlinger Group, which generates around a quarter of its total revenue (including exports) in Asia and receives an increasing number of development orders from locally based manufacturers.

October

Acquisition strengthens Engineered Plastics division

In October 2014, ElringKlinger Kunststofftechnik GmbH, a subsidiary of ElringKlinger AG, took over the specialty plastics manufacturer Polytetra GmbH (Mönchengladbach, Germany). Polytetra makes PTFE heat exchangers and heaters for industrial use. Its product portfolio also includes tubing and finished parts made of high-performance plastics for applications outside the automotive industry.

P o we r e d by suc c e ss: tu rboch a r g e r g a s ke t s

The average car driver will probably never get to see one. And yet, the turbocharger gasket gracing the cover of this year's annual report performs an extremely important role in modern-day engines. After all, today's combustion engines are only so economical because the energy contained in exhaust gases is reused by one or even multiple turbochargers. The gaskets are needed to seal off the housing of the turbocharger from the ambient air and thus prevent harmful emissions from escaping – good for the environment and good for ElringKlinger. We have developed a waste-optimized manufacturing process for this product and supply millions of turbocharger gaskets over the course of one year.

"Pure Process" – the title chosen for the 2014 annual report reflects the unique core competencies developed by ElringKlinger: out-and-out process expertise. The company's skill set covers intricate metal processing operations using highly sophisticated precision die-cutting and embossing techniques as well as functional coating technology, complemented by an in-depth understanding of plastics. Combined with specialist materials expertise and in-house tool construction facilities, this symbiosis of high-tech processes forms the foundation for progressive innovation and a steady expansion of the Group's product and service portfolio. Applying these skills, we are committed to pursuing the key issues shaping the future of our industry.

Yingqiang Teng

ELRINGKLINGER CHINA, SUZHOU, CHINA

Manufacturing lightweight body components using a hybrid constantly on developing his own skills, although having a cordial relationship with the colleagues in his team is just as important to him. After all, teamwork is a prerequisite to P ure process # 1

Pure dedication

Success is built on personal commitment. This includes constantly working on improving your own capabilities, focusing precisely on the customer's requirements and being prepared to strike out in new directions. It is these attributes that unite all the employees at the ElringKlinger Group's various sites worldwide. We meet people whose dedication is born out of a sense of conviction for a cause. With technical expertise, flexibility and a love of innovation, they are all working toward a common goal – reducing emissions and fuel consumption.

Beate Zika-Beyerlein

ELRINGKLINGER ABSCHIRMTECHNIK , SEVELEN, SWITZERLAND

The Head of Research & Development in the Shielding Technology division tracks market trends and never takes her eye off what customers are developing. She is constantly working on new challenges and applications, in areas such as energy conversion or the further optimization of thermal/acoustic insulation systems. She most enjoys exchanging expertise with other members of her team and working together to devise solutions for her customers – this is what leads to market success.

Management Report To our Shareholders Contents

Mathias Lindt

questions.

HUG ENGINEERING, ELSAU, SWITZERLAND What the Development Engineer at Hug Engineering finds particularly fascinating is the variety he encounters in his work, which is all about purifying exhaust gases in large engines. As a project manager, he is responsible for the design of installation engineering, as well as running simulations and helping with system development.

He often visits customers at their premises and supports the sales teams with answers to complex technical

K atja Widmann

ELRINGKLINGER KUNSTSTO FF TECHNIK , HEIDENHEIM, GERMANY

At ElringKlinger Engineered Plastics, this engineer's work revolves around Hetragon cells, which are used for heat transfer in flue gas desulfurization at coal-fired power plants such as the one in Mannheim. Her ambition is to be able to purify flue gases even more effectively by means of targeted temperature control and thus reduce harmful emissions. To this end, she continually develops and tests new product designs as well as initiating their manufacture.

Consolidated Financial Statements

Sven K asper

ELRING KLINGER MOTORTECHNIK , BIETIGHEIM-BISSINGEN, GERMANY

As test lab manager for the engine test benches in Bietigheim-Bissingen, he is responsible for adapting to the many varied and constantly changing technical challenges posed by the automotive industry. Top priority for him is reducing CO2 and nitrogen oxides. In this, he regards close collaboration with customers on development work as particularly important as it is the only way he can gain a comprehensive understanding of their projects.

P ure P roces s # 2

Climate summit

At the age of nine, Felix Finkbeiner brought to life an initiative by the name of "Plant for the Planet". Its aim is to plant one trillion new trees in order to protect Earth from a climate catastrophe. Speaking to the now 17-year-old high school graduate, Dr. Stefan Wolf, CEO of ElringKlinger, discusses whether global warming can still be stopped with the help of modern technology.

Wolf — A year ago I asked several high school graduates how important the issue of climate protection is to them. Their answers: in theory it's foremost in my mind, but on a day-to-day basis other things take priority.

Finkbeiner — Global warming is a long-term crisis that matters to everyone in my generation. New studies show that three-quarters of children and teenagers from the industrialized nations consider the crisis relating to climate change and social justice to be the greatest challenge they have to face.

Wolf — That is indeed the case, and therefore it is important to take action. ElringKlinger is committed to making a contribution to climate protection. We believe that mobility will play a significant role in this quest. The technical possibilities available to us are far from exhausted. Therefore, it is essential that we put every effort into reducing CO2. If no one acts, nothing will change.

Finkbeiner — In the long term, we can only solve such problems through cooperation at a global level. Therefore, international dialog aimed at reaching agreements on climate protection is a key prerequisite. However, these negotiations are protracted, stretching back to a time before I was born. The recurrent mantra is that progress will be made within five years. That's frustrating – but there is still no alternative to a global solution.

Wolf — The task of tackling CO2 reduction can't be restricted to Germany or Europe. We won't be able to save our climate by pursuing such a regional approach, quite simply because our contribution is too small. After all, the entire planet is affected. That is why I find the "Plant for the Planet" initiative so interesting.

Finkbeiner — Regardless of this, a country such as Germany should take a lead role at an international level, e.g. as regards its "Energy Transition" project. This is a tremendous opportunity, as the entire world is looking to Germany. If we can achieve this as an industrialized nation, no other country can come up with excuses as to why energy conservation and a push towards renewable energy cannot be implemented.

Wolf — It is also important to ensure that the move towards sustainable energy is financially viable. Only if we achieve this transition and are successful economically will other nations around the globe acknowledge Germany as a benchmark and perhaps even copy our approach. The automotive industry serves as a good example in this area. Europe has defined the strictest emission thresholds. These standards are now gradually being "exported", with China looking to phase in our emission policies by the end of the decade. In the United States it will probably take until 2025, but there, too, the automobile industry will be faced with increasingly strict emission standards. For ElringKlinger, this represents a tremendous opportunity, as we have the technologies needed to make engines and vehicles more efficient.

Finkbeiner — That's really impressive. At the same time, in the long term I believe we should still be looking to expand public transport much more widely. What is more, cars around the globe should become even more environmentally friendly and, ultimately, their overall number should be scaled back.

Wolf — For my generation, the most important thing was to have a car as soon as you turned eighteen. But today, this no longer seems to be as important to youngsters, at least not here in Germany. By contrast, the car remains a status symbol in the rapidly growing economies of Asia. Therefore, it is important that the cars being driven can operate with lower CO2 emissions.

Finkbeiner — The best solution to achieve this would be a system of global emissions trading. If everyone producing CO2 incurred a cost for doing so, there would be an incentive for all branches of industry to reduce carbon dioxide emissions – not just the automobile industry.

Wolf — Indeed, there is enormous potential to make savings in other areas, too. For example, when it comes to heating residential properties. We have developed a fuel cell system that can achieve efficiency levels of almost 90% by means of cogeneration. If we simply replaced all oil-fueled heating systems in Germany with fuel cells or combined heat and power generation units, the CO2 savings in this area alone would be enormous.

Finkbeiner — On the whole, there is still a strong correlation between the level of wealth and CO2 emissions. Emissions have been increasing in line with our standard of living for more than 200 years. It is precisely this interrelationship that we need to tackle. I am confident that it is possible. If a price were to be attached to CO2, each branch of industry would invest in new, better technologies.

Consolidated Financial Statements "It would be possible, in essence, to reduce our CO2 emissions by 75 percent. The European vehicle industry has already shown the possible extent of technological progress over the course of the last ten years." Dr. Stefan Wolf

"If everyone producing CO2 incurred a cost for doing so, there would be an incentive for all branches of industry to reduce carbon dioxide emissions." Felix Fink beiner

Wolf — Ultimately, the onus will be on policymakers to introduce laws and standards within this area. One example is shipping, where the level of pollutants emitted is much higher than that associated with passenger cars and commercial vehicles. ElringKlinger is able to supply highly effective exhaust gas purification systems, but it will take appropriate legislation to ensure that shipping companies actually install them. Imagine ocean liners only being allowed to visit European ports if they meet specific emission standards; the requisite systems would be fitted almost immediately. We need stricter regulations, and these should apply not only to the automobile industry but also to many other areas of business.

Finkbeiner — The light bulb is a prime example. For 135 years there was no incentive at all to invest in new technology. It was only when the EU introduced new laws that LED technology became marketable within a very short period of time. One can argue about the details of specific regulations and directives, but not about the fact that we are in urgent need of such rules to ensure that CO2 levels are cut back.

Wolf — Your campaign is not just restricted to talking about climate protection, you're actually doing something about it too: planting trees. How big is the contribution we can realistically make in this area?

Management Report To our Shareholders Contents

Finkbeiner — We conducted a study together with Yale University. Its findings were that Earth can accommodate 1 trillion trees in addition to the 3 trillion trees already here. Essentially, this relates to areas previously forested but subsequently cleared and now lying fallow. If we succeed in planting this volume of new trees, these additional trees will absorb one-quarter of the global CO2 emissions produced by humans each year. Of course, this alone will not be sufficient to solve the climate problem, but it would give us a little more time for the transition towards low-CO2 technologies and statutory regulations that include specific obligatory thresholds.

Wolf — That would be fantastic. It would be possible, in essence, to reduce our CO2 emissions by 75 percent. I'm sure of that. The European vehicle industry has already shown the possible extent of technological progress over the course of the last ten years. Now we have to transfer this experience to other industries. But this will require a change in awareness.

Finkbeiner — We want to contribute to this change in awareness. Planting trees illustrates that everyone can make their mark. It's easy. We don't have to wait for the government or even the United Nations to act. And each tree that has already been planted isn't just an absorber of CO2. It also serves to show that we can and must do much, much more.

Wolf — This sense of change is much more apparent in your generation than it was back in the days when I graduated from high school. And with this in mind, I am confident that we will achieve a new consensus in society. This is essential if we are to introduce alternative drive systems to the market. For example, the fuel cell is essentially a very attractive form of propulsion – but we have to cover many more aspects than vehicle technology itself. At present, for instance, the process of producing hydrogen requires far too much energy; we need new methods. Additionally, we need the fueling infrastructure for hydrogen.

Finkbeiner — I am convinced that, fundamentally, we are already in possession of or can develop the full range of technologies needed to achieve a zero CO2 emissions target by 2050. What we need is the determination at the political level to implement this accordingly. In other words, I am confident that it can be achieved, but I'm not at all certain that it will be achieved.

Wolf — If we look at what we have already accomplished in the automotive industry, I think we can be optimistic that this can be transferred to other branches of industry. I am also encouraged by the level of dedication shown within the younger generation. After all, you will be shaping the world of the future. Admittedly, there's a long way to go, but I'm sure we can succeed if we make a concerted effort.

About Felix Finkbeiner

At the beginning of 2007, then nine-year-old Felix Finkbeiner was given an assignment by his teacher to prepare a short presentation on the climate crisis. Inspired by Kenyan environmental activist Wangari Maathai, he asked his classmates to plant trees, which are capable of absorbing CO2 produced by humans. He soon found backers inspired by his idea. Today, children and teenagers around the world work in support of the "Plant for the Planet" initiative launched by Finkbeiner. To date, more than 13 billion trees have been planted.

ElringKlinger front-end cockpit carriers combine the benefits of metal and plastic, or in other words: maximum strength and minimal weight.

P ure process # 3

Age of enlightenment

Replacing metal with plastic has huge potential to make vehicles lighter and more fuel-efficient. In order to be able to replace as many sheet steel and aluminum components as possible, ElringKlinger engineers are not only working on classic plastics but also on innovative hybrid materials and the requisite production processes.

There is a clear, worldwide trend towards lower carbon emissions and less fuel consumption by vehicles. A limit of just 95 g of CO2 emissions per kilometer will apply to all new vehicles in the European Union from 2020. Since the weight of any vehicle plays a significant role in generating carbon emissions, ElringKlinger engineers are continually working on new lightweight solutions for drivetrains and bodywork. "In order to meet these emission targets, we will have to harness the full potential of lightweight engineering," says Klaus Bendl, Head of Development in the Elastomer Technology and Modules division of ElringKlinger. "Although we have already achieved a great deal, there is certainly further potential to make vehicle components lighter and more sustainable."

One key approach in this drive for weight reduction is to replace metal parts with plastic ones. "For about 15 years now, we have been working step by step to replace metal with plastic in the drivetrain," says Bendl. "We began with modules for cylinder head covers and then started replacing metal parts in the intercooler duct with plastic parts. Today, our focus is on components such as oil separation systems, intake modules and oil pans made of plastic – the latter of which are particularly suitable for use in utility vehicles."

There is a double benefit to using plastic in this way. For one thing, weight reduction of up to 30 percent – and even 50 percent in many cases – can be achieved. But functional benefits can also be gained at the same time: "Plastic allows us to achieve much more complex geometries," says Bendl. "Thanks to the additional options afforded by injection molding, we can use plastic components to keep the number of individual parts as low as possible." For instance, a plastic oil intake module has been successfully developed as a single component – replacing four individual parts. The aspect of production is taken into account as soon as such components are developed. Bendl and his colleagues benefit from the in-house expertise of development partner Hummel, the company that produces the injection molding tools. "These functional advantages add to the weight-reduction benefits, making our lightweight solutions attractive from an overall costing perspective," says Bendl.

A new area now being addressed by lightweight construction experts is vehicle bodywork. Here developers are focusing on cockpit cross-car beams and frontend carriers made out of polymer-metal hybrids. "We use hydro-formed hybrid technologies to make these structural components," says Reinhard Müller, Head of Elastomer Technology and Modules. "This is a brand new system currently not offered by any other supplier. For us, it is the perfect foray into lightweight bodywork, as we can not only achieve weight-reduction benefits of 20 to 30 percent but also produce these components at very competitive rates."

Hydroformed hybrid technology (HFH) involves a combination mold tool that combines the two processes of hydroforming and plastic injection molding in a single step. A robot places an extruded, thin-walled metal tube into the mold. After the two halves of the mold are closed, the interior of the tube is filled with cold water at 600-bar pressure, which causes it to expand and assume the desired shape. The injection-molding process then begins in the same mold cavity.

Molten plastic is injected into the mold at 300 degrees Celsius and then solidifies in the cavity between the mold and the reshaped tube, once again at 600-bar pressure. "The internal counter-pressure ensures the aluminum tube does not collapse during the injection process," explains Bendl. Once the part has cooled and is thus dimensionally stable, the hybrid part is then removed by a robot and transferred to the downstream processing stage. This process allows a host of plastic elements to be incorporated in a cockpit cross-car beam or front-end carrier in a single processing step and then formed into their final shape. By contrast, when all-metal materials are used, several different steps are required, because each individual piece of metal has to be produced in separate molds and then attached by welding robots.

Large plastic components offer more than just weight savings. The production processes continually being developed by ElringKlinger result in a significant reduction in the number of overall parts.

Plastic meets metal – hydroformed hybrid technology (HFH)

PREPARA T ION

The metal tube is placed in the mold by a robot and filled with water.

FOR M ING

The water is subjected to 600-bar pressure so that the tube will assume the desired shape.

INJEC T ION M OLDING

Liquid plastic heated to a temperature of 300 degrees Celsius is injected into the mold at 600-bar pressure. It then solidifies in the cavity and around the reshaped tube.

DO W NS T REA M PROCESSING

The hybrid part is then removed from the mold and transferred to the downstream processing stage.

Polymer-metal hybrids combine the strengths of both materials. These include not only technical advantages such as a great dimensional and geometrical accuracy with minimal tolerances and increased bending and dent resistance in the event of a crash but also time and cost savings resulting from the ability to incorporate several processing steps in a single action. The HFH team is currently working on structural parts for markets in China, North America and South Africa, with production in Suzhou (China) already underway. "We ventured into serial production with a car maker for the first time in late 2014 and are experiencing a very high degree of interest from other vehicle manufacturers," says Müller. A further production site in Leamington (Canada) for instance is already at the planning stages.

ElringKlinger engineers are also working on other lightweight bodywork solutions, such as structural parts made out of organo sheets that contain no metal materials, but rather continuous woven fiberglass embedded in a polymer matrix. They can be used wherever there is a need to reduce the weight of structural and energy-absorbing parts. To make a part out of organo sheets, the fiberglass-polymer semi-finished part is heated, reshaped and overmolded with plastic.

"For us, it is the perfect foray into lightweight bodywork, as we can not only achieve weight-reduction benefits of 20 to 30 percent but also produce these components at very competitive rates."

Reinhard Müller, Head of Elastomer Technology and Modules

Precision work – parts produced by the hydroformed hybrid method meet the highest safety standards.

"Components made out of organo sheets are as solid and resilient as metal. This makes them capable of assuming the supportive function of metal in such components where conventional plastics would be inadequate," is Bendl's summary of the benefits of this material.

Organo sheets are already being used in seating systems, foot pedals, pedal brackets, running boards and crash elements. With the aim of being able to apply this material to other bodywork components, ElringKlinger process developers are working on further refining the processing and forming techniques, because glass fibers are not as ductile as metals. Nevertheless, with the potential to make weight savings of about 30 percent, organo sheets seem likely to be able to replace more and more steel components in the future and thus contribute to achieving the emissions target of 95 g of CO2 per kilometer.

Hot ideas

The waste heat generated by combustion engines is a precious commodity. Used in the right way, it can help to reduce tailpipe emissions and fuel consumption by a considerable margin. This article takes a brief look at ElroTherm D and energy harvesting, two innovation projects initiated by ElringKlinger's Shielding Technology division.

Harvesting energy

Energy is valuable. If it was possible to recycle the waste heat of a combustion engine, one could use this heat as an additional source of energy. As part of a joint project supported by the German Ministry of Education and Research, ElringKlinger is currently assessing a number of pioneering technologies that may contribute greatly to this vision. "Tests already conducted on these innovative shielding systems with integrated functional features have revealed considerable potential for savings at the overall system level," says Beate Zika-Beyerlein, Head of Development within the Shielding Technology division. Now the objective is to verify the functionality of this new technology with the help of prototypes fitted to an actual combustion engine with the associated exhaust system. The technologies currently undergoing research are particularly interesting for use in electric vehicles (either plug-ins or hybrids), which are being marketed more widely by manufacturers. In this case, the combustion engine only operates temporarily – and emits heat as it cools down.

Nice and cozy

Combustion engines are becoming increasingly efficient – a boon to motorists and the environment, but a challenge for automotive suppliers. The catalytic converter, for instance, which is responsible for neutralizing pollutants contained in the exhaust gases, can only work efficiently once it has reached the required operating temperature – and the latter exceeds 200 degrees Celsius. After a cold start, therefore, the objective is to direct the exhaust gas to the catalytic converter without losing an excessive amount of heat. This task is performed particularly well by a new generation of shielding materials launched onto the market by ElringKlinger under the name of ElroTherm D. The shielding material, comprising one layer each of stainless steel and silicate fibers, is fitted to all heatcarrying components – from the exhaust manifold via the turbocharger to the catalytic converter itself. Superior insulation offers other advantages, too. First, consumption is scaled back, as less fuel has to be injected after a cold start. Secondly, ElroTherm D also dampens noise generated in the exhaust system.

Combined

Molding the future

The integration of mold maker Hummel within the ElringKlinger Group marks the introduction of a creative think tank specializing in pioneering production methods of the future. Expertise such as this is essential when it comes to unlocking further growth potential.

Years of neighborly collaboration finally culminated in amalgamation, with ElringKlinger acquiring a ninety percent interest in die- and mold-making specialist Hummel-Formen GmbH in September 2011. The rationale behind this acquisition was to strengthen ElringKlinger's expertise relating to tool engineering and expand the company's know-how in the field of material-based lightweighting. After all, replacing heavy metal components with lightweight polymerbased solutions was and continues to be one of the main routes chosen by car makers in their quest to reduce fuel consumption and scale back CO2 emissions.

In an age in which ever-increasing demands are made on individual parts and assemblies, fiber-reinforced composites are often the material of choice. However, processing such materials poses challenges in many cases. It is precisely in this area that Hummel has amassed a wealth of expertise. Since its inception in 1960, the company, located just a few minutes away by car from ElringKlinger's headquarters in Dettingen, had invested continuously in new technology. This included state-of-the-art machinery as well as the introduction of company-developed processes that were

soon to give Hummel a unique selling proposition within the markets it served.

In fact, it was these core competencies that brought ElringKlinger and Hummel together – long before 2011. As early as the 1990s, the company was working on solutions aimed at integrating seals and gaskets into plastic components. One of the first products from this era is today considered the incubator for ElringKlinger's business activities in the area of plastic housing modules, which today account for annual sales of EUR 140 million.

The aspirations associated with the incorporation of Hummel-Formen GmbH into ElringKlinger AG four years ago as its Lenningen plant have more than been fulfilled thanks to a successful process of integration. Indeed, developers and production experts make no secret of the fact that profound knowledge in the field of tooling is a decisive factor as to whether new developments or new processes can actually be implemented in practice.

60%

of all solu t ions d eveloped a t t he L enni n g e n plan t are a tt r i b u t a b le t o lig h tw eig h t engi neering and t hus t he red u c t ion in f u e l consu m p t ion.

There is an audible sense of pride in the voice of Thomas Wolf, Head of Technical Sales, when he describes what has already been accomplished in Lenningen and what has been planned for the future. The expertise applied to tool construction, 3-D product engineering and process development has helped the plant to extend its competencies across virtually the entire process chain. Jürgen Weingärtner, Head of Technical Service at ElringKlinger, sums it up as follows: "Drawing on our experience, we are able to provide customers with solutions tailored to their requirements, applying various methods and using a range of materials – as well as combinations thereof."

To make this possible, the Lenningen plant has evolved continuously from a technological perspective. Today, for instance, the focus is no longer on the actual tool itself. Rather, the emphasis is on thinking in processes. "Behind every task there is a new process," as Thomas Wolf puts it. A string of newly developed solutions in recent years reflects the successful transition from a die and mold maker to a developer of specialist processes applied to manufacturing operations.

In this context, the tools themselves merely form the basis for implementing new processes or new products within a partnership that includes tool, process and automation. A prime example cited by Thomas Wolf is the hydroforming of aluminum pipes directly within an injection-molding tool, a method developed by an OEM and applied by ElringKlinger. Another pioneering solution is the lost core injection-molding method (with integrated injection-molding for ready-to-install parts) developed by the Lenningen plant; it can be used for parts featuring highly complex interior geometries and a closed outer skin. Additionally, the plant applies the so-called JoinMelt method, as part of which a welding process can be incorporated into the injectionmolding process, i.e. forming can be combined with

"While a brilliant idea may be feasible in terms of product design and computation, it doesn't necessarily mean that it can actually be executed at a production level. Our task is to transform ideas into reliable processes and efficient tool technology."

Thomas Wolf, Head of Technical Sales

joining in a single step. Last but not least, it uses a number of production processes for parts made of organo sheets. The to-do list in Lenningen currently includes six different projects relating to materials and production engineering.

Furthermore, the plant is working on numerous inhouse development projects for products and processes in the field of lightweight construction and product optimization. These are to unlock new market segments for ElringKlinger AG's global manufacturing operations.

The sales department at ElringKlinger is particularly delighted by the fact that these newly developed solutions are attributable to orders placed by customers – with the prospect of future series production. At the same time, they serve to extend the company's own expertise and also strengthen its position when it comes to submitting bids for subsequent serial applications.

Despite the sense of momentum needed to work simultaneously on various projects for both internal and external clients, Weingärtner and Wolf still have a number of other forward-looking ideas in the back of their minds. One of them is to transfer some of the expertise concentrated at the Lenningen plant to the other sites operated by ElringKlinger around the globe.

Thomas Wolf, Head of Technical Sales at ElringKlinger's Lenningen plant, believes that each new task holds an opportunity for process optimization.

Head of Production Albert Lennerth ensures that the process of producing turbocharger gaskets runs as smoothly as possible.

24 pure process — Poetry of motion

P ure process # 6

Poetry of motion

Over a period of just a few years, ElringKlinger has succeeded in establishing itself as one of the market leaders in the area of turbocharger gaskets. A glimpse behind the scenes reveals that the company's ability to benefit from the global trend towards small, turbocharged engines is a tribute primarily to the close level of cooperation between its development and production units.

This has to be possible without causing waste – but how? It was this simple question first uttered in 2007 that heralded the dawn of a high-flying product for ElringKlinger. Since the turn of the millennium, the automotive industry has seen a steady rise in the market share of combustion engines fitted with exhaust turbochargers. This trend is being driven by a number of tangible benefits associated with this form of "artificial respiration" – the ability to reduce engine displacement and fuel consumption without jeopardizing engine performance and torque. However, in

order to ensure that the environmental footprint and efficiency levels of such downsized units are truly up to scratch, it is essential that no unfiltered exhaust gases can escape from the turbocharger (and, increasingly, engines are being equipped with two or even three turbochargers). This is achieved with the help of several specialty gaskets that are used to seal not only the cover required for the turbocharger housing so that it can be properly fitted but also the connecting points between the turbocharger and the exhaust manifold as well as the exhaust system.

A narrow strip of steel is cut to the required length.

The strip is then formed to create a ring and welded together at the open end.

> 50%

The task to be performed by turbocharger gaskets is a daunting one: the exhaust gas of turbocharged gasoline engines can reach temperatures of up to 1,050 degrees Celsius, as a result of which the associated pipes and turbocharger housing have to withstand temperatures of up to 800 degrees Celsius. Temperatures such as these generally prove to be too much of a challenge for standard steel. Therefore, the special steels used by ElringKlinger are alloyed with a high proportion of nickel and other chemical elements. "Materials such as these were previously used mainly in aircraft engines and gas-fired power stations," says Reiner Drews, Head of the Specialty Gaskets division.

The biggest challenge facing him and his team was the method of production. The existing methods applied within the industry – with rings being punched out of a layer of expensive special steel – meant that the overall weight of the waste material produced during fabrication was in excess of that of the actual products.

Over a period of three years, ElringKlinger engineers in Dettingen an der Erms therefore developed a completely new process with a reduced volume of waste. Essentially, it comprises just three key steps: a narrow strip of steel is cut to the appropriate length and then formed to create a ring that is welded together at the open end. This ring is then embossed to create the desired profile. Finally, the rings are cured for several hours in a special furnace until they have the required strength. "Not only is this production method more environmentally friendly, it is also much more efficient. It is gratifying to know we have mastered a process that now allows us to produce millions of sealing rings each year," says Albert Lennerth, who is responsible for production.

Although the manufacturing process is almost fully automated, the offices located directly adjacent to the production line are a hive of activity. After all, customer inquiries need to be processed and projects need to be managed – and sometimes, towards early evening, a member of the production team might come by to ask a question. "We're a real team that sticks together and finds a solution to even the toughest challenges," says Albert Lennerth and smiles.

It's all about precision: the shape of each and every seal is checked automatically.

P ure process #7

Autonomy

For those with a passion for sailing, the thrill lies in exploring the seas and becoming one with the forces of nature through their own skills and by harnessing the power of the wind. Not only does this give them independence; it is also benign to the environment. The fuel cell systems made by ElringKlinger's subsidiary new enerday offer the same virtuous combination – an independent source of on-board power with no harmful emissions.

Working so quietly that you can't even hear it, new enerday's high-temperature fuel cell system generates electricity extremely efficiently from natural or liquid gas. That's very useful, of course, when your boat is lying at anchor overnight in a quiet lagoon, but the company – founded just a few years ago in Neubrandenburg and part of the ElringKlinger family since 2014 – is now targeting the professional market, too. The system is highly versatile and can be installed wherever a customer needs electricity but is unable to use conventional technology for economic or logistical reasons: in an unmanned marine research vessel, for example, or a remote gas pipeline monitoring station. Decentralized and autonomous electricity generation – pioneering the future.

Neat work: the fuel cell systems supplied by ElringKlinger subsidiary new enerday are a tribute to years of research and development work. The very first systems produced in series were dispatched in 2014.

Contents

• Pure Process Insights from the Group
• The Management Board
• Letter to Shareholders
• Report by the Supervisory Board 2014
• ElringKlinger and the Capital Markets
• Corporate Governance Report

To our Shareholders Combined Management Report

• Overview of ElringKlinger's Activities and Structure
• Internal Control Criteria
• Research and Development
• Macroeconomic Conditions and Sector Environment
• Significant Events
• Sales and Earnings Performance
• Financial Position
• Cash Flows
• Financial Performance, Net Assets and Cash Flows of ElringKlinger AG
• Employees

Consolidated Financial Statements

• Sustainability
• Procurement
• Report on Opportunities and Risks
• Compensation Report
• Details according to Sec. 289 (4) and Sec. 315 (4) of the German Commercial Code (HGB), particularly with regard to share capital and disclosure of potential takeover obstacles
• Corporate Governance Statement pursuant to Section 289a of the German Commercial Code
• Report on Expected Developments

• Events after the Reporting Period

• Group Income Statement

• Group Statement of Comprehensive Income
• Group Statement of Financial Position
• Group Statement of Changes in Equity
• Group Statement of Cash Flows
• Notes to the Consolidated Financial Statements
• Audit Opinion
• Responsibility Statement
• Glossary
• Imprint

The Management Board of ElringKlinger AG

Dr. Stefan Wolf (Chairman/CEO) Responsible for Group companies, the corporate functions Finance, Controlling, Legal Affairs, Human Resources, IT, Investor Relations and Corporate Communications, as well as the After-

market and Industrial Parks divisions

Karl Schmauder

Responsible for Original Equipment Sales and New Business Areas

Theo Becker

Responsible for the Cylinder-head Gaskets, Specialty Gaskets, Plastic Housing Modules / Elastomer Technology, Shielding Technology, Exhaust Gas Purification Technology, E-Mobility and Tooling Technology divisions as well as the corporate functions Quality and Environment, Mate- (from left to right) rials Management and ElringKlinger AG plants

Letter to Shareholders

2014 proved to be another encouraging year for ElringKlinger. This was attributable first and foremost to buoyant growth in the vehicle markets of North America and Asia. At the same time, the industry benefited from a more pronounced recovery in large parts of Europe. Operating in a climate marked to some extent by geopolitical uncertainty, we succeeded in expanding sales revenue by 15.3% to EUR 1,325.8 million within the ElringKlinger Group. What is more, the Group maintained its profitable growth in the period under review.

Having seen business develop largely along favorable lines, we are again in a position to reward our shareholders in the form of a dividend payment. We will submit a proposal to the Annual General Meeting for a dividend distribution of EUR 0.55 per share. This corresponds to another year-on-year increase of five cents per share.

"Pure Process" – the title of this year's annual report captures the essence of our company's core competencies. High-tech processes such as precision die-cutting and functional coating as well as unrivalled expertise in metal and plastics processing have provided us with a solid platform from which to expand our product portfolio over the course of time. We are tackling issues that are of strategic importance to the future of our industry and, at the same time, we are offering premium-class solutions tailored to today's market needs.

In this context, the reduction of fuel consumption and emissions is at the heart of our efforts. ElringKlinger was among the first to embrace the trend towards downsizing and is now moving forward at pace within this area. Whether cylinder-head or specialty gaskets, whether thermal or acoustic shielding systems – we are and will continue to be judged on quality, performance and functional reliability. It goes without saying that this also applies to all our other lines of business.

Hydroformed hybrids, or HFH for short, represent a milestone in ElringKlinger's product policy. As of now, we are capable of supplying lightweight solutions such as cockpit cross-car beams, front-end carriers and front-end adapters for vehicle body and chassis. Our accomplishments in this area are a testament to the materials and tooling expertise we have amassed over the last decades. By 2020, we hope to generate revenue of EUR 120 to 130 million from polymer hybrid components. At present, production lines are being installed at our sites in Leamington (Canada) and Suzhou (China).

Of course, alternative drive technologies were also high on ElringKlinger's agenda in 2014. With this in mind, we acquired a 75% stake in new enerday GmbH, a system specialist in the field of fuel cell technology. In doing so, we will be able to step up our activities relating to high-temperature solid oxide fuel cells (SOFCs) and expand substantially our know-how in this line of business.

We had expected more from our E-Mobility division, i.e. the area encompassing battery technology, in the financial year just ended. Unfortunately, this area of our business made a negative contribution to earnings in the period under review. Despite this, however, I am quietly confident that I will be able to report on an improved situation in this line of business in the medium term. One thing is certain, after all: sustainability forms the basis for our success as a company. ElringKlinger is well aware of its responsibilities. Indeed, corporate social responsibility is an essential element of our company's strategy, and we remain committed to responsible interaction with employees, the environment and society as a whole. In the battle for climate justice, we support the "Plant for the Planet" initiative, whose aim is to create a sense of awareness among youngsters and adults of global justice and climate change. To find out more about our involvement, please read pages 8 et seqq.

We are also pursuing a clearly defined goal within the capital markets. The aim is for ElringKlinger to maintain a strong position in the MDAX well into the future. In order to achieve this, we plan to generate organic growth of 5% to 7% per annum. We have already succeeded in attaining this target in the past. And in the future, too, we must be prepared to think outside the box and chart new territory. I am of the firm belief that we will continue on a path of profitable growth and will remain a company of formidable strength.

ElringKlinger maintained its forward momentum in 2014, and this is a tribute in no small part to a team that now numbers almost 7,400 people. It is they who square up to challenges on a daily basis, solve problems, chart new routes and embrace ElringKlinger's unique culture of innovation. In recognition of these efforts, the Management Board would like to express its gratitude to all employees at the 45 sites now operated by the company.

ElringKlinger has entered one of the most exciting and successful chapters in its history. We intend to build further on our excellent reputation among customers, business partners and the capital markets. Safe in the knowledge that you, as our shareholders, will continue to back us, we are committed to remaining innovative and focused in our approach. You can count on it.

I hope you enjoy reading our latest annual report. Yours sincerely,

Dr. Stefan Wolf

Consolidated Financial Statements

Report by the Supervisory Board 2014

During the fiscal year 2014, the Supervisory Board discharged the duties incumbent on it according to the law, the Articles of Association, the rules of procedure and the German Corporate Governance Code. The Supervisory Board monitored the activities of the Management Board and supported it in an advisory capacity, particularly with regard to the strategic positioning of the Group. The Management Board submitted monthly written reports to the Supervisory Board concerning developments in the wider economy, ElringKlinger's business performance, order intake, order backlog, revenue and earnings (in each case comparing targeted and prior-year figures), significant new orders, the employment situation of the Group, of Elring-Klinger AG with its divisions and of the subsidiaries as well as liquidity. The Supervisory Board was involved in all decisionmaking processes deemed to be of fundamental importance to the company.

The Supervisory Board convened for four scheduled meetings in 2014. At these meetings, the Management Board provided a detailed review of business developments in respect of the most recent part of the year, including all key indicators as well as comparisons with prior-year figures and targets for the Group, for Elring-Klinger AG with its divisions and for the subsidiaries. It also looked ahead at figures for the annual period as a whole and assessed the economic, market and competitive environment. In addition, the Management Board supplied regular information on the current risk situation, the status of any significant legal disputes and other matters of critical importance. The issues were presented and, where necessary, discussed in detail during the sessions of the full Supervisory Board.

Aside from the aforementioned regular reports and topics, the Supervisory Board addressed the following subjects at its scheduled meetings:

• The meeting on March 24, 2014, was devoted to the Management Board's explanation of the 2013 annual financial statements of ElringKlinger AG and the Group. It also dealt with the report of the auditing firm Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, the authorization and approval of the financial statements of ElringKlinger AG and the consolidated financial statements, as well as the resolution on the Management Board's proposal for the appropriation of profit. Furthermore, the Supervisory Board was furnished with reports on possible acquisitions and preparations for the Annual General Meeting, in addition to approving the agenda for the Annual General Meeting. Finally, the Supervisory Board discussed and adopted adjustments to and restructuring of Management Board compensation on the basis of details prepared by the Personnel Committee. The members of the Management Board were not present at the meeting when this item on the agenda was discussed.

• In the Supervisory Board meeting subsequent to the Annual General Meeting on May 16, 2014, Mr. Walter H. Lechler was elected as the Chairman and Mr. Markus Siegers as Deputy Chairman of the Supervisory Board. Ms. Gabriele Sons was elected as a member of the Personnel Committee and the Mediation Committee. Other items on the agenda included the Annual General Meeting that had taken place immediately prior to the Supervisory Board meeting as well as further potential acquisitions.
• The focus of the Supervisory Board meeting held on September 26, 2014, was on strategic projects. Again, the Supervisory Board discussed acquisitions that may be of interest to ElringKlinger. Additionally, it debated the possibility of outsourcing pension liabilities. No resolution was passed with regard to this issue.
• The agenda defined for the final Supervisory Board meeting of the reporting period on December 4, 2014, included the budget for 2015 and mediumterm planning for the period from 2015 to 2019. Other key topics were, as in the past, the report on findings relating to internal audits conducted in 2014, plans for internal audits scheduled for 2015, current risk assessments, relevant precautionary measures to be taken by the Management Board and, finally, adjustments to the risk management system of ElringKlinger AG in response to more farreaching requirements as a result of the sustained growth of the ElringKlinger Group. Risk reporting also included the issue of compliance and implementation of the compliance system within the company. The Chairman of the Audit Committee, Mr. Klaus Eberhardt, also commented on the aforementioned issues and reported on the outcome of consultations within the Audit Committee.

Walter Herwarth Lechler Chairman of the Supervisory Board

The scheduled meetings were attended by all of the Supervisory Board members, with the exception of the meeting in December. In 2014, there were again no separate meetings of the Supervisory Board's employee and shareholder representatives for the purpose of preparing the scheduled meetings. Such meetings were deemed unnecessary, not least in view of the extensive information made available in advance. No extraordinary meetings of the Supervisory Board were convened in the period under review, as no such meetings were required.

The Audit Committee convened on three occasions during the year under review. The March meeting was devoted to indepth discussion relating to the auditor's report on the audit of the annual financial statements. At the meeting in September, the Audit Committee discussed the results of the first half and restructuring of the risk management system. The agenda of the December meeting convened by the Audit Committee included the audit of the annual financial statements for 2014, which included in particular the task of defining the focal points of the audit together with the independent auditors, a status report on the introduction of the new risk management system and a description of the current compliance system. Additionally, the CEO reported regularly to the Chairman of the Audit Committee on the results of internal audits and subsequent measures to be introduced. The Personnel Committee convened on one occasion, in March 2014, for the purpose of preparing a suggestion to the full Supervisory Board on the restructuring of Management Board compensation. No meetings of the Mediation Committee were necessary in the reporting period.

There were no conflicts of interest in 2014 between Supervisory Board members and the company.

The Declaration of Conformity by the Supervisory Board and the Management Board pursuant to Section 161 of the German Stock Corporation Act (AktG) and regarding the German Corporate Governance Code in the version of June 24, 2014, was approved unanimously at the Supervisory Board meeting on December 4, 2014 and published on the same day on the company's website.

In addition to the monthly written reports and the four scheduled Supervisory Board meetings, as in the previous years, the Chairman of the Supervisory Board remained in contact with the Chairman of the Management Board by telephone, e-mail and in person at regular intervals throughout the year. These ongoing exchanges covered the current economic situation, important business developments and other events of particular significance. The Chairman of the Supervisory Board informed his Board colleagues of significant occurrences by e-mail or by telephone.

The Management Board liaised with the Supervisory Board in good time with regard to all transactions requiring approval, furnishing it with clear and detailed information. The Supervisory Board granted its approval in all cases.

At the Annual General Meeting held on May 16, 2014, Mrs. Gabriele Sons was elected to the Supervisory Board as a representative of the shareholders; Mrs. Sons had already been appointed, as requested, as a member of the Supervisory Board on a temporary basis – up to the conclusion of the Annual General Meeting – by way of a resolution passed by the Stuttgart District Court on March 12, 2014. The court appointment and the subsequent election were necessary as Dr. Thomas Klinger-Lohr had stepped down from the Supervisory Board for personal reasons as of December 31, 2013. Dr. Klinger-Lohr had been a member of the Supervisory Board of Elring-Klinger AG for a period spanning 14 years. He is credited with having made possible the merger between Elring GmbH with parts of the Klinger Group, thereby laying the foundation for ElringKlinger AG's success. It is not only for this reason that Dr. Klinger-Lohr deserves our gratitude.

At the end of 2014, the Supervisory Board, as stipulated by the provisions set out in the German Corporate Governance Code, again evaluated the effectiveness of its work relating to the previous financial year on the basis of a questionnaire issued to all members. This covered issues such as the openness of communication at Supervisory Board meetings and the involvement of all members in discussions. The outcome of this survey and proposed measures for optimization are to be taken into consideration in respect of future Supervisory Board activities.

The annual financial statements of ElringKlinger AG and the corresponding consolidated financial statements with the combined management report for the 2014 financial year, as presented by the Management Board, were audited by the auditors Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft. The audit mandate was issued by the Supervisory Board in accordance with the appointment of the auditor by the Annual General Meeting on May 16, 2014. In accordance with Section 315a of the German Commercial Code (HGB), the consolidated financial statements of Elring-Klinger AG were prepared on the basis of International Financial Reporting Standards (IFRS). The auditing firm issued unqualified audit opinions for the annual financial statements of ElringKlinger AG as well as for the consolidated financial statements, including the combined management report, for the financial year 2014. The Supervisory Board was in possession of the documents relating to the financial and consolidated financial statements together with the Management Board's proposal for the appropriation of profits, as well as the two audit reports compiled by the auditor. The aforementioned documents were studied in depth by the Audit Committee and the Supervisory Board as a whole before being discussed at length and examined in consultation with the competent auditors. The Supervisory Board concurred with the outcome of the audit. No objections were raised. At its meeting on March 25, 2015, the Supervisory Board adopted the annual financial statements of ElringKlinger AG and endorsed the consolidated financial statements together with the combined management report. At the same meeting, the Supervisory Board approved the Management Board's proposal for the appropriation of profit.

The Supervisory Board would like to thank the Management Board and all members of staff at ElringKlinger AG and its investees in Germany and abroad for their successful efforts.

Stuttgart, March 25, 2015 On behalf of the Supervisory Board

Walter Herwarth Lechler Chairman of the Supervisory Board

ElringKlinger and the Capital Markets

Stock markets remain buoyant

Europe's economic recovery proved to be relatively sluggish over the course of 2014. While the ECB's policy of low interest rates provided some support, there was increasing evidence to suggest that US bond buying would be scaled back and the Federal Reserve was also about to raise the interest rate.

Given the disappointing performance by many of the world's emerging economies and the International Monetary Fund's decision to revise downwards its growth forecasts for Germany, the markets were faced with growing uncertainty as to the future direction of the world economy from mid-2014 onwards. This, in turn, had a visible impact on share prices.

The conflict in the Middle East and economic sanctions imposed on Russia produced significant volatility in stock performance during the third quarter, at times prompting a severe slump in prices quoted on the international financial markets. Cyclical stocks, particularly with regard to car manufacturers and automotive suppliers, came under considerable pressure. Against this backdrop, any gains made during the first half of the year were reversed in full.

The sustained surfeit of liquidity among central banks and an all-time low in interest rates, coupled with strong growth generated by the particularly buoyant US economy, produced a sudden boost in share prices as the markets emerged from the October trough. On balance, the German blue chip index, the DAX, closed with a gain of 2.7%. The MDAX, which had conceded more than 10% when it was at its most vulnerable, completed 2014 with a gain of 2.2%.

Year-end rally for ElringKlinger stock

On the back of double-digit growth of 16.0% in 2013, ElringKlinger's share price initially rose by a further 10% at the beginning of 2014 to reach an annual high of EUR 32.60. By mid-March, the stock had receded to EUR 25.23 amid a general downturn in the market as a whole.

The company's share price was given a boost by the results for the first quarter of 2014 and the announcement of ElringKlinger's first major contract for newly developed lightweight metal-polymer parts, which heralded the company's move into lightweight engineering for vehicle body and chassis components. This was the single largest order in ElringKlinger's history, with total sales of EUR 120 to 130 million over a six-year period. Trading in this environment, ElringKlinger shares made considerable gains and closed the first half at EUR 30.14.

ElringK linger's Share Price Perfo r m ance ( XE TRA ) since Janua ry 1, 20 14 compared with MDAX and DAX

The markets came under increasing pressure over the summer months, buffeted in particular by uncertainties emanating from the world's geopolitical hot spots. In this lackluster market environment, profit-taking on the part of institutional investors saw the company's share price slip to below the mark of EUR 22. From October onwards, however, a general turnaround in market conditions, but also more favorable assessments by analysts and increasingly dynamic capital market activities, produced a visible upturn in ElringKlinger's stock performance.

In the fourth quarter, ElringKlinger shares outperformed both the MDAX and the DAX by a considerable margin, achieving a gain of 22.8% by the end of the year. Thus, the considerable losses recorded in the third quarter were almost completely offset. At EUR 28.80, the company's share price was down 2.6% on the figure recorded at the end of the previous year. ElringKlinger's stock performance was again encouraging in January 2015.

Trading volume up on German stock exchanges

Stock liquidity, a factor that is of particular importance to institutional investors, was favorable in the period under review. It is also considered a key criterion for index membership.

In 2014, the number of ElringKlinger shares traded on a daily basis rose by almost a quarter to 112,900 (91,000).

Expressed in euros, the average daily trading value increased by 24.0% to EUR 3.1 (2.5) million.

On the road: communicating with the capital markets at road shows and local venues

ElringKlinger continued to pursue its policy of maintaining an ongoing and proactive dialog with the capital markets in 2014. The emphasis of its investor relations activities in the period under review was on the international markets, with a particular focus on North America and Scandinavia.

By attending three road shows and ten, primarily international, capital market conferences, ElringKlinger's management reported on the latest market developments and business performance as well as the company's most recent research and development projects. Those who participated in the events showed particularly keen interest in ElringKlinger, and – rising from a high base – attendance figures exceeded the previous year's level by a significant margin.

Many analysts and investors took advantage of the chance to find out firsthand about ElringKlinger's technologies, production processes and R&D activities as part of organized visits to the local sites operated by the Group. In addition to focusing on key topics such as downsizing and exhaust gas purification technology, those who attended the events were particularly interested in the company's new projects in the field of lightweight design as well as activities relating to fuel cell and battery technology.

KE Y INDICATORS FORElringK linger 'S S TOCK

	2014	2013
Earnings per share IFRS (after non-controlling interests, in EUR)	1.67	1.66
Shareholders' equity per share (in EUR)1	12.23	11.07
High (in EUR)2	32.60	35.14
Low (in EUR)2	22.09	22.46
Closing price as of Dec. 31 (in EUR)2	28.80	29.57
Price-earnings ratio (P/E ratio)1	17.25	17.81
Dividend per share (in EUR)	0.553	0.50
Average daily trading volume (German stock exchanges; no. of shares traded)	112,900	91,000
Average daily trading value (German stock exchanges; in EUR)	3,090,700	2,525,100
Market capitalization as of December 31 (EUR millions)2	1,824.8	1,873.6

as of December 31

Xetra trading

3 Proposal to 2015 AGM

ISIN	DE 0007856023
German Securities Identification Code (WKN)	785 602
Bloomberg	ZIL2
Reuters	ZILG n.DE
Capital stock	EUR 63,359,990
Number of shares outstanding	63,359,990
Stock exchanges	Official trading: XETRA, Frankfurt, Stuttgart, Munich, Düsseldorf, Hamburg, Berlin
Market segment	Prime Standard
Index	MDAX

ElringK linger AG S TOCK M ARKE T DATA

Over the course of 2014, the Investor Relations team staged around 30 meetings at the company, mainly in the form of group visits or reverse road shows. They included tours of the production premises and technology presentations as well as visits to the development unit. The program of investor meetings was rounded off by events organized at the center of excellence for injection-molding tools and lightweight plastics engineering of the former Hummel-Formen Group in Lenningen as well as at the Chinese plant in Suzhou.

In addition to holding an annual analysts' conference in Frankfurt, ElringKlinger sets up conference calls for the purpose of commenting on particularly important issues and developments such as recent business performance, corporate acquisitions or technological innovations. The company also organizes conference calls when publishing its quarterly results; these live teleconferences are freely accessible via the ElringKlinger website at www.elringklinger.com.

This is a relatively convenient way for private investors, in particular, to follow the latest company developments. This approach underpins the principle of timely, simultaneous and transparent communication for all groups of investors and other parties interested in the company.

Capital markets remain keen on mid cap ElringKlinger

Over the course of 2014, the company was monitored by a total of 25 financial analysts. 20 analysts covered ElringKlinger's shares continuously and issued regular reports in the form of research telegrams and studies.

An up-to-date list with the names of banks and brokers providing coverage of ElringKlinger on a regular basis, as well as recommendations in respect of the company's shares, can be accessed on the ElringKlinger website in the Investor Relations section (www.elringklinger.de/en/ investor-relations/stock/analysts-conference).

Direct dialog with private investors – ElringKlinger's CEO chat

ElringKlinger is committed to maintaining a close dialog with all investor groups considered to be of relevance to its business. This also includes private investors in the company, who currently hold around 8.0% of ElringKlinger's free float shares and therefore represent a major shareholder group. ElringKlinger has put in place additional channels of communication for the purpose of promoting a direct exchange of views.

The telephone hotline established by ElringKlinger (+49 7123 724-137) again proved particularly popular in 2014 and was frequently used by those wishing to engage with the company. A member of the Investor Relations team is on hand as a dedicated point of contact to answer specific questions relating to the company and its shares.

Available 24/7, the company's website at www.elringklinger.com is a source of extensive information and offers up-to-date news on the latest corporate developments and coming publications. Additionally, investors are able to follow the company's activities via the latest social media channels. The Investor Relations department has access to Facebook (www.facebook.com/ elringklinger) and Twitter (www.twitter.com/ elringklingerAG) for the purpose of publishing, on a regular basis, interesting news items about the company and its stock for the benefit of users of social networks.

The most recent communication tool launched by the company – its Online CEO Chat with CEO Dr. Stefan Wolf – was particularly well received. The online chat was conceived by the company specifically for the purpose of engaging with private investors, giving them the chance to converse with ElringKlinger senior executives. There was extensive coverage in the business media with regard to this new initiative. The dates of upcoming chat sessions are published well in advance on the company's website (www.elringklinger.de/ de/chat-mit-dem-ceo).

ElringKlinger's commitment to an ongoing dialog with private investors is also reflected in the company's membership in the interest group of Baden-Württemberg Small Caps (Interessengemeinschaft Baden-Württembergische Small Caps – BWSC: www.bwsc.de). ElringKlinger regularly takes part in a number of events together with seven other stock corporations from the region, all of which are listed in the Prime Standard segment. They are targeted primarily at non-institutional shareholders and regional asset managers. Subsequent to the corporate presentations, those attending the events are given the opportunity to put their questions to the respective company representatives. At the beginning of October 2014, ElringKlinger and two other BWSC member companies took part in an investor event in Reutlingen hosted together with Volksbank Reutlingen, which was very well attended.

Multiple awards for ElringKlinger's 2013 annual report

ElringKlinger AG's efforts in the area of financial communication were honored on several occasions during 2014, attracting a number of coveted awards.

At the Vision Awards, one of the most prestigious competitions for annual reports, ElringKlinger's 2013 annual report received a silver medal from the League of American Communications Professionals (LACP) in the Automotive & Components category. The 2013 annual report was published under the heading "beyond CO2", focusing on ElringKlinger-developed solutions for clean and sustainable forms of mobility – going beyond the widely publicized reduction of CO2. The company was encouraged in particular by the panel's favorable response to the image-oriented sections of the report, which were praised for the manner in which they successfully combined ElringKlinger's key messages with a clearly conceived design concept. The jury also focused on the financial section of the report, emphasizing the excellent structure and presentation of this part of the publication.

In addition, ElringKlinger's "beyond CO2" annual report received the Good Design Award. The coveted design award is presented as part of one of the oldest and most revered competitions of its kind worldwide. Focusing on excellence in design, the award was created in 1950 by the Chicago Athenaeum Museum of Architecture and Design. The panel of judges acknowledged the excellent conceptualization and visual execution of the report. This was the second time in succession, after 2013, that ElringKlinger received this sought-after award in honor of its financial report.

ElringKlinger's 2013 annual report was also among the winners of the Fox Awards competition. It honors particularly successful communication efforts in the print and digital segment, the focus being not only on a strong commitment to communication but also on the ability of such solutions to contribute visibly to brand building and to underpin a company's sales activities. In the "Corporate Reports" category, the annual report submitted by ElringKlinger AG received a silver Fox Award in recognition of the highly effective nature of its communication. The panel of judges praised the exceptional quality of content, conceptual strength and visible brand conformity displayed by ElringKlinger's annual report.

2014 AGM approves higher dividend of 50 cents – Gabriele Sons elected as new member of the Supervisory Board

On May 16, 2014, ElringKlinger AG convened its 109th Annual General Meeting at the Liederhalle Culture and Congress Center in Stuttgart. Addressing an audience of around 550 shareholders and guests, Dr. Stefan Wolf, as CEO of ElringKlinger AG, looked back on what was a successful financial year 2013.

Shareholders supported the proposal put forward by the Management Board and Supervisory Board and passed a resolution, with 99.99% in favor, to increase the regular dividend to EUR 0.50 (0.45) per share. Participating in the company's success, the shareholders in the company thus received a dividend payout of EUR 31.7 (28.5) million in total, up 11.2% on the previous dividend payment. Calculated on the basis of ElringKlinger AG's applicable net income amounting to EUR 60.2 (56.5) million, the dividend ratio for the financial year 2013 is 52.7% (50.4%).

Fundamentally, the company's dividend policy stipulates that shareholders should receive an appropriate and sustainable return on their investment, the aim being to distribute between 40 and 60% of ElringKlinger AG's annual net income as a dividend. As regards the 2014 financial year, the Management Board and Supervisory Board intend to propose to the 2015 AGM a dividend of EUR 0.55 per share.

With 99.54% votes in favor, the AGM appointed Gabriele Sons, member of the Management Board of ThyssenKrupp Elevator AG, as a new member of the Supervisory Board. Mrs. Sons replaced Dr. Thomas Klinger-Lohr, who had stepped down from the Supervisory Board effective from December 31, 2013. She had already been appointed as a member of the Supervisory Board on a temporary basis by the District Court.

Shareholder structure – large proportion of international institutional investors

As of December 31, 2014, the shareholder structure of ElringKlinger AG was as follows: The company's free float accounted for 47.9% (48.0%) of the 63,359,990 no-par-value shares issued in total. The Lechler families continue to hold 52.1% (52.0%) of the interests in ElringKlinger AG, i.e. the majority of the share capital. In 2014, they increased their holding in ElringKlinger AG slightly by 0.1%.

Large, primarily international, institutional investors – banks, insurance companies or pension funds – are by far the largest group of shareholders within the company's free float. Additionally, ElringKlinger shares are held in the portfolios of many of Germany's smaller and mid-size asset managers. At the end of 2014, this group of investors held 40.3% (39.6%) of ElringKlinger AG's total share capital. The percentage of free float shares held by institutional investors thus remained stable at a high level.

The proportion of private investors with ElringKlinger shareholdings was slightly down in 2014. This reflects the general situation in Germany, where stock-based investments by private households are relatively unpopular. At the end of 2014, 7,004 (6,275) private investors held shares in ElringKlinger. This corresponds to 7.6% (8.2%) of the company's total share capital.

Focus on sustainable investment

As a future-focused company committed to a sustainable approach to business, ElringKlinger has in recent years begun to engage directly with investors who focus their attention mainly on companies that operate according to the principles of sustainability. In addition to looking at financial parameters, these investor groups base their investment decisions on environmental and social criteria as well as good corporate governance.

This investment segment recorded an above-average inflow of capital in 2014 and is expected to become increasingly important in future. Against this backdrop, it is all the more encouraging for ElringKlinger that the number of sustainability funds with holdings in the company continued to rise in 2014.

ElringKlinger shares have become an interesting investment proposition for these groups of investors. ElringKlinger took part in the Carbon Disclosure Project as early as 2007 – the first automotive supplier to do so. At the same time, the company's products themselves are making a sizeable contribution to the reduction of greenhouse gases and other pollutants.

ElringKlinger is assessed in regular intervals by sustainability rating agencies such as Oekom, EIRIS and Sustainalytics. The company has also been listed in the DAXglobal® Sarasin Sustainability Germany Index since 2010. In addition, ElringKlinger has been awarded the "Quality Mark for Sustainability" by DZ Bank on multiple occasions in recent years.

* Proposal to 2015 AGM

* Based on information available to the company as of December 31, 2014

For further information on sustainability at ElringKlinger, please refer to the chapter entitled "Sustainability" (page 83). In response to the growing interest shown in this particular topic, the company again published a separate CSR report in 2014; it was well received by ElringKlinger's customers, the capital markets as well as the general public.

Program for 2015

ElringKlinger's business model is founded on a longterm approach to value creation. Its future-focused product portfolio, meanwhile, is centered around the core industry topics of CO2 reduction, exhaust gas purification and alternative drive technologies. As a result, the company is closely correlated with the investment segment focusing on sustainability. With this in mind, one of the objectives in 2015 will be to raise the company's profile among potential shareholders targeting sustainable investments.

At the same time, ElringKlinger's investor relations activities are to be further extended at an international level in 2015. Increasingly, the focus will be on targeting sovereign wealth funds, which generally tend to pursue a long-term investment approach.

Additionally, the company plans to host local capital market events at specific Group companies considered to be of particular interest to key players operating within the capital markets. These events will allow the company to provide more targeted information on technological developments and outline the potential of its product portfolio.

As a member of the BWSC interest group, ElringKlinger will continue to be represented at regional events aimed at engaging with private investors. Planning procedures have already commenced for two such events to be held in 2015. For further details of current events, please feel free to visit the company's website or contact a member of staff via the ElringKlinger telephone hotline.

Corporate Governance Report

The joint report issued by the Management Board and the Supervisory Board of ElringKlinger AG with regard to corporate governance, including the Declaration of Conformity passed on December 4, 2014, in respect of the Code, has been published online at www.elringklinger.de/en/company/corporategovernance in accordance with Section 3.10 of the German Corporate Governance Code in connection with the Corporate Governance Statement.

02

ElringKlinger AG Combined Management Report for the Financial Year 2014

• 48 Overview of ElringKlinger's Activities and Structure
• 53 Internal Control Criteria
• 55 Research and Development
• 59 Macroeconomic Conditions and Sector Environment
• 62 Significant Events
• 63 Sales and Earnings Performance
• 72 Financial Position
• 74 Cash Flows
• 77 Financial Performance, Net Assets and Cash Flows of ElringKlinger AG

• 81 Employees

• 83 Sustainability 88 Procurement 90 Report on Opportunities and Risks 103 Compensation Report

• 111 Details according to Sec. 289 (4) and Sec. 315 (4) of the German Commercial Code (HGB), particularly with regard to share capital and disclosure of potential takeover obstacles
• 112 Corporate Governance Statement pursuant to Section 289a of the German Commercial Code
• 112 Report on Expected Developments
• 120 Events after the Reporting Period

Overview of ElringKlinger's Activities and Structure

Profile

The ElringKlinger Group is a globally positioned automotive supplier whose company history spans some 135 years. Around 90% of Group revenue is generated through sales to the vehicle industry and in the independent aftermarket. As an independent development partner and original equipment manufacturer, ElringKlinger develops and manufactures cylinderhead and specialty gaskets, plastic housing modules, thermal and acoustic shielding parts for engine, transmission and exhaust tract applications, transmission control plates, complete exhaust gas purification systems and components for lithium-ion batteries * and fuel cell systems. This portfolio is complemented by products made of the high-performance plastic PTFE * supplied by ElringKlinger Kunststofftechnik GmbH. These are marketed to a wide range of industries, including those operating beyond the automotive sector. Additionally, the ElringKlinger Group supplies the independent aftermarket, the main focus being on flat metal-based gaskets and complete gasket sets.

Alongside the majority of vehicle and engine manufacturers around the globe, the Group's customer base includes numerous automotive suppliers, particularly in the field of turbochargers, exhaust technology and transmission engineering. Supplying high-tech components, primarily relating to the field of exhaust gas purification and fuel cells, ElringKlinger is also in the process of penetrating other promising segments of the market, such as the shipping industry. At the same time, it covers a broad range of applications in the area of energy supply.

As of December 31, 2014, around 7,300 people were employed by the ElringKlinger Group at 44 sites worldwide (cf. Employees, page 81 et seqq.).

Business model, core competencies and market position

ElringKlinger's product portfolio has been consistently aligned with market requirements, the aim being to address the core issues currently driving the automotive industry. Almost the entire range of products is centered around the reduction of emissions and fuel consumption as well as the development of alternative drive technologies. It is one of the few companies worldwide capable of supplying high-tech components for every type of drive system – from the traditional combustion engine to electric drives.

The ElringKlinger Group's core competencies lie in the combination of high-precision metal processing (stamping, embossing and forming) with coating technologies and plastics engineering. It applies its expertise in the field of tooling technology to metal working and complex plastic injection-molding processes. ElringKlinger designs and produces nearly all the tools it needs for manufacturing purposes in-house. Thanks to the specialist expertise it has acquired over many years in the field of materials processing and production, the Group has established a crucial competitive advantage at a technological level. Against this backdrop, the barriers to market entry for new competitors are extremely high.

ElringKlinger combines technology leadership with cost leadership in terms of production. The company's aim is to provide vehicle and engine manufacturers with high-volume, just-in-time supplies of consistently high-quality components. In the aftermarket business, delivery is often required within 24 hours. This calls for appropriate stock levels and a suitable logistics chain.

As a general principle, ElringKlinger aims to be one of the three biggest suppliers in each of its market segments. It is the global market leader in the field of Cylinder-head Gaskets. The Group is also ranked among the top three suppliers worldwide in the respective fields of Specialty Gaskets, Shielding Technology and Plastic Housing Modules.

In order to maintain its competitive position, ElringKlinger invests in research and development (R&D) (cf. Research and Development, page 55 et seqq.) at a rate that is above the industry average. The company has a firmly established culture of innovation and ensures that new ideas are given systematic backing and support. The company's ground-breaking portfolio includes brand new designs as well as new applications for existing technologies. At the same time, ElringKlinger makes a point of developing products for technologically sophisticated niche markets, e.g. in the field of turbochargers, high-performance automatic transmissions and thermal management.

Economic and legal factors

Demand for ElringKlinger components is dependent on the performance of international vehicle markets or global vehicle production in general. This, as experience has shown, is closely linked to the macroeconomic situation and employment levels in the respective sales markets. Benefiting from a broad customer base that spans the globe, ElringKlinger's dependence on specific markets is comparatively low. This usually allows ElringKlinger to compensate, at least in part, for temporary shortfalls in demand in individual regions by exploiting the more favorable performance of other sales markets.

At the same time, several of ElringKlinger's business divisions – in particular Specialty Gaskets, Plastic Housing Modules and Shielding Technology – are benefiting from structural growth. The company is supplying an increasingly large number of parts per vehicle. This provides a platform for sustained growth even when faced with a stagnant market environment. Furthermore, an increasingly large proportion of development projects is focused on new, highly promising market segments beyond the automotive industry. These activities include, for example, development projects in the field of exhaust gas purification technology for ships, construction machinery and power stations as well as for various industrial applications associated with fuel cell technology.

As 60.0% and 23.4% of the cost of sales are attributable to material costs and staff costs respectively, developments within the international commodity markets as well as in the area of salaries and wages have a substantial impact on cost structures.

With regard to the legislative environment, the main factor is environmental regulation to reduce emissions. Alongside strict limits on CO2, the industry is seeing a global trend towards ever more demanding standards that aim to cut harmful emissions such as hydrocarbons, nitrogen oxides and particulates. Prominent examples include the Euro 6 standards for passenger cars and the Euro VI regulations for trucks * as well as the shipping regulations issued by the International Maritime Organization (IMO). As ElringKlinger has positioned itself, and its product portfolio, strategically in response to these developments, the company can benefit from emission laws such as those outlined above.

Group structure and organization

Headquartered in Dettingen/Erms/Germany, ElringKlinger AG as the parent company handles all the Group-wide management tasks and assumes responsibility for Group-wide functions, e.g. in the areas of purchasing, IT, communications, legal affairs and human resources. As of December 31, 2014, in addition to the parent company, the ElringKlinger Group included 38 fully consolidated subsidiaries as well as one investee (Codinox Beheer B.V., Enschede/Netherlands). In the majority of cases, ElringKlinger AG holds 100% of the interests in its subsidiaries (cf. Schedule of Shareholdings, page 135).

ElringKlinger AG is entered in the Commercial Register of the Stuttgart District Court under HRB 361242. The registered address is ElringKlinger AG, Max-Eyth-Straße 2, 72581 Dettingen/Erms/Germany. The applicable Articles of Association are those dated June 13, 2012. They can be accessed on the company's website at www.elringklinger.de.

Locations and markets

The ElringKlinger Group has established a global presence. At the end of 2014, it operated with 44 sites in 21 countries. Of these sites, 31 are production facilities, while nine are sales offices. There is also one company that operates solely within the area of aftermarket sales. The other locations belong to the Services and Industrial Parks segments.

The following table lists all the Group's operating companies together with their respective worldwide locations. The ten largest plants (on the basis of revenue) are printed in bold.

Elring K linger international locations

Company	Location
Germany

	Dettingen/Erms Langenzenn	Geretsried-Gelting Lenningen
­­­ElringKlinger AG	Runkel Idstein	Thale
­­­ElringKlinger Kunststofftechnik GmbH	Bietigheim-Bissingen	Heidenheim
Polytetra GmbH	Mönchengladbach
Elring Klinger Motortechnik GmbH	Idstein	Bietigheim-Bissingen
­­­ElringKlinger Logistic Service GmbH	Rottenburg/Neckar
new enerday GmbH	Neubrandenburg
Hug Engineering GmbH	Magdeburg
Rest of Europe
­­­ElringKlinger Abschirmtechnik (Schweiz) AG	Sevelen (Switzerland)
Hug Engineering AG	Elsau (Switzerland)
Elring Klinger, S.A.U.	Reus (Spain)
­­­ElringKlinger Meillor SAS	Nantiat (France) Poissy (France)	Chamborêt (France)
Elring Klinger (Great Britain) Ltd.	Redcar (Great Britain)
Elring Parts Ltd.1	Gateshead (Great Britain)
Technik-Park Heliport Kft.	Kecskemét-Kádafalva (Hungary)
Hug Engineering S.p.A.	Milan (Italy)
­­­ElringKlinger Italia Srl	Settimo Torinese (Italy)
Codinox Beheer B.V.2	Enschede (Netherlands)
HURO Supermold S.R.L.	Timisoara (Romania)
­­­ElringKlinger TR Otomotiv Sanayi ve Ticaret A.Ş.	Bursa (Turkey)

South America

Elring Klinger do Brasil Ltda.	Piracicaba (Brazil)
North Amerika
­­­ElringKlinger Canada, Inc.	Leamington (Canada)
Elring Klinger México, S.A. de C.V.	Toluca (Mexico)
­­­ElringKlinger North America, Inc.	Plymouth/Michigan (USA)
­­­ElringKlinger USA, Inc.	Buford/Georgia (USA )
Hug Engineering Inc.	Austin/Texas (USA)
­­­ElringKlinger Engineered Plastics North America	Buford/Georgia (USA)

Asia

Changchun ­­­ElringKlinger Ltd.	Changchun (China)
­­­ElringKlinger China, Ltd.	Suzhou (China)
­­­ElringKlinger Engineered Plastics (Qingdao) Commercial Co., Ltd.	Qingdao (China)
­­­ElringKlinger Automotive Components (India) Pvt. Ltd.	Ranjangaon (India)
­­­ElringKlinger Marusan Corporation	Tokyo (Japan)	Saitama (Japan)
­­­ElringKlinger Korea Co., Ltd.	Gumi (South Korea)	Gwangmyeong (South Korea)
PT. ­­­ElringKlinger Indonesia	Karawang (Indonesia)
­­ElringKlinger (Thailand) Co.	Bangkok (Thailand)

Africa

­­­ElringKlinger South Africa (Pty) Ltd.	Johannesburg (South Africa)

Aftermarket sales production company distribution/sales services/industrial park Investee The sites of the ten plants generating the highest revenue are printed in bold In addition to maintaining a presence in the established markets of Europe, North America and Japan, ElringKlinger is also represented in the emerging markets of Asia and South America with its own production facilities. ElringKlinger operates eight production sites in Asia alone, among them two production plants in China as well as one facility in South Korea that was opened in 2014. The Group is currently building a new state-of-the-art facility at its Chinese site in Suzhou, in the region of Shanghai, which spans an area of 26,000 square meters. Operations there are scheduled to commence in 2015. The rapidly expanding ASEAN market has been served by ElringKlinger since 2013 through a company-operated plant near Jakarta/Indonesia. In addition, ElringKlinger established a sales company in Thailand in 2013.

In 2014, around 70% of total Group revenue was generated outside Germany (cf. Sales and Earnings Performance, page 63). The Group's global production network allows it to remain in close proximity to its customers. In this context, Group companies compete with each other for individual projects. The final decision on where to produce specific components depends primarily on a range of factors including customer proximity, cost structures, internal value chains and the reduction of exposure to currency and other risks.

Segments and divisions

The Group's operating business is divided into five segments, as outlined below. These constitute the reportable segments under IFRS *.

Segment	Proportion of revenue	Main customer groups
Original Equipment	82.2%	Car, truck and engine manufacturers, automotive suppliers
Aftermarket	9.9%	Independent aftermarket business
Engineered Plastics	7.0%	Vehicle industry, mechanical engineering, medical technology
Services	0.6%	Vehicle manufacturers and suppliers
Industrial Parks	0.3%	Unspecified industries

Elring K linger G roup segme nt s

The Original Equipment segment develops, produces and sells parts and assemblies for vehicle engines, transmission units and exhaust systems as well as components for lithium-ion batteries and fuel cells. The client base includes nearly all the world's vehicle and engine manufacturers. The Swiss subsidiary Hug Engineering AG, Elsau, which forms part of the Original Equipment segment, develops and manufactures complete exhaust gas purification systems, predominantly for applications in trucks, buses, ships, construction and agricultural machinery and power stations.

In the Aftermarket segment, ElringKlinger supplies a range of spare parts consisting mainly of cylinder-head gaskets and complete gasket sets. These are marketed under the "Elring – Das Original" brand. Supplied in OEM quality, the parts are used primarily for repairs to engines, gearboxes and exhaust systems. The Group's Aftermarket products are primarily sold in Western and Eastern Europe, the Middle East and North Africa. ElringKlinger is currently expanding its activities in North America and China. Additionally, this segment is in the process of extending its product portfolio within the French and Italian market for spare parts. Business within the Aftermarket segment is transacted primarily through a network of wholesalers and major group purchasing organizations.

The Engineered Plastics segment encompasses the subsidiary ElringKlinger Kunststofftechnik GmbH, Bietigheim-Bissingen/Germany, together with its subsidiaries, including Polytetra GmbH, Mönchengladbach/Germany, a company acquired in 2014. This segment develops, manufactures and sells products made of the high-performance plastic PTFE. Almost half of the Group's revenue from this segment is generated outside the automotive industry. Within Europe, ElringKlinger Kunststofftechnik has emerged as one of the leading suppliers of products for PTFE applications. China and the United States are served by local sales companies. The ElringKlinger manufacturing plants in these markets operate production lines for PTFE products.

The Services segment is made up of Elring Klinger Motortechnik GmbH, Idstein/Germany, as well as ElringKlinger Logistic Service GmbH, Ergenzingen/ Germany, and KOCHWERK Catering GmbH, Dettingen/ Erms/Germany. Elring Klinger Motortechnik GmbH provides development services for engines, transmissions and the exhaust tract using cutting-edge testing and measurement facilities. The segment's customer base includes both vehicle manufacturers and automotive suppliers. As a result, ElringKlinger has established close links with its customers' development units. ElringKlinger Logistic Service GmbH provides logistics services for the Aftermarket segment and for external customers. KOCHWERK Catering GmbH operates the restaurant at the principal site at Dettingen/ Erms/Germany and provides catering services for external customers.

The Industrial Parks segment encompasses the Group's industrial parks in Idstein near Frankfurt/Germany, and in Kecskemét/Hungary. The purpose of the business is to lease and administer buildings.

The segments are further divided into a total of eleven divisions. Seven of these belong to the Original Equipment segment, which at roughly 80% contributes the largest share of total Group revenue. Each of the four remaining segments (Aftermarket, Engineered Plastics, Services and Industrial Parks) also constitutes a separate division.

ElringKlinger is the world's leading supplier of cylinder-head gaskets. The market is characterized by an oligopoly. ElringKlinger's two main competitors are US conglomerates that do not actually specialize in gasket solutions. Some of the local markets include smaller, regional competitors.

The Specialty Gaskets division focuses mainly on metal flat gaskets for high-temperature applications relating to engines, turbochargers, transmissions and exhaust systems. The competitive situation is very similar to that of the Cylinder-head Gaskets division. ElringKlinger is a leading player in the field of metal specialty gaskets and is ranked as one of the three largest suppliers worldwide. The Specialty Gaskets division has benefited from ever-higher demands on sealing technology and a growing number of potential applications.

The Shielding Technology division specializes in combined thermal and acoustic shielding solutions. ElringKlinger is one of the few suppliers in the world to offer complete shielding packages for both the engine as well as the underbody and the exhaust tract. Of all the Group's divisions, Shielding Technology accounts for the biggest share of total Group sales. Here, too, ElringKlinger is one of the world's top three suppliers. The Shielding Technology division also benefits from structural growth, since the number of shielding components required in each vehicle is set to rise over the coming years. The market is more differentiated than in the area of gaskets/seals. ElringKlinger's main competitor is a US company.

The Plastic Housing Modules/Elastomer Technology division develops and manufactures lightweight components made of polyamide plastics and fiber-reinforced organo sheets *, e.g. cam covers and oil suction pipe modules. The market is experiencing steady growth in the range of potential applications for plastics used in vehicles. Additionally, the truck industry, too, is seeing an ever-growing trend towards the use of lightweight plastic components to replace heavy metal parts. Other key products for this division include high-performance metal-elastomer gaskets for commercial vehicles. The market is more fragmented than in the case of other divisions.

The E-Mobility division focuses on cell contact systems * for lithium-ion batteries, which are used in both pure electric and hybrid vehicles. Serial production of this division's core product has been underway since 2011. The company's customer base in this specific area of business also includes two of Germany's premium car manufacturers. Growth within this division is heavily dependent on demand for electric vehicles. Cell contact systems are available only from a small group of suppliers.

The Exhaust Gas Purification division includes the Hug Group, a majority interest in which was acquired by ElringKlinger in 2011, and the production plant in Thale/Germany. Hug is one of the leading suppliers of exhaust gas purification systems for stationary engines and non-road applications, such as construction machinery, locomotives, ships and power plants. The division has established itself as the market leader in the Californian retrofit segment for diesel particulate filters fitted to trucks in excess of 6.34 metric tons.

Tooling Technology is one of the Group's core fields of expertise. Accordingly, ElringKlinger has established a dedicated division for these operations. This division encompasses internal tool manufacturing at the site in Dettingen/Erms/Germany as well as specialist plastic injection molding processes performed by Hummel-Formen, Lenningen/Germany, which was taken over in 2011 and has in the meantime been merged into ElringKlinger AG. The majority of services provided by this division are attributable to entities within the Group.

In general, new activities are transferred to dedicated divisions only once they generate their first contribution to revenue at series production level. Until that point, they are pooled under the heading New Business Areas. At present, this category mainly includes ongoing projects relating to fuel cell technology (cf. Research and Development, page 55 et seqq.).

Internal Control Criteria

The Management Board of the ElringKlinger Group primarily refers to financial control criteria for the purpose of governing the Group and as the basis for providing an overall assessment of developments within the group of companies. Additionally, it monitors non-financial performance indicators as well as company-specific leading indicators.

Financial control criteria

The financial control criteria are primarily based on the sales and earnings performance of ElringKlinger AG as well as the individual Group companies. The key indicators used as a basis for assessment are revenue, earnings before interest and taxes (EBIT) * and earnings before taxes (EBT). Furthermore, these internal control criteria are planned, calculated and continually monitored for the five segments reportable under IFRS as well as for individual business divisions.

As of 2014, the control parameter EBIT is equivalent to the operating result. Therefore, foreign exchange gains and losses recognized under net finance cost/ income are no longer included in EBIT.

Return on capital employed (ROCE) is considered to be of particular importance. ROCE measures a company's profitability and the efficiency with which its capital is employed. In this context, EBIT is divided by average capital employed. At ElringKlinger, capital employed includes shareholders' equity, financial liabilities, provisions for pensions and non-current provisions such as anniversary and partial-retirement provisions. The long-term target defined for the Group is to achieve a return on capital employed of at least 20% in the medium to long term. Variable remuneration for the managerial level directly below the Management Board is generally linked to the level of ROCE achieved.

financial control criteri a of the Elring K linger G roup

		Target 2014	Actual 2014	2013	2012	2011	2010	2009	2008
Significant financial control criteria:
Sales revenue	(in EUR million)	1,258 to 1,2821	1,325.8	1,150.1	1,127.2	1,032.8	795.7	579.3	657.8
EBIT	(in EUR million)	160 to 1652	162.33	149.83	135.8	126.06	106.7	63.3	71.5
Earnings before taxes	(in EUR million)	–	153.1	131.34	123.6	113.96	94.0	49.4	60.0
Return on capital employed (ROCE)		20%	12.4	14.4%5	13.3%	14.2%6	15.2%	8.8%	13.6%
Other, less significant financial control criteria:
Net cash from operating activities (in EUR million)		positive	149.9	119.0	112.3	74.5	126.2	148.8	98.2
Equity ratio		>40%	49.7	50.4%	50.6%	50.1%	52.7%	41.2%	37.7%

incl. EUR 25.0 million in revenue from the full consolidation of ElringKlinger Marusan Corporation as from January 1, 2014

adjusted for non-recurring exceptional items

3 adjusted for non-recurring exceptional items, before purchase price allocation

4 adjusted for one-time gain from full consolidation of ElringKlinger Marusan Corporation (EUR 17.6 million)

incl. one-time gain from full consolidation of ElringKlinger Marusan Corporation (EUR 17.6 million)

6 adjusted for one-time gain of EUR 22.7 million from sale of Ludwigsburg industrial park

In addition, ElringKlinger takes into account the following financial control criteria as part of its corporate governance efforts within the Group:

• Liquidity

• Potential market price risks from foreign exchange movements, interest rate changes and increases in material costs

Non-financial control criteria

In addition, ElringKlinger regularly monitors staffrelated, environmental and quality indicators. They are considered less significant in the context of corporate governance and are used by management in support of its decision-making processes.

• Number of employees and change in headcount
• Average number of staff on sick leave
• Staff turnover rate
• Industrial accidents
• Energy consumption levels and emissions (especially CO2)
• Quality indicators/assessments and reject rates

For specific data, please refer to the chapters entitled "Sustainability" (page 83) and "Employees" (page 81).

Company-specific leading indicators

Information relating to order intake and backlog is reported on a regular basis and provides reliable indications of likely capacity utilization and revenue performance for the months ahead. As a leading (i.e. early) indicator that is specific to the company, this data is also seen as an important control parameter for management.

The Group's budgeting and forecasting are based on planned quantities requested by customers as part of their scheduling less a safety margin and respective agreed product prices. Additionally, the Management Board continuously tracks statistics and forecasts relating to global vehicle demand and production as well as the general economic situation. These leading indicators can provide important pointers regarding the plausibility of planning. In this way, any necessity for adjustments can be identified at an early stage and suitable measures can be implemented in good time.

Strategy: commitment to sustained and earnings-driven growth

ElringKlinger pursues a strategy of sustained forward momentum, with a focus on organic growth that is profitable over the long term. In this context, the company aims to achieve above-average profitability compared to the industry as a whole, measured on the basis of its EBIT margin.

ElringKlinger performs benchmark analyses on a regular basis for the purpose of assessing its own business performance in comparison with that of the industry as a whole. In this context, key indicators are compared to other, mostly listed, companies in the automotive supply sector and subsequently evaluated.

Research and Development

Increased spending on R&D – Growth again mainly driven by innovation

A strong culture of innovation across the ElringKlinger Group remains the most important factor in its long-term business success. The company aims to maintain its leading position in the technology stakes well into the future. To this end, ElringKlinger plans to maintain a consistent edge of several years over its competitors in terms of product development. As soon as newly developed products enter the market, they are classified internally as established products. From this point onwards the company works on concepts for the next generation of the product. It was this philosophy that in 2014 enabled ElringKlinger to strengthen its lead over its competitors in the race to innovate.

Focus on downsizing and lightweight construction

Within the Group, product innovation is geared towards the Euro standards on exhaust emissions reduction for cars and commercial vehicles with a particular emphasis on legislation designed to reduce levels of CO2. The European Union, the United States and China have all set themselves extremely demanding targets for 2020. In Germany, average CO2 emissions for the entire fleet of German-made vehicles stood at 131 g CO2/km in October 2014. New vehicle emissions in Germany fell by around 3% in 2014, the lowest reduction in years. By 2020, emissions need to fall to the target figure of 95 g/km. This will require a tremendous effort. It is also worth noting the huge growth in SUV ownership. The average engine power rating for new vehicles sold in Germany has risen to 140 hp.

With this in mind, in 2014 automotive industry manufacturers continued to press ahead with their efforts to develop more efficient combustion engines and reduce fuel consumption with the help of downsized engines and lightweight vehicle components.

The main focus of ElringKlinger's research and development work is on optimization of combustion engines, new lightweight construction techniques and exhaust gas purification technology. In 2014, the company developed a whole raft of new applications within its traditional product groups (metal gaskets, shielding technology and plastic housing modules). Directly or indirectly, these help to reduce emissions of CO2 and other pollutants such as hydrocarbons, particulates and nitrogen oxides.

Tremendous demands on development expertise: continued rise in R&D expenditure

Vehicle manufacturers are passing on more and more development work to their suppliers. As a result, the share of the total value added to vehicles by automotive suppliers rose to almost 80% in 2014. As a technology supplier, this trend is beneficial to ElringKlinger. However, it also means that the Group needed to boost its capacity levels in the area of research and development. In 2014, with a view to maintaining a long-term technological edge over its competitors, ElringKlinger again increased its spending on research and development (R&D). This is reflected in the Group's current product range. Around one-third of ElringKlinger's portfolio is less than three years old.

In order to deal with a host of new projects, the Group also increased the number of employees working in departments relating to its R&D activities. By December 31, 2014, the number of people employed in R&D areas had risen to 538 (498). Over the same period, ElringKlinger expanded its spending on R&D to EUR 57.3 (56.7) million. It should be noted that part of the R&D costs incurred have been capitalized and amortization of capitalized development costs has been accounted for in cost of sales. Including R&D costs capitalized in the 2014 financial year, R&D expense amounted to EUR 66.5 (65.7) million.

		2014	2013*	2012	2011	2010
R&D expenditure	(in EUR million)	57.3	56.7	57.3	49.9	40.6
R&D ratio		4.3%	4.9%	5.1%	4.8%	5.1%
Capitalization ratio		16.0%	15.8%	14.7%	13.4%	14.1%

* Since 2013, amortization of capitalized R&D expenses has been recognized in cost of sales. R&D expenses for the 2013 financial year were adjusted in 2014 due to the first-time application of IFRS 11.

Taking capitalized development costs into account, the R&D ratio was 5.0% (5.7%). Thus, measured in relation to sales revenue, the ElringKlinger Group spent more than the majority of its competitors on research and development of new products.

As in previous years, most R&D spending in 2014 was directed at the company's core divisions (Cylinder-head Gaskets, Specialty Gaskets, Plastic Housing Modules and Shielding Technology) and at Exhaust Gas Purification. Spending on the development of new products and technologies was mainly concentrated at the site of the parent company in Dettingen/Erms/Germany.

Patent protection and centers of excellence structure help maintain technological edge

In order to maintain its competitive edge in terms of product development and process technology, ElringKlinger has set up a central internal patent department tasked with protecting the company's technological expertise and intellectual property rights. In 2014 alone, the patent department filed 94 (78) new German and international applications for industrial property rights.

There was a further increase in the trend for German vehicle manufacturers to build up local production capacity for vehicles and engines in the rapidly expanding emerging markets of Asia and in North America. In response to this trend, the Group also began to establish new development capacity at its international subsidiaries, for example in China. Over the same period, ElringKlinger attracted several new local customers in Asia.

Nevertheless, the lion's share of Group research and development work was still concentrated at the sites in Germany operated by ElringKlinger AG and at Hug Engineering AG in Switzerland. This centralized structure allows ElringKlinger to substantially limit the risk of technology transfer, outflows of know-how and copying.

Integration of new materials and move into lightweight body construction help reduce vehicle weight

In 2014, the product development teams in the Plastic Housing Modules division came up with several new ideas for products based on the use of polyamide and other innovative composites. Using lightweight construction methods, these components and modules are often used to replace the heavy and expensive metal parts previously made by the company's competitors. This leads to a significant weight saving and therefore ultimately reduces the vehicle's overall CO2 emissions.

Together with ElringKlinger's in-house tool expertise, these innovative materials underpinned the development of a wide-ranging portfolio of new parts for engines, transmissions and increasingly the vehicle body.

By combining fiber-reinforced composites such as glass, carbon, aramid and thermoplastics in so-called organo sheets *, it is possible to achieve a substantial improvement in resilience and rigidity. For the first time, this opens the way for numerous potential applications in structural areas of the vehicle previously made of metal-based components.

Another focal point in 2014 was to design new applications for lightweight components made of highly temperature-resistant materials for commercial vehicles. These components offer the prospect of a 30-50% weight saving. As well as new oil pan and cam cover modules, the company's development teams played a pioneering role in the design of plastic charge air ducts, airboxes and oil suction pipe modules.

Some very promising development projects were set up to design highly efficient oil separation systems for cars and mid-sized commercial vehicles as well as lightweight plastic resonators that reduce turbocharger noise.

In 2014, ElringKlinger made its first move into the market for lightweight body construction with a series of newly designed polymer-metal hybrid (PMH) components * for the cockpit and front-end. The company is working in partnership with a German premium segment car maker to implement this ground-breaking hydroform hybrid technology. ElringKlinger's main role has been to develop the complex tool technology required. A combination tool is used to link hydroforming* with plastic injection-molding so that complex and extremely lightweight components can be made in a single process. The new hybrid technology can be used to make cockpit cross-car beams, front-end carriers and front-end adapters. The process combines a high level of rigidity with a weight saving of around 25%. This means that it has considerable potential for a range of structural vehicle components with widely varying geometries.

Downsizing puts extra demands on metal gasket performance

Hybridization of the vehicle drive train and the trend toward downsized engines both increase yet again the demands made on combustion engines. The technical specifications for cylinder-head and specialty gaskets are becoming increasingly challenging. Development work in the Cylinder-head Gaskets division is marked by the need for greater resistance to more frequent load changes, higher temperatures and increased pressures. In terms of new products, the development agenda was increasingly dominated by projects for hybrids and for compact, highly turbocharged petrol engines with direct injection. Thanks to the further development of embossed topographical structures for the top layer of cylinder-head gaskets and the use of more stable elastomer coating materials, ElringKlinger was able to make a number of further improvements tailored to these engine operating conditions.

In 2014, the development teams in the company's Cylinder-head Gaskets division handled a record 305 (294) serial development projects. Asian manufacturers accounted for the biggest increase.

The search for technical solutions also drove development work in the Specialty Gaskets division. In response to the growing complexity of the exhaust tract, the widespread use of turbochargers and strong demand for highly efficient solutions in the field of exhaust gas recirculation (EGR), ElringKlinger worked on numerous projects for OEMs and in the Tier 1 field.

These resulted in some new and highly promising developments – with the potential of significant revenue flows in the coming years – in the fields of V-ring gaskets, high-temperature flat gaskets for turbochargers and complex EGR gaskets with an integrated screen fabric. Nearly two-thirds of all the company's current research and development projects concerned hot gas applications using super alloys that can resist temperatures of up to 1,000 °C.

The growing popularity of double-clutch and multi-stage automatic transmissions among ElringKlinger's customers pushed up demand for technical solutions in the field of transmission spacer plates. In 2014, ElringKlinger's novel design for a "sandwich" spacer plate won the company the Innovation Award from ZF Friedrichshafen AG, one of its biggest customers.

On the materials side, potential applications for highly temperature-resistant metal-ceramic coatings opened up a new area for development.

Shielding Technology: lightweight thermal and acoustic insulation

Development work in the Shielding Technology division was again dominated by thermal management issues in downsized engines and by the increasing complexity of exhaust gas purification systems. In terms of development capacity and process technology, ElringKlinger Abschirmtechnik (Schweiz) AG, Sevelen/Switzerland, has the expertise to design "total shielding" packages from the engine and underbody to the exhaust system. This is what sets it apart from most of the company's competitors.

At the same time, acoustic shielding also took on a much greater profile. There was a significant increase in the frequency of requests from customers for the development of noise and vibration damping systems. Currently, EU committees are discussing a substantial reduction in noise limit values to protect vehicle occupants. The aim is to make these binding for all new cars from 2019. In 2014, ElringKlinger worked on numerous projects to develop suitable shielding systems designed to cut noise levels inside the vehicle.

Weight reduction was also a key requirement of vehicle manufacturers in the field of shielding technology. In response, ElringKlinger devoted a great deal of effort in 2014 to the development of new material designs, with a particular focus on fiber technologies. These included lightweight components made of thermoformed plastics with glass and silicate fibers for underbody panels. The range of applications for non-wovens and specialty foils is also increasing. CW (i.e. drag coefficient) optimization was one of the key factors in terms of underbody design.

Others included direct encapsulation of the exhaust tract and thermal insulation systems located directly on the engine using fiber components and thermoplastic composites. The direct shielding of components cuts radiation losses by a significant margin. Among the various beneficiaries of faster warm-up times and higher operating temperatures are catalytic converters.

In 2014, many of the company's development orders involved a combination of thermal and acoustic shielding. Here, too, the objective was to save weight. With this in mind, ElringKlinger developed special organo materials, i.e. multilayer composite materials that incorporate heat-resistant glass or silicate fibers.

Exhaust Gas Purification: new combined systems for niche markets

With regard to development work on new exhaust purification systems, in 2014 the Exhaust Gas Purification division focused above all on applications for commercial vehicles, stationary engines, construction machinery and marine diesel engines. ElringKlinger's subsidiary Hug Engineering AG, which specializes in this field, develops and produces in-house all key components such as ceramic substrates, catalytic coatings and housings. To assist with soot burn-off, the filter substrates are catalytically coated, depending on the area of application, with ElringKlinger's CleanCoatTM * coating material, which does not contain any precious or heavy metals.

In 2014, one of the key projects was to develop complete high-performance systems for stationary engines that combine a reduction in nitrogen oxides through SCR-DeNOx processes with a reduction in the level of soot particles.

The maritime industry also generated considerable demand for combined systems. With the introduction of IMO3 and EPA Tier IV (USA) pending, manufacturers of engines for vessels that use inland waterways as well as yachts and other maritime applications are now required to provide certification that their engines comply with the new regulations. In 2014, the development teams at Hug Engineering AG worked on a new exhaust gas purification system to implement the revised specifications. Given the compact nature of such vessels, any such integrated system needs to match the available space while performing a range of functions. Accordingly, one of the company's main development projects involved successfully combining a particulate filter with selective catalytic reduction (SCR), while also integrating suitable soundproofing. The combined filter module can be fitted even in a tight space. It is designed to filter and burn off soot (using a catalyst) as well as reducing nitrogen oxide emissions.

E-Mobility: battery cell contact systems for lithium-ion batteries

In the field of battery technology, ElringKlinger developed several new applications in 2014 for highly efficient and stable connectors designed for lithium-ion cells and modules in high-energy batteries. These are already in use with a plug-in hybrid platform launched by a German premium segment manufacturer.

ElringKlinger's battery technology developers also designed various concepts for products outside the company's traditional automotive market. The next few years should see some interesting niche applications for high-voltage batteries, e.g. in forklift trucks and other conveyor vehicles.

ElringKlinger is also working on the expansion of its e-mobility portfolio into cell housings. In 2014, the main focus of ongoing development work was on a functional cell lid with electric contacting and a PTFE seal, featuring particularly low-loss power transfer and integrated safety sensors.

Demand from buyers for battery-powered electric vehicles (BEV) remained weak. In Western Europe, this category accounted for less than 0.5% of total vehicle purchases in 2014. ElringKlinger has therefore decided for the time being not to expand its R&D capacity in the area of E-Mobility.

New Business Areas: first fuel cell systems now in practical use

ElringKlinger has been working for more than ten years on a series of mostly long-term fuel cell technology projects in the field of alternative drive systems. The company develops and produces bipolar plates and complete stacks for both PEM (Proton Exchange Membrane) * fuel cells and high-temperature SOFCs (Solid Oxide Fuel Cells) *.

With regard to so-called "hot fuel cells", the company's main focus in 2014 was on commercial vehicle applications. Lightweight SOFC stacks powered by liquid gas are at an advanced stage of development. These are designed to provide a decentralized source of energy that makes it possible to generate direct heat and electricity from fossil fuels for houses and apartment buildings. Various fossil fuels can be used as energy carriers, but natural gas is preferred. ElringKlinger's acquisition of the fuel cell system specialist new enerday GmbH, Neubrandenburg/Germany, in July 2014 strengthened its profile in the SOFC field and brought in new expertise in power electronics, reformer technology and system integration to complement its existing development know-how. Systems designed to provide on-board electrical power for boats, yachts and mobile homes offer excellent sales prospects. ElringKlinger produced a small number of grid network back-up systems that can be deployed in the event of power outages. 2014 saw the first sales of the company's liquid gas-based systems designed to provide a mobile source of electricity for traffic monitoring applications.

A purely hydrogen-based PEM fuel cell stack already made in small quantities and refined since its introduction in 2012 is already in practical operation in the energy cell of forklift trucks. In combination with a lithium-ion battery that functions as an output buffer, the stack creates an energy cell that provides a consistent 11 kW of power with no emissions whatsoever. ElringKlinger has joined forces with a consortium to develop new PEM systems. This consortium brings together the expertise of a power electronics specialist, a leading forklift manufacturer and a major international logistics group.

Macroeconomic Conditions and Sector Environment

Regional divergence in global economic performance

The world's major economies developed along radically different lines in 2014. After a sluggish start to the year, influenced in particular by unfavorable weather conditions, the US economy became increasingly dynamic over the ensuing months. By contrast, Europe's economy found it difficult to gain sufficient momentum.

Growth rates in China were less buoyant, although it should be noted that this slowdown occurred from a high base. This contrasted with Japan's economic performance, which was faced with recessionary trends despite the country's more expansive monetary policy. The emerging economies of Brazil and Russia, meanwhile, suffered a severe year-on-year dip in the rate of growth generated, as measured on the basis of their gross domestic product (GDP).

Sluggish recovery in Western Europe

Although the eurozone saw a slight upturn in its economic performance during 2014, the overall speed of recovery was anything but impressive when one considers the severity of the recession that had preceded this upturn. Lackluster demand from the emerging markets, structural problems in two of the eurozone's core countries, France and Italy, and trade sanctions imposed on Russia proved detrimental. Of the EU member states not operating within the eurozone, the United Kingdom put in a particularly strong performance, boasting significant growth in GDP.

Germany's economy again developed at a more dynamic rate compared to the European average, having benefited from solid non-domestic demand and more expansive consumer spending.

The Russian economy came under pressure in the period under review. Sanctions imposed by the West in connection with the conflict in Ukraine, coupled with the first signs of capital flight and a sharp decline in the price of oil, had a visible impact on Russia's economic performance. Against this backdrop, GDP was significantly down on the figure originally anticipated at the beginning of the year – failing to expand beyond a meager 0.6% at the end of the year.

Booming US economy

The US economy recorded a very solid performance in 2014. After a weather-induced slump at the beginning of the year, the country's economic fortunes improved markedly in the ensuing months. Favorable conditions on the US job market and the concomitant rise in consumption levels, as well as a more buoyant property market, triggered substantial growth as the economy moved forward. With energy prices and interest rates remaining low, the country also reaped the rewards of a positive investment climate.

South America in crisis

By contrast, 2014 proved to be a crisis-laden year for Brazil's economy. There was a lack of impetus on the part of economic policymakers when it came to lifting productivity, improving competition and stimulating consumer spending. At the same time, the country's oil industry languished as the price of crude oil tumbled.

Asia-Pacific: Chinese growth decelerates slightly

Moving into 2014, China was unable to match the significant growth rates achieved in the previous years. At the end of the year GDP stood at 7.4%, thus falling just short of the figure of 7.5% targeted by the Chinese government. After years of stagnation, the change in government in India brought with it the prospect of economic reforms as well as growing confidence among consumers, thereby fueling hopes for an upturn in the domestic economy. Against this backdrop, the Indian economy grew by a respectable 5.8% in 2014.

Following an increase in value-added tax implemented in April 2014, the Japanese economy entered into a downward spiral. Despite the recovery package introduced by the government, complemented by an expansive monetary policy, growth in economic output was close to zero.

GDP growth rate s

Year-on-year change in % 2013 2014

World	3.3	3.3
Germany	0.2	1.5
Eurozone	-0.5	0.8
USA	2.2	2.4
Brazil	2.5	0.1
China	7.8	7.4
India	5.0	5.8
Japan	1.6	0.1

Source: International Monetary Fund (January 2015)

Boom year for cars: global vehicle production expands further in 2014

Global car production reached a new high in 2014, although it should be noted that the individual vehicle markets have hardly ever been as divergent in their performance as they were in the year under review. Despite the severe slumps witnessed in Brazil and Russia, both vehicle sales and global vehicle production expanded by around 3%. As was the case a year ago, the two single largest markets – the United States and China – retained their position as growth drivers. At the same time, Western Europe saw a slight upturn in demand.

Western Europe on track for recovery

Western Europe saw the number of passenger cars sold rise by 4.8% to 12.1 million units, thus reversing a severe downward trend that had brought successive declines over a four-year period. Having said that, sales were still almost a fifth down on the pre-crisis level of 2007.

Whereas the United Kingdom and Spain recorded double-digit gains, the car market in France again failed to emerge from the doldrums in 2014. Both Germany and Italy also put in a below-average performance.

Continued lack of impetus shown by new registrations in Germany

Vehicle production in Germany benefited from a slight increase in the number of cars registered as well as buoyant exports that saw the volume of cars sold abroad exceed the record level of sales in 2013 by 2.4%. In total, 5.6 million or 3.2% more passenger cars rolled off the production lines in 2014 than in the preceding year.

Russia proves disappointing

Vehicle markets in Eastern Europe as a whole showed double-digit growth in sales over the course of 2014. After a sustained slump, the Russian car market contracted at a slower rate in December. Despite a government incentive scheme, however, the number of new registrations in 2014 was still down 10.3% on the previous year, which had already been lackluster.

US vehicle market on track for all-time high

The US auto market again expanded markedly in 2014. Sales totaled 16.5 million cars and light trucks, thus moving beyond the pre-crisis level of 2007 and falling just short of the all-time high of 17.4 million newly registered light vehicles. German car makers also benefited from this upward trend. At 1.4 million units, they sold more cars in the United States over the course of 2014 than ever before in their history.

Slump in Brazil's car market

In contrast to the US, Brazil saw an out-and-out collapse in its car market. On the back of a inconsistent performance in 2013, car makers only managed to sell 3.3 million units in Brazil over the course of 2014, down 6.9% on the previous year's figure. Production output was equally disappointing, slumping by around 15%.

Chinese car market maintains impressive rate of growth

The world's largest vehicle market, China, remained on a trajectory of growth in 2014. Having touched record levels, the market showed signs of a loss in forward momentum in the second half of the year, calculated on the basis of vehicle sales.

Ne w C ar Regis tr ations 2 0 14 Year-on-year change (in %)

Source: VDA, ACEA, Automotive News Data Center (January 2015)

India's car market moved into positive territory as the year progressed. Car sales were up by 0.7% in 2014 as a whole.

The Japanese market proved to be less dynamic as regards new car registrations. Buoyed by purchases brought forward in anticipation of the rise in valueadded tax, Japan's car market closed 2014 with an annual growth rate of 3.0%.

Benefiting from its local presence within vehicle markets around the globe, the ElringKlinger Group is able to reap the rewards of growth in the respective regions. The share of Group revenue generated by ElringKlinger directly in Asia, for instance, rose to 17.0% (14.3%) in 2014. Including exports to these regions, the ElringKlinger Group amassed more than 50% of its Original Equipment revenues in Asia and the NAFTA region. Additionally, the Group generated around 25% of its Original Equipment revenue from sales to German premium-class manufacturers and Tier 1 suppliers, who in turn have been benefiting in particular from buoyant demand in China and the United States. For further details of Group sales revenue by region, please refer to the chapter entitled "Sales and Earnings Performance" on page 63.

Ne w Regis tr ati o n s of Mid-Sized and Heav y Truc k s 2 0 14 Year-on-year change (in %)

Source: VDA, ACEA, Automotive News Data Center (January 2015)

US truck market with vibrant growth, while Europe struggles

As so often is the case, the direction taken by truck markets in 2014 was closely correlated with the prevailing economic performance in the respective regions. Therefore, it comes as no surprise that the commercial vehicle markets in the US and Europe, two key regions for this industry, developed along completely different lines in 2014. While truck sales in the United States surged forward at dynamic rates, the European market for heavy trucks remained in a state of malaise.

New registrations relating to mid-sized and heavy trucks declined in both Western Europe and the new EU member states over the course of 2014. It should be noted, however, that the introduction of the Euro VI emission standard effective from January 1, 2014, had prompted pre-emptive buying in the truck market a year earlier. After a year-end rally in the fourth quarter of 2013, the number of trucks sold in 2013 as a whole had been substantially higher than in the past. This was due to the fact that fleet operators had purchased Euro V vehicles, which were available at more favorable prices than the next generation of trucks.

The situation in the individual EU member states was anything but consistent in 2014. Among the core markets, France and the United Kingdom recorded a double-digit decline in percentage terms, while Italy at least managed to reach a level at which truck sales remained stagnant. Only Spain succeeded in generating substantial growth in new truck registrations. In Germany, the figure for new registrations of mid-sized and heavy trucks was up 1.8% on the previous year at 143,857 (141,348) units in 2014.

Economic recovery in the US was reflected in the performance of the domestic truck market. Many of the country's truck operators replaced parts of their vehicle fleet. In total, sales of mid-sized and heavy trucks rose by 15.1% in the United States to stand at 434,799 (377,681) units. By contrast, Brazil's truck market was adversely affected by the slump in the domestic economy. This was reflected in a double-digit decline in the number of new truck registrations.

Business within the area of commercial vehicles gained further importance for the ElringKlinger Group in 2014, with the share of revenue from truck components in total Original Equipment sales rising to 16.4% (14.8%). In this area, too, there was a growing trend towards lightweight engineering, with customers replacing an ever-greater proportion of truck parts previously manufactured from metal with lighter components made of plastic, such as cam covers, oil pans and charge air ducts.

Significant Events

A declared aim of ElringKlinger is to ensure sustainable growth for the company. Organic growth is complemented by acquisitions, which, for example, allow the company to expand its scope of operation by introducing new expertise.

Majority acquisition of fuel cell specialist New Enerday

In July 2014, ElringKlinger AG acquired a majority interest in new enerday GmbH, headquartered in Neubrandenburg/Germany. ElringKlinger purchased 75% of the interests in the fuel cell specialist from the consortium of existing owners. Inclusion in the scope of consolidation of the ElringKlinger Group occurred as of July 1, 2014. The other 25% ownership interest remains with the founder of the enterprise. The purchase price amounted to EUR 2.0 million. As of December 31, 2014, new enerday GmbH employed 13 people.

In acquiring a 75% interest in the fuel cell specialist, ElringKlinger AG strengthened its business activities relating to high-temperature SOFCs (solid oxide fuel cells) * and extended its own expertise centered around associated electronics, reformer technology and system integration. Additionally, the acquisition allowed ElringKlinger to secure important industrial property rights for itself.

ElringKlinger already has extensive know-how relating to high-temperature fuel cells. The division responsible for fuel cell technology develops and manufactures fuel cell stacks – i.e. key components of SOFC technology – including housings for the thermal insulation of the high-temperature core of the system.

new enerday develops and manufactures electricity generators based on fuel cell technology. This involves the use of high-temperature SOFCs that are capable of generating electrical energy directly from fossil fuels such as natural gas, LPG, bioethanol or diesel. Promising areas of business include, in particular, the on-board power supply of boats and yachts as well as recreational vehicles. Additionally, the focus is on producing, in small-scale series, emergency standby power units to protect sensitive installations against the effects of power failures. The development pipeline also includes miniature LPG-fueled combined heat/power generation systems for domestic use in single-family houses and holiday homes.

ElringKlinger Kunststofftechnik acquires Polytetra GmbH

Another strategic acquisition occurred in October 2014 within the Engineered Plastics segment of the ElringKlinger Group. ElringKlinger Kunststofftechnik GmbH, Bietigheim-Bissingen/Germany, a subsidiary of ElringKlinger AG, acquired from the former owner all interests in Polytetra GmbH, based in Mönchengladbach/Germany. The purchase price amounted to EUR 4.0 million. The entity was included in the scope of consolidation of the ElringKlinger Group effective from October 1, 2014.

Serving markets outside the automotive industry, the acquiree's technological focus is on developing and producing polymer-based heat exchangers and electric heaters used in industrial applications. The company's product portfolio also includes tubing and finished parts made of fluoropolymers and high-performance plastics. The products are used primarily in the field of plant engineering, in the chemical industry, in the area of energy and power station technology as well as in the semiconductor industry. Product solutions centered around the generation of heat from surface waterbodies (geothermal energy), which can be used to supply houses, holiday homes and houseboats, are also considered promising from a commercial perspective.

In acquiring the company, ElringKlinger Kunststofftechnik GmbH has further strengthened its position in the industrial sectors outlined above, as well as securing additional growth opportunities relating to the production of modules and systems. In 2014 as a whole, Polytetra GmbH generated sales revenue of EUR 5.1 million. A total of 30 employees joined the ElringKlinger Group as a result of this acquisition.

Sales and Earnings Performance

The ElringKlinger Group succeeded in expanding its sales revenue to EUR 1,325.8 (1,150.1) million in the 2014 financial year. This represents an increase of 15.3%. Organically, i.e. eliminating the effects of foreign currency translation and scope changes, sales revenue increased by 11.2%, despite the malaise afflicting vehicle markets in both Brazil and Russia.

ElringKlinger benefited from strong structural sales growth in many of its product groups aimed at CO2 reduction and expanded at a percentage rate that was well in excess of growth in terms of global vehicle production (+3%). Revenue growth within the Group was also driven by the introduction of new products and buoyant demand from North America and Asia.

Foreign currency translation, however, had a dampening effect on sales revenue in the financial year as a whole. If foreign exchange rates had remained stable, Group sales revenue would have been EUR 6.0 million higher in the period under review.

Due to the necessary retrospective application of IFRS 11 as regards the presentation of comparative prioryear figures, ElringKlinger Marusan Corporation, Tokyo/Japan, was no longer accounted for on a proportionate basis but rather in accordance with the equity method (cf. Notes, pages 132, 137 and 143). As a result, the Group revenue figure originally presented for 2013 was retrospectively reduced to EUR 1,150.1 million, the difference being attributable to the entity's revenue contribution formerly included at a proportionate rate of 50% (EUR 25.1 million). In the fourth quarter of 2013, Group revenue was thus reduced by EUR 5.6 million to EUR 285.5 million.

By contrast, ElringKlinger Marusan Corporation was fully consolidated as a result of the assumption of control completed as of December 31, 2013, and was included in the Group accounts for the 2014 financial year with its total revenue of EUR 46.2 million. Therefore, the additional revenue contribution was EUR 23.1 million. In the fourth quarter of 2014 total revenue generated by ElringKlinger Marusan Corporation amounted to EUR 10.8 million. The additional revenue contribution as a result of full consolidation stood at EUR 5.4 million.

Driven to some extent by substantial tool-related revenue, the rate of growth became more dynamic in the fourth quarter of 2014. Over this period, the ElringKlinger Group expanded its sales revenue by 19.4% to EUR 340.9 (285.5) million. On an organic basis, sales revenue increased by 12.7%.

Revenue target for 2014 well exceeded, adjusted EBIT within target corridor despite dilutive effects of E-Mobility business

The Group managed to exceed by far its annual target for 2014, which had been to lift Group sales revenue by between 5% and 7% organically (i.e. having eliminated the effects of foreign currency translation and scope changes) plus contributions by acquired entities.

According to the Group's forecast, earnings before interest and taxes (EBIT), adjusted for non-recurring items, were to be expanded to a total of EUR 160 to 165 million. In the period under review, however, earnings recorded by Elring Klinger do Brasil Ltda., Piracicaba/ Brazil, were down by EUR 4.0 million compared to the original forecast, while the E-Mobility division saw earnings deviate by around EUR 5.0 million from the original EBIT target. Despite these circumstances, the Group managed to achieve EBIT of EUR 158.9 (148.5) million in total. Adjusted for non-recurring items, the EBIT margin fell from 12.9% to 12.0%.

Growth in revenue and earnings for Exhaust Gas Purification division

Buoyed up by persistently solid demand in its US retrofitting business for heavy trucks, by new projects for inland waterway vessels and by major contracts for exhaust gas purification systems used in natural gas power plants, sales at the Hug Group in 2014 rose to EUR 71.1 (57.6) million.

The pattern of business during the first two quarters of 2014 was dominated to a large extent by billings in connection with large-scale contracts. By contrast, the second half of the year saw a return to more normal levels of business. Between July and December 2014, Hug recorded revenue of EUR 30.9 million, compared with EUR 40.2 million in the first six months of 2014.

At present, Hug is working on several new projects, including the certification of retrofit solutions for offroad vehicles and SCR dosing systems for nitrogen oxide reduction in marine engines, which were developed in response to the IMO exhaust emission regulations coming into force in 2016. This is complemented by development projects relating to construction machinery, stationary engines and exhaust abatement systems for large vessels powered by heavy fuel oil.

The Hug Group saw a further improvement in its earnings performance, having targeted its business at niche markets and having benefited from higher capacity utilization in production. Before interest and taxes, Hug earned EUR 15.1 (13.6) million in the period under review. Given the strong focus on project-specific business, this entity's revenue and earnings performance is likely to remain susceptible to relatively pronounced fluctuation on a quarterly basis.

Business in Europe and North America as a regional growth driver

The gradual improvement seen in car markets throughout Western Europe was also reflected in the sales performance of the ElringKlinger Group. Rising by 20.9% to EUR 433.8 (358.7) million, the rate of revenue growth achieved in the region comprising the "Rest of Europe" was the highest within the Group. With a share in total Group sales revenue of around one-third (32.7%), this region constitutes the largest market for the Group.

By contrast, the domestic market continued to drop down the rankings in terms of its significance to the business. Revenue generated by the Group from sales within the domestic, i.e. German, market rose by 7.6% to EUR 388.1 (360.8) million. As a result, the share of domestic sales in total Group revenue declined to 29.3% (31.4%). In this context, it should be noted that some of the ElringKlinger components supplied to German customers in particular are fitted to vehicles or engines destined for foreign markets such as China and North America.

Supported by consistently strong demand by car buyers in North America, ElringKlinger managed to lift sales revenue in the NAFTA region by 10.0% to EUR 220.4 (200.3) million in the 2014 financial year. In total, 16.6% (17.4%) of the Group's sales revenue was generated in this region, which thus continues to be of similar importance to the Group as the Asian markets.

By contrast, revenue from sales generated by the ElringKlinger Group in "South America and the Rest of the World" shrank from EUR 65.7 million to EUR 57.9 million. The 11.9% decline was attributable primarily to the severe slump suffered by Brazil's car market. The ElringKlinger Group was also faced with a substantial year-on-year downturn in revenue generated from its business activities in Brazil. Additionally, the weakness of the Brazilian real had an adverse effect on Group revenue. Against this backdrop, the local subsidiary Elring Klinger do Brasil Ltda., Piracicaba/Brazil, saw its revenue fall by 18.1% to EUR 40.3 (49.2) million. Thus, the proportion of Group sales attributable to South America fell to 4.4% (5.7%).

The Asia-Pacific region saw Group revenue expand by 37.1% to EUR 225.6 (164.6) million in 2014. Having said that, the marked upturn compared to the previous year was dominated by full consolidation of ElringKlinger Marusan Corporation, Tokyo/Japan, as discussed earlier. Adjusted for these effects of consolidation, revenue in Asia would still have grown by 6.7%. It should also be noted that the depreciation of the Japanese yen against the euro had a dilutive effect on Group sales revenue.

ElringKlinger remains focused on the growth markets of Asia. In the two preceding years, the company established new plants in both Indonesia and South Korea. ElringKlinger Marusan Corporation was included fully in the scope of consolidation of the Group following assumption of control. On this basis, Asia's share of business rose to 17.0% (14.3%) in 2014. However, factoring in revenue contributions associated with indirect exports by European vehicle and engine manufacturers from Europe to Asia, the share of Group revenue from Original Equipment business attributable to Asia would amount to roughly one-quarter.

Overall, business within the international markets continued to gain in importance, with the percentage share of foreign sales in relation to Group revenue growing to 70.7% (68.6%).

Growth at Group level driven by Original Equipment segment

In 2014, Original Equipment was again by far the strongest segment within the Group in terms of revenue. Growth was supported primarily by the strong performance of ElringKlinger's core business.

S ales Revenue by	segme nt in 20 14
(prior year) in € million

Industrial Parks	4.5 (4.3)
Services	8.1 (8.1)
Engineered Plastics	92.9 (92.6)
Aftermarket	130.7 (119.3)

Original Equipment 1,089.7 (925.9)

Expanding by 17.7% to EUR 1,089.7 (925.9) million, Original Equipment saw its revenue grow at a much more pronounced rate than the Group's other reporting segments. Without the effects from the above-mentioned change to the consolidation method applied to ElringKlinger Marusan Corporation, i.e. if retaining the method of proportionate consolidation for this entity, the Original Equipment segment would have grown by 12.2%.

Consistently strong demand from the car markets of North America and Asia, but also the forward momentum shown by European vehicle markets, helped to propel revenue upwards in the Original Equipment segment. Above all, however, growth was stimulated by more expansive customer demand at a structural level for automatic transmission components, turbocharger gaskets, thermal-acoustic shielding parts and lightweight plastic modules. With the product portfolio in the divisions of the company's core business expanding, the number of ElringKlinger parts fitted per vehicle has risen. Additionally, this segment also reaped the rewards of product ramp-ups. Growth was particularly strong in the Specialty Gaskets and Plastic Housing Modules divisions.

In total, 82.2% (80.5%) of Group sales revenue was generated in the Original Equipment segment in 2014.

As regards earnings, it should be noted that the company's core business within the Original Equipment segment had to compensate for a number of adverse effects. Among the factors to exert downward pressure on the profit margin was the company's sluggish performance in Brazil and the losses incurred in the E-Mobility division. At the same time, earnings (including the effects of purchase price allocation) contributed by ElringKlinger Marusan Corporation, which was fully consolidated as from 2014 and provided revenue of EUR 46.2 million in 2014 as a whole, were in slightly negative territory. Due to the large number of ramp-ups still in the pipeline, revenue from tools was comparatively high in the 2014 financial year. Revenue amounted to EUR 91.2 million in this area, with a dilutive effect on the profit margin.

At EUR 111.2 (123.2), segment earnings before interest and taxes (EBIT) were lower than in the previous year. However, this was attributable entirely to the one-time gain recorded in the previous year from the assumption of control over ElringKlinger Marusan Corporation, Tokyo/Japan. Eliminating this exceptional item, EBIT within the Original Equipment segment rose by 5.3% from a base of EUR 105.6 million. Buoyed primarily by EUR 10.0 (-4.0) million in foreign exchange gains, earnings before taxes recorded in the Original Equipment segment developed more favorably than the operating result and grew by 1.8% to EUR 111.4 (109.4) million. Adjusted for the non-recurring income in 2013, as outlined above, segment earnings before taxes rose from EUR 91.8 million to EUR 111.4 million, up by 21.4%.

E-Mobility falls short of expectations

Alongside the Exhaust Gas Purification division mentioned earlier, the Original Equipment segment also includes the activities of the E-Mobility division.

In this area weak demand within the consumer market for battery-powered vehicles and plug-in hybrids had a dampening effect on business, which was compounded by the fact that diesel and gasoline prices trended substantially lower as the year progressed. In fact, the share held by purely battery-driven cars in new vehicle registrations for Western Europe was just 0.5% in 2014. Consequently, revenue generated by the E-Mobility division fell well short of expectations. Given the low level of capacity utilization of the fully automated production lines, the division was unable to achieve the improvement in earnings by at least EUR 5.0 million originally planned for 2014.

Sales revenue rose slightly from EUR 8.4 million to EUR 11.0 million. However, this revenue contribution, coupled with unfavorable effects relating to the product mix, was not sufficiently large for the division to reach its break-even threshold. Substantial fixed costs, up-front expenses attributable to development activities and higher-than-expected start-up costs associated with serial production projects launched in 2014 contributed to a loss of EUR 8.0 (-7.2) million before interest and taxes. Thus, the E-Mobility division diluted the overall EBIT margin of the Original Equipment segment by almost one percentage point.

Substantial growth in Aftermarket segment

Operating in a business environment that proved challenging for the industry as a whole, the Aftermarket segment was able to increase sales revenue by 9.6% to EUR 130.7 (119.3) million in 2014. ElringKlinger continued to generate the majority of these revenue flows in Western and Eastern Europe.

Due to the highly divergent economic performance of the respective sales regions, business in the Aftermarket segment also developed along different lines in the period under review. Geopolitical tensions in Russia, the Middle East and a number of North African countries had a dampening effect on sales.

1200 900 600 300 0 1,089.7 925.9 2013 2014

S ales in t he O riginal Equipme nt Se gme nt

in € million

By contrast, business within the area of spare parts was encouraging at a domestic level. Building on its strong market position, ElringKlinger succeeded in capturing an additional share of the market and thus recorded sizeable gains in terms of revenue growth. The domestic aftermarket business accounted for around 15.0% of segment revenue.

The economic recovery in Southern and Western Europe had a positive impact on sales within ElringKlinger's Aftermarket segment. Car owners now went ahead with vehicle repair jobs previously postponed at the height of the financial crisis. Revenue growth was also fueled by more extensive market cultivation in countries such as Italy, France and Spain.

Despite the protracted conflict in Ukraine and the slowdown in business with Russia triggered by sanctions imposed by the European Union, the Aftermarket segment achieved encouraging growth in revenue in the Eastern European region. Weaker sales revenue in Russia and Ukraine was more than offset by substantial growth in the new member states of the European Union. ElringKlinger has benefited in particular from the sustained growth in ownership of German-made cars within the markets of Eastern Europe.

The difficult political and economic climate also took its toll on business in the crisis-plagued region of North Africa and the Middle East. Wholesalers were hampered by limited access to refinancing. At the same time, in many cases the local currencies depreciated sharply against the euro or US dollar. The combination of these factors led to subdued demand within the market. Regardless of these problems, ElringKlinger managed to lift its revenue further in the Middle East, albeit at a moderate pace.

S ales in t he A f te r m arke t Se gme nt in € million

Starting from a low base, ElringKlinger recorded double-digit percentage growth in its Aftermarket business in both North America and Asia. In total, it generated sales revenue of more than EUR 8.0 million in these regions. As one of the leading suppliers in the area of original equipment, ElringKlinger is now looking to expand its aftermarket activities with greater vigor in these two markets, which are thought to hold tremendous potential for growth in the medium term.

Earnings before interest and taxes in the Aftermarket segment improved in line with revenue growth in 2014, taking the figure to EUR 25.1 (22.5) million. This segment earned 12.7% more before taxes than in the previous year. Thus, earnings before taxes rose at a faster pace than revenue, reaching EUR 23.9 (21.2) million.

Moderate increase in revenue for Engineered Plastics segment

In the Engineered Plastics segment ElringKlinger develops and manufactures products made of the high-performance plastic PTFE * (polytetrafluoroethylene). In 2014, the Engineered Plastics segment also supplied sectors not associated with the automotive industry, such as mechanical engineering, medical technology and telecommunications. While revenue from sales to the automobile industry expanded at a solid rate, business growth relating to customers operating in the general industry sector was relatively subdued in 2014. In total, the Engineered Plastics segment grew at 0.3% year on year, thus edging up only slightly to EUR 92.9 (92.6) million.

The Group pressed ahead in 2014 with efforts to internationalize its business, which had previously been focused heavily on Central Europe. While the Chinese subsidiary ElringKlinger Engineered Plastics (Qingdao) Commercial Co., Ltd, Qingdao/China, contributed a larger proportion to segment sales, ElringKlinger is currently still in the process of penetrating the US market, the world's largest commercial arena for PTFE. The company has already managed to secure interesting development projects in the North American region. Up-front costs associated with market cultivation, particularly for sales and development, had a dilutive effect on earnings in 2014.

As a result, earnings before interest and taxes for the Engineered Plastics segment slipped from EUR 16.1 million in the previous year to EUR 15.4 million in 2014, while the EBIT margin fell to 16.6% (17.4%). Segment earnings before taxes dipped to EUR 15.4 (15.9) million.

Industrial Parks

Rental income from premises at the Group's industrial parks in Idstein/Germany, and in particular Kecskemét-Kádafalva/Hungary, rose slightly to EUR 4.5 (4.3) million in 2014 as a result of high occupancy rates. At the same time, the Industrial Parks segment contributed slightly more to Group EBIT compared to the previous year, at EUR 0.4 (0.1) million. Segment earnings before taxes thus rose from EUR 0.1 million to EUR 0.5 million.

Stable revenue contribution by Services segment

In the Services segment, Elring Klinger Motortechnik GmbH, Idstein/Germany, provides engineering and testing services for vehicle manufacturers and other suppliers. The company's portfolio within this area includes SCR technology (Selective Catalytic Reduction) for the purpose of nitrogen oxide reduction as well as particle counting for diesel particulate filters.

ElringKlinger Logistic Service GmbH, Ergenzingen/ Germany, another Group company in the Services segment, provides logistics services such as sorting and packaging both within the Group and to outside customers. It was instrumental in generating revenue growth for the segment in 2014. By contrast, Elring Klinger Motortechnik GmbH saw a year-on-year decline in both revenue and earnings.

After a sluggish start to the year, order intake gradually improved in the Services segment as the year progressed. At EUR 8.1 (8.1) million, sales revenue matched the figure recorded in the previous year.

EBIT, by contrast, dipped to EUR 1.9 (2.3) million. Correspondingly, earnings before taxes fell from EUR 2.3 million to EUR 1.9 million.

Gross profit margin slightly down on previous year

Despite downside factors such as the market slump in Brazil and lower than expected volumes requested by customers in the E-Mobility division, the financial performance of the ElringKlinger Group as a whole remained solid in 2014.

At EUR 967.4 (824.5) million, the total cost of sales at Group level rose by 17.3%, slightly faster than the rate of growth in sales revenue. Correspondingly, the gross profit margin came in lower at 27.0% (28.3%).

In this context, the above-mentioned changes to the method of consolidation in respect of ElringKlinger Marusan Corporation, Tokyo/Japan, had a dilutive effect, as this entity is still operating at profitability levels that are well below the Group average. Without the effect of consolidation, or retaining the former method of proportionate consolidation for this entity, the gross profit margin (before purchase price allocation) would only have decreased to 28.0% a year ago to 27.3% in the 2014 financial year.

Furthermore, the revenue contribution from tool-related billings was relatively large in 2014. Compared to serial production business, revenue associated with tools generates lower earnings for the Group.

The cost of materials rose by 14.7% to EUR 580.6 (506.3) million in the 2014 financial year, i.e. at a slightly slower rate than revenue. Prices for the majority of key commodities used by the ElringKlinger Group remained stable to a large extent. Due to existing framework agreements, the hike in market prices for aluminum seen over the course of the year had no major impact on ElringKlinger. By and large, highgrade steel was procured at prices comparable to those in the previous year. Purchase prices for polyamide granules fell slightly as the year progressed.

Lower proportion of cost of sales attributable to personnel expenses

Staff costs at Group level rose by 14.0% in the 2014 financial year. Compared to the previous year, the negative impact of wage increases for Group personnel employed in Germany under collective agreements, effective from July 1, 2013 (+3.4%), and May 1, 2014 (+2.2%), resulted in higher staff costs.

What is more, the staff profit-sharing bonus of EUR 1,450 (1,300) per employee for members of the ElringKlinger AG, ElringKlinger Kunststofftechnik GmbH and Elring Klinger Motortechnik GmbH workforce, as agreed for the financial year 2013, resulted in additional staff costs of EUR 4.7 (3.7) million in total.

Additionally, several ElringKlinger plants expanded their staffing levels in 2014 in response to growth. In total, employee numbers rose by 8.0% to 7,255 (6,716) as of December 31, 2014. However, the percentage increase in staffing levels was less pronounced in relation to revenue growth achieved by the Group.

Despite these accretive effects, the proportion of cost of sales attributable to personnel expenses at Group level was lower in 2014 compared to the previous year. This figure was pushed down from 24.4% to 23.4% with the help of further automation as well as productivity gains.

Higher research and development costs

ElringKlinger's more expansive efforts in the field of research and development (R&D) were reflected in higher R&D expenses. They totaled EUR 57.3 (56.7) million in the 2014 financial year. Including capitalized development costs, ElringKlinger spent a total of EUR 66.5 (65.7) million on development projects, which corresponds to an R&D ratio of 5.0% (5.7%).

While capitalized development costs amounted to EUR 9.2 (9.0) million, scheduled amortization totaled EUR 7.6 (6.3) million. The resulting positive effect on earnings was equivalent to EUR 1.6 (2.7) million.

The ElringKlinger Group received a total of EUR 7.4 (7.3) million in government grants over the course of 2014. Most of these grants went to support projects in the areas of fuel cell technology, battery development and lightweight construction. In parallel, however, the company incurred project-related expenses at a comparable level for development work and prototyping.

Selling expenses rose to EUR 93.4 (81.5) million in the 2014 financial year. However, this increase – by 14.6% or EUR 11.9 million – was attributable partly to the change in consolidation of ElringKlinger Marusan Corporation. A total of EUR 2.2 million of selling expenses was attributable to these effects of consolidation. It should also be noted that a large proportion of the purchase price allocation associated with the assumption of control over ElringKlinger Marusan Corporation was related to selling expenses (EUR 1.8 million). Without these two factors, selling expenses would only have grown by 9.7%.

General and administrative expenses rose at a disproportionately large amount in 2014, up by EUR 15.4 million to EUR 61.4 (46.0) million. This year-on-year increase was also attributable to the change in the method of consolidation, which meant that administrative costs relating to ElringKlinger Marusan Corporation (EUR 3.3 million) were included for the first time. Additionally, the amendment of service contracts for Management Board members in 2014, among other factors, triggered a rise in bonus expenses by EUR 3.7 million compared to the previous year. Of this total, an amount of EUR 1.4 million – resulting from the long-term variable incentive components of compensation (LTI II) – was attributable in economic terms to the two prior-year periods.

Other operating income amounted to EUR 18.7 (33.0) million in the financial year 2014. In the previous year, this item had included exceptional income from the assumption of control over ElringKlinger Marusan Corporation (EUR 17.6 million) as well as from the step acquisition of ElringKlinger Korea Co., Ltd., Gumi/South Korea (EUR 1.4 million).

Other operating expenses rose to EUR 11.1 (10.3) million in total. This increase was attributable mainly to derecognized receivables of EUR 1.5 million accounted for in connection with the definitive settlement of a warranty incident dating back to 2008 (cf. Notes, page 137).

Adjusted EBIT up 8%

Adjusted for non-recurring items, earnings before interest, taxes, depreciation and amortization (EBITDA) rose by 6.9% to EUR 238.3 (222.9) million. This increase was fueled primarily by buoyant structural growth in revenue from sales in the Original Equipment segment as well as new serial production rampups and improved earnings at Hug.

Due to current demand patterns, the new E-Mobility division, by contrast, fell well short of the original target and recorded a loss of EUR 8.0 (-7.2) million. Additionally, one-off exceptional charges of EUR 4.9 million in total had a dampening effect in the fourth quarter: as part of the plant relocation to the newly constructed site in Gumi, the subsidiary ElringKlinger Korea Co., Ltd. had to account for inventory corrections and impairments of EUR 2.0 million in total. A warranty incident attributable to the parent company, ElringKlinger AG, and dating back to 2008 was definitively settled in the reporting period. Although there are no longer any risks associated with this warranty incident, a total of EUR 1.5 million in receivables had to be derecognized, which was accounted for accordingly in profit/loss. Additionally, as part of the amendment of Management Board contracts of service in 2014, a one-time amount of EUR 1.4 million had to be allocated to provisions in respect of long-term variable incentive components of compensation (LTI II) that are attributable in economic terms to the two previous years.

In the previous year, by contrast, the Group had accounted for positive exceptional items of EUR 15.7 million in total, including among other things the above-mentioned exceptional gain of EUR 17.6 million from the assumption of control over ElringKlinger Marusan Corporation.

Including these exceptional items, EBITDA for the ElringKlinger Group amounted to EUR 233.4 (238.6) million in the 2014 financial year.

Depreciation and amortization rose by 6.7% in 2014, taking the figure to EUR 79.4 (74.4) million. While depreciation relating to tools fell yet again compared to the previous year, depreciation of property, plant and equipment and amortization of intangible assets (without tools) rose to EUR 67.4 (56.2) million in total. The amounts contained in write-downs with regard to hidden reserves realized as part of purchase price allocations totaled EUR 3.4 (1.3) million in total.

* Adjusted for non-recurring items, pre purchase price allocation

After adjusting for the above-mentioned exceptional items, Group EBIT before purchase price allocation stood at EUR 162.3 (149.8) million, an increase of 8.3%. The decline in the adjusted EBIT margin, before purchase price allocations, to 12.2% (13.0%) was attributable largely to demand-related losses in the E-Mobility division as well as a reduction in profit at the Brazilian subsidiary, which had to contend with a severe slump in the local vehicle market in 2014. Margins were also diluted by the large proportion of tool-related billings as well as the full consolidation of ElringKlinger Marusan Corporation, an entity whose margin is still considerably lower than that recorded by the Group (dilution of approx. 0.3 percentage points).

Reported EBIT for the ElringKlinger Group amounted to EUR 154.0 (164.2) million in the 2014 financial year.

Net finance costs down sharply due to foreign exchange effects

In 2014, net finance costs were scaled back from EUR 15.3 million to EUR 0.9 million. This was due largely to foreign exchange gains amounting to EUR 10.0 million in 2014, whereas the Group had recorded net foreign exchange losses of EUR 4.4 million in the previous year. The substantial foreign exchange gains were fueled mainly by the progressive depreciation of the euro, particularly against the US dollar but also in relation to the majority of Asian currencies. Despite higher net debt, net interest expenses fell to EUR 10.9 (-11.2) million as a result of falling interest rates in 2014.

* Adjusted for one-time gain from assumption of control of ElringKlinger Marusan Corporation as of December 31, 2013

attributable partly to deferred taxes accounted for in connection with the warranty incident discussed above. In addition, the prior-year tax rate had benefited from the positive effects of assumption of control and the associated transition to full consolidation of ElringKlinger Marusan Corporation.

Net income up 12% before effects of consolidation

Net income generated by the ElringKlinger Group in 2014 remained largely unchanged at EUR 110.6 (111.2) million. However, after adjusting for the non-recurring contribution to earnings generated by the assumption of control at ElringKlinger Marusan Corporation in 2013, net income for the period was up 12.3% at EUR 110.6 (98.5) million.

* Adjusted for one-time gain from assumption of control of ElringKlinger Marusan Corporation as of December 31, 2013

Earnings before taxes rose by 16.6% compared to the prior-year figure adjusted for the one-time gain from the assumption of control over Marusan, taking this figure to EUR 153.1 million (EUR 131.3 million, incl. one-time gain EUR 148.9 million).

Tax expenses rose at a more pronounced rate than earnings before taxes, up 12.7% to EUR 42.5 (37.7) million. Correspondingly, the ElringKlinger Group's tax rate increased to 27.8% (25.3%) in 2014. This was Net income after non-controlling interests stood at EUR 105.7 (105.4) million. Excluding the above-mentioned exceptional income from the assumption of control at ElringKlinger Marusan Corporation, net income after non-controlling interests for the period was 14.0% higher at EUR 105.7 (92.7) million.

As a result, earnings per share for 2014 reached EUR 1.67 (1.66). After adjusting for the non-recurring effect of assumption of control, the figure comes to EUR 1.67 (1.46). As of December 31, 2014, the number of shares outstanding that were entitled to a dividend remained unchanged at 63,359,990.

Proposed dividend to rise to EUR 0.55 per share

ElringKlinger AG is committed to a consistent dividend policy that reflects current earnings performance and allows shareholders to participate accordingly in the company's success. In keeping with this policy, the Management Board and Supervisory Board will propose to the Annual General Meeting on May 13, 2015, a dividend of EUR 0.55 (0.50) per share.

The proposed dividend corresponds to a year-on-year increase of 10.0%. The total dividend payout for fiscal 2014 will thus amount to EUR 34.8 million, up from EUR 31.7 million. Based on net income attributable to shareholders of ElringKlinger AG, the dividend payout ratio is 32.9%, compared with 30.1% in fiscal 2013.

Financial Position

With an equity ratio of 49.7% (50.4%), the ElringKlinger Group's financial position as of December 31, 2014, has remained solid.

Total assets grow to EUR 1,559 million

As of December 31, 2014, total ElringKlinger Group assets were up by 12.0% at EUR 1,558.8 (1,392.1) million. In aggregate, the effects of acquisition added around EUR 5.7 million to total assets. The largest proportion of that figure was attributable to the takeover of Polytetra GmbH, Mönchengladbach/Germany. Excluding the effects of consolidation, total assets rose by 11.6%.

The increase in total assets was mainly due to an expansion in property, plant and equipment following an increase in investments as well as higher working capital (inventories and trade receivables) in response to more dynamic business. Additionally, total assets grew as a result of foreign currency effects, primarily in connection with the year-on-year appreciation of the US dollar, the Chinese renminbi and the Swiss franc against the euro.

Investments in intangible assets and property, plant and equipment totaled EUR 163.1 (125.6) million and were well in excess of depreciation/amortization (less write-ups) of EUR 79.2 (74.4) million. As a result, property, plant and equipment expanded by 15.7% to EUR 708.0 (612.1) million and intangible assets by 4.9% to EUR 185.3 (176.7) million. The share of property, plant and equipment – by far the largest balance sheet item – in total assets rose from 44.0% to 45.4%.

In total, EUR 3.4 million of the increase in intangible assets was attributable to goodwill. This amount comprises additions in connection with the takeover of new enerday GmbH, Neubrandenburg/Germany, and Polytetra GmbH, Mönchengladbach/Germany.

Higher working capital

As of December 31, 2014, inventories amounted to EUR 290.1 (257.4) million. The 12.7% increase was attributable partly to higher inventories of tools, which increased by EUR 9.8 million and related mainly to production ramp-ups planned by the company. Excluding tools, capital tied up in inventories would have increased by 11.7%, i.e. at a slower rate relative to revenue growth. A large proportion of the increase in inventories was attributable to the subsidiaries, while improved stock management proved successful at the parent company. As of December 31, 2014, the share of inventories in total assets remained almost unchanged at 18.6% (18.5%).

By contrast, the percentage increase in trade receivables was slightly more pronounced than that of sales revenue compared to the previous year, up by 18.1% to EUR 245.1 (207.5) million. Here too, however, progress made in optimizing the Group's working capital became apparent over the course of the year. In the fourth quarter receivables were scaled back by EUR 14.8 million.

The reduction in other current assets to EUR 26.9 (40.8) million was mainly the result of an insurance payout of EUR 8.5 million relating to the warranty incident discussed earlier.

In total, current assets rose to EUR 635.2 (572.6) million.

Equity ratio remains high at just under 50%

As of December 31, 2014, equity accounted for by the ElringKlinger Group rose to EUR 775.2 (701.3) million. The equity ratio amounted to 49.7% (50.4%), thus remaining at a solid level. The increase in equity is attributable primarily to an expansion in revenue reserves by EUR 74.1 million as a result of higher appropriations from net income. By contrast, other reserves fell to EUR -10.8 (-5.9) million in total. This was caused partly by actuarial losses of EUR 21.9 million from pension obligations, which were recognized in other comprehensive income. A contrary effect came from foreign exchange translation differences of EUR 17.9 million, which were also accounted for in other comprehensive income.

Low interest rates prompt increase in pension provisions

Owing to much lower interest rates as of December 31, 2014, compared to a year earlier, the actuarial interest rate used in the measurement of pension provisions was adjusted. The actuarial losses resulting from this adjustment led to an increase in pension provisions to EUR 124.1 (92.3) million. This adjustment had no impact on earnings performance, as it was accounted for in equity via other comprehensive income.

Balance Shee t Struc t ure Elring K ling er G roup in % of Balance Sheet Total

Current Assets

Non-Current Liabilities Current Liabilities

Net debt at EUR 348 million

The Group's financing requirements were covered in part by cash flow from operating activities and beyond that by taking on bank borrowings and other loans. Thus, current and non-current financial liabilities rose by EUR 58.8 million to EUR 417.0 (358.2) million in total. More specifically, non-current financial liabilities increased to EUR 268.5 (237.3) million, while current financial liabilities were expanded to EUR 148.5 (120.9) million.

As a result, the Group's net debt (non-current and current financial liabilities less cash) rose to EUR 348.3 (295.3) million.

There were no significant year-on-year changes to the other liability items as of December 31, 2014. Despite the significant expansion of sales revenue, trade payables remained largely unchanged at EUR 68.8 (68.6) million, while other current liabilities increased to EUR 93.7 (88.1) million.

Overall, liabilities amounted to EUR 783.6 (690.7) million, which corresponds to 50.3% (49.6%) of total equity and liabilities.

Cash Flows

Cash flow from operating activities up 26% on previous year

In 2014, the ElringKlinger Group was able to increase net cash from operating activities by a substantial 26.0% to EUR 149.9 (119.0) million. Relative to sales revenue, this corresponds to a rate of 11.3% (10.3%). The improvement in operating cash flow was attributable primarily to the lower additional absorption of funds in working capital.

Earnings before taxes, which in 2013 had included an exceptional non-cash item (equivalent to EUR 17.6 million) from the assumption of control over the Japanese entity ElringKlinger Marusan Corporation, rose to EUR 153.1 (148.9) million. This prior-year exceptional item as well as the positive non-cash foreign exchange effects attributable to the reporting period were eliminated in the line item comprising "Other non-cash expenses and income". Correspondingly, non-cash expenses and income produced a net sum of EUR -13.7 (-14.3) million.

Higher depreciation/amortization, up by EUR 4.8 million (EUR 79.2 million compared to EUR 74.4 million), had a positive effect on operating cash flow. It should be noted that write-downs relating to tools were again lower, whereas depreciation/amortization of property, plant and equipment as well as intangible assets rose by 19.9% to EUR 67.4 (56.2) million.

During the 2014 financial year, the ElringKlinger Group increased provisions by a net amount of EUR 1.3 million, having utilized or reversed EUR 1.2 million in provisions over the course of 2013.

By contrast, the Group saw an increase in funds committed to working capital (inventories and trade receivables) as a result of more expansive business, which had a negative impact on cash flow. In total, the change in inventories, trade receivables and other assets not attributable to investing or financing activities and the change in trade payables and other liabilities not attributable to investing or financing activities produced a cash outflow of EUR 30.8 (53.9) million. Thus, the negative impact of an increase in working capital in 2014 was less severe than a year ago. In total, the net sum from the change in inventories, trade receivables and other assets not attributable to investing or financing activities on the one hand and the change in trade payables and other liabilities not attributable to investing or financing activities on the other produced a cash inflow of EUR 15.9 (-12.7) million in the fourth quarter of 2014. This positive trend was driven not only by improvements in working capital management but also by an insurance payment of EUR 8.5 million, related to the warranty case already mentioned.

Income tax payments resulted in a cash outflow of EUR 42.5 (37.2) million, which was due in part to higher earnings before taxes.

Further increase in investment expenditure

Payments made in connection with investments in property, plant and equipment as well as investment property totaled EUR 147.0 million in 2014, thus exceeding the prior-year figure of EUR 114.0 million. The original target set for 2014 had been around EUR 100 to 110 million, with additional investments of up to EUR 20 million for entry into the market for lightweight body and chassis components. This investment target was exceeded in the 2014 financial year. This was attributable partly to the fact that investments originally planned for 2015 were brought forward in reaction to strong demand for products supplied by the ElringKlinger Group. At EUR 53.6 (39.9) million, an above-average proportion of investments in property, plant and equipment as well as investment property was attributable to the fourth quarter. Including investments in intangible assets amounting to EUR 16.1 (11.6) million, investments totaled EUR 163.1 (125.6) million in 2014.

The majority of payments relating to investments (including payments for investments in intangible assets) made in 2014 were attributable to the Original Equipment segment, totaling EUR 145.1 (114.2) million. In this segment, investments were directed at the establishment or expansion of manufacturing capacity in preparation for new series production ramp-ups, primarily in the Shielding Technology and Plastic Housing Modules/Elastomer Technology divisions. From a regional perspective, the focus was on the sites of ElringKlinger AG as well as expansion measures at the subsidiaries in Asia and North America.

Payme nt s for Inves tme nt s in Property, Plant and Equipme nt, inve s tme nt Properti e s and Intangible A sse t s in € million

In China, investments were directed mainly at construction work on a new plant and the procurement of additional production machinery in Suzhou. This is to be seen in the context of preparations for production ramp-ups – this project is advancing as planned – relating to new lightweight components based on hybrid polymer-metal technology. Additionally, the company pressed ahead with investments aimed at the fast-track expansion of Plastic Housing Modules in Asia.

The site in Changchun also saw further investments in the area of capacity expansion, including extensions to buildings and a new press.

At ElringKlinger Canada Inc., Leamington/Canada, too, the focus of investing activities was on preparing for new product ramp-ups, particularly in the area of lightweight polymer-metal components. At ElringKlinger USA Inc., Buford/USA, the expansion of capacity levels mainly included the purchase of new forming presses and die-cutting machines.

In response to buoyant growth at ElringKlinger (Great Britain) Ltd., Redcar/United Kingdom, production capacity was also expanded at the British subsidiary over the course of the financial year. This included a factory extension as well as the purchase of new presses and assembly machinery for the production of specialty gaskets.

At ElringKlinger Abschirmtechnik (Schweiz) AG, Sevelen/Switzerland, investments were channeled into facility extensions as well as the purchase of new hydraulic presses for sizeable new projects relating to thermal-acoustic shielding components.

At the site in Dettingen/Erms/Germany, ElringKlinger AG built a new logistics center for reusable packaging and purchased stamping presses for the Cylinder-head Gaskets division. A coating line for specialty gaskets was purchased at the Runkel/Germany plant.

The Engineered Plastics segment accounted for investment spending of EUR 11.5 (5.2) million. ElringKlinger Kunststofftechnik GmbH in Bietigheim-Bissingen/ Germany progressed in expanding local production capacity. Construction work on the new production premises, including an extruder tower, and the purchase of additional production machinery accounted for part the of investments made during the period under review. The additional production capacity at this site is to be used primarily for new projects in the area of automotive, mechanical engineering and medical engineering.

Furthermore, ElringKlinger AG made an additional land purchase for the subsidiary ElringKlinger Logistic Service GmbH in Ergenzingen/Germany. The entity is assigned to the Services segment, which accounted for a total of EUR 3.6 (4.0) million in payments relating to investing activities.

Payments for investments within the Aftermarket segment totaled EUR 2.8 (2.0) million in 2014. The Industrial Parks segment accounted for EUR 0.1 (0.2) million.

Payments for the purchase of subsidiaries (less cash) amounted to EUR 5.7 (3.2) million in total and were attributable to the acquisitions of new enerday GmbH, Neubrandenburg/Germany, and Polytetra GmbH, Mönchengladbach/Germany.

In total, net cash used in investing activities amounted to EUR 168.0 (126.4) million in 2014. Therefore, the ElringKlinger Group had a negative operating free cash flow (cash flow from operating activities less cash flow from investing activities, adjusted for payments in respect of acquisitions) of EUR 12.4 (-4.2) million.

* Investments in property, plant and equipment, investment property and intangible assets

EUR 20 million in net cash from financing activities Distributions to shareholders and non-controlling interests rose to EUR 32.8 (29.7) million in 2014, driven primarily by the higher dividend payment of EUR 0.50 (0.45) per share by ElringKlinger AG.

In the previous year, the acquisition of additional interests in Swiss exhaust gas specialist Hug as well as the full takeover of ElringKlinger South Africa (Pty) Ltd., Johannesburg/South Africa, and Elring Parts Ltd., Gateshead/United Kingdom, had produced an outflow of EUR 5.9 million with regard to payments made to non-controlling interests. There were no such transactions in the 2014 financial year.

The ElringKlinger Group took on financial liabilities that resulted in a cash inflow of EUR 99.8 (151.9) million. By contrast, loan repayments of EUR 46.9 (101.7) million were made in the period under review. In net terms, therefore, financial liabilities rose by EUR 52.9 (50.2) million.

Net cash from financing activities amounted to EUR 20.1 (14.7) million.

As of December 31, 2014, cash held by the ElringKlinger Group totaled EUR 68.7 (62.9) million.

Overall, the Management Board considers the financial position, sales and earnings performance as well as cash flows of both the parent company ElringKlinger AG and the Group as very solid in respect of the 2014 financial year. Business performance has generally benefited from a broad customer base, the sustained introduction of new products and continued growth in global vehicle production.

With an equity ratio of 49.7% and substantial earnings power at an operating level, the Group is very solidly positioned not only with regard to its asset structure but also in respect of profitability.

Cash flow from operating activities sustainably exceeds payments made with regard to property, plant and equipment, as a result of which the Group's organic growth can be covered by existing funds available from internal financing. Benefiting among other things from optimized working capital management, ElringKlinger sees scope for a higher return on capital employed within the Group.

Viewed as a whole, the ElringKlinger Group has the necessary financial foundations to pursue its pioneering technological route and realize its growth targets for revenue and earnings, and to maintain this momentum in the long term.

Financial Performance, Net Assets and Cash Flows of ElringKlinger AG

As in the previous year, the Group management report and the management report of ElringKlinger AG have been brought together in a combined format. The business performance for ElringKlinger AG, as outlined below, is based on its annual financial statements, which have been prepared in accordance with the provisions set out in the Commercial Code (Handelsgesetzbuch) and the additional requirements of the Stock Corporation Act (Aktiengesetz).

Sales and Earnings Performance of ElringKlinger AG

Revenue growth remains dynamic

Sales at ElringKlinger AG rose visibly in 2014 as global vehicle production gathered pace and a number of new products were introduced to the market. Sales revenue increased by 12.3% to EUR 570.9 (508.4) million. This stands in contrast to 4.6% growth in car production within the region of Western Europe, which is by far the most important sales market for ElringKlinger AG. In the period under review the company again enjoyed the benefits of its broad customer base and the high proportion of sales it derives from supplying German premium car makers, with their strong record of exports.

For 2014, ElringKlinger AG had targeted revenue growth of 5% to 10%. Thus, the company managed to exceed the upper limit of this corridor.

Growth supported by domestic business and strong export-driven demand

While growth in previous years had been underpinned primarily by business in the domestic market, revenue growth in the period under review was also driven to an increasing extent by demand from overseas. In its domestic market, ElringKlinger AG generated sales revenue of EUR 218.4 (198.2) million in 2014, up 10.2% on the previous year. Thus, the percentage share of domestic sales stood at 38.3% (39.0%). In this context, it should be noted that ElringKlinger AG's domestic business also includes revenues associated with the shipment of components for vehicles and engines that are manufactured in Germany but subsequently exported to Asia and North America. Therefore, ElringKlinger AG is able to benefit from the buoyant growth of these markets, despite the fact that the company itself is only represented to a small extent in these markets.

Foreign sales rose by 13.6% to EUR 352.5 (310.2) million. Thus, the percentage share of foreign sales in relation to total revenue grew to 61.7% (61.0%). Europe (excluding Germany) retained its position as the key sales market with revenue expanding by 12.8% to EUR 238.2 (211.1) million. The most pronounced growth rates were achieved in the NAFTA region (22.6%), followed by Asia (19.1%).

Original Equipment remains growth driver

The lion's share of revenue growth at ElringKlinger AG in 2014 was attributable to Original Equipment. Sales revenue in this segment increased by 13.2% to EUR 450.8 (398.3) million. Correspondingly, in relation to total revenue the share of Original Equipment sales rose to 79.0% (78.3%). Growth within this area was attributable mainly to new product roll-outs and positive business development in the area of commercial vehicles.

With the exception of Shielding Technology, all the divisions within the Original Equipment segment recorded an increase in sales revenue in 2014. The Plastic Housing Modules/Elastomer Technology division recorded double-digit growth rates, as did – from a lower base – the relatively new E-Mobility and Housings (Exhaust Gas Purification) divisions.

Forward momentum in Aftermarket segment

After a moderate increase in sales revenue a year ago, the Aftermarket segment was more vibrant in 2014. Sales revenue increased by 9.1% to EUR 119.6 (109.6) million in the period under review. The share of segment sales in total revenue generated by ElringKlinger AG fell slightly to 20.9% (21.6%).

Benefiting from more extensive efforts to develop the market, the company recorded its highest growth rates in Asia and North America, albeit from a low base. Despite the conflict in Ukraine and challenging conditions in Russia, the level of growth achieved in Eastern Europe was encouraging. By contrast, the crisis-plagued regions of Northern Africa and the Middle East produced a below-average performance as regards sales.

Slight changes in inventories in the period under review

Inventories of finished goods and work in progress fell slightly by EUR 0.5 million in the period under review, compared with an increase of EUR 15.1 million recorded in the previous financial year. The build-up of inventories a year ago was attributable primarily to a large volume of tools.

Disproportionately large increase in personnel expenses

Over the course of 2014 the number of people employed at ElringKlinger AG rose by 187 or 8.1% to 2,488 as business became more expansive. The annual average headcount increased by 8.7% to 2,435 (2,240).

Personnel expenses rose by 15.5% to EUR 160.8 (139.2) million. This was attributable not only to higher staffing levels but also, in particular, to the wage increase of 2.2% that came into effect in May 2014 in respect of workers covered by collective pay agreements. This led to a corresponding increase in costs at the sites operated by ElringKlinger AG.

The staff profit-sharing bonus agreed for the 2013 financial year, amounting to EUR 1,450 (1,300) per employee, resulted in additional expenses of EUR 3.7 (2.9) million.

Higher expenses attributable to Management Board bonuses of EUR 6.0 (2.3) million in total were another contributing factor. Of this total, EUR 1.4 million was due to long-term variable components of compensation. This one-off sum was the result of the complete revision of the service contracts for Management Board members.

Cost of materials increases at a slower rate than sales revenue

The cost of materials increased at a slower rate in relation to sales revenue, up 9.1% to EUR 266.8 (244.5) million. The slower rate of expansion compared to the preceding year is attributable to inventory changes. While 2013 had seen positive inventory changes of EUR 15.1 million (primarily tools), the change in inventories in 2014 was negative at EUR -0.5 million.

Depreciation and amortization again down on previous year

The volume of investments in property, plant and equipment and intangible assets stood at EUR 53.5 (39.8) million. The investment ratio (investments in relation to sales revenue) rose to 9.4 (7.8)%.

In total, amortization and depreciation of intangible fixed assets and tangible fixed assets fell by 8.2% to EUR 29.0 (31.6) million. This was attributable mainly to lower depreciation relating to tools. By contrast, amortization and depreciation of intangible fixed assets and tangible fixed assets increased by 10.9% to EUR 23.4 (21.1) million. This was attributable first and foremost to the investment-induced increase in fixed assets.

Other operating income substantially lower

Other operating income declined to EUR 35.1 (37.8) million in 2014. Write-ups associated with financial assets, which are included in the aforementioned figure, fell to EUR 7.4 (9.0) million. In the 2014 financial year, write-ups were recognized for the subsidiaries ElringKlinger Meillor SAS, Nantiat/France, as well as Hug Engineering AG, Elsau/Switzerland. In the previous year they had been attributable to the subsidiary Elring Klinger (Great Britain) Ltd., Redcar/United Kingdom.

Additionally, other operating income includes grants from government-funded programs amounting to EUR 6.7 (7.0) million, which were attributable primarily to ongoing research and development projects in the E-Mobility division. In parallel with this inflow of funds, the company incurred expenses for research and development activities.

The previous year had also included substantial income from insurance compensation of EUR 4.5 million, which was counterbalanced by corresponding expenses relating to warranties. In the 2014 financial year, income from insurance compensation amounted to just EUR 1.7 million.

Foreign exchange gains amounted to EUR 3.6 (1.1) million.

Other operating expenses influenced by warranty incident

Other operating expenses rose to EUR 79.0 (76.6) million. The year-on-year increase in other operating expenses was attributable mainly to expenses associated with the settlement of a legal dispute relating to a warranty incident. Based on the definitive agreement with the insurers involved in the case, ElringKlinger AG was faced with bad debt of EUR 5.9 million. Excluding this effect, other operating expenses for 2014 would have been lower than in the preceding year.

Foreign exchange losses amounted to EUR 0.9 (2.3) million.

Operating result before non-recurring exceptional items up 6%

The operating result of ElringKlinger AG (not including the write-ups on financial assets accounted for in other operating income) rose by 3.6% to EUR 63.1 (60.9) million in 2014.

Non-recurring items amounted to EUR -4.6 (-2.7) million in the 2014 financial year. Alongside bad debt of EUR 5.9 million, these items also include EUR 1.4 million in Management Board bonuses attributable in economic terms to prior-year periods. The positive result of currency translation, equivalent to EUR 2.7 million, had a contrary effect. In the previous year, the effects of currency translation had been equivalent to EUR -1.2 million. Additionally, the company had recorded expenses of EUR 1.5 million associated with market cultivation in the aftermarket business.

Adjusted for these non-recurring factors, the operating result of ElringKlinger AG rose by 6.4% to EUR 67.7 (63.6) million. This corresponds to an adjusted margin of 11.9% (12.5%). The year-on-year decline is attributable primarily to the disproportionately large increase in personnel expenses and the contraction in other operating income.

Return on capital employed (ROCE) of ElringKlinger AG stood at 9.7 (11.5)% in the 2014 financial year. The decline in ROCE in 2014 was attributable mainly to the bad debt described earlier and lower income from equity investments.

Income from equity investments down on previous year

Current income from subsidiaries fell to EUR 12.4 (16.9) million. Write-ups on financial assets, which are accounted for in other operating income, were also lower at EUR 7.4 (9.0) million. In 2014, they included write-ups relating to the subsidiaries ElringKlinger Meillor SAS, Nantiat/France, and Hug Engineering AG, Elsau/Switzerland.

Write-downs relating to financial assets amounted to EUR 0.6 (1.2) million. On balance, write-downs and write-ups produced a positive earnings effect of EUR 6.8 (7.8) million.

In total, income from equity investments thus fell by 22.3% year on year to EUR 19.2 (24.7) million.

Further improvement in net interest result

Despite net debt rising to EUR 286.6 (250.6) million, lower interest rates led to a reduction in interest expenses, down to EUR 8.9 (9.2) million. In total, the net interest result improved to EUR -6.2 (-6.7) million.

Adjusted income from ordinary activities down by 1% Despite an improved operating result, income from ordinary activities fell by 3.5% to EUR 76.1 (78.9) million. Adjusted for the non-recurring effects outlined above, income from ordinary activities was down by 1.1% in 2014 at EUR 80.7 (81.6) million.

ElringKlinger AG had originally planned to expand its income from ordinary activities at a slightly faster rate than revenue in 2014. Due to lower income from longterm equity investments and a disproportionately large increase in personnel expenses, income from ordinary activities was slightly lower than in the previous year.

Net income at EUR 59 million

Income taxes fell from EUR 18.4 million to EUR 16.9 million. Correspondingly, the tax rate for 2014 (income taxes in relation to income from ordinary activities) stood at 22.2% (23.3%). The lower tax rate in the period under review is attributable to higher deferred tax expenses than in the previous year.

Due to the lower tax rate, the decline in net income was less pronounced than in the case of income from ordinary activities. Net income fell by 2.2% to EUR 58.9 (60.2) million.

Dividend up by 10%

After allocating EUR 24.0 (28.5) million to other revenue reserves, the net retained earnings (i.e. distributable profit) of ElringKlinger AG, from which dividend payments are distributed, amounted to EUR 34.8 (31.7) million.

The Management Board and the Supervisory Board will propose to the Annual General Meeting on May 13, 2015, a dividend of EUR 0.55 (0.50) per share for the 2014 financial year, which represents a year-onyear increase of 10.0%. The total dividend payout for fiscal 2014 stands at EUR 34.8 million, up from EUR 31.7 million. Calculated on the basis of net income of ElringKlinger AG, the dividend ratio is 59.1% (52.7%).

Net Assets of ElringKlinger AG

With an equity ratio of more than 50% and positive net cash from operating activities, ElringKlinger AG remained solid in terms of its financial position and cash flows as of December 31, 2014.

Total assets up 7%

The increase in total assets by 6.9% or EUR 62.5 million to EUR 974.9 (912.4) million reflects the level of forward momentum generated by ElringKlinger AG. This increase in total assets was driven mainly by more expansive financial and tangible fixed assets. In contrast to the previous years, the increase in working capital contributed only slightly to the expansion in total assets.

Investments drive up fixed assets

Tangible fixed assets grew to EUR 281.0 (260.7) million in 2014. This was attributable to substantially higher investments of EUR 48.0 (37.7) million in tangible fixed assets, which were well in excess of the corresponding write-downs of EUR 27.2 (30.3) million. The majority of investments in tangible fixed assets went into land and buildings as well as technical equipment and machinery.

The company recorded an even more significant increase in financial assets, which rose to EUR 406.6 (374.0) million in the 2014 financial year. This was due on the one hand to the acquisition of new enerday GmbH, Neubrandenburg/Germany, and on the other hand to the increase in capital at ElringKlinger China, Ltd., Suzhou/China. Write-ups relating to the investment carrying amounts for ElringKlinger Meillor SAS, Nantiat/France, and Hug Engineering AG, Elsau/Switzerland, were another contributory factor.

Loans to affiliated companies were also scaled up in the period under review, a measure taken in response to more pronounced capital expenditure planned for a number of the subsidiaries.

The increase in intangible assets by EUR 3.7 million is due to the capitalization of supply rights associated with tools.

In total, fixed assets rose by 8.8% to EUR 697.4 (640.8) million as of December 31, 2014.

Working capital expands slower than revenue

Inventories were up by just 1.9% to EUR 114.7 (112.6) million at the end of 2014, which was well below the percentage growth in revenue. This, however, was driven to some extent by tool inventories, which were down at the end of the reporting period.

Receivables and other assets also rose by a marginal 2.1% and stood at EUR 161.7 (158.3) million as of December 31, 2014. This was attributable largely to the derecognition of a claim against an insurer in connection with the warranty incident outlined above. By contrast, the company's trade receivables rose by 12.1% to EUR 79.8 (71.2) million, which is largely comparable to the rate of revenue growth. Receivables from affiliated companies increased by 18.0% to EUR 72.9 (61.8) million.

Funds tied up in current assets increased by just 2.1% to EUR 276.7 (271.1) million as of December 31, 2014. Correspondingly, the share of current assets in total assets fell to 28.4% (29.7%).

Solid equity ratio

Following an allocation of EUR 24.0 (28.5) million from net income generated by ElringKlinger AG, revenue reserves increased to EUR 293.1 (269.1) million in 2014. Net retained earnings amounted to EUR 34.8 million in the period under review, compared to EUR 31.7 million in the previous year. In total, shareholders' equity rose to EUR 512.2 (485.0) million. The equity ratio fell slightly to 52.5% (53.2%) but still remained at a solid level.

Higher provisions

Fueled mainly by higher other provisions, provisions as a whole increased to EUR 103.7 (93.7) million. This was attributable in part to the recognition of Management Board bonuses.

Further increase in liabilities

Liabilities were up as of December 31, 2014, at EUR 350.0 (323.8) million. This corresponds to 35.9% (35.5%) of total equity and liabilities.

The year-on-year increase was mainly due to a rise in liabilities to banks to EUR 286.8 (250.8) million. This was attributable primarily to the growth-induced expansion of investments made in tangible fixed assets and financial assets.

Large improvement in cash flow from operating activities

Despite a slight downturn in net income, cash flow from operating activities improved significantly to EUR 67.2 (39.4) million. This is attributable to the much slower increase in funds tied up in current assets compared to the previous year. At the same time, for the most part the reduction in profit in 2014 was associated with noncash transactions, such as bad debt and provisioning in connection with Management Board bonuses.

Additionally, payments received from the company's insurers in respect of the above-mentioned warranty incident produced a cash inflow of EUR 8.5 million in the period under review.

Substantial increase in net cash used in investing activities

Net cash used in investing activities totaled EUR 78.4 (50.4) million in 2014. This was dominated by more expansive investments in tangible fixed assets, taking the figure to EUR 48.0 (37.7) million.

The focus during 2014 was on investments in new equipment and machinery, including two stamping presses in Dettingen/Erms, a coating machine in Runkel and a complete system for shielding components in Langenzenn. Additionally, investments were directed at land and buildings for the subsidiary ElringKlinger Logistic Service GmbH.

Payments for investments in financial assets amounted to EUR 27.6 (25.2) million and were attributable to the acquisition of new enerday GmbH, Neubrandenburg/Germany, the capital increase at ElringKlinger China, Ltd., Suzhou/China, and the increase in loans to affiliated companies.

In the previous year, cash flow from investing activities had also benefited from proceeds from the disposal of financial assets totaling EUR 12.6 million. This was mainly attributable to the repayment of a loan granted to ElringKlinger Abschirmtechnik (Schweiz) AG, Elsau/Switzerland. In the period under review, proceeds from the disposal of financial assets produced a cash inflow of just EUR 1.8 million.

Improvement in cash flow from financing activities

Due to the higher dividend of EUR 0.50 (0.45) per share for the 2013 financial year, the total amount distributed to shareholders of ElringKlinger AG rose to EUR 31.7 (28.5) million in the period under review.

In 2014, the company recorded an inflow of EUR 61.4 million with regard to short-term bank borrowings, after an outflow of EUR 38.6 million in the previous year. By contrast, the net amount of principal repayments for long-term loans repaid by the company was EUR 20.5 million. In the previous year, the company had taken on a net amount of EUR 62.1 million in longterm loans.

The borrowing and repayment of loans and time deposits relating to affiliated companies produced a net inflow of EUR 1.9 (12.6) million.

Thus, cash flow from financing activities increased from EUR 7.7 million a year ago to EUR 11.2 million in the 2014 financial year.

Employees

Against the backdrop of an increase in the overall volume of business, the Group also expanded its HR capacity during 2014. As of December 31, 2014, the ElringKlinger Group employed 7,255 (6,716) people, i.e. 8.0% more than in the previous financial year. The increase in staffing levels was less pronounced than the rate of organic growth in sales revenue (11.2%).

In total, the Group's headcount rose by 539 compared with the year-end figure posted for the 2013 financial year. The first-time consolidation of the subsidiaries new enerday GmbH, Neubrandenburg/Germany, and Polytetra GmbH, Mönchengladbach/Germany, both acquired in 2014, added 43 staff members to the workforce. Excluding the addition of personnel as a result of the aforementioned acquisitions, the headcount would have been up by 7.4%.

The ElringKlinger Group's annual average headcount was 7,081 (6,543).

Western Europe accounts for biggest expansion in HR base – 45% of jobs located in Germany

Fueled by growing demand for new cars in Western Europe and substantial export-driven domestic production levels on the part of vehicle manufacturers, coupled with the concomitant rise in planned quantities requested by ElringKlinger customers as part of their scheduling, the majority of new jobs were created in Germany and at some of ElringKlinger's European subsidiaries.

The headcount at German sites within the ElringKlinger Group grew by 9.4% to 3,342 (3,055) as of December 31, 2014. As of December 31, 2014, 2,488 (2,301) staff members were employed at the sites of parent company ElringKlinger AG in Dettingen/Erms, Gelting, Runkel, Langenzenn, Lenningen and Thale. At the end of 2014, 639 (602) people worked for ElringKlinger Kunststofftechnik GmbH, Bietigheim-Bissingen, the company's largest subsidiary in Germany. As of December 31, 2014, Germany accounted for 46.1% (45.5%) of the Group headcount. Adjusted for the additional number of personnel attributable to the aforementioned acquisitions, Germany's share of the overall headcount would have remained largely unchanged at 45.7%.

Therefore, as in the past, almost half of the people working for the Group in 2014 were employed in Germany. By contrast, only around 30% (31%) of Group sales revenue was generated in Germany.

Elring K linger G roup Employ ees worldwi d e

as at December 31, 2014 (prior year)

Of all the European companies, the UK subsidiary in Redcar as well as the two Swiss companies Hug Engineering AG, Elsau, and ElringKlinger Abschirmtechnik (Schweiz) AG, Sevelen, recorded the most pronounced increase in staffing levels, which was attributable to higher production output.

Expanding workforce at Asian plants

In response to dynamic market-driven growth in sales, ElringKlinger's Asian plants also expanded their HR capacity levels in 2014. The number of people employed at ElringKlinger sites in Asia rose by 15.2% to 1,144 (993) in 2014. Alongside higher staffing levels at the Chinese production site in Changchun, the headcount was also expanded in particular by the plants in India and South Korea.

By contrast, the slump in Brazil's domestic vehicle market necessitated staff downsizing at the local site, with around 100 jobs cut during the first half of 2014.

In total, employee numbers abroad rose to 3,913 (3,661) as of December 31, 2014, i.e. by 6.9%. This corresponds to a share of 53.9% (54.5%) of the Group headcount.

For more information on staff development and the HR policy of the ElringKlinger Group, with relevant key indicators, please refer to the following "Sustainability" section.

Sustainability

Sustainability is an important part of the corporate strategy of the ElringKlinger Group. Alongside its pursuit of financial goals, the ElringKlinger Group also assumes responsibility for environmental and social issues. This involves adopting a responsible attitude towards employees, the environment and society as a whole.

ElringKlinger details its commitment to social and environmental issues in a separate CSR (Corporate Social Responsibility) report. Published in December 2014, the company's third report on its social responsibility is entitled "A future built on sustainability". The report, published in German and English, is available in a printed edition and in an electronic format. The latter can be accessed at www.elringklinger.de/ en/sustainability/csr-report. The company's website contains further detailed information on the topic of sustainability.

Green investment increasingly important for capital markets

In recent years it has become evident that sustainability is a focus of attention for a growing number of investors, and companies are increasingly expected to deliver on this issue. Investors are more and more interested in sustainable, forward-looking business models as well as non-financial key performance indicators. Ratings given by various international rating agencies are also a point of reference.

In 2007, ElringKlinger was one of the first automotive suppliers to sign up to the Carbon Disclosure Project (CDP). This not-for-profit organization compiles environmental data and is supported by 767 institutional investors with assets of around USD 92 trillion. The ElringKlinger Group was given a rating of 84D in 2014. In addition, the company has been listed in the DAXglobal Sarasin Sustainability Germany Index for some years. ElringKlinger also received a quality mark for sustainability from DZ Bank in 2014 in response to the fact that the company did not infringe any exemption criteria. Overall, the company achieved 62 points out of a possible 100, which is above the current cross-sector sustainability limit of 44 and the sector-specific threshold of 52. Within the "Auto Components" segment, ElringKlinger is presently 4th out of 30 companies under review. The rating agency Sustainalytics has meanwhile placed the Group 5th out of 64 in its "Automotive Components" ranking. As was the case last year, sustainability agency Oekom Research gave the ElringKlinger Group "prime" investment status (C+) in 2014. This puts the company above the industry average once again and in the top 25%.

The ElringKlinger product portfolio: a future built on sustainability

As a supplier to the vehicle industry, ElringKlinger focuses its efforts on developing sustainable technologies for the future. To do this, the Group takes responsibility for delivering environmentally friendly mobility and conducts research and development into reducing CO2 and harmful pollutants. The ElringKlinger Group's product portfolio likewise reflects such considerations.

Compliance with quality standards is very important to customers. In order to satisfy expectations and to maximize the resource efficiency of the production process, all the ElringKlinger Group's production sites (with the exception of the plant in Indonesia) are certified in accordance with the automotive industry's TS 16969 quality management standard and/or ISO 9001. Additionally, all major production sites worldwide have implemented an environmental management system and are audited and certified as meeting the requirements of ISO 14001. This certification is also to follow for smaller sites.

Goal achieved: reduction in relative CO2 emissions

Emissions from gas, heating oil, engine test stands, etc. as well as those caused by the company's own vehicle fleet are used to determine the emissions caused directly by the company (scope 1 emissions). Indirect emissions (scope 2 or 3 emissions) encompass emissions attributable to electricity consumption as well as air travel.

The ElringKlinger Group had set itself the target of cutting its relative CO2 emissions by a percentage figure at the lower end of the single-digit range in the 2014 financial year. Total direct and indirect CO2 emissions stood at 90,840 metric tons in 2014, exceeding the figure for the previous year (88,300 metric tons) by 2.9%. On the basis of sales revenue (CO2 emissions in metric tons per EUR 1 million in sales), however, relative CO2 emissions were down by 6.6 percentage points. The ElringKlinger Group thus achieved the goal it had originally set itself. In the reporting year, direct CO2 emissions fell by 4.6% to 22,240 (23,300) metric tons, which was attributable to particularly high temperatures in 2014 compared to the normal average. Indirect emissions rose by 5.5% and thus at a lower rate than the growth in sales. Environmental data concerning the subsidiary ElringKlinger Marusan Corporation, Tokyo/Japan, have been incorporated fully in the figures for the reporting year (previous year: 50%).

ElringKlinger will start in 2015 to have all its European production companies certified according to the ISO 50001 energy management standard. The introduction of this energy management system will allow the company to boost its energy efficiency, improve its energy footprint and thereby save on energy costs.

In September 2014, the construction of a wind power installation was completed at the Group's Redcar site in the UK. Its proximity to the coast makes the site ideal for generating electricity by means of a wind turbine. The turbine has been operational since December 2014 and, given an average wind speed of 6.1 m/s, produces approximately 1,400 MWh of green electricity. This translates into an annual saving of 600 metric tons of CO2.

Another combined heat and power (CHP) plant began operation in the middle of the year at the company's headquarters in Dettingen/Erms. There are now four CHP plants improving the company's energy performance. The CHP units are linked to an absorption cooling system that allows waste heat to be used for cooling purposes in the summer months. As a result, most of the heat produced can be utilized all year round.

The company purchased new machines and new equipment in 2014. The issue of efficiency is an important criterion when purchasing machinery and equipment. The new machines consume up to 20% less energy than the previous models.

In 2014, there was again a fall in average CO2 emissions for the company's vehicle fleet to 144 (145) g/km. One factor behind this improvement is the addition of two all-electric cars to the fleet in mid-2014. These vehicles are used for journeys within a radius of up to 50 km as well as between plants. ElringKlinger has installed the necessary infrastructure, including two recharging points at the main entrance to the Dettingen/Erms site. Visitors also have access to the rapidcharging stations. From 2015 the public will also be allowed to use the recharging points.

As in the previous year, water consumption rose by a smaller proportion relative to revenue growth. Total waste increased in proportion to sales in the 2014 financial year. Metal waste once again accounts for a very high amount of this at 83% and mainly arises from stamping processes used in production. This waste material is then sold. A specially accredited company removes all waste for either recycling or disposal.

The Elring K ling er G roup – k e y env ironme ntal indicators

	20141	2013
Total direct and indirect CO2 emissions in metric tons	90,840	88,300
CO2 emissions in metric tons per EUR 1 million in sales	68.5	75.1
Total direct CO2 emissions in metric tons	22,240	23,300
O f which direct CO2 emissions from gas, oil, engine test stands, etc. in metric tons	21,400	22,600
O f which CO2 emissions for vehicle fleet2 in metric tons	840	660
Total indirect CO2 emissions in metric tons	68,600	65,000
O f which indirect CO2 emissions from electricity in metric tons	65,300	62,000
O f which indirect CO2 emissions from flights3 in metric tons	3,300	3,000
Absolute energy consumption (electricity, gas and other energy sources) in MWh	249,700	240,000
Absolute energy consumption per EUR 1 million in sales in MWh	188.3	204.2
O f which electricity consumption in MWh4	155,700	144,200
E lectricity consumption per EUR 1 million in sales in MWh	117.4	122.7
Water consumption in m³	173,200	163,400
Solvents in metric tons	990	1,060
Total waste in metric tons	49,500	43,700
O f which metal waste in metric tons	41,100	36,200

1 2014 figures do not include the subsidiaries Polytetra GmbH and new enerday GmbH

² Vehicle fleet of ElringKlinger sites in Germany – Dettingen/Erms, Gelting, Langenzenn, Runkel, Thale, Lenningen and (since 2014) Bietigheim-Bissingen, Idstein,

Magdeburg and Rottenburg 3 Air travel attributable to sites in Germany, Switzerland and France as well as centrally recorded flights relating to sites in the UK and US

⁴ Excluding output from in-house CHP units

2015: Ongoing improvement in relative CO2 emissions

ElringKlinger will continue to extend its innovative product portfolio over the coming years and make a contribution to sustainable developments in the industry. For the coming years, the automotive supplier has set itself the target of cutting its relative CO2 emissions further. For 2015, the Group will be looking to achieve a reduction in the region of 2% to 3%.

Well-motivated and committed employees are vital to the company's long-term success

ElringKlinger AG has drawn up binding rules of conduct based on its corporate values. These must be applied by all employees worldwide without exception. The rules take the form of specially written codes and guidelines, which can be accessed online at www.elringklinger.de/en/sustainability/guidingprinciples. Specifically these include the company's Vision & Mission, Code of Conduct, Code of Ethics, Management Principles, Corporate Governance Code, Quality and Environmental Policy and Safety at Work Policy.

The Code of Conduct was rewritten and adopted in 2013. Long-term success is based on customers and shareholders having confidence in the company's competencies, capacity to innovate and, ultimately, its integrity. This trust, which the company's reputation reflects, crucially depends on all employees being committed to ElringKlinger's values and goals, and then acting accordingly in their own area of responsibility. The Code of Conduct is binding for all employees within the ElringKlinger Group. It serves as both a guide and a benchmark on issues such as corruption, conflicts of interest, fair competition, data protection and discrimination.

30 to 50 years old 55.3 over 50 years old 19.4 less than 30 years old 25.3 in %

The age groups represented are very balanced across the ElringKlinger Group. Almost a third of employees are women.

Age s truc t ure of Elring K ling er G roup employees 20 14

In the 2014 financial year, the staff turnover rate increased slightly from 5.2% to 5.6%. It must be borne in mind that staff turnover tends to be higher when the employment situation is good in key markets. The decisive factor here was strong growth in the number of employees at sites in Asia. Because the automotive sector in China is booming, the churn rate there is higher by comparison with Europe.

In 2014, HR activities at ElringKlinger once again focused on preparing talented employees for future leadership roles and offering training opportunities. Providing individual support for employees is a must. As well as specialist training such as language or software courses, we also offer individual staff development programs. Events are held several times a year for new employees to find out about specific ElringKlinger products. Worldwide, the Group spent a total of EUR 1.3 (1.0) million on training and professional development in 2014.

Revised and extended in 2012, the concept of nurturing in-house talent remained popular. The high potential program prepares talented employees for futher leadership roles on both the technical and managerial side. This work also involves social projects.

For several decades, the ElringKlinger Group has taken on young people as technical and commercial apprentices. The company also recruits students each year who are completing dual work/study programs at university in close cooperation with the company. Internships are available worldwide, as well as opportunities to write a Bachelor's or Master's thesis with a practical focus relevant to the company. In 2014, the company hosted a total of 69 (51) students and interns at various sites in Germany.

The ElringK linger G roup – K e y HR Indic ators

	as of Dec. 31, 2014	as of Dec. 31, 2013
Absolute number of employees	7,255	6,716
O f which men	70.7%	70.1%
O f which women	29.3%	29.9%
Average number of employees	7,081	6,543
Breakdown by age group
Less than 30 years old	25.3%	24.9%
30 to 50 years old	55.3%	56.0%
O ver 50 years old	19.4%	19.2%
Vocational training ratio1	4.0%	3.9%
Interns and thesis students1	69	51
Staff turnover rate	5.4%	5.2%
Average number of sick days per employee	9.6	9.1
Employees covered by collective agreements	4,913	4,728
Number of qualification interviews conducted	5,648	5,379
Percentage of part-time employees	4.6%	4.7%
Employees on permanent contracts	5,834	5,577
Number of employees with disabilities	192	189
Number of employees in management positions	565	525
O f which women	76	64
O f which local nationals	515	476
Work-related accidents leading to more than 3 days off work	253	292
Work-related fatalities	0	0
Absolute number of employees
In partial retirement1	72	76
O n maternity leave1	6	8
O n parental leave1	32	24
Number of improvement suggestions submitted1	364	289
Improvement suggestions successfully implemented1	74	98
Improvement suggestions rejected1	105	148

1 Figures based on German sites only

Procurement

Purchasing management remained a significant factor in the profitability of the ElringKlinger Group. Materials accounted for 60.0% of the Group's cost of sales in 2014. The cost-of-materials ratio stood at 43.8%.

In 2014, the Group's centralized purchasing department in Dettingen/Erms/Germany, focused its efforts predominantly on global optimization of the supplier network in order to secure continuous, timely procurement of materials and as favorable purchasing prices as possible.

The primary raw materials used within the ElringKlinger Group include alloyed high-grade steels (nickel alloys, in particular), aluminum, carbon steel, polyamide-based plastic granulates, rubber and, in the Engineered Plastics segment, polytetrafluoroethylene (PTFE) *. In addition, the procurement of components needed to manufacture complete systems, such as those used by the Plastic Housing Modules or Shielding Technology divisions, is becoming increasingly significant. The proportions of individual raw materials or materials categories applicable to the Group's overall raw materials usage were as follows in 2014:

Revenue growth and investments lead to strong increase in purchasing volume

In addition to raw materials, the Group's purchasing volume comprises consumables and supplies as well as merchandise for the Group's aftermarket business, energy supply contracts, external services and investments in land, property, plant and equipment, and buildings.

The ElringKlinger Group's 2014 purchasing volume reflects strong revenue growth and investments in the expansion of production capacity. It rose by 24.8% to EUR 882.5 (707.3) million. This increase was attributable in part to the more pronounced (relative to growth in sales revenue) volume of investments in land and property, plant and equipment in 2014, up by 28.9% to EUR 147.0 (114.0) million. In addition, ElringKlinger Marusan Corporation, Tokyo/Japan, was fully accounted for in 2014. This entity had not been included in the prior-year figure due to retrospective changes in the method of consolidation in 2014. Adjusted for these two factors, the purchasing volume in the 2014 financial year would have increased by 15.7%. The Group's cost of materials increased by 14.7% to EUR 580.6 (506.3) million. This increase was primarily attributable to increased outputs.

Framework agreements secure Group-wide supply

International framework agreements for the most significant groups of material are used for the purpose of securing supply for individual manufacturing companies throughout the Group. This applies particularly to steel and aluminum. Ultimately, this also limits translational exchange rate risks. In most cases, ElringKlinger enters into contracts of one year or more with its materials suppliers in order to limit the risk of purchase prices increasing within the year. Contractual terms have generally become shorter within the market as a whole for plastic granulates and C-steel.

Based on previous experience, the alloy surcharges traded on commodities exchanges take several months to be reflected in purchase prices. As the alloy surcharges for high-grade steel cannot be fixed in framework agreements in advance, ElringKlinger secures a portion of the required volumes with the help of a rolling system and uses commodity-based derivatives for this purpose. The Group can thereby ensure a largely fixed basis for calculation, including that for highgrade steel, for the entire financial year. The alloy surcharges as such cannot be contractually fixed.

Commodity prices predominantly stable in 2014

Price movements for the key commodities required by ElringKlinger developed along divergent lines in 2014. While the price of C-steel showed a slight upward tendency during the second half of the year, the purchase prices for high-grade steel remained largely unchanged year on year.

The high-grade steels primarily used in the manufacture of cylinder-head and specialty gaskets contain nickel, the surcharges for which contribute substantially to the price of high-grade steel. The mid-year price of nickel was approximately 50% above the price at the start of the year. The average price, however, remained largely unchanged compared to 2014. In addition, heightened competition amongst manufacturers of the precision strip high-grade steel required by ElringKlinger prompted a downward trend in prices within this area.

Due to the early conclusion of framework agreements with aluminum suppliers, procurement management was able to counter the noticeable price rises seen over the course of 2014.

Engineering plastics benefited only marginally from the gradual slump in oil prices witnessed in particular towards the end of the year. Purchase prices for the premium-grade polyamide granulates used in the Group's Plastic Housing Modules division only fell slightly during the year.

The price situation in 2014 for bought-in components proved variable. Due to the diversity of these specialized installation parts, procurement activities require a high level of coordination and processing. In future, regional purchasing managers in the Asia and Western Hemisphere (Europe and Americas) regions will be deployed for the purpose of pressing ahead with the task of qualifying local suppliers in the respective countries.

ElringKlinger sells metal waste created as part of die-cutting processes during production. The ElringKlinger Group has an active metal waste management for the purpose of maximizing revenues. Proceeds from the sale of waste metal in 2014 totaled EUR 24.7 (24.2) million.

Energy costs rise at a slower rate than revenue

Although ElringKlinger is not considered an energy-intensive enterprise, energy costs represented quite a substantial proportion of the cost of sales in 2014. Energy costs accounted for 2.2% (2.4%) of the cost of sales. ElringKlinger has entered into long-term contracts for the majority of the supply of gas and electricity it needs. In 2014, contracts with existing suppliers were agreed for a term up to and including 2016 (gas) and 2017 (electricity). As part of these contracts, the company is in a position to satisfy its energy needs in tranches and flexibly, depending on prevailing market prices.

ElringKlinger covers a portion of its electricity requirements with its own gas-fueled, combined heat and power plant. The four power plants located at the Dettingen/Erms/Germany site generated 4,338 MWh in 2014.

Introduction of a worldwide purchasing network

In order to position procurement management more effectively and to streamline existing costs, ElringKlinger restructured Group Purchasing in 2014. A special group dedicated exclusively to purchasing for serial production activities was formed. Another unit focuses on purchasing all those goods not determined for use in serial production, such as indirect materials or investments. Three purchasing managers appointed to the regions ensure improved management and pooling of the requirements of all Group companies with the aim of coordinating the increasing volumes relating to individual ElringKlinger production facilities and providing both strategic and operational support for the regional entities when it comes to the procurement of serial production materials.

Implementation of standardized, stringent global quality standards

Due to the rising demand for materials by the various international sites in the growth regions of China and North America, the Group continuously audits and certifies new local suppliers, particularly those outside the eurozone. This reduces logistics costs while also limiting any currency misalignments between purchasing volumes and revenues. A Chinese supplier has now become one of the ElringKlinger Group's largest aluminum suppliers. Local PTFE requirements are increasingly being sourced from China and India.

As a matter of policy, new suppliers are audited and certified in accordance with international ISO standards. They are required to meet the Group's stringent quality and environmental regulations and to follow the exacting ElringKlinger Code of Ethics (www.elringklinger.de/en/sustainability/guiding-principles/code-of-ethics). For existing suppliers, the central purchasing department conducts regular quality and cost analyses. Prices are determined and controlled according to process stages with the help of cost-break-down analyses. ElringKlinger is committed to minimizing its dependency on individual suppliers to the largest extent possible. In 2014, the Group's top 30 suppliers accounted for around 20% (20%) of its total volume of purchases within the group of companies.

Every year, with the aim of promoting collaborative partnerships with its suppliers, ElringKlinger honors one supplier for outstanding service. This assessment includes product quality, reliability of delivery or an especially high level of customer service. The 2014 prize was awarded to H.D. Lenzen Bandverzinkung GmbH & Co KG – the second year in a row that this company won. Based in Hagen in North Rhine-Westphalia, this supplier manufactures electrolytically galvanized steel sheets used by ElringKlinger in the production of specialty gaskets.

Outlook: material prices in 2015

Supported by the framework agreements for highgrade steels concluded for 2015, ElringKlinger was able to keep the prices for required quantities, as covered by these agreements, stable to a large extent. In the longer term, the company anticipates price increases for additional quantities (i.e. in excess of the volumes covered) potentially required during the course of the year.

Aluminum prices are expected to increase in 2015 due to high demand and increases in warehousing surcharges.

On the other hand, polyamide – an engineering plastic –, which ElringKlinger needs in increasing quantities for the production of lightweight plastic modules, should be available at predominantly stable prices in 2015. If the price of oil remains low over an extended period, prices for the coming quarters should fall moderately.

Report on Opportunities and Risks

Risk management system

ElringKlinger has established an extensive risk management system for the purpose of identifying risk at an early stage. By monitoring markets, customers and suppliers on a continual basis and maintaining detailed internal reporting and controlling processes, the company is able to gage risk in a timely manner and seize market opportunities as they arise. The efficiency and suitability of the risk management system itself is continually adapted and optimized in accordance with new requirements as they arise.

The risk management system is made up of various tools and control systems. Among the key components are strategic corporate planning and internal reporting. Planning enables potential risks to be identified and taken into account when making critical and far-reaching decisions. All key areas within the company are involved in strategic Group planning. Within this context, information is retrieved, collated and evaluated in a standardized process. The Management Board bears full responsibility. Internal reporting is used to monitor and control business performance. A key component of the risk management system is regular reporting by the management of the respective domestic and foreign Group companies as well as the divisions, which is performed on a quarterly basis. It covers developments in all fields relevant to the company that can affect business activity and, in particular, the continuation of the ElringKlinger Group as a going concern. The focus is primarily on changes to the economic or political situation, new regulatory requirements, technological developments, commodities markets and internal risks. This reporting system involves identifying and evaluating all risks and subsequently drafting recommendations on how to prepare for and protect against them. At present, the head of the Group legal department oversees coordination. In future, the risk management system will be overseen by the Finance department in order to ensure that financial indicators can be brought together and inter-

connected even more effectively.

The Management Board assesses the aggregate risk and submits regular and comprehensive reports on its findings to the Supervisory Board. Another important aspect of the centralized risk and quality management system deployed at the ElringKlinger Group is that of tracking the implementation of defined measures. The company considers risk management to be an all-embracing activity that encompasses not only the identification and assessment of risk, as outlined above, but also a system of preventive measures and contingency planning that has proven to be very effective.

Alongside regular reporting, internal audits are an important control mechanism and thus an essential element of the risk management system. Audits are carried out in the business and service divisions of ElringKlinger AG as well as at the Group companies. These audits are conducted by accountancy firms and/ or suitably qualified companies commissioned by ElringKlinger AG. The rationale behind the appointment of external specialists is to ensure that risks are identified, statutory requirements are met, internal processes are reviewed and potential for improvement is recognized. The findings of such audits are compiled in reports, which are directed in particular at the Management Board and the Chairperson of the Audit Committee within the Supervisory Board. The reports are evaluated, whereupon necessary measures are initiated. Execution of these measures is controlled by the Management Board member whose remit covers this area. All relevant findings are discussed with the areas concerned in order to bring about improvements or rectify any weaknesses. In the 2014 financial year, audits were conducted at the subsidiaries in China, in South Korea and at Hug Engineering AG in Switzerland as well as within business and service divisions of ElringKlinger AG. None of the audits conducted within this context gave rise to any significant objections. Both statutory regulations and internal requirements were consistently met. The recommendations submitted with regard to potential areas for optimization have been put in place or are currently being implemented.

Back in the 2012 financial year, a specialized auditing and consulting firm was commissioned by the Management Board to prepare a compliance risk profile for ElringKlinger, on the basis of which suitable measures were to be defined with regard to the compliance system. The analysis revealed in particular that ElringKlinger presents no specific risk potential. Based on this analysis and other reviews conducted in respect of compliance, together with experience gained within this area, the company introduced a compliance system in 2013, which includes a Chief Compliance Officer who reports directly to the CEO. Additional Compliance Officers were appointed for the individual regions in which ElringKlinger is active. They report to the Chief Compliance Officer. The code of conduct forms an important part of the compliance system. It sets out binding rules for all employees of the ElringKlinger Group. Among other aspects, the code covers issues such as fair competition, corruption, discrimination and the protection of confidential data. The code is distributed to all employees in the language of the country in which they are based. Staff members, and particularly management personnel, receive training relating to these issues. As part of training events conducted over the course of 2014 employees from Sales and Purchasing were instructed extensively on the legal requirements relating to the granting and acceptance of gifts/gratuities as well as on competition and anti-trust laws. These events will also be held in 2015. The Chief Compliance Officer responded to all indications of compliance-related infringements in order to investigate the circumstances and initiate requisite measures. Where evidence suggested that an infringement may have occurred, the Management Board was informed accordingly. However, no significant infringements were reportable for 2014.

In order to reduce the liability risk from potential damage cases and any associated losses, the company has taken out appropriate insurance policies. The suitability of these policies, which also cover the Group companies, is subjected to regular review with regard to the actual risks covered and the level of cover provided. Where necessary, the policies are then amended.

Control and risk management system with regard to accounting

With regard to accounting and external financial reporting within the Group, the internal control and risk management system may be described with reference to the following basic characteristics. The system is geared toward the identification, analysis, valuation, risk control and monitoring of these activities. The structuring of the system in line with the specific requirements of the company is the responsibility of the Management Board and Supervisory Board. In accordance with the distribution of responsibilities within the company, the Finance department, which is in charge of accounting, comes under the remit of the Chairman of the Management Board. This department, which also includes Corporate Investment Management, controls accounting within the Group and ElringKlinger AG and compiles the information required for the preparation of the consolidated financial statements and the separate financial statements of ElringKlinger AG. Corporate Investment Management is responsible, in particular, for monitoring and supporting the accounting processes of the Group companies. The Group companies report to the Head of Finance, who in turn reports to the Chairman of the Management Board.

The principal risks associated with the accounting process derive from the need to provide accurate and complete information within the specified time frame. This presupposes that the requirements have been clearly communicated and the departments responsible are placed in a position where they can meet those requirements.

ElringKlinger has compiled an accounting manual on the basis of International Financial Reporting Standards. All Group companies are required to apply the standards outlined in this manual as a basis of the financial reporting process. All the principal valuation standards such as those covering inventories, tools and receivables under IFRS are specified in mandatory form within the manual. Mandatory accounting standards are also in use across the Group as a way of ensuring uniform treatment of the same issues.

All Group companies are obliged to comply with a pre-defined schedule for preparation of the Group financial statements. The same applies to the separate financial statements of ElringKlinger AG. Each Group company is responsible for drawing up its separate financial statements in accordance with local accounting rules and IFRS, with the exception of the German Group companies, whose financial statements are prepared by the Accounts department at ElringKlinger AG. A reconciliation of balances is conducted in respect of internal Group clearing accounts. Financial reporting by the Group companies is conducted via a separate database containing not only financial data but also information that is of importance to the notes to the consolidated financial statements and the combined management report of the ElringKlinger Group and ElringKlinger AG. The data and information are checked prior to release and consolidation in the respective centralized departments.

SAP is used by the German as well as some of the foreign subsidiaries within the ElringKlinger Group. As for the other companies, various IT systems are currently in use. SAP is to be introduced at other key companies within the Group. All implemented systems feature hierarchical access systems. All clearances are documented in the system. For companies that use SAP, access rights are managed centrally according to established rules. Access decisions are made by the Head of Finance. Local management makes decisions on access in those companies that use other systems.

As a rule, no external service providers are used in the accounting process. As described above, it is carried out by the staff of the respective specialist departments.

Among the risks that may affect the accounting process are, for instance, those associated with delays or errors in the entry of transactions or failure to observe the accounting manual and account allocation rules. In order to avoid mistakes, the accounting process is based on the separation of responsibilities and competencies, the automation of procedures and plausibility checks for reporting purposes. Calculations are subject to continuous monitoring. Comprehensive and detailed checklists have to be worked through before the established reporting deadline. The accounting process is also incorporated into the ElringKlinger Group's risk management system as a way of identifying accounting-related risks at an early stage, allowing the company to take prompt action to anticipate and address potential risks.

As is the case with the other areas and functions of the company, accounting is also subject to the investigations conducted as part of internal auditing. These are performed by two accountancy firms. Accounting processes and procedures at ElringKlinger AG and its Group companies are reviewed in the course of regular internal audits. The findings are then used to make further developments and improvements. For more information, please refer to the description of the risk management system.

Report on Opportunities and Risks

The following table presents an overview of material risks and key opportunities relating to the ElringKlinger Group. Both the risks and the opportunities were graded according to the probability of occurrence and the potential financial impact. A probability of occurrence of less than 30% is considered "low", while one in excess of 60% is deemed to be "high". The potential financial impact is categorized on the basis of qualitative criteria, ranging from "insignificant" to "significant". These factors are identified as gross risks, i.e. prior to possible measures aimed at risk mitigation. The same principle applies to opportunities. In this context, in the event of occurrence "insignificant" refers to a potential impact on Group earnings before taxes of less than 5%, "moderate" between 5 and 10% and "significant" in excess of 10%. Overall risk or the overall potential attributable to opportunities in relation to the respective category is derived from the combination of probability of occurrence and potential financial impact.

Opport unity and risk profile of the Elring K ling er G roup

		Probability of occurrence	Potential financial impact
Type of risk	low	medium	high	insigni ficant	moderate	significant
Economic risks
Economic and industry risks	x					x
Political risks		x			x
General internal risks Work-related accidents, fire	x				x
Operational risks
Price-related pressure/Competition			x		x
Material risks/Supplier risks	x				x
Customer risks	x				x
Labor cost risks		x			x
Personnel risks		x		x
IT risks	x			x
Quality/Warranty risks		x			x
Legal and compliance risks	x				x
Strategic risks
Technology risks	x					x
External growth/Acquisitions	x				x
Financial risks
Bad debt loss	x				x
Liquidity and financing risks	x			x
Currency risks			x		x
Interest-rate risk	x				x
Use of derivative financial instruments	x			x
Opportunities
Climate change/Emission laws			x			x
Technology trends			x			x
Extension of product and service portfolio			x			x
New sales markets			x			x
Industry consolidation/M&A		x			x

Economic risks

Economic and market risks

The global vehicle markets tend to perform in line with prevailing economic trends. This applies to the truck segment even more so than to that of passenger cars. A substantial downturn in the economy represents a risk to demand for new cars and, ultimately, also to vehicle production. This, in turn, could result in lower demand for ElringKlinger components (cf. Overview of ElringKlinger's Activities and Structure, page 48).

Based on the latest assessment, risks relating to economic performance continue to be present in some of the markets of Southern Europe as well as in the vehicle markets of Brazil and Russia, which are considered not entirely insignificant to the industry as a whole.

However, the International Monetary Fund has forecast global economic growth of 3.5% in 2015.

As regards the automobile industry, solid consumer demand in North America and throughout the Asian markets should provide a basis for sustained growth in global car production.

From today's perspective, at least, a severe slump in vehicle production – similar to the crisis seen in 2008/09 – can be ruled out. ElringKlinger anticipates that global vehicle production will expand by around 2% in 2015 (cf. Report on Expected Developments, page 112).

ElringKlinger has established a global presence. Benefiting from a broad customer base, it is not dependent on specific markets or individual manufacturers. Thanks to this solid positioning, the effects of an economic slump in a particular region can be offset at least in part. Due to its flexible cost structures, ElringKlinger would be able to respond immediately to market conditions in the event of more severe economic turbulence. Instruments available to the company include flexitime accounts and flexible shift models as well as the option of issuing an application for short-time work. Furthermore, the company can react to changing market conditions by adjusting its staffing levels to demand patterns and by pooling the production quantities of individual plants. The central purchasing department would work in close cooperation with suppliers for the purpose of assessing and adjusting procurement volumes in a timely manner.

ElringKlinger factors in economic risks to an appropriate extent at the forward planning stage. When drawing up budgets, ElringKlinger takes a cautious view of the underlying macroeconomic scenario.

Political risks

Political decisions taken by national or European lawmakers have the potential to impact significantly on current technology trends and ultimately also – both favorably and unfavorably – on business performance at ElringKlinger. To an increasing extent, however, risks now also emanate from the escalating crises afflicting some of the sales regions around the globe.

These include the Ukraine conflict and the associated sanctions imposed on Russia by the West as well as the mounting crises enveloping large parts of the Middle East and North Africa. While these regions are of no strong direct relevance to Original Equipment, they do harbor the risk of revenue shortfalls in the Aftermarket segment. In total, annual sales revenue generated in the aforementioned regions amounts to a figure towards the lower end of the double-digit million range.

As sales in these regions are usually billed in US dollars or euros, customers' restricted access to foreign currency could result in delayed payments or, in the worst-case scenario, to default on such payments.

General internal risks

Among the general risks that are not connected directly to the business model of the ElringKlinger Group are work-related accidents. The Group endeavors to prevent such accidents to the largest extent possible not least by means of accident prevention regulations implemented throughout the Group as well as regular training. Where accidents do occur, the reasons and circumstances are investigated in depth and existing accident prevention regulations are adjusted accordingly in order to ensure the best possible level of protection.

The risk of a fire occurring at operating sites is considered to be comparatively low. However, it cannot be ruled out entirely. Alongside the risk of personal injury, a fire – with the associated downtime of operations over an extended period – poses the risk of substantial damage to property and significant costs for the repurchase of machinery and equipment. Disruption to the supply of customers, however, can be ruled out to a large extent, as the Group is able to draw on its international manufacturing network for the purpose of offsetting a capacity shortfall through production at an alternative site or substituting such activities on a temporary basis.

The Group addresses the risk of fire well in advance and through appropriate fire protection insurance policies. Insurance appraisers compile fire protection reports at all of the Group's operating plants. The suggestions included in the reports with regard to fire protection improvements are subsequently analyzed and implemented.

Operational risks

Price-related pressure/Competition

As a supplier to the automotive industry, ElringKlinger operates in a business environment that is generally considered to be highly competitive. Customers regularly make demands for price reductions.

This constitutes one of the prominent individual risks to which the Group is exposed. Owing to its strong technological position, ElringKlinger is comparatively well placed to address such issues. Having said that, the company is not completely immune to such price demands. With an eye to relieving price-related pressures, ElringKlinger develops products with unique technological selling points and focuses on niche markets. The remaining downward pressure on prices has to be offset, to the largest extent possible, by efficiency gains in production.

The barriers to entry for new competitors are high, as the business model applied by the ElringKlinger Group is based on a number of special core competencies relating to materials, tooling and process expertise (cf. Overview of ElringKlinger's Activities and Structure, page 48). Additionally, substantial investments would be needed to introduce the requisite production systems.

To be financially viable, it is essential that plants produce large volumes. Experience has shown, however, that initial orders placed with new suppliers tend to be relatively small in scale. These volumes are not sufficiently high to cover costs. What is more, the manufacturing technology deployed by ElringKlinger is often designed according to company specifications, i.e. it is not available as standardized solutions within the marketplace.

In some cases, a precondition made by manufacturers prior to awarding a contract to the ElringKlinger Group is that the products in question should be supplied from Eastern Europe. In this context, pricing and/or shorter distances to production sites play a key role. ElringKlinger does not have its own serial production operations in Eastern Europe, with the exception of HURO Supermold S.R.L., Timisoara/Romania, which specializes in tool construction. However, through its international manufacturing network the Group is able at any time to supply from plants with lower proportions of labor cost such as Brazil, India, Mexico or Turkey to the extent that this is required in view of product composition or is requested by the customer.

Material risks/Supplier risks

Materials constitute the single biggest cost area within the ElringKlinger Group. Therefore, the direction taken by material prices is of particular significance to the company.

The raw materials primarily used within the ElringKlinger Group include alloyed high-grade steels, C-steel, aluminum and, increasingly, polymer granules (Procurement, page 88). At times, prices associated with alloy surcharges (nickel, chromium, molybdenum) develop along dynamic lines and are subject to extreme volatility. They are added to the price of high-grade steel and cannot be fixed by contractual agreements.

In its negotiations with raw material suppliers ElringKlinger generally concludes agreements that are as long term as possible. Any additional quantities required are subsequently procured at prevailing market prices.

ElringKlinger works continuously on optimized product designs, improvements to production processes and the qualification of new suppliers in order to counteract possible increases in material prices.

On the whole, the risk of substantial increases in the price of materials can be considered manageable, particularly in view of the current commodity price trends and the fact that many raw material suppliers have seen an expansion in volumes.

In some cases, ElringKlinger negotiates cost escalation clauses with its customers. Where such clauses have not been negotiated in advance, upstream price rises that exceed cost estimates have to be passed on to customers. This involves a risk that higher purchase prices cannot be passed on in full or only with some delay.

ElringKlinger collects metal-based waste produced throughout the Group as part of its stamping processes and sells this waste via its own scrap metal trading unit. The proceeds from waste sold in this way can be used to offset, at least in part, any cost increases occurring in the area of procurement.

As part of a regular process of risk assessment, ElringKlinger monitors not only trends relating to material prices but also the actual availability of materials. In order to limit associated bottlenecks or non-deliveries to the largest extent possible, ElringKlinger relies on close collaboration with its suppliers over the long term. The Group makes a point of planning its material requirements well in advance and pursues a multi-supplier strategy. ElringKlinger is committed to qualifying and approving at least two suppliers for all significant types of material and bought-in parts. In doing so, the Group also safeguards continuity of supply for the various types of material needed. Medium-sized and smaller suppliers are thoroughly assessed and monitored with regard to their financial strength and insurance cover. They also have to undergo supplier audits in regular intervals. In 2014, the 30 principal suppliers used by the Group accounted for around 20% (20%) of its purchasing volume.

As regards energy supply, particularly at the German production sites, there is evidence to suggest a relatively high dependence of natural gas of Russian provenance. However, the possibilities for the company to put in place more extensive measures to counteract risk within this area are extremely limited.

Customer risks

A sudden slump in demand faced by a principal customer may pose the risk of a substantial reduction in this manufacturer's scheduled quantities of ElringKlinger components to be installed in its vehicles and/or engines. In order to limit the company's dependence on individual customers, but also with a view to alleviating potential pricing pressure, the ElringKlinger Group has continuously extended its customer base in recent years. A number of customers in Asia as well as other suppliers who manufacture engines, transmissions and exhaust systems have been added to this customer base. In 2014, the company's top three customers accounted for around 26% (30%) of Group revenue. The customer contributing the single largest share of sales accounted for 10.4% (12.0%) of Group revenue.

Labor cost risks

Alongside cost of materials, labor costs constitute the largest expense item for the ElringKlinger Group. They accounted for 23.4% (24.4%) of the cost of sales in 2014.

Almost half of the workforce of the globally positioned Group is still employed at sites based in Germany, whereas as much as approximately two-thirds of sales revenue is now generated outside of Germany. Therefore, further wage increases at a domestic level would have a tangibly negative impact on earnings performance. In this context, it should be taken into account that the IG Metall trade union has been able to negotiate relatively substantial collective wage agreements during the last few years. Therefore, as illustrated by the progression of staff cost ratios at German sites, the competitive position of ElringKlinger AG could deteriorate further in relation to its international peers.

After a wage increase of 3.4% agreed in July 2013 between employers and the trade union for those covered by collective pay arrangements and an additional 2.2% wage increase coming into effect from May 2014, the collective wage agreement for 2015 will lead to a further increase of 3.4% in wages and salaries as from April 1, 2015.

By contrast, the level of labor costs in emerging countries such as China, South Korea, India or Turkey, where almost 15% (15%) of the Group's workforce is employed, is well below the Group average. Another positive aspect is that both revenue and staffing levels in these regions are expanding at a faster rate than in Germany. In these markets too, however, the dynamics of wage development remain a latent risk to the Group's financial performance.

If customer demand were to decline sharply and unexpectedly, the staff cost ratio may increase dramatically. ElringKlinger has a number of instruments at its disposal (such as working time accounts, shift models and temporary employment contracts) that are aimed at providing greater flexibility, allowing it to respond rapidly in an emergency. Within the ElringKlinger Group, the proportion of employees with temporary contracts as of December 31, 2014, was 19.6% (16.6%).

Essentially, the direction taken by labor costs is to be seen as one of the principal risks to which the ElringKlinger Group is exposed. For the purpose of safeguarding international competitiveness and retaining jobs in the domestic market, higher wage costs have to be offset by substantial capital investment and by continuous measures aimed at raising efficiency levels in production.

Personnel risks

The success of the ElringKlinger Group is a testament largely to the skills and dedication of its employees.

It is of importance to the Group that any risk of losing expertise through staff exits is mitigated to the greatest extent possible. Staff turnover rates are to be kept at a low level by creating a socially balanced and motivating working environment.

The age structure of the Group's workforce reveals a healthy mix: more than 50% of employees are aged between 30 and 50, while approx. 25% are younger than 30. Therefore, the risk of overaging is small.

Wherever possible, specialist expertise and skills are developed within the respective teams, rather than concentrating such knowledge among individual staff members.

The growing lack of specialist staff within the labor market as a whole is also affecting ElringKlinger. Some of the sites operating within the Group are finding it increasingly difficult to attract qualified personnel with specialized skills. In order to address this issue in a proactive manner, ElringKlinger follows a systematic program of university/college marketing for the purpose of HR recruitment. The company attends career fairs, where it showcases itself as an attractive employer to graduates. It also meets the needs of university and college students by offering internships and thesis topics. In order to retain skilled and qualified employees within the company in the long term, ElringKlinger offers internal training programs and measures for personal advancement of skilled personnel and managerial staff.

IT risks

In the digital age, companies' IT infrastructure is constantly exposed to risks such as data loss, hacking or virus attacks. Any disruption to IT systems and application software can lead to tangible delays to individual processes – from the handling of purchase orders through to activities in the supply chain. This would have a negative impact on operations, which may also affect revenue and costs.

ElringKlinger ensures that such risks are minimized as far as possible. Particularly sensitive data that are of importance to operational processes are always stored twice or redundant systems are deployed. Additional backup systems or transitional solutions are used in order to rule out to the largest extent possible any potential risks that might jeopardize specific projects or processes.

The company's headquarters in Dettingen/Erms/Germany, has two data centers operating independently of each other. For security reasons these data centers are accommodated in different buildings, i.e. at two separate locations. This approach offers the best possible protection against system failure and data loss. All data pertaining to the international sites are backed up at a central location.

Staff access to confidential data is managed with the help of scalable access authorizations. Unauthorized access from external sources is prevented by up-todate security software.

Quality and warranty risks

As a manufacturing company and supplier to the automotive industry, ElringKlinger is exposed to sector-specific warranty and liability risks. The supply of non-compliant components may necessitate an exchange or recall of such parts, with corresponding costs and claims for damages. In this context, the development of entirely new products for fields of application beyond the automobile industry or in the area of alternative drive technology is also associated with potential risks.

Appropriate quality assurance systems are in place to prevent and mitigate such risks. As part of the Groupwide risk management system, quality and warranty risks are covered to a large extent by insurance policies, e.g. product liability insurance. Insurance coverage is reviewed at least once a year and adjusted where necessary. Agreements on limitation of liability are concluded between ElringKlinger and the respective contracting parties on a case-by-case basis.

Legal risks/Compliance risks

Beyond the risks already discussed in the section dealing with warranty risks, the ElringKlinger Group is exposed to further legal risks attributable to its business model and the size of the company. These risks are covered to a large extent by insurance policies, which are an element of the risk management system. Furthermore, ElringKlinger addresses its exposure to legal risks by recognizing appropriate provisions in its annual accounts. Compared with the previous year, there were no other significant risks in the period under review. Likewise, ElringKlinger is at present not exposed to any significant litigation risks.

The structure of the compliance system was outlined earlier in the description of the risk management system. Risks can occur at both the parent company and the subsidiaries as a result of unlawful actions. In response to such potential exposure, ElringKlinger has drawn up an extensive Code of Conduct for the entire Group. Managers have been trained accordingly. Furthermore, up to twelve reviews are conducted each year. Against this background and in view of the ElringKlinger culture applied and embraced by the company, the probability of occurrence can be classified as low but cannot be ruled out entirely. The financial effects on Group earnings are difficult to specify. Depending on the respective case, they may reach a scale that could be considered significant. Based on its current assessment, however, ElringKlinger anticipates that the associated risk is relatively moderate.

Strategic risks

Technology risks

The business model of the ElringKlinger Group is based on a culture of excellence in innovation and technology leadership. The company's operations are tailored to the development of products that are technologically sophisticated and to the manufacture of such goods at a high level of productivity. Over the long term it has recorded growth rates that are above the industry average (cf. Overview of ElringKlinger's Activities and Structure, page 48).

If ElringKlinger were to fail to identify fundamental technological changes in good time, the Group may lose its vantage point as a pioneer. In the medium term, this could jeopardize its strong position as a development partner to the vehicle industry.

In turn, this would have a detrimental effect on the Group's sales and earnings performance in the medium to long term. ElringKlinger invests around 5% of its revenue in research and development each year. This figure is in excess of the industry average. Additionally, substantial investments have been channeled into the expansion of the Group's technology portfolio in the last five years. In order to combat to the largest extent possible the risk of damages caused by me-too products and imitations, ElringKlinger protects significant technologies and processes in the form of property rights and patents.

The company focuses its R&D activities firmly on areas that are of particular importance to the automotive industry, i.e. optimization of the conventional combustion engine and the development of alternative drive technologies. ElringKlinger is one of just a few suppliers to have taken the lead in positioning itself within the market early on and at great expense with a range of new products tailored to the requirements of e-mobility – be it in the area of battery or fuel cell technology – and exhaust gas purification. However, as the revenue contribution made by these new divisions is still low, rapid and extensive technological change within this area poses the risk of substantial loss of revenue in its classic areas of business and increased pressure on prices. The probability of occurrence is considered low. The possible financial impact, however, would be significant.

External growth/Acquisitions

Consolidation within the automotive supply industry is gaining momentum. Against this backdrop, ElringKlinger may be presented with an opportunity to buy in complementary technology or pursue targeted corporate takeovers in order to enter regional markets faster.

In the case of M&A transactions, ElringKlinger faces the risk that the acquired entities may fall short of specified targets or fail to meet them in the planned time frame. This may necessitate unforeseen restructuring expenditure, which – at least temporarily – could exert downward pressure on the Group's profit margin. In addition, the level of new investment required in this area may be higher than originally planned. This, in turn, would lead to more substantial funding requirements. Technology purchases pose the fundamental risk that the performance originally expected by the company may not be fully achievable or that the products may fail to meet the customer's expectations. As part of the annual impairment tests to be carried out in accordance with IFRS at the end of each year, it may be necessary to recognize impairment losses in connection with goodwill or investees, which would in turn adversely affect annual Group earnings.

Prior to an acquisition, as a matter of principle, ElringKlinger conducts extensive due diligence investigations. All projects are reviewed by a company team of experts. Financial plans and technological performance parameters are checked thoroughly for plausibility and are evaluated accordingly.

ElringKlinger AG only enters into an acquisition if it can ascertain that the entity acquired has the potential to reach the EBIT margin of the Group as a whole. At the same time, the overall financial risk of a transaction must in no way jeopardize ElringKlinger AG's ability to offer a dividend, even when factoring in the effects of an unfavorable scenario.

Financial risks

Bad debt losses

The risk of Original Equipment customers defaulting on payments is considered to be relatively low given the fact that the automotive market has slowly been picking up pace in Western Europe, too. The risk of substantial bad debt losses attributable to individual customers is mitigated by a broadly diversified customer base. In the, at present, unlikely event of an insolvency of one of the three single biggest customers, the default risk in respect of accounts receivable would have amounted to between EUR 13.4 and 21.8 million (between EUR 9.3 and 19.6 million) as of December 31, 2014.

Within the Aftermarket segment the risk of bad debt losses is considered to be higher than in the case of Original Equipment. However, this risk is also much more diversified due to the significant number of customers served in this segment.

Liquidity and financing risks

Since the financial crisis – and against the backdrop of more stringent directives governing capital requirements – lending practices adopted by banks have become more restrictive. At the same time, growth and the development of new technologies necessitate sizeable investments. Funding requirements within the industry as a whole are becoming more substantial. If rating agencies were to view the risk profile of the automotive industry as less favorable, credit terms for the sector and ultimately also for ElringKlinger may be adversely affected.

Despite greatly improved earnings in the industry as a whole and extremely low interest rates, the latent risks associated with financing remain. The risk of insolvencies, particularly with regard to smaller suppliers that are not operating at a global level, can not be ruled out entirely. At the same time, however, this holds opportunities for takeovers by ElringKlinger.

Thanks to a strong equity ratio of almost 50% (50.4%) and a level of debt (net debt in relation to EBITDA) of 1.5 (1.2), the ability of the ElringKlinger Group to refinance itself is considered to be non-critical. At EUR 149.9 (119.0) million, the Group generated cash flow from operating activities that covers to a large extent the company's financing requirements for higher working capital as well as for investments in property, plant and equipment. Additionally, the Group has access to undrawn lines of credit totaling EUR 87.7 (117.1) million.

As of December 31, 2014, all existing financial covenants were met. Based on the full range of information available at present, it can be assumed that the existing financial covenants will also be met in 2015. The company has identified no immediate risks that might jeopardize the financing of major projects planned by ElringKlinger or prevent the company from meeting its payment deadlines. From today's perspective, financing risks that might jeopardize the company's existence as a going concern can be ruled out.

Currency risks

The monetary policies adopted by the world's principal central banks and the divergence in economic performance within the respective regions have resulted in greater exchange rate volatility when viewed across an extended time frame. This applies to the exchange rate between the euro and the US dollar (USD) as well as between the euro and the majority of currencies of the emerging markets and the Swiss franc (CHF).

Compared with the industry as a whole, the ElringKlinger Group is exposed to limited currency risks relating to transactions. In almost all the company's sales regions, both costs and revenues are largely denominated in the same currency (natural hedging). As regards the Swiss subsidiary Hug Engineering AG, Elsau, foreign exchange effects attributable to the strength of the Swiss franc were scaled back in 2013 following the relocation of significant production volumes to the new plant in Thale, Germany, i.e. into the eurozone. Hug now generates a significant proportion of its sales revenue in USD.

Opportunities and risks associated with the movement in foreign exchange rates also exist when translating revenue, expenses and earnings of the international subsidiaries into the Group currency, i.e. the euro. Therefore, changes in the average exchange rates can have an accretive or dilutive effect on the Group's revenue and earnings. In 2014 as a whole, the negative effect of foreign currency translation on revenue was equivalent to EUR 4.2 million in total. However, the depreciation of the euro against many of the world's other currencies resulted in positive differences from currency translation from the third quarter of 2014 onwards. In the fourth quarter, Group revenue was EUR 7.4 million higher as a result of foreign currency translation. In total, the opportunities for more expansive revenues and earnings as a result of foreign currency translation should outweigh the downside risks in 2015.

Exchange rate movements also have an impact on the net finance costs. These factors are mainly associated with the funding of Group entities by the parent company as well as with the measurement of accounts receivable and payable. Owing to the significant depreciation of the euro against the USD and the majority of emerging-market currencies in the second half of the year, the Group was able to recognize, at the reporting date, foreign exchange gains of EUR 10.0 (-4.4) million as of December 31, 2014.

A summary of the quantitative impact of an appreciation or a depreciation of the euro against the key Group currencies can be found in the sensitivity analysis contained in the Group Notes (page 169).

The decision by the Swiss National Bank to abandon its CHF/EUR floor of 1.20 is not expected to pose any severe risks with regard to ElringKlinger's business. Up to 2013 the exchange rate of the euro against the Swiss franc was of particular significance. In 2008, ElringKlinger had financed the acquisition of the Swiss SEVEX Group in Swiss francs, and the changes in this liability as a result of currency translation were accounted for in the net finance costs. This loan was repaid in full in 2013, as a result of which it no longer constitutes an exposure to risk. The Group sees moderate risks as regards the valuation of receivables and payables of its Swiss subsidiaries.

As a result of the currency-related change in competitive factors underlying the Swiss operations of Hug Engineering AG, Elsau, as well as ElringKlinger Abschirmtechnik (Schweiz) AG, Sevelen, projects may alternatively have to be awarded to ElringKlinger Group sites located in the eurozone. However, as key competitors of ElringKlinger Abschirmtechnik (Schweiz) AG have production facilities in Switzerland, this risk is currently still considered to be negligible.

Interest-rate risk

The ElringKlinger Group funds itself through cash flow generated from operating activities as well as through borrowings from banks. A detailed overview of current and non-current financial liabilities categorized by maturity as of December 31, 2014, can be found in the Notes (page 167).

The current level of interest rates within the market is extremely low when viewed over an extended period of time. A marked increase in interest rates would feed into variable rate loans and would ultimately also have an impact on the net finance costs of the ElringKlinger Group. To protect the company against fluctuations in interest rates, ElringKlinger has entered into forward contracts. This has the effect of converting variable interest rates into predictable fixed rates. To a large extent, however, fixed interest rates have been agreed in respect of the financing liabilities of the ElringKlinger Group (cf. Notes: Derivative Financial Instruments, pages 149 and 175).

Please refer to the Group Notes (page 169) for a sensitivity analysis. It outlines the impact of a change in market interest rates on the earnings of the ElringKlinger Group.

Derivative financial instruments

ElringKlinger only makes use of derivative financial instruments in isolated cases, e.g. for the purpose of protecting the company against price fluctuations relating to high-grade steel alloys (nickel) or, as already discussed, in order to mitigate interest rate risks. Where hedging contracts are employed as a protective instrument against commodity price volatility, they are always based on the actual quantity of physical materials required by the company.

Operating on a rolling basis, ElringKlinger again hedged some of its requirements of alloyed high-grade steels in 2014. As of December 31, 2014, around 25% of required volumes computed by the company were hedged by means of nickel forward contracts.

Opportunities

Climate change/New emission standards

One of the key objectives still being pursued by the vehicle industry is to reduce the greenhouse gas CO2 as well as other harmful emissions such as soot particles, hydrocarbons and nitrogen oxides. The European Union is known to have some of the strictest emission standards worldwide. According to legislation passed by the EU Commission, the level of CO2 pollutants emitted by new vehicles will have to be reduced from 130 g/km at present to 95 g/km by 2021. These requirements will have to be met by 90% of each manufacturer's vehicle fleet as early as 2020. Looking ahead to 2025, the authorities in Brussels are discussing even lower thresholds of between 78 and 68 g/km. At the same time, the United States and emerging countries such as China have put in place legislation that prescribes a reduction in emissions by up to 30% in the coming years. Furthermore, many of the emerging countries tend to look at the strict Euro standards as a basis for their own policy making*.

For the ElringKlinger Group this legislative framework offers a good platform for additional revenue growth. The trend towards more fuel-efficient engines opens up additional sales opportunities and new markets for highly heat-resistant specialty gaskets and shielding components, such as those required for turbochargers and in exhaust systems but also within the area of lightweight construction. The sector is also seeing the emergence of new regional markets.

Plug-in hybrid vehicles *, i.e. the combination of a combustion engine and electric motor, have been gaining market share. Car makers are extending their product portfolio to include hybrids, the aim being to achieve the strict CO2 limits applied to their vehicle fleets. For ElringKlinger hybrid concepts open up the opportunity to generate higher revenue per vehicle. Alongside components installed in combustion engines, plug-in hybrids provide the company with the chance to market pressure equalization modules or cell contact systems that are required in the battery unit of the powertrain.

As from 2016, stationary and marine engines as well as construction machinery will be subject to stricter emission regulations. These niche markets hold significant potential for the systems produced by ElringKlinger's Exhaust Gas Purification division.

The revenue and earnings potential associated with the issue of greenhouse gas reduction can be categorized as significant for the ElringKlinger Group. The potential of ElringKlinger exploiting these opportunities within the market in the medium term, at the latest, by drawing on its existing R&D expertise is considered highly probable.

Technology trends/New emission regulations

The technology trends outlined earlier are being driven, inevitably, by increasingly stringent international emission standards. The industry will have to focus on more efficient engines, lightweight engineering and the use of alternative drive technology if it is to have any chance of meeting the ambitious CO2 targets set by policymakers.

Insofar as ElringKlinger continues to succeed in rolling out new solutions in response to these key topics by utilizing its existing expertise relating to materials and tooling as well as development and production processes, the Group's prospects for revenue and earnings growth can be categorized as significant.

Extension of product and service portfolio

The majority of the divisions within the Group are well placed to apply their existing expertise relating to materials and processes proactively for the purpose of complementing the range with new products and expanding the portfolio in a targeted manner.

The possibilities open to the Group have already been discussed extensively in the chapter on Research and Development. A prime example is the area of lightweight construction. Using new organo materials – a combination of plastics and special fibers – and hybrid plastic/metal lightweight engineering solutions, the Group is beginning to unlock opportunities for a wide spectrum of new product concepts.

In the field of emissions technology, the Exhaust Gas Purification division can look forward to pursuing a broad range of opportunities for filter systems used in construction machinery, stationary engines or marine engines. New emissions standards coming into force from 2016 onwards offer a solid platform for additional areas of application. Prospects are also good for the Engineered Plastics division and its PTFE components used in the industrial sector as a whole as well as in the area of medical technology.

All divisions within the Group are proactively working on the expansion of their product and service portfolios with the view to achieving the planned target of at least 5% organic revenue growth per annum.

New sales markets

Moving into new regional sales markets with existing ElringKlinger products presents opportunities for significant revenue and earnings growth. In this context, the ASEAN region may be cited as a prime example. In the BRIC states, the Group has the opportunity to expand its sales volumes by manufacturing all product groups locally and selling them in the regional markets.

There are opportunities for further growth within the Aftermarket business by widening the product range, launching new products as well as by tapping new sales regions, e.g. in North America and in Asia.

Industry consolidation

Car industry growth, measured on the basis of production output, will be driven primarily by Asia and North America in the coming years. This poses significant challenges for many small and medium-sized enterprises that still have either an insufficient international presence or none whatsoever.

What is more, suppliers are having to take on responsibility for an increasingly large proportion of value creation relating to new vehicle production. As a result, they are faced with substantial investments in research and development, in addition to being exposed to more extensive financing risks. Against this backdrop, the market will be faced with the possible risk of insolvencies. In the coming years, therefore, the automotive supply industry will have to contend with a significant wave of consolidation.

For the ElringKlinger Group, this scenario offers additional opportunities to extend its technology portfolio through acquisitions or to establish a stronger competitive position through consolidation of individual product groups. At the same time, the increasingly important issue of managerial succession in family-run enterprises may present the Group with opportunities to acquire such entities on the basis of valuations that can still be considered acceptable. In some cases, competitors will also exit the market without the influence of consolidation processes. ElringKlinger will continue to monitor the market systematically in order to identify potential opportunities for acquisition as early as possible and pursue them where this is deemed appropriate and financially feasible.

The plan is for the ElringKlinger Group to continue to exploit growth opportunities through acquisitions. The associated financial impact is difficult to quantify in advance. It may range from insignificant to indeed significant when measured on the basis of revenue and earnings contributions for the Group.

Overall assessment of risks and opportunities

Fundamentally, the system deployed by ElringKlinger AG for the purpose of managing risks and opportunities has proven to be very effective in recent years. Its efficacy is illustrated by the company's success in handling the severe economic crisis of 2008/09. The company invested early on in promising areas of its business, such as E-Mobility or Exhaust Gas Purification.

The conclusion drawn from scrutinizing the opportunities and risks in their entirety is that the situation of the ElringKlinger Group in respect of risk exposure is, in essence, similar to that seen in the previous year. Risks of a geopolitical or external nature are beyond the scope of control of the ElringKlinger Group or can only be actively controlled to a limited extent.

When weighing the relevance of risk in respect of the possible impact on Group earnings, the three principal risks to which the ElringKlinger Group is exposed are a potentially severe global slump in the market, rapid technological change in drive systems and a dynamic surge in commodity prices.

The economic climate has improved throughout Western Europe and North America, but also in some of the emerging markets such as India. On the other hand, the risks emanating from the current political and economic situation in Russia and the economic malaise afflicting Brazil are much more pronounced than in the previous year. The strategic risks remain unchanged. There has been a trend towards more wide-ranging financial opportunities and risks attributable to exchange rate fluctuations.

Drawing on the risk management system outlined above and its flexible cost structure, if necessary the ElringKlinger Group is in a position to respond promptly to any risks that may arise by implementing the corresponding risk management arrangements. The entity makes a point of not exposing itself to risks that may jeopardize the fundamental ability of ElringKlinger AG to offer a dividend. The Group's solid financial position as reflected in an equity ratio of 49.7% (50.4%) provides a protective shield in respect of ElringKlinger and its business model even in the

event of a protracted market crisis, of which, however, there are no indications at present.

There are currently no identifiable risks that might jeopardize the future existence of the company as a going concern, either in isolation or in conjunction with other factors. At the same time, the Group is well positioned to actively seize any opportunities arising from the long-term technology trends currently seen in the market and with industry consolidation. The principal opportunities relate to the issue of climate change and the associated technological trend towards more fuel-efficient engines. Benefiting from products centered around the issue of engine downsizing as well as a number of new concepts in the field of lightweight construction, the Group can look forward to opportunities for growth around the globe.

Against the backdrop of a manageable risk profile, the ElringKlinger Group remains well positioned to outpace global automobile production by 4 to 5 percentage points in the coming years.

Compensation Report

Compensation structure for members of the Management Board

Contracts for members of the Management Board are drawn up by the Personnel Committee of the Supervisory Board, negotiated with the respective members of the Management Board and concluded following approval by the entire Supervisory Board. The Personnel Committee reviews the level of compensation at predefined intervals and advises the Supervisory Board on appropriate adjustments. These recommendations are decided upon by the full Supervisory Board. The recommendations take into account the size and international operations of the company, its economic and financial situation, its prospects for the future, the level and structure of management board compensation offered by similar companies and the compensation structure in place in other areas of the company. In addition, the duties and performance of each member and of the entire Management Board are taken into consideration. Compensation is set at a level that ensures it is competitive within the market for highly qualified managers and provides an incentive for successful work in a corporate structure with a strong focus on performance and achievement. If requested by the company, the Management Board members also take on responsibilities in affiliated entities. The Management Board members receive no additional compensation for such activities.

Management Board compensation for the 2014 financial year is presented in accordance with the provisions set out in two different standards: first, as in the past, the applicable financial reporting standards (GAS 17) and secondly, for the first time, the German Corporate Governance Code in the version of June 24, 2014.

Compensation system up to December 31, 2013

The compensation system in place up to December 31, 2013, included fixed and variable components. The variable components were made up of an annual management bonus, which was determined on the basis of Group earnings before interest and taxes (Group EBIT), and a long-term component that was measured on the basis of share performance.

The annual management bonus was calculated as a percentage of the average Group earnings before interest and taxes of the last three years ended (Group EBIT). It was paid annually. The annual management bonus was limited to three annual fixed salaries.

As a component of long-term variable compensation, members of the Management Board were granted stock appreciation rights. Holders of stock appreciation rights were entitled to a cash-settled payment. Stock appreciation rights were not furnished with any entitlements to shares in ElringKlinger AG. On February 1 of each year – commencing in 2013 – 30,000 stock appreciation rights were to be allocated to each member of the Management Board. The grant price was computed as the arithmetic mean of the market price of ElringKlinger shares in the last sixty stock exchange trading days prior to the grant date. An essential precondition for the allocation of stock appreciation rights was the personal investment by the Management Board members of one-tenth of the overall number of stock appreciation rights in shares of ElringKlinger AG. The vesting period of the stock appreciation rights was four years. On completion of the vesting period, the Management Board member is entitled to request redemption of the stock appreciation rights within another two years. The redemption price is determined on the basis of the average market price of the ElringKlinger shares over the last sixty stock exchange trading days prior to the request for redemption. Redemption of the stock appreciation rights can only be requested if the redemption price is 25% higher than the grant price. The redemption price as a whole is limited per tranche to the amount of two fixed annual salaries at the time of redemption. Provisions are recognized in consideration of expected future obligations.

Up to February 1, 2013, the stock appreciation bonus encompassed the allocation of stock appreciation rights in five and four tranches respectively. For two of the Management Board members this allocation occurred in the period from February 1, 2008, to February 1, 2012. For one of the Management Board members it occurred in the period from January 1, 2009, to January 1, 2012. The grant price was computed as the arithmetic mean of the market price of ElringKlinger shares in the last sixty stock exchange trading days prior to the grant date. The number of stock appreciation rights was determined on the basis of fixed remuneration payable to the individual Management Board member as well as the level of the grant price (fixed compensation in relation to grant price = number of shares allocated). The amount to be remunerated was calculated on the basis of the difference between the redemption price, which was also calculated as an average of the last sixty stock exchange trading days, and the grant price. A payment is made only when the share price of ElringKlinger AG has increased more than the index in which ElringKlinger is listed (MDAX), but at least by 25%. Remuneration per tranche is limited to the amount of annual fixed salary payable. The vesting period is four years. On conclusion of the new Management Board service contracts the existing stock appreciation bonus came to an end. The tranches yet to be redeemed will remain in place until the vesting periods have ended.

Compensation system as from January 1, 2014

The compensation system applicable as from January 1, 2014, also includes fixed and variable components. It comprises:

• 1. Annual fixed salary
• 1. Long-term incentive I (LTI I)
• 1. Long-term incentive II (LTI II)
• 1. Fringe benefits
• 1. D&O insurance
• 1. Retirement pension

Fixed annual salary

The fixed annual salary is a cash payment in respect of the current financial year. It takes into account the area of responsibility of the Management Board member in question and is paid in twelve monthly installments.

Long-term incentive I (LTI I) (annual management bonus)

LTI I is a variable component of compensation that is based on the average Group EBIT (Group earnings before interest and taxes) of the last three financial years. The Management Board receives a percentage share of the three-year mean. The long-term incentive I corresponds to the principles previously applied to the annual management bonus and is granted as compensation for services performed in respect of one financial year. LTI I is limited to a maximum of three times the amount of fixed compensation in the financial year in question. Payment of LTI I for a financial year ended occurs on approval of the separate and consolidated financial statements by the Supervisory Board in the subsequent year. On termination of the appointment as a Board member either at the request of the Management Board member in question or for good cause, entitlements to the variable compensation components of LTI I shall lapse as soon as the termination of said Board appointment comes into legal effect.

Illus tr ative ca lculation LTI I

		EBIT average	180,000.000
		Variable compensation	Cap Fixed salary 2014 x 3
Dr. Wolf	0.80%	1,440,000.00	1,440,000.00
Becker	0.60%	1,080,000.00	1,116,000.00
Schmauder	0.60%	1,080,000.00	1,116,000.00
Total		3,600,000.00	3,672,000.00

Long-term incentive II (LTI II)

The so-called Economic Value Added (EVA) bonus is granted to the Management Board as a constituent element of variable Management Board compensation that focuses on positive corporate performance over the long term. LTI II creates a long-term incentive for the Management Board to make a committed contribution to the success of the company. LTI II is a bonus based on the economic value added to the ElringKlinger Group. The Management Board receives a percentage of the economic value added calculated in respect of the company. The EVA bonus corresponds to the percentage of average economic value added in the current and the two preceding financial years. The annual economic value added is calculated according to the following formula:

EVA = (EBIT x (1 – T)) – (WACC x Capital Invested)

The first component is calculated on the basis of Group earnings before interest and taxes (Group EBIT) in respect of the financial year as well as the average Group tax rate.

The second component is computed by multiplying Group WACC by capital invested. The weighted average cost of capital (WACC) is calculated with the help of the basic interest rate, the market risk premium and the beta factor. The beta factor represents the individual risk of a share in relation to the market index. It is determined as an average value of all the peer group companies. The credit spread for borrowing costs, as the premium on the risk-free basic interest rate, was derived from a peer group rating. Capital invested is calculated on the basis of Group equity plus net financial liabilities (i.e. net debt) as of January 1 of the financial year. 90% of the LTI II amount is paid out to the member of the Management Board in question in the subsequent year. Using the remaining 10% of the LTI II amount, the company purchases shares in ElringKlinger AG on behalf and for account of the Management Board member in question. The Management Board member is prohibited from accessing these shares for a period of three years. Dividends and subscription rights are at the disposal of the Management Board member. The maximum amount granted from LTI II has been set at twice the amount of fixed compensation.

If a member of the Management Board enters the service of the company during the financial year and is not in employment for the company for a full twelvemonth period, LTI II is reduced pro rata temporis.

On termination of a contract of service, the Management Board member in question may access the shares only after a period of twelve months subsequent to said termination. On termination of the appointment as a Board member either at the request of the Management Board member in question or for good cause, entitlements becoming applicable in the future in respect of the variable compensation components of LTI II shall lapse.

	Illus tr ative ca lculation LTI II
--	------------------------------------

		EVA mean value	76,800,000
			Cap Fixed salary 2014 x 2
Dr. Wolf	1.25%	960,000	960,000.00
Becker	1.00%	744,000	744,000.00
Schmauder	1.00%	744,000	744,000.00
Total		2,448,000	2,448,000.00

Fringe benefits

The taxable fringe benefits awarded to Management Board members mainly encompass the provision of a company car and mobile phone and communication devices as well as expense allowances and insurance benefits.

D&O insurance

The members of the Management Board are covered by the Group's existing directors' and officers' liability insurance (D&O insurance). The agreed deductible corresponds to the minimum deductible set out in Section 193 (2) sentence 3 AktG (German Stock Corporation Act) in the applicable version.

Retirement pension

The contracts of the Management Board members of ElringKlinger AG include commitments in respect of an annual retirement pension that is measured as a percentage of pensionable income. The entitlement to a retirement pension becomes applicable as soon as the contract of service has ended, but not before the individual has reached the age of 63 or not before the Management Board member has reached the age that entitles him to receive full statutory pension benefits as well as in the event of occupational disability. The percentage is dependent on the number of years of service as a Management Board member. Existing entitlements in respect of time spent as a salaried employee of the company are not factored in to this calculation and continue to apply. The percentage rate is 3% or 3.2% of the last monthly fixed salary prior to leaving the company in respect of each full year of service. This percentage rate can rise to a maximum of 45%.

If a member of the Management Board acts in a manner that is grossly negligent or displays gross negligence in his failure to act in specific instances and such actions or failures to act would result in significant damages to the Group, all entitlements to a retirement pension shall lapse. The same shall apply if the member of the Management Board enters the service of an entity that is in direct competition with the company.

The contracts include provisions governing surviving dependents' benefits. If a member of the Management Board dies during the period in which the employment contract is applicable or once the retirement benefits become due, his widow or dependent children shall receive a widow's or orphan's pension. The widow's pension amounts to 50% of the retirement pension of the deceased. The orphan's pension amounts to 20% to the extent that a widow's pension is payable simultaneously and 40% to the extent that no widow's pension is payable.

The widow's or orphan's pensions shall not exceed 60% of the amount to which the deceased would have been entitled if he had entered into retirement on the day of his death.

Review and adjustment of compensation

The salary components are to be reviewed by the company's Supervisory Board every two years. The next review will take place as of January 1, 2015.

The Supervisory Board has the right to grant the Management Board special remuneration for exceptional accomplishments. The Supervisory Board is also authorized to reduce the Management Board's total compensation to an appropriate level if the company's situation deteriorates to such an extent that continued payment of the former remuneration would be unreasonable.

Severance pay cap

In the event of premature termination of the contract of service without good cause any payments potentially to be agreed with the Management Board member shall not exceed the amount equivalent to two years' annual compensation ("severance pay cap") and the amount equivalent to compensation payable in respect of the remaining term of this contract of service.

In the event of a change of control any potential severance payment to be agreed by the parties shall not exceed 150% of the severance pay cap.

Loans to Management Board members

No advances or loans were granted to members of the Management Board of ElringKlinger AG in 2013 or 2014. Likewise, the company provided no guarantees or similar commitments.

Management Board compensation 2014

Management Board compensation for the 2014 financial year has been presented, as in the past, pursuant to the applicable financial reporting standards (GAS 17) as well as, for the first time, in accordance with the recommendations of the German Corporate Governance Code in the version dated June 24, 2014.

Management Board compensation 2014 pursuant to financial reporting standard GAS 17

Total Management Board compensation in accordance with Section 314 (1) no. 6a sentence 1 to 4 HGB (German Commercial Code) was allocated to the respective members of the Management Board as follows:

		Dr. Stefan Wolf	Theo Becker		Karl Schmauder		Total
in EUR k	2013	2014	2013	2014	2013	2014	2013	2014
Short-term compensation
Fixed compensation	504	526	382	392	379	390	1,265	1,308
Variable performance-related compensation	1,025	1,249	643	934	643	934	2,311	3,117
Total	1,529	1,775	1,025	1,326	1,022	1,324	3,576	4,425
Long-term compensation
Long-term performance-related compensation	0	564	0	451	0	451	0	1,467
Variable share-based compensation	158	0	143	0	143	0	444	0
Total	158	564	143	451	143	451	444	1,467
Total compensation	1,687	2,339	1,168	1,777	1,165	1,775	4,020	5,892

Pension obligations

The current service cost as well as the present value (DBO) of the pension provisions are as follows:

	Dr. Stefan Wolf		Theo Becker		Karl Schmauder		Total
in EUR k	2013	2014	2013	2014	2013	2014	2013	2014
Total compensation	167	236	121	155	104	130	392	521
Present value (DBO)	2,412	4,091	2,042	3,106	2,881	4,197	7,335	11,394

Management Board compensation pursuant to German Corporate Governance Code

The following presentation of compensation granted to and received by the Management Board members is based on the recommendations of the German Corporate Governance Code in the version dated June 24, 2014. The presentation uses the "model tables" recommended by the Code.

The following table presents benefits granted to the members of the Management Board in respect of the 2014 financial year, as disclosable under the provisions of the German Corporate Governance Code:

Benefit s granted (pursuant to GCGC )
		Dr. Stefan Wolf
in EUR k	2013	2014	Min.2014	Max.2014
Non-performance-based compensation
Fixed annual salary	467	480	480	480
Fringe benefits	37	46	46	46
Total	504	526	526	526
Performance-based compensation
One-year variable compensation	1,025	1,249	0	1,440
Multi-year variable share-based compensation 2013–2017	158	0	0	0
Multi-year variable compensation 2012–2014	0	565	0	960
Multi-year variable compensation 2013–2015	0	560	0	960
Multi-year variable compensation 2014–2016	0	552	0	960
Total	1,183	2,926	0	4,320
Service cost	167	236	236	236
Total compensation	1,854	3,688	762	5,082

Compared to the table presented pursuant to GAS 17, in addition to LTI II 2014 payable in the subsequent year, this table also lists LTI II for the years 2015 and 2016 that were granted in the reporting period as a result of the complete revision of contracts of service for the Management Board members in line with the German Corporate Governance Code. In addition, the minimum and maximum amounts achievable have been listed. The pension expense, which is presented in the form of the current service cost in the above table, has been included in total compensation.

The following table presents the allocation in/for the 2014 financial year. As regards fixed annual salary, fringe benefits, annual management bonus and LTI II 2014, the table presents the allocation for the 2014 financial year.

A llocation pursuant to GCGC

	Dr. Stefan Wolf
in EUR k	2013	2014
Non-performance-based compensation
Fixed annual salary	467	480
Fringe benefits	37	46
Total	504	526
Performance-based compensation
One-year variable compensation	1,025	1,249
Multi-year variable compensation 2012–2014	0	565
Total	1,025	1,814
Service cost	167	236
Total compensation	1,696	2,576

	Theo Becker					Karl Schmauder		Total
2013	2014	Min.2014	Max.2014	2013	2014	Min.2014	Max.2014	2013	2014	Min.2014	Max.2014
363	372	372	372	362	372	372	372	1,192	1,224	1,224	1,224
19	20	20	20	17	18	18	18	73	84	84	84
382	392	392	392	379	390	390	390	1,265	1,308	1,308	1,308
643	934	0	1,116	643	934	0	1,116	2,311	3,117	0	3,672
143	0	0	0	143	0	0	0	444	0	0
0	451	0	744	0	451	0	744	0	1,467	0	2,448
0	447	0	744	0	447	0	744	0	1,454	0	2,448
0	443	0	744	0	443	0	744	0	1,438	0	2,448
786	2,275	0	3,348	786	2,275	0	3,348	2,755	7,476	0	11,016
121	155	155	155	104	130	130	130	392	521	521
1,289	2,822	547	3,895	1,269	2,795	520	3,868	4,412	9,305	1,829	12,845

Karl Schmauder			Theo Becker			Total
	2014			2013	2014	2013	2014
	372			362	372	1,192	1,224
	20			17	18	73	84
	392			379	390	1,265	1,308
	934			643	934	2,311	3,117
	451			0	451	0	1,467
	1,385			643	1,385	2,311	4,584
	155			104	130	392	521
	1,932			1,126	1,905	3,968	6,413

Compensation structure for members of the Supervisory Board

Supervisory Board compensation is governed by the provisions set out in Section 13 of the Articles of Association of ElringKlinger AG. The compensation structure for Supervisory Board members remained unchanged compared with last year. The level of compensation is determined by the Annual General Meeting. Within this context, the most recent resolution was passed on May 16, 2013. In accordance with the requirements of the German Corporate Governance Code, compensation is divided into a fixed component and a variable component. The members of the Supervisory Board receive fixed compensation of EUR 10k for each full financial year they have served on the Supervisory Board. Additionally, the members of the Supervisory Board receive a lump-sum payment of EUR 1k for each Supervisory Board meeting they attend as well as fixed compensation of EUR 4k for membership of a committee. The variable component of compensation is based on average IFRS Group earnings before taxes in respect of the last three financial years and is calculated as 0.02% of the aforementioned amount.

The role of the Supervisory Board Chairman and that of his Deputy are taken into consideration when determining the level of compensation. The Chairman of the Supervisory Board receives two times and the Deputy Chairman one-and-a-half times the compensation paid to other Supervisory Board members. Expenses incurred by the Supervisory Board members are reimbursed to an appropriate extent. Supervisory Board members who have not held the post for a full financial year receive a pro rata amount of fixed and variable compensation.

Supervisory Board compensation 2014

In the period under review total compensation for the Supervisory Board of ElringKlinger AG was EUR 608k (2013: EUR 619k). Additionally, travel expenses totaling EUR 2k (2013: EUR 2k) were reimbursed. Compensation payable to the individual members of the Supervisory Board was as follows:

	Fixed compensation		Variable compensation		Total compensation
EUR k	2014	2013	2014	2013	2014	2013
Walter Herwarth Lechler	48	48	57	55	105	103
Markus Siegers	25	25	43	42	68	67
Gert Bauer	18	18	29	28	47	46
Armin Diez	18	18	29	28	47	46
Klaus Eberhardt	22	14	29	17	51	31
Pasquale Formisano	14	14	29	28	43	42
Dr. Margarete Haase	14	14	29	28	43	42
Karl Uwe van Husen	0	9	0	11	0	20
Dr. Thomas Klinger-Lohr	0	22	0	28	0	50
Paula Monteiro-Munz	18	18	29	28	47	46
Prof. Hans-Ulrich Sachs	13	14	29	28	42	42
Gabriele Sons	19	0	11	0	29	0
Manfred Strauß	14	14	29	28	43	42
Gerhard Wick	14	14	29	28	43	42
Total	237	242	372	377	608	619

Variable compensation presented above reflects accrued expense based on average IFRS Group earnings before taxes in the last three financial years.

Details according to Section 289 (4) and Section 315 (4) of the German Commercial Code (HGB), particularly with regard to share capital and disclosure of potential takeover obstacles

As of December 31, 2014, the share capital of ElringKlinger AG was EUR 63,359,990, divided into 63,359,990 registered shares, each furnished with one vote. The notional interest in the company's share capital is EUR 1.00 per registered share. Profits are distributed in accordance with Section 60 of the German Stock Corporation Act (Aktiengesetz – AktG) in conjunction with Section 23 no. 1 of the Articles of Association.

The Management Board is not aware of any restrictions or agreements between shareholders concerning voting rights or the transfer of shares.

The persons or entities with a direct interest in capital who, according to the details of the Stock Register, held voting rights in excess of 10% as of December 31, 2014, are as follows:

	Total of 22.12% (of which 10.01% is attributable to him
	under Section 22 of the German Securities Trading Act
Walter H. Lechler, Stuttgart	(Wertpapierhandelsgesetz – WpHG))

No shareholder is equipped with special rights constituting controlling powers.

ElringKlinger does not operate any employee profit-sharing schemes.

The number of Management Board members is determined by the Supervisory Board (Section 7 of the Articles of Association). The appointment and removal of Management Board members is performed in accordance with Sections 84 and 85 of the German Stock Corporation Act (Aktiengesetz – AktG). The Articles of Association contain no regulations that could be considered non-compliant with the provisions set out by law as regards the conditions applicable to the appointment or removal of Management Board members.

As stipulated by Section 179 of the Stock Corporation Act in conjunction with Section 20 of the Articles of Association, all amendments to the Articles of Association require a resolution of the Annual General Meeting with a majority of three-quarters.

The Management Board is authorized to buy back company shares up to a total amount of 10% of share capital existing at the date on which this resolution was passed (May 21, 2010). This authorization remains valid until May 21, 2015.

Details relating to authorized capital and the utilization of authorized capital are included in the Notes on page 162.

ElringKlinger has not entered into any agreements containing a change of control provision that would apply in the event of a takeover bid.

There are no compensation agreements with members of the Management Board or employees in the event of a takeover bid.

Corporate Governance Statement pursuant to Section 289a of the German Commercial Code

The Corporate Governance Statement pursuant to Section 289a of the German Commercial Code (Handelsgesetzbuch – HGB) is part of the combined management report and has been published on the ElringKlinger website at www.elringklinger.de/en/company/corporate-governance/declaration-of-conformity.

Report on Expected Developments

Outlook – Market and Sector

Moderate growth in global economy with strong regional divergence

Forecasts issued by the International Monetary Fund (IFM) again point to a mixed picture for the global economy in 2015. Led by the United States and markets in Asia, the world economy will continue to follow a path of subdued growth. As regards the eurozone, it would appear that the sluggish rate of growth seen here in recent years will pick up only slightly in 2015.

According to data released by the IMF, the global economy will expand marginally in 2015, with a projected rate of growth of 3.5% compared to 2014. Having said that, growth expectations were scaled back again as early as January 2015 – revised downwards by 0.3 percentage points – compared to the forecast issued in October 2014. The IMF has now taken a more skeptical view of the situation in China, Russia, the eurozone, Japan and some of the key oil-exporting countries.

The eurozone's economy should benefit from a tailwind as oil prices tumble and the euro depreciates against other currencies. However, there is hardly any chance of a fundamental economic recovery, particularly as the structural problems afflicting many countries in the eurozone remain unsolved. It remains to be seen whether the announcement by the European Central Bank (ECB) that it would buy up government bonds to counteract the possibility of deflation will in fact stimulate economic recovery.

The prospects for Germany's economy are set to improve, underpinned by the fact that a weak euro is making domestic companies involved in foreign trade more competitive in pricing terms. The German economy is also likely to be supported by the low price of oil and an ECB monetary policy that is essentially too loose in relation to Germany's economic performance. At the same time, however, as yet weak demand from the emerging markets and the euro area, but also measures aimed at rolling back recent labor market reforms, are expected to have a dampening effect.

The direction taken by the Russian economy is dependent to a large extent on when sanctions will finally be loosened and whether the painful downward spiral in oil prices can be reversed. The economy, however, is not expected to improve until 2016 at the earliest.

The US economy is likely to retain its leading position among the established economies in 2015. Declining energy prices, low unemployment and moderate inflationary trends provide a solid basis for a sustained economic upturn – even with the prospect of accelerated growth.

Brazil's economy, by contrast, continues to be burdened by a national budget that is in urgent need of repair, a situation compounded by high inflation and the slump in the price of commodities that are of vital importance to the country's income.

The outlook for Asia as a whole remains positive. China is expected to see a slight dip in the rate of growth, albeit from a comparatively high base. Having said that, measures by the government and central bank are proving successful. India, in the meantime, has recorded accelerated growth in its economy. Although Japan had, technically speaking, slipped into recession in the third quarter of 2014, the Japanese economy is expected to return to a path of slight growth in 2015 as a result of the expansive fiscal and monetary policy that remains in place there.

GDP growt h projec tions

Year-on-year change	2014	Projections 2015	Projections 2016
World	3.3%	3.5%	3.7%
Germany	1.5%	1.3%	1.5%
Eurozone	0.8%	1.2%	1.4%
USA	2.4%	3.6%	3.3%
Brazil	0.1%	0.3%	1.5%
China	7.4%	6.8%	6.3%
India	5.8%	6.3%	6.5%
Japan	0.1%	0.6%	0.8%

Source: International Monetary Fund (January 2015)

Sustained growth in global automobile markets in 2015

Despite a trend of uninterrupted growth since 2008, the global vehicle market is likely to set another new record – for the fifth time in succession – in 2015, as calculated on the basis of new registrations. According to projections, sales of cars and light trucks will rise by 2% to 4% worldwide. Global car production is expected to expand at a similar rate.

The ElringKlinger Group anticipates growth of around 2% with regard to worldwide automobile production. As regards Europe, the Group predicts that the vehicle market will grow at a relatively subdued rate in 2015, i.e. there is still unlikely to be a far-reaching recovery since the slump back in 2008. Once again, the main impetus for growth will come from China, or Asia as a whole, and North America, although it seems unlikely that 2015 will be as buoyant as the previous years when it comes to the rate of expansion. Against this backdrop, ElringKlinger anticipates slight gains in car sales for the US market and less pronounced growth of 5% to 8% for the Chinese auto market.

According to the majority of forecasts, the European car market as a whole is unlikely to see any pronounced upturn in 2015. Consumer behavior continues to be impacted by unresolved structural issues in many of the Southern European countries. Similarly, having remained stagnant for several years, the German vehicle market is only expected to generate slight growth of 1% to 2% in 2015. However, the sharp decline in fuel prices should at least help to provide some fresh impetus when it comes to car sales. Domestic vehicle manufacturers are again pinning their hopes on demand from overseas, boosted by the weaker euro. As German manufacturers are now producing more and more vehicles and engines at local facilities in Asia and North America, domestic car production in Germany – operating at record-breaking levels for many years – is only expected to expand marginally in 2015.

G r owt h projec tions for glo b al car s ales in 2015

Source: VDA, CAAM

in %

With vehicle sales reaching 16.4 million units, the US market managed to edge its way up to pre-crisis levels of 2007. The market has already grown by more than half, when compared to the low recorded in 2009. Therefore, growth expectations for 2015 are slightly more tentative. Given the solid labor market situation and a strong economic performance, the US vehicle market should be in a position to expand by 2% to 3% in 2015. Supported by the low price of oil, demand is likely to shift more and more towards SUVs and light trucks.

By contrast, the outlook for Brazil – the principal vehicle market in South America – remains opaque. After severe downturns in 2014, at least 2015 is likely to see a return to greater stability for car sales.

Led by China, Asia continues to be the growth driver for the global automobile industry. Although forecasts for 2015 point to a slight loss in forward momentum with regard to domestic demand, China looks set to extend its leading position as the world's single largest vehicle market in 2015.

The ASEAN region is also expected to enjoy continued growth in vehicle sales. On the back of a visible increase in the number of cars sold during the second half of 2014, India's vehicle market is expected to remain on track for growth in 2015. The Japanese vehicle market, by contrast, is likely to be faced with a downturn in sales, having previously benefited from the positive effects of pre-emptive purchases in 2014 in anticipation of an imminent rise in domestic VAT.

The automotive sector will remain a growth industry in the long term. The particularly buoyant emerging countries are likely to grasp an ever larger share of new car registrations. In the years leading up to 2020, the average annual rate of growth relating to car sales in Asia is expected to be in excess of 5%, compared to just 2% in Western Europe. In China, only 73 out of 1,000 people own a car. By contrast, vehicle density in Germany currently stands at 610 cars per 1,000 inhabitants.

The ElringKlinger Group was quick off the mark when it came to responding to these trends and has positioned itself as a global player. In particular, it has been strengthening its presence in Asia substantially in recent years. Including exports, the Group now generates around one-quarter of its Original Equipment revenue from sales in Asia. This share of revenue is to expand further thanks to new product ramp-ups scheduled for the coming years (cf. Locations and Markets, page 49 et seqq.).

Moderate growth in truck demand in 2015 – Europe swings towards recovery

In recent years, ElringKlinger has expanded substantially its share of revenue generated from truck components within the Original Equipment segment to 16.4% (14.8%). In terms of sales by region, the focus has been on markets in Europe and North America. Having said that, customers from Asia assumed a more prominent position within the segment for midsized and heavy trucks in 2014.

ElringKlinger will be able to benefit directly from an increase in truck production output in the established markets of Europe, the US and Japan. Following the introduction of Euro VI models, revenue per vehicle tends to be higher due to additional sales associated with lightweight plastic housing modules. With this in mind, ElringKlinger anticipates that business relating to truck components will produce above-average growth rates in the coming years.

After challenging market conditions in 2014, truck demand in Europe is expected to pick up slightly in 2015. The gradual onset of economic recovery in Western Europe should have a positive impact on the market as a whole. Against this backdrop, new truck registrations are expected to grow by a moderate 2% to 3%. By contrast, the future direction taken by truck sales in Russia is difficult to predict and will remain a risk factor in 2015 too.

The economy is expected to put in a solid performance, which in turn should drive demand for commercial vehicles. To a large extent, this aspect is again likely to dictate the momentum of growth within the North American truck market in 2015. This positive outlook is underpinned by a continued rise in orders received by manufacturers of Class 8 trucks. Due to the high prior-year comparative base, however, it is anticipated that shipments of Class 8 trucks will only rise by 3% in 2015.

The prospects for Brazil's truck market are far less favorable in terms of the future pattern of demand for trucks. In view of the country's persistently weak economic performance, it is impossible to rule out entirely that local truck sales will decline by a further 5% to 10% in 2015.

Outlook – Group

Competitive climate remains challenging despite industry consolidation

The demands made on automotive suppliers are becoming increasingly complex. At present, suppliers account for around 75% of the value creation process associated with vehicles – and this trend is rising. Furthermore, with drive systems evolving in technological terms, the industry as a whole is having to contend with additional expenditure on the development of alternative propulsion concepts from battery technology through to fuel cells. At the same time, the intensity of R&D work relating to efforts aimed at optimizing the conventional combustion engine has also become more pronounced. The industry is pushing ahead with downsizing and lightweighting in order to be able to meet an extremely challenging CO2 target set by the European Union of an average of 95 g/km by the year 2020.

Operating in this environment, ElringKlinger is regularly approached by customers with requests to reduce its prices and further improve productivity levels. Lower prices have to be offset by means of improved efficiency relating to production processes or through further automation, which in 2015 will again require an appropriate level of investment in streamlining measures.

Maintaining a level of research and development expenditure that is in excess of the industry average, ElringKlinger looks set to secure unique selling points relating to its products and manufacturing processes not only in 2015 but also in the years to come. Taking into account the capitalized research and development expenses, the Group again plans to operate with an R&D ratio of around 5% in the coming years.

Growth target underpinned by higher order intake

Looking ahead to 2015, the Group anticipates further organic revenue growth and an increase in adjusted earnings before interest and taxes.

This outlook is underpinned by the volume of incoming orders already recorded by ElringKlinger. As of December 31, 2014, the volume of orders held throughout the Group amounted to EUR 688.2 (595.4) million. This represents an increase of 15.6%.

Order intake rose by 10.5% year on year to EUR 1,418.6 (1,284.4) million in 2014 as a whole.

In the fourth quarter of 2014 alone, order intake increased to EUR 377.1 (298.3) million, i.e. 26.4% up on the figure recorded at the end of the final quarter of the previous year.

Group-wide cost streamlining

The ElringKlinger Group will again be making targeted investments in further automation within the area of production and will optimize existing manufacturing processes by introducing new intelligent process engineering methods for the purpose of cutting costs. The aim is to improve efficiency by at least 3.0% in 2015. In the coming years, around a third of the expenditure earmarked for investments will again be directed at streamlining measures.

Material and staff costs remain the largest expense items within the Group. Based on the supply contracts already concluded, prices for the majority of commodities and input products procured by ElringKlinger should remain largely stable. However, some of the commodities required by the Group, such as aluminum, may well become more expensive in future. If the price of oil remains at the much lower level seen towards the end of 2014, prices for polyamide-based granules used in the Plastic Housing Modules/Elastomer Technology division may dip slightly over the course of 2015. By contrast, it cannot be ruled out entirely that prices for specific materials, such as alloy surcharges for high-grade steels, will rise over the course of 2015. Sales prices associated with waste material from discarded cut-outs, which is sold by ElringKlinger for recycling, are expected to remain largely unchanged.

As the ElringKlinger Group continues to employ almost half of its workforce at sites in Germany, the direction taken by staff costs within the Group is heavily dependent on the extent of the collective bargaining agreement negotiated for the German metal-working industry. As from May 1, 2015, wages and salaries will rise yet again, up by 3.4%, with regard to those members of the workforce employed at the German sites of the ElringKlinger Group and covered by the aforementioned collective agreement. Additionally, costs will be pushed up by one-off payments of EUR 150 per employee agreed for the period of January to March 2015. This rise in staff costs will have to be offset by corresponding streamlining measures and cost savings.

Considering the level of revenue growth planned for 2015 and factoring in the first-time consolidation of M&W Manufacturing Company, Inc., Warren/USA (M&W), the Group anticipates a further increase in the number of people employed. Personnel levels will be expanded primarily at the international subsidiaries. However, the aim is to keep the percentage rate of human resources upsizing below that of revenue growth.

Administration costs are to be reined in by further centralizing administrative functions within the Group as well as by optimizing processes. In percentage terms, the increase attributable to administration cost is to be less pronounced than the rate of revenue growth at Group level.

Further revenue and earnings growth planned for 2015

ElringKlinger anticipates that global automobile production will expand by around 2% in 2015. Based on this assumption, the Group is targeting organic sales revenue growth of 5% to 7%, i.e. the aim is to grow well in excess of the market as a whole. Additionally, the consolidation of recently acquired M&W (in future "ElringKlinger Automotive Manufacturing Inc.") will contribute around EUR 30 million to Group revenue in the financial year as a whole.

Full consolidation of M&W as from February 2015 will initially have a slightly negative effect on the Group EBIT margin. Due to the greater relevance of acquired entities, adjusted EBIT will in future be presented before the effects of purchase price allocation. Adjusted for non-recurring items, EBIT before purchase price allocation is expected to be between EUR 170 and 180 million in 2015.

Due to current demand patterns and the as yet insufficient degree of capacity utilization in production, the E-Mobility division is not expected to see a fundamental improvement in its earnings performance in 2015. Given the plunge in fuel prices, plug-in hybrids and pure electric vehicles are less appealing to consumers when compared to cars equipped with conventional combustion engines. This situation has, in addition, made the process of predicting the volume of components requested by customers as part of their scheduling more difficult.

This is being counteracted by the company in the form of structural measures aimed at reducing costs in the E-Mobility division. In the medium term, the ElringKlinger Group expects to see a continued increase in the volume of products requested as part of customer scheduling – driven by much stricter CO2 limits as from 2020. This will help to improve earnings performance in the E-Mobility division in the medium term.

The Group also anticipates further growth in earnings before taxes. Due to the influences of foreign exchange movements, this figure is subject to more noticeable fluctuations than EBIT. From a current perspective, ElringKlinger anticipates that earnings before taxes and purchase price allocation, adjusted for exceptional items, will grow at a slightly less pronounced rate than EBIT in percentage terms, depending on the future direction taken by foreign exchange rates.

Group targets higher ROCE

Return on capital employed (ROCE) at Group level is expected to improve in 2015. Non-current assets will expand further in response to growth and, most likely, due to the effects of foreign currencies. At the same time, however, the planned increase in adjusted Group EBIT as well as improvements envisaged for working capital will have a positive impact on ROCE. In total, the Group expects to improve ROCE slightly compared to the figure recorded in the 2014 financial year.

Sustained growth at parent company ElringKlinger AG

In 2014, ElringKlinger AG contributed a share of 37.4% (39.1%) to Group sales revenue. This percentage share contributed by the parent company is likely to decline in view of the more pronounced rate of growth achieved by the subsidiaries. Based on the current volume of orders, revenue is expected to grow by around 5% in 2015.

ElringKlinger AG is supported by a significant yearon-year increase in order backlog when it comes to achieving its targeted sales revenue. As of December 31, 2014, order backlog was up 9.5% on the comparative prior-year figure at EUR 308.2 (281.4) million. As regards order intake, ElringKlinger AG recorded an increase of 5.9% to EUR 597.7 (564.4) million.

The steady rise in order intake is a reflection of structural growth among many of the company's product groups as well as the general recovery in demand within the Western European car market. Therefore, revenue growth projected for ElringKlinger AG in 2015 will be attributable largely to the Original Equipment segment.

Compared to the substantial investments of EUR 53.5 million made in property, plant and equipment (including tools) and intangible assets in 2014, capital expenditure is expected to be slightly lower in 2015.

The sites operated by ElringKlinger AG are to receive investments of around EUR 50.0 (53.5) million in total over the course of 2015. The focus in 2015 will also be on improving the company's infrastructure. Among the investments planned are the construction of a new warehouse, a new administration building and a production facility at the site of ElringKlinger Logistic Service GmbH, Ergenzingen/Germany, as well as an additional logistics building and a new staff restaurant at the site in Dettingen/Erms/Germany. In 2015, a new administration building is to be erected at the site in Gelting/Germany.

An amount of around EUR 15.0 million has been earmarked for investments in new machinery and assembly lines in the Specialty Gaskets, Cylinder-head Gaskets and Plastic Housing Modules/Elastomer Technology divisions. These investments are aimed primarily at expanding existing production capacity.

Planned payments relating to investments are to be funded primarily from cash flow from operating activities and, in part, through lines of credit. If required, undrawn lines of credit totaling EUR 61.5 million are available to ElringKlinger AG to finance further growth.

Despite higher wage levels, ElringKlinger AG anticipates that income from ordinary activities and earnings before interest and taxes (EBIT) in 2015 will grow at a slightly faster rate compared to revenue growth targeted by the company. This is to be driven mainly by new product ramp-ups, efficiency gains in production and economies of scale. Correspondingly, ElringKlinger AG is expected to see an improvement in the return on capital employed (ROCE). In 2015, ROCE is to improve by around one percentage point compared to the figure recorded in the 2014 financial year (9.7%).

Group segment outlook: structural growth and new products in Original Equipment remain principal revenue drivers

In 2014, 82.2% of sales revenue generated by the Group as well as 72.2% of EBIT were attributable to the Original Equipment segment. In 2015, too, the lion's share of projected revenue and earnings growth within the ElringKlinger Group will be contributed by Original Equipment. It is likely to remain the segment with the highest growth rate in percentage terms.

Based on ElringKlinger's projection of a 2% increase in global vehicle production, structural growth in product groups such as turbocharger gaskets, control plates for automatic transmissions, shielding components and lightweight plastic modules will continue to be the most important supportive pillar for revenue increase planned for the Original Equipment segment. Additionally, the introduction of new products, e.g. new lightweight beams in a hybrid design, will contribute significantly to growth within this segment.

In total, ElringKlinger anticipates that Original Equipment will generate revenue growth of 5% to 7%.

Engineered Plastics segment

ElringKlinger anticipates that it will be able to achieve revenue growth comparable to the Group average, i.e. 5% to 7%, within the Engineered Plastics segment.

The company has seen a further upturn in demand with regard to applications in the automotive sector but also in the area of medical devices. In 2015, growth will be driven by more expansive unit sales of sealing rings and guides for diesel injection systems as well as turbocharger gaskets, complemented by newly launched plastic inserts for heat exchangers used in large power plants. Production ramp-ups in China and India will also generate forward momentum in sales. Efforts to develop the North American market, however, will necessitate additional upfront expenditure in the area of sales and development, which will weigh on earnings performance.

In total, EBIT within the Engineered Plastics segment is likely to develop in line with revenue growth.

International expansion of Aftermarket business

The Aftermarket segment will see a further expansion not only of its product range in 2015. Having succeeded in securing access to several major wholesale cooperations – e.g. in France, Europe's second-largest market for spare parts – ElringKlinger will also be looking to strengthen its sales activities in Western Europe. Demand in this region should benefit from a more buoyant economy and gradual improvements in the employment market. In recent years, the difficult economic situation in Europe had prompted many car owners to postpone vehicle servicing and repair work for as long as possible. This had an adverse effect on the sales situation within the Aftermarket segment.

In Germany, ElringKlinger may have the opportunity to reap the rewards of its strong brand positioning and capture an additional share of the aftermarket wholesale sector.

In Eastern Europe, by contrast, the best ElringKlinger can hope for in 2015 is stable growth, having achieved record sales on multiple occasions in recent years. Due to ongoing political uncertainty and the significant depreciation of the local currencies against both the euro and the US dollar, business in Russia and Ukraine carries the risk of declining sales revenue. By contrast, the increasing level of motorization and the growing pool of used German-made vehicles continue to provide a solid foundation for expansion within the Aftermarket segment in other Eastern European markets.

As a region, the Middle East and Africa – feeling the effects of numerous political crises and the slump in oil prices – also poses a risk. Viewed from the current perspective, ElringKlinger only expects to achieve slight gains in this region.

To date, sales revenues generated in the North American and Chinese markets have in each case been towards the lower end of the single-digit million euro range. The ElringKlinger Group is determined to profit from its leading position in the OE business and pursue a route aimed at propelling its retrofit business forward in the world's two single largest car markets. In the medium term, ElringKlinger sees revenue potential in the mid-double-digit million euro range in both markets.

On the whole, the Aftermarket segment is expected to generate revenue growth of at least 5% in 2015. EBIT is to increase at a similar rate in percentage terms.

Business model tailored to long-term growth

The ElringKlinger Group is favorably placed for 2015 and beyond, having positioned itself in technology niches undergoing structural growth and benefiting from the introduction of many new products. Additionally, it has established a very solid vantage point for sustained growth in the emerging economies. Based on the assumption that global automobile production will continue to expand at a moderate rate, ElringKlinger anticipates that it will be in a position to lift Group sales by 5% to 7% annually. In this context, adjusted earnings before interest and taxes are to increase, as much as possible, at a faster rate in percentage terms than sales revenue.

Investment ratio target of between 7% and 9%

In recent years the ElringKlinger Group has been investing substantial funds in the construction of several new production plants, particularly in Asia, as well as in major projects such as the logistics centre in Dettingen/Erms/Germany.

As a result of these measures, the Group's investment ratio (payments for property, plant and equipment and investment property relative to Group sales revenue) reached peaks in excess of 15%.

In 2015 and the subsequent years, payments in connection with investing activities is to be scaled back again to the Group's long-term investment level, which tends to be in the region of 7% to 9% of Group sales revenue. Additionally, in 2015 a non-recurring amount estimated at around EUR 10 million is likely to be invested in production technology in connection with the takeover of M&W Manufacturing Company, Inc., Warren/USA.

In Germany, close to EUR 12.0 million is to be invested by ElringKlinger Kunststofftechnik GmbH during 2015 in an additional plant in Bietigheim-Bissingen/ Germany. As from 2016, new projects in the area of automotive and general industry applications in particular are to lead to a boost in growth within the Engineered Plastics segment.

Further growth in the pipeline for North America and Asia

In the years ahead, the highest growth rates in terms of global car sales are expected to occur in the Asian markets but also within the NAFTA region. With this in mind, the ElringKlinger Group will focus most of its investment budget earmarked for 2015 on Asia and North America.

The emphasis of planned capital expenditure in 2015 will again be on the Original Equipment segment. The Plastic Housing Modules/Elastomer Technology and Specialty Gaskets divisions in particular will have to coordinate a large number of product ramp-ups in 2015, which will require appropriate investments in machinery.

Following its successful penetration of the market for lightweight body and chassis components, ElringKlinger will move forward in 2015 towards serial production of new combined metal-plastic structural parts for frontend and cockpit applications. The majority of investments required for these activities were made in the 2014 financial year. However, specific investment tranches for equipment at the sites in Suzhou/China as well as Leamington/Canada will be paid out in 2015.

Growth within the automotive industry will be driven primarily by Asia in the coming years. With this in mind, business expansion in Asia will remain one of the focal points of investment spending in 2015. NAFTA will become increasingly attractive not only as a market but also as a production site, considering the lower cost of energy in that region. The ElringKlinger Group will thus direct a large proportion of investments planned for the 2015 financial year at the two aforementioned regions. First and foremost, these funds will be used to expand the size of plants and purchase new machinery and production equipment for product ramp-ups at the Asian and North American sites operated by the Group.

The issue of lightweight construction is also attracting greater interest among customers in China, which is having a favorable impact on orders. ElringKlinger China Ltd., Suzhou/China, is building a new plant primarily for newly introduced products in the Plastic Housing Modules/Elastomer Technology division as well as the lightweight beams mentioned earlier. A sum of around EUR 15 million has been budgeted for this project. The Chinese subsidiary in Changchun ElringKlinger Ltd., Changchun, in the north of China, is expanding its operations on its existing premises in preparation for planned sales growth. Investments earmarked for these measures in 2015 will be at the upper end of the single-digit million range. Elsewhere, additional production machinery is to be installed at the new site in Gumi/ South Korea, as well as at ElringKlinger Marusan Corporation, Tokyo/Japan.

Among the larger investment projects is the construction of a new plant in Turkey. ElringKlinger TR Otomotiv Sanayi ve Ticaret A.S., Bursa, will invest around EUR 6 million in a new production and administration building so that it can accommodate new purchase orders for shielding products and specialty gaskets.

Sufficient scope for financing organic growth and acquisitions

The anticipated inflow of funds attributable to internal financing in 2015 is likely to exceed the projected payments relating to investments in property, plant and equipment and investment property. Thus, financing of the Group's future organic growth is safeguarded, as is funding of development activities relating to new technologies.

As regards the interim financing of its planned dividend payout in the first half of 2015 and the funding of acquisitions, ElringKlinger also intends to access external sources of capital.

ElringKlinger monitors the market on a continual basis for the purpose of identifying takeover opportunities that complement the Group from a technological perspective. If required, the Group is in a position to access lines of credit of around EUR 90.0 million, as agreed with several banks.

Thus, if favorable opportunities were to arise as a result of ongoing consolidation within the industry, ElringKlinger would have sufficient financial room for maneuver as regards acquisitions of the scope transacted by the Group to date.

Level of debt largely unchanged

In 2015, a sum of around EUR 35 million is likely to be required to finance the purchase price of the USbased entity M&W acquired in February 2015 and investments planned for the consolidation of local sites and the expansion of production capacity. Additionally, as regards entry into the market for lightweight components used in vehicle bodies some of the payments relating to investments planned for production machinery and tools in North America and China will be made in 2015.

Insofar as no capital is required for further corporate acquisitions, the Group anticipates that it will not – or only moderately – expand its gross debt (current and non-current financial liabilities), which rose to EUR 417.0 (358.2) million in 2014.

Therefore, at the end of 2015 the Group's net financial debt (financial liabilities less cash and cash equivalents) should be at a level largely comparable to that recorded at the end of 2014 (EUR 348.3 million).

Excluding potential acquisitions the ElringKlinger Group plans to gradually scale back net financial debt, before acquisitions, in the subsequent years.

Based on its current financial performance, financial position and cash flows, the ElringKlinger Group can consider itself favorably positioned to achieve the targets it has set itself.

Events after the Reporting Period

After the reporting period, ElringKlinger acquired 100% of the interests in US automotive supplier M&W Manufacturing Company, Inc., Warren/USA (M&W) from the former owner family. The sale to ElringKlinger AG was closed on February 12, 2015. The entity is to be included in the scope of consolidation of the ElringKlinger Group retrospectively as of February 1, 2015. It will be renamed ElringKlinger Automotive Manufacturing Inc.

In making the acquisition, ElringKlinger's Specialty Gaskets division has strengthened its regional presence in North America and its production activities in the US market. Together with US market leader M&W, ElringKlinger has advanced to become the premier supplier of transmission spacer plates. Operating from its US production base, M&W supplies not only the North American market but also, to an increasing extent, customers in China.

Expressed in euros, the target for fiscal 2015 is to generate sales revenue totaling around EUR 30 million, with a projected operating margin (adjusted EBIT before purchase price allocation) in high single figures.

Beyond this, no other significant events requiring disclosure occurred after the reporting period.

Dettingen/Erms, March 23, 2015 The Management Board

Chairman/CEO

Dr. Stefan Wolf Theo Becker Karl Schmauder

03

Consolidated Financial Statements of ElringKlinger AG for the Financial Year 2014

• 124 Group Income Statement
• 125 Group Statement of Comprehensive Income
• 126 Group Statement of Financial Position
• 128 Group Statement of Changes in Equity

• 130 Group Statement of Cash Flows

• 132 Notes to the Consolidated Financial Statements

• 132 General information
• 135 Schedule of Shareholdings and Scope of Consolidation
• 146 Accounting policies
• 152 Individual disclosures on the Group Income Statement
• 157 Disclosures on the Group Statement of Financial Position
• 168 Hedging policy and financial instruments
• 176 Notes to the Statement of Cash Flows
• 176 Segment reporting
• 178 Other disclosures
• 181 Corporate bodies
• 184 Declaration of compliance with the German Corporate Governance Code
• 185 Audit Opinion
• 186 Responsibility Statement

Group Income Statement

of ElringKlinger AG, January 1 to December 31, 2014

EUR k	Note	2014	2013*
Sales revenue	(1)	1,325,834	1,150,083
Cost of sales	(2)	-967,352	-824,473
Gross profit		358,482	325,610
Selling expenses	(3)	-93,418	-81,470
General and administrative expenses	(4)	-61,449	-45,998
Research and development costs	(5)	-57,253	-56,708
Other operating income	(6)	18,727	32,993
Other operating expenses	(7)	-11,086	-10,271
Operating result		154,003	164,156
Finance income		18,492	9,358
Finance costs		-19,401	-24,614
Net finance costs	(8)	-909	-15,256
Earnings before taxes		153,094	148,900
Income tax expense	(9)	-42,495	-37,697
Net income		110,599	111,203
of which: attributable to non-controlling interests	(21)	4,851	5,785
of which: attributable to shareholders of ElringKlinger AG	(21)	105,748	105,418
Basic and diluted earnings per share in EUR	(10)	1.67	1.66

Group Statement of Comprehensive Income

of ElringKlinger AG, January 1 to December 31, 2014

EUR k	Note	2014	2013*
Net income		110,599	111,203
Currency translation difference		17,916	-15,583
Currency translation losses attributable to investments accounted for at equity		0	-4,726
Gains and losses that can be reclassified to the income statement in future periods		17,916	-20,309
Remeasurement of defined benefit plans, net		-21,852	5,991
Gains and losses that cannot be reclassified to the income statement in future periods		-21,852	5,991
Other comprehensive income after taxes		-3,936	-14,318
Total comprehensive income		106,663	96,885
of which: attributable to non-controlling interests		5,301	5,141
of which: attributable to shareholders of ElringKlinger AG		101,362	91,744

Group Statement of Financial Position

of ElringKlinger AG, as at December 31, 2014

EUR k	Note	Dec. 31, 2014	Dec. 31, 2013	Jan. 1, 2013*
Assets
Intangible assets	(11)	185,343	176,710	133,061
Property, plant and equipment	(12)	707,980	612,108	557,266
Investment property	(13)	11,712	12,747	13,329
Financial assets	(14)	1,728	1,980	1,615
Investments accounted for using the equity method	(15)	0	0	25,951
Non-current income tax assets	(16)	1,553	2,189	2,830
Other non-current assets	(16)	6,568	3,001	2,619
Deferred tax assets	(9)	8,782	10,751*	29,932
Non-current assets		923,666	819,486	766,603
Inventories	(17)	290,098	257,387	227,313
Trade receivables	(18)	245,084	207,453	181,331
Current income tax assets	(18)	4,294	3,986	2,208
Other current assets	(18)	26,944	40,820*	39,082
Cash and cash equivalents	(19)	68,733	62,949	46,475
Current assets		635,153	572,595	496,409
Non-current assets held for sale	(20)	0	0	249
		1,558,819	1,392,081	1,263,261

EUR k	Note	Dec. 31, 2014	Dec. 31, 2013	Jan. 1, 2013*
Liabilities and equity
Share capital		63,360	63,360	63,360
Capital reserves		118,238	118,238	118,238
Revenue reserves		572,205	498,137*	421,231
Other reserves		-10,283	-5,897	4,911
Equity attributable to the shareholders of Elring­Klinger AG	(21)	743,520	673,838	607,740
Non-controlling interest in equity	(22)	31,674	27,507	29,825
Equity		775,194	701,345	637,565
Provisions for pensions	(23)	124,090	92,323	98,531
Non-current provisions	(24)	16,638	10,345	11,066
Non-current financial liabilities	(25)	268,508	237,346	135,370
Deferred tax liabilities	(9)	23,930	32,528	46,638
Other non-current liabilities	(26)	6,219	6,504	10,145
Non-current liabilities		439,385	379,046	301,750
Current provisions	(24)	16,469	19,472	18,059
Trade payables	(26)	68,753	68,574	56,887
Current financial liabilities	(25)	148,532	120,883	182,487
Tax payable	(9)	16,773	14,696	11,116
Other current liabilities	(26)	93,713	88,065	55,397
Current liabilities		344,240	311,690	323,946
		1,558,819	1,392,081	1,263,261

Group Statement of Changes in Equity

of ElringKlinger AG, January 1 to December 31, 2014

	Share	Capital	Revenue
EUR k	capital	reserves	reserves*
Balance as of Dec. 31, 2012	63,360	118,238	424,440
Adjustments for IAS 8, IFRS 11*			-3,209
Balance as of Jan. 1, 2013	63,360	118,238	421,231
Dividend distribution			-28,512
Change in scope of consolidated financial statement
Puchase of shares from controlling interests
Total comprehensive income			105,418
Net income			105,418
Other comprehensive income*
Balance as of Dec. 31, 2013	63,360	118,238	498,137
Balance as of Dec. 31, 2013/Balance as of Jan. 1, 2014	63,360	118,238	498,137
Dividend distribution			-31,680
Change in scope of consolidated financial statement
Total comprehensive income			105,748
Net income			105,748
Other comprehensive income
Balance as of Dec. 31, 2014	63,360	118,238	572,205

Group equity*	Non-controlling interests in equity*	Equity attributable to the shareholders of ­Elring­Klinger AG*	Currency translation differences*	Equity impact of controlling interests	Remeasurement of defined benefit plans*
642,217	31,268	610,949	27,747	-833	-22,003
-4,652	-1,443	-3,209
637,565	29,825	607,740	27,747	-833	-22,003
-29,650	-1,138	-28,512
2,440	2,440
-5,895	-8,761	2,866		2,866
96,885	5,141	91,744	-19,688		6,014
111,203	5,785	105,418
-14,318	-644	-13,674	-19,688		6,014
701,345	27,507	673,838	8,059	2,033	-15,989
701,345	27,507	673,838	8,059	2,033	-15,989
-32,768	-1,088	-31,680
-46	-46
106,663	5,301	101,362	16,974		-21,360
110,599	4,851	105,748
-3,936	450	-4,386	16,974		-21,360
775,194	31,674	743,520	25,033	2,033	-37,349

Other reserves

Group Statement of Cash Flows

of ElringKlinger AG, January 1 to December 31, 2014

EUR k	Note	2014	2013*
Earnings before taxes		153,094	148,900
Depreciation/amortization (less write-ups) of non-current assets	(11) - (14)	79,227	74,394
Net interest	(8)	10,937	11,167
Change in provisions		1,290	-1,159
Gains/losses on disposal of non-current assets		463	-475
Profit/loss from investment accounted for using the equity method		0	-269
Distributions from investment accounted for using the equity method		0	40
Change in inventories, trade receivables and other assets not resulting from financing and investing activities		-39,725	-49,348
Change in trade payables and other liabilities not resulting from financing and investing activities		8,939	-4,506
Income taxes paid	(9)	-42,508	-37,213
Interest paid		-8,433	-8,468
Interest received		375	313
Other non-cash expenses		-13,723	-14,345
Net cash from operating activities		149,936	119,031
Proceeds from disposals of property, plant and equipment,
intangible assets and investment property		543	2,599
Proceeds from disposals of financial assets		806	791
Payments for investments in intangible assets	(11)	-16,115	-11,626
Payments for investments in property, plant and equipment and investment property	(12), (13)	-147,017	-114,021
Payments for investments in financial assets	(14)	-498	-971
Payments for the acquisition of subsidiaries, less cash		-5,708	-3,151
Net cash from investing activities		-167,989	-126,379
Payments to non-controlling interests for the purchase of shares		0	-5,896
Dividends paid to shareholders and to non-controlling interests		-32,768	-29,650
Proceeds from the addition of financial liabilities	(25)	99,783	151,947
Payments from the repayment of financial liabilities	(25)	-46,934	-101,690
Net cash from financing activities		20,081	14,711
Changes in cash		2,028	7,363
Effects of currency exchange rates on cash		3,756	-1,568
Cash inflow from acquisitions		0	10,679
Cash at beginning of period	(19)	62,949	46,475
Cash at end of period	(19)	68,733	62,949

Notes to the Consolidated Financial Statements of ElringKlinger AG for the 2014 Financial Year

General information

As parent company of the Group, ElringKlinger AG is filed in the commercial register at the local court of Stuttgart (Amtsgericht) under the number HRB 361242. The company is domiciled in Dettingen/ Erms (Germany). The address is ElringKlinger AG, Max-Eyth-Str. 2, 72581 Dettingen/Erms. The articles of incorporation are dated June 13, 2012. The registered company name is ElringKlinger AG.

The financial year is the calendar year.

The object of ElringKlinger AG and its subsidiaries (the "ElringKlinger Group") is the development, manufacture and distribution of technical and chemical products, in particular of gaskets, sealing materials, plastic products and modules for the automotive sector and for the manufacturing industry in general. The company also offers services relating to the technology used in its products. The corporate object also encompasses the administration and commercial exploitation of landed property.

Accounting principles

The consolidated financial statements of ElringKlinger AG as of December 31, 2014, have been prepared in accordance with the International Financial Reporting Standards (IFRSs) approved by the International Accounting Standards Board (IASB) as adopted by the European Union (EU), the interpretations of the International Financial Reporting Interpretations Committee (IFRIC) and the supplementary commercial law regulations pursuant to § 315a (1) HGB. All IASs, IFRSs and IFRICs mandatory for the financial year 2014 have been observed.

On March 23, 2015, the Management Board of ElringKlinger AG submitted the consolidated financial statements to the Supervisory Board, which will meet on March 25, 2015, for approval.

The consolidated financial statements have been prepared in euros. Unless otherwise stated, all amounts are in thousand EUR (EUR k).

The income statement was prepared in accordance with the cost of sales method. In order to enhance the clarity of presentation, various items in the consolidated statement of financial position and in the consolidated income statement have been combined.

The following regulations and amendments to existing regulations were applied for the financial year 2014 for the first time:

IFRS 10 Consolidated Financial Statements

IFRS 10 replaces the consolidation principles in IAS 27 and SIC-12; the provisions applicable to separate financial statements remain in IAS 27. The objective of IFRS 10 is to define the term "control" for all entities uniformly. The standard provides application guidance for this purpose.

IFRS 11 Joint Arrangements

The standard supersedes IAS 31 Interests in Joint Ventures. IFRS 11 abolishes the previous option to use proportionate consolidation for joint ventures.

IFRS 12 Disclosure of Interests in Other Entities

IFRS 12 brings together the revised disclosure requirements for an entity's investments in subsidiaries, joint arrangements and associated companies in one standard.

IAS 28 Investments in Associates and Joint Ventures

IAS 28 Investments in Associates and Joint Ventures replaces the previous version Investments in Associates. The amended standard prescribes the financial reporting for investments in associates and the requirements for the application of the equity method when accounting for investments in associates and joint ventures.

IFRS 10, 11, 12 and the subsequent amendments to IAS 27 and IAS 28 did not have any significant effects at the ElringKlinger Group in the financial year 2014, as the entities that have been included by proportionate consolidation since the end of the financial year 2013 are included in the consolidated financial statements in the course of full consolidation. However, the retroactive application of the amended standards made it necessary to disclose the restated comparative figures from the prior period.

The entity ElringKlinger Marusan Corporation, Tokyo, Japan, which was included in the consolidated financial statements by proportionate consolidation in 2013, was fully consolidated for the first time as of December 31, 2013 due to an amended contractual arrangement on the assumption of control. However, the retroactive application of IFRS 11 will make it necessary to disclose the restated comparative figures from the prior period. Prior to December 31, 2013, the joint venture was therefore disclosed under investments accounted for using the equity method. The effects of the transition to IFRS 11 are presented in the section "Restatement of the previous year's figures".

IFRS 10, IFRS 12 and IAS 27 Investment Entities

This amendment exempts entities that satisfy the definition criteria of an investment entity pursuant to IFRS 10 from the consolidation duty. Investment entities must instead measure the shares in their subsidiaries at fair value through profit and loss. This amendment is not relevant for the Group as ElringKlinger AG does not satisfy the definition criteria of an investment entity pursuant to IFRS 10.

IAS 32 Financial Instruments: Offsetting Financial Assets and Financial Liabilities

The amendments are intended to address existing inconsistencies by providing supplemental guidance. However, the current underlying provisions for offsetting financial instruments will remain in force. The amendments did not affect the accounting policies applied by the Group.

IAS 39 Novation of Derivatives and Continuation of Hedge Accounting

The amendment to IAS 39 permits under certain circumstances the continuation of hedge accounting when derivatives designated as hedging instruments are transferred to a central clearing agency as a consequence of laws or regulations (novation). Since no hedge accounting is applied in the ElringKlinger Group, the amendment does not affect the consolidated financial statements.

IFRIC 21 Levies

IFRIC 21 deals with the issue of accounting for public levies which do not represent income taxes within the meaning of IAS 12 and clarifies in particular when obligations to pay such levies are recognized as liabilities in the financial statements. The adoption of this interpretation did not have any significant effects on the consolidated financial statements of the ElringKlinger Group.

The following standards, which have already been adopted by the EU, are not yet mandatory for the financial year 2014 and have not yet been applied by the ElringKlinger Group:

IAS 19 Employee Benefits – Employee Contributions

The amendment allows contributions made by employees or third parties to defined benefit plans to be recorded as a reduction of current service cost in the period in which the related service is rendered by the employee provided the contributions are independent of the employee's length of service. If, by contrast, an employee's contribution depends on the number of years of service, the projected unit credit method must be used. The amendments are effective for financial years beginning on or after July 1, 2014. Earlier voluntary adoption is permitted. This did not result in any changes for the ElringKlinger-Group.

Annual Improvements to IFRSs (2010 to 2012)

The pronouncement relates to smaller amendments to the standards IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 24 and IAS 38. They are mandatory for the first time in the financial year beginning on or after July 1, 2014. No significant impact is expected.

Annual Improvements to IFRSs (2011 to 2013)

The pronouncement relates to smaller amendments to the standards IFRS 1, IFRS 3, IFRS 13 and IAS 40. They are mandatory for the first time in the financial year beginning on or after July 1, 2014. No significant effects are expected on the net assets and financial position.

The following standards, which have already been adopted by the EU but are not yet mandatory for the financial year 2014, have not yet been applied by the ElringKlinger Group:

IFRS 9 Financial Instruments

The IASB completed its project to replace IAS 39 Financial Instruments: Recognition and Measurement in July 2014 by publishing the final version of IFRS 9 Financial Instruments. In the final version of IFRS 9, accounting for the classification and measurement of financial instruments, impairment of financial assets, and hedge accounting in particular were revised completely. IFRS 9 is to be applied for the first time for financial years beginning on or after January 1, 2018. The first-time application is to be performed retrospectively, although there are various simplification options available. Earlier voluntary adoption of the standard is permitted. The full effects of the new standard on the ElringKlinger Group are still currently being analyzed.

IFRS 10, IFRS 12 and IAS 28 Investment Entities – Application of the Consolidation Exception

In December 2014, the IASB published an amendment in order to clarify questions in relation to investment entities applying the consolidation exception. The standard is applicable from January 1, 2016; earlier voluntary adoption is permitted. These amendments are not relevant for the Group as ElringKlinger AG does not satisfy the definition criteria of an investment entity pursuant to IFRS 10.

IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

In September 2014, the IASB published amendments to IFRS 10 and IAS 28 which address a known inconsistency between the two standards with regard to the accounting for the sale or contribution of assets from an investor to its associate or its joint venture. If the transaction pertains to a business as defined in IFRS 3, the resulting gains or losses are recognized in full in the investor's financial statements. However, if the transaction pertains to the disposal of assets that do not constitute a business, the resulting gains or losses are recognized in the entity's financial statements only to the extent of unrelated investors' interests in the associate or joint venture. The amendments are effective for reporting periods beginning on or after January 1, 2016. Early adoption is permitted. The amendments are not expected to have any effect on the consolidated financial statements of ElringKlinger AG.

IFRS 11: Joint Arrangements – Acquisition of Shares in a Joint Operation

The amendment to IFRS 11 clarifies that acquisitions of or increases in interests in joint operations in which the activity constitutes a business as defined by IFRS 3, require the acquirer to apply all of the principles on business combinations accounting in IFRS 3 and other applicable IFRSs except for those principles that conflict with the guidance in IFRS 11. The amendments do not apply if the reporting company and the parties to the joint arrangement are under common control of the same ultimate controlling entity. The new regulations apply prospectively to acquisitions of interests performed in reporting periods beginning on or after January 1, 2016. Earlier voluntary adoption is permitted. ElringKlinger does not currently hold any interests in joint operations.

IFRS 15 Revenue from Contracts with Customers

The new standard was published by the IASB in May 2014 and aims to bring together the large number of revenue recognition requirements previously contained in a variety of standards and to define uniform basic principles that are applicable to all industries and for all categories of revenue transaction. IFRS 15 specifies when and in what amount revenue is recognized. As a basic principle, revenue is recognized to depict the transfer of goods and services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. IFRS 15 includes extended guidelines on multi-element transactions as well as new provisions for the treatment of service contracts and amendments to contracts. In addition, the new standard encourages entities to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. IFRS 15 replaces IAS 11 and IAS 18 as well as the associated interpretations. The new regulations are effective for the first time for financial years beginning on or after January 1, 2017. Earlier voluntary adoption is permitted. When transitioning to the new standard, entities can choose between a totally retrospective approach (with optional practical expedients) and a modified retrospective approach. The latter permits initial application of the standard from the current reporting period onward without adjusting the comparative periods but requires additional disclosures. The full effects of the new standard on the ElringKlinger Group's accounting are still currently being analyzed.

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

In these amendments, the IASB provides additional guidance on acceptable methods of depreciation and amortization. According to the amendments, a depreciation method of property, plant and equipment that is based on revenue is not appropriate. An amortization method of intangible assets that is based on revenue is only appropriate in limited circumstances. The amendments are effective for financial years beginning on or after January 1, 2016. Earlier voluntary adoption of the amendments is permitted. The full effects of the new guidelines on the accounting methods applied by ElringKlinger Group are still currently being analyzed.

Annual improvements to IFRSs (2012 to 2014)

The pronouncement relates to smaller amendments to the standards IFRS 5, IFRS 7, IAS 19 and IAS 34. They are mandatory for the first time in the financial year beginning on or after January 1, 2016. The full effects of the changes on the ElringKlinger Group's accounting are still currently being analyzed.

ElringKlinger will apply these standards as of the date for mandatory first-time application and after they have been adopted by the EU. Earlier voluntary adoption is not currently planned.

Scope of consolidated financial statements

The consolidated financial statements of ElringKlinger AG as of December 31, 2014, include the annual financial statements of eight (2013: six) domestic and 30 (2013: 30) foreign subsidiaries in which ElringKlinger AG holds, either directly or indirectly, more than 50% of the shares or is able to control the entity's financial and business policy for other reasons. Inclusion begins at the time the control relationship comes into being and ends when control is deemed to no longer exist.

An overview of the 38 entities included is provided on the following page.

Schedule of Shareholdings and Scope of Consolidation

as of December 31, 2014

Name of company	Domicile
Parent
­­­ElringKlinger AG1	Dettingen/ Erms
Shares in affiliated companies (fully consolidated in the consolidated financial statements)
Domestic
Gedächtnisstiftung KARL MÜLLER BELEGSCHAFTSHILFE GmbH	Dettingen/Erms	100.00
Elring Klinger Motortechnik GmbH	Idstein	92.86
­ElringKlinger Logistic Service GmbH	Rottenburg /Neckar	96.00
­ElringKlinger Kunststofftechnik GmbH	Bietigheim-Bissingen	74.50
Polytetra GmbH/DE3	Mönchengladbach	74.50
Hug Engineering GmbH2	Magdeburg	93.67
new enerday GmbH/DE	Neubrandenburg	75.00
KOCHWERK Catering GmbH	Dettingen/Erms	100.00
Foreign
­ElringKlinger Abschirmtechnik (Schweiz) AG	Sevelen (Switzerland)	100.00
Hug Engineering AG	Elsau (Switzerland)	93.67
Elring Klinger (Great Britain) Ltd.	Redcar (UK)	100.00
­ElringKlinger Italia Srl	Settimo Torinese (Italy)	100.00
Hug Engineering S.p.A.2	Mailand (Italy)	93.67
Technik-Park Heliport Kft.	Kecskemét-Kádafalva (Hungary)	100.00
Elring Parts Ltd.	Gateshead (UK)	100.00
Elring Klinger, S.A.U.	Reus (Spain)	100.00
­ElringKlinger TR Otomotiv Sanayi ve Ticaret A.Ş.	Bursa (Turkey)	100.00
­ElringKlinger Meillor SAS	Nantiat (France)	100.00
HURO Supermold S.R.L.	Timisoara (Romania)	100.00
­ElringKlinger Canada, Inc.	Leamington (Canada)	100.00
­ElringKlinger North America, Inc.	Plymouth/Michigan (USA)	100.00
­ElringKlinger USA, Inc.	Buford (USA)	100.00
Hug Engineering Inc.2	Austin (USA)	93.67
Elring Klinger México, S.A. de C.V.	Toluca (Mexico)	100.00
EKASER, S.A. de C.V.	Toluca (Mexico)	100.00
Elring Klinger do Brasil Ltda.	Piracicaba (Brazil)	100.00
­ElringKlinger South Africa (Pty) Ltd.	Johannesburg (South Africa)	100.00
­ElringKlinger Automotive Components (India) Pvt. Ltd.	Ranjangaon (India)	100.00
Changchun ­ElringKlinger Ltd.	Changchun (China)	88.00
­ElringKlinger Korea Co., Ltd.	Changwon (South Korea)	100.00
­ElringKlinger China, Ltd.	Suzhou (China)	100.00
­ElringKlinger Engineered Plastics North America, Inc.3	Buford (USA)	74.50
­ElringKlinger Engineered Plastics (Qingdao) Commercial Co., Ltd.3	Qingdao (China)	74.50
­ElringKlinger Marusan Corporation4	Tokyo (Japan)	50.00
Taiyo Jushi Kakoh Co., Ltd.5	Tokyo (Japan)	50.00
Marusan Kogyo Co., Ltd.6	Tokyo (Japan)	23.45
PT. ­ElringKlinger Indonesia5	Karawang (Indonesia)	50.00
­ElringKlinger (Thailand) Co., Ltd5	Bangkok (Thailand)	50.00

1 ElringKlinger AG prepares the consolidated financial statements for the largest and smallest group of consolidated subsidiaries

2 Wholly owned subsidiary of HUG Engineering AG 4 Consolidated due to contractual possibility of exercising control

5 Wholly owned subsidiary of ElringKlinger Marusan Corporation

⁶ 46.9% subsidiary of ElringKlinger Marusan Corporation, consolidated due to majority of voting rights

³ Wholly owned subsidiary of ElringKlinger Kunststofftechnik GmbH

Notes on non-controlling interests in subsidiaries

ElringKlinger AG holds controlling interests of 74.5% in ElringKlinger Kunststofftechnik GmbH, Bietigheim-Bissingen (Germany), with its three subsidiaries (EKT subgroup)

• Polytetra GmbH, Mönchengladbach, Germany
• ElringKlinger Engineered Plastics (Qingdao) Commercial Co., Ltd., China
• ElringKlinger Engineered Plastics North America, Inc., Buford, USA.

The non-controlling interests amount to 25.5%.

The share in the profit of this subgroup attributable to non-controlling interests for the financial year 2014 is EUR 2,835 k (2013: EUR 2,904 k).

A dividend of EUR 1,020 k was distributed to the non-controlling interests in the financial year 2014. The remaining EUR 2,980 k was distributed to the parent company ElringKlinger AG.

Cash flow of the subgroup: in EUR k	2014
Operating activities	10,765
Investing activities	-14,843
Financing activities	4,985
Changes in cash	907
Effects of currency exchange rates on cash	179

Summarized key financial information of the subgroup in EUR k 2014 2013

Non-current assets	53,250	42,646
Current assets	40,488	43,819
Non-current liabilities	16,851	15,333
Current liabilities	8,412	8,339
Sales revenue	93,386	92,676
Earnings before taxes (EBT)	15,308	15,908
Net income	10,965	11,564
Total comprehensive income	9,682	12,222

Further detailed information in EUR k	2014	2013
Cash and cash equivalents	3,312	2,226
Cash in hand	11	8
Bank deposits	3,301	2,218
Non-current financial liabilities	3,596	4,000
to banks	3,096	4,000
to affiliated companies	500	0
Current financial liabilities	1,190	1,000
to banks from loans	1,125	1,000
to banks from current accounts	65	0
Interest income	448	431
Interest expense	488	569
Amortization and depreciation	4,009	3,488

Restatement of the previous year's figures

In connection with a warranty claim, ElringKlinger AG and the customers concerned agreed to a payment totaling EUR 24.4 million in a settlement agreement in 2011. The warranty claim related to gaskets delivered in early 2008. The settlement has since then been paid in full. This payment is offset by receivables in the same amount from our primary insurer and excess loss insurer, of which EUR 10.0 million had already been settled in 2011. The final amount of the remaining receivable had not yet been settled at that time. The primary insurer rejected the claim for excess coverage beyond the EUR 10.0 million that had already been paid. ElringKlinger AG therefore brought legal action for payment of EUR 14.4 million from the primary insurer. The suit was dismissed in a first court hearing in April 2014. In view of the ruling in the court hearing, ElringKlinger decided to correct the EUR 4.4 million part of the claim not covered by the excess loss insurer retrospectively to January 1, 2013 without an effect on profit or loss pursuant to IAS 8, as there was insufficient certainty to recognize the receivable. In the meantime, the dispute has been finally settled. The insurers included in the settlement have agreed to pay additional indemnification of EUR 8.5 million, which means that ElringKlinger has a residual loss of EUR 1.5 million. This amount was posted through profit and loss in 2014. The insurers made the payments in 2014.

The effects on the comparative figures reported in the prior year of the restatement of the insurance claim and of the first-time application of IFRS 11 described in the section on accounting principles are presented below:

in EUR k	Amount published 2013	Amendment IFRS 11	Restated amount 2013
Sales revenue	1,175,231	-25,148	1,150,083
Cost of sales	-846,158	21,685	-824,473
Selling expenses	-82,343	873	-81,470
General and administrative expenses	-47,617	1,619	-45,998
Research and development costs	-57,136	428	-56,708
Other operating income	33,232	-239	32,993
Other operating expenses	-10,277	6	-10,271
Finance income	9,340	18	9,358
Finance expenses	-25,056	442	-24,614
Income tax expense	-38,013	316	-37,697
Net income	111,203	0	111,203

Effects on the income statement 2013:

The change had no effect on net income or the Group's basic or diluted earnings per share.

Impact on the statement of financial position as of January 1, 2013:

Assets in EUR k	Published amount as of Jan. 1, 2013	Amendment IFRS 11	Amendment IAS 8	Restated amount as of Jan. 1, 2013
Intangible assets	135,989	-2,928	–	133,061
Property, plant and equipment	565,000	-7,734	–	557,266
Investment property	13,329	–	–	13,329
Financial assets	1,637	-22	–	1,615
Investment accounted for using the equity method	0	25,951	–	25,951
Non-current income tax assets	2,830	–	–	2,830
Other non-current assets	2,737	-118	–	2,619
Deferred tax assets	29,552	-851	1,231	29,932
Non-current assets	751,074	14,298	1,231	766,603
Inventories	229,586	-2,273	–	227,313
Trade receivables	185,850	-4,519	–	181,331
Current income tax assets	2,208	–	–	2,208
Other current assets	45,351	-1,829	-4,440	39,082
Cash and cash equivalents	54,273	-7,798	–	46,475
Current assets	517,268	-16,419	-4,440	496,409
Non-current assets held for sale	249	–	–	249
Total assets	1,268,591	-2,121	-3,209	1,263,261

Liabilities and equity in EUR k	Published amount as of Jan. 1, 2013	Amendment 11 IFRS	Amendment 8 IAS	Restated amount as of Jan. 1, 2013
Share capital	63,360	–	–	63,360
Capital reserves	118,238	–	–	118,238
Revenue reserves	424,440	–	-3,209	421,231
Other reserves	4,911	–	–	4,911
Non-controlling interest in equity	31,268	-1,443	–	29,825
Equity	642,217	-1,443	-3,209	637,565
Provisions for pensions	99,597	-1,066	–	98,531
Non-current provisions	11,121	-55	–	11,066
Non-current financial liabilities	130,993	4,377	–	135,370
Deferred tax liabilities	46,781	-143	–	46,638
Other non-current liabilities	10,149	-4	–	10,145
Non-current liabilities	298,641	3,109	–	301,750
Current provisions	18,409	-350	–	18,059
Trade payables	58,065	-1,178	–	56,887
Current financial liabilities	183,716	-1,229	–	182,487
Taxes payable	11,513	-397	–	11,116
Other current liabilities	56,030	-633	–	55,397
Current liabilities	327,733	-3,787	–	323,946
Total liabilities	1,268,591	-2,121	-3,209	1,263,261

in EUR k	Amount published 2013	Change	Restated amount 2013
Earnings before taxes	149,216	-316	148,900
Net cash from operating activities	119,977	-946	119,031
Net cash from investing activities	-128,010	1,631	-126,379
Net cash from financing activities	14,640	71	14,711
Changes in cash	6,607	756	7,363
Effects of currency exchange rates on cash	-3,271	1,703	-1,568
Cash inflow from business combinations	5,340	5,339	10,679
Cash at beginning of period	54,273	-7,798	46,475
Cash at end of period	62,949	0	62,949

Effects on the statement of cash flows 2013:

All the following prior-year figures in the notes to the consolidated financial statements were restated accordingly.

From 2014, the indicator EBIT corresponds to the operating result. Exchange gains and losses are no longer included in the financial result. The adjustments to segment reporting are shown in the following table:

EBIT in EUR k	Amount published 2013	Amendment EBIT definition	Amendment to IFRS 11	Restated amount 2013
Original Equipment	119,571	4,417	-776	123,212
Aftermarket	22,305	149	–	22,454
Engineered Plastics	16,046	24	–	16,070
Industrial Parks	125	-11	–	114
Services	2,306	–	–	2,306
Total	160,353	4,579	-776	164,156

Business combinations

With effect as of July 1, 2014, ElringKlinger AG acquired a 75% interest in new enerday GmbH, with its registered office in Neubrandenburg, Germany.

With the fuel-cell specialist, ElringKlinger AG has strengthened its activities relating to the SOFC (solid oxide fuel cell) high-temperature fuel cell. A purchase price of EUR 1,962 k was agreed for the acquisition of the company. The transaction-related costs of EUR 15 k to date were recognized in general and administrative expenses.

The assets and liabilities of the acquired shares were measured at fair value as of the acquisition date. The difference of EUR 1,896 k remaining after taking into account deferred tax liabilities (EUR 81 k) on the hidden reserves identified (EUR 286 k) was recognized as goodwill. This was paid primarily for the positive forecasts as well as the expected synergies and allocated to the Original Equipment segment. Goodwill is not tax deductible.

The first-time full consolidation of the company increased the Group's revenue by EUR 199 k as of December 31, 2014 and earnings before taxes were reduced by EUR 91 k. Had the acquisition been completed as of January 1, 2014, new enerday GmbH would have contributed EUR 305 k to group revenue and burdened earnings before taxes with EUR 458 k.

The following table contains the final allocation of the purchase price to the assets and liabilities:

	IFRS carrying amount at
	the time of	Purchase price	Acquisition date
in EUR k	acquisition	allocation	fair value
Intangible assets	5	286	291
Property, plant and equipment	221	–	221
Inventories	244	–	244
Other current assets	179	–	179
Cash and cash equivalents	4	–	4
Total assets	653	286	939
Deferred tax liabilities	0	81	81
Non-current liabilities	59	–	59
Current trade payables	72	–	72
Tax payable	77	–	77
Other current liabilities	630	–	630
Total liabilities	838	81	919
Net assets	-185	205	20
Non-controlling interests in net assets			46
Goodwill			1,896
Purchase price			1,962

No contingent liabilities were identified in the course of the acquisition.

With effect as of October 1, 2014, ElringKlinger Kunststofftechnik GmbH, Bietigheim-Bissingen, a subsidiary in which ElringKlinger AG holds a 74.5% interest, acquired a 100% interest in Polytetra GmbH, with registered office in Mönchengladbach, Germany.

In acquiring the company, ElringKlinger Kunststofftechnik GmbH has further strengthened its position in the industrial plastics technology sector, as well as securing additional growth opportunities in the production of modules and systems.

A purchase price of EUR 4,000 k was agreed for the acquisition of the company. The transaction-related costs of EUR 14 k to date were recognized in administrative costs.

The assets and liabilities of the acquired shares were measured at fair value as of the acquisition date. The difference of EUR 1,496 k remaining after taking into account deferred tax liabilities (EUR 424 k) on the hidden reserves identified (EUR 1,306 k) was recognized as goodwill. This was paid primarily for the positive forecasts as well as the expected synergies and allocated to the Engineered Plastics segment. Goodwill is not tax deductible.

The first-time full consolidation of the company increased the Group's revenue by EUR 1,122 k as of December 31, 2014 and earnings before taxes by EUR 370 k. Had the acquisition been completed as of January 1, 2014, Polytetra GmbH would have contributed EUR 5,073 k to group revenue and burdened earnings before taxes by EUR 826 k.

	IFRS carrying amountat
	the time of	Purchase price	Acquisition date
in EUR k	acquisition	allocation	fair value
Intangible assets	16	1,306	1,322
Property, plant and equipment	1,456	–	1,456
Inventories	1,273	–	1,273
Trade receivables	493	–	493
Other current assets	32	–	32
Cash and cash equivalents	250	–	250
Total assets	3,520	1,306	4,826
Provisions for pensions	231	–	231
Non-current provisions	2	–	2
Non-current financial liabilities	127	–	127
Deferred tax liabilities	190	424	614
Current provisions	206	–	206
Trade payables	313	–	313
Current financial liabilities	412	–	412
Tax payable	217	–	217
Other current liabilities	200	–	200
Total liabilities	1,898	424	2,322
Net assets	1,622	882	2,504
Goodwill			1,496
Purchase price			4,000

The following table contains the final allocation of the purchase price to the assets and liabilities:

No contingent liabilities were identified in the course of the acquisition.

Acquisition of non-controlling interests in 2013

With effect from January 1, 2013, ElringKlinger AG acquired the 49% interest previously held by non-controlling interests in the subsidiary ElringKlinger South Africa (Pty) Ltd., with its registered office in Johannesburg, South Africa. The purchase price amounted to EUR 589 k, with the resulting difference to the non-controlling interests previously recorded for recognized directly in equity in 2013. ElringKlinger AG now holds a 100% interest in the company.

On August 1, 2013, ElringKlinger AG acquired the 10% interest previously held by non-controlling interests in the subsidiary Elring Parts Ltd., with its registered office in Gateshead, UK. The purchase price amounted to EUR 701 k, with the resulting difference to the non-controlling interests previously recorded recognized directly in equity in 2013. ElringKlinger AG now holds a 100% interest in the company.

On August 1, 2013, ElringKlinger AG acquired the 25% interest previously held by non-controlling interests in the subsidiary HUG Engineering AG, with its registered office in Elsau, Switzerland. The purchase price amounted to EUR 4,606 k, with the resulting difference to the non-controlling interests previously recorded recognized directly in equity in 2013. ElringKlinger AG now holds a 93.67% interest in the company.

Business combination in stages in 2013

With its investments, ElringKlinger generally strives to have a majority shareholding. In this connection, the 50% interest in ElringKlinger Korea Co., Ltd., Changwon, South Korea, was acquired by ElringKlinger AG from the joint shareholder with effect as of February 1, 2013. ElringKlinger AG now holds a 100% interest in the company. The purchase price amounted to EUR 4,266 k. The transaction-related costs of EUR 53 k to date were recognized in general and administrative expenses in 2013.

The assets and liabilities of the acquired shares were measured at fair value as of the acquisition date.

The business combination resulted in goodwill of EUR 4,915 k. This was paid primarily for the positive forecasts as well as the expected synergies and allocated to the Original Equipment segment.

Goodwill is not tax deductible. The first-time full consolidation of the company increased the Group's revenue by EUR 4,678 k as of December 31, 2013 and earnings before taxes were reduced by EUR 415 k.

Had the acquisition been completed as of January 1, 2013, ElringKlinger Korea would have contributed EUR 5,146 k to group revenue 2013 and burdened earnings before taxes 2013 by EUR 395 k.

The following table contains the final allocation of the purchase price to the assets and liabilities:

	IFRS carrying amount at
	the time of	Purchase price	Acquisition date
in EUR k	acquisition	allocation	fair value
Intangible assets	–	82	82
Land and buildings	132	–	132
Technical equipment and machinery	1,852	–	1,852
Other equipment, furniture and fixtures	104	–	104
Property, plant and equipment under construction	76	–	76
Long-term securities	212	–	212
Deferred tax assets	289	–	289
Inventories	2,155	–	2,155
Trade receivables	2,033	–	2,033
Other current assets	1,278	–	1,278
Cash and cash equivalents	2,231	–	2,231
Total assets	10,362	82	10,444
Provisions	164	–	164
Deferred tax liabilities	–	16	16
Current trade payables	6,275	–	6,275
Current provisions	68	–	68
Tax payable	11	–	11
Other current liabilities	293	–	293
Total liabilities	6,811	16	6,827
Net assets	3,551	66	3,617

in EUR k		Feb. 1, 2013
Purchase price of the shares 50%		4,266
Fair value of the old shares 50%		4,266
Measurement basis for goodwill		8,532
Goodwill		4,915

The fair value adjustments for intangible assets related to the profit margins contained in the order backlog as of the acquisition date as well as the resulting deferred tax effect.

The shares in ElringKlinger Korea Co., Ltd. accounted for as of the acquisition date were remeasured upon acquiring the outstanding shares at a fair value of EUR 4,266 k. The transition to full consolidation resulted in non-cash income of EUR 1,386 k from the remeasurement of the shares held to date, which was recognized as other operating income in 2013.

No contingent liabilities were identified in the course of the acquisition. No impairment losses were recognized in respect of trade receivables. Their fair value corresponds to the gross value of EUR 2,033 k.

Full consolidation of ElringKlinger Marusan in 2013

With its investments, ElringKlinger generally strives to have a majority shareholding. As of December 31, 2013, ElringKlinger AG and its joint venture partner entered into an agreement regarding control of ElringKlinger Marusan Corporation, Tokyo, Japan. On account of the new contractual regulations, ElringKlinger AG is in a position to shape decisions and thereby exercise control over the joint venture.

Under this agreement, a put and call option was agreed with the non-controlling interests on their shares. The obligation resulting from this agreement was recognized in 2013 as a financial liability and recorded at cost, equal to a fair value of EUR 37,054 k. Changes to the fair value are recognized in the income statement in subsequent periods.

ElringKlinger Marusan is therefore fully consolidated in the ElringKlinger Group; the non-controlling interests have not been disclosed.

The shares in ElringKlinger Marusan accounted for using the equity method were remeasured at their fair value of EUR 37,054 k. In 2013 the transition to full consolidation resulted in non-cash income of EUR 17,556 k from the remeasurement of the shares held to date, which was recognized as other operating income in 2013.

The goodwill resulting from the change in the organization of the company primarily reflected the positive earnings prospects of the ElringKlinger Marusan Group and in particular the growth potential in the ASEAN countries. This has been allocated to the Original Equipment segment. Goodwill is not tax deductible.

Had the change in the organization of the company taken place as of January 1, 2013, the contribution made by the Marusan Group to ElringKlinger's group revenue in 2013 would have amounted to EUR 46,846 k and earnings before tax to EUR 1,118 k.

The following table contains the allocation of the value of the company to the assets and liabilities:

	IFRS carrying amount at the time of	Preliminary allocation of the	Acquisition date
in EUR k	acquisition	business value	fair value
Goodwill	25	–	25
Patents, licenses, software and similar rights	316	–	316
Order backlog, customer base and technology	–	9,204	9,204
Land and buildings	6,939	–	6,939
Technical equipment and machinery	5,664	–	5,664
Other equipment, furniture and fixtures	163	–	163
Property, plant and equipment under construction	621	–	621
Loans to affiliated companies	6,910	–	6,910
Long-term securities	44	–	44
Other non-current assets	215	–	215
Deferred tax assets	1,587	–	1,587
Inventories	4,028	–	4,028
Trade receivables	12,418	–	12,418
Other current assets	1,476	–	1,476
Cash and cash equivalents	10,679	–	10,679
Total assets	51,085	9,204	60,289
Non-controlling interests	2,363	–	2,363
Non-current provisions	1,874	–	1,874
Deferred tax liabilities	85	3,169	3,254
Non-current financial liabilities	67	–	67
Other non-current liabilities	160	–	160
Current financial liabilities	1,757	–	1,757
Current trade payables	4,967	–	4,967
Current provisions	60	–	60
Tax payable	789	–	789
Other current liabilities	1,388	–	1,388
Total liabilities	13,510	3,169	16,679
Net assets	37,575	6,035	43,610
Proportionate share of the business value 50%			37,054
Fair value of the old shares 50%			37,054
Consolidation
Measurement basis for goodwill			74,108
Goodwill			30,498

As part of the allocation, hidden reserves were identified for intangible assets. The assets identified include the profit margins contained in the order backlog as of the acquisition date as well as in the technology and customer base. For the customer base, which is amortized over a useful life of five years using the straight-line method, a fair value of EUR 7,064 k was calculated in 2013. The corresponding deferred tax effect was also recognized at the respective asset values.

As part of the allocation, no contingent liabilities and receivables were identified. No impairment losses were recognized in respect of trade receivables. In 2013, their fair value corresponded to the gross value of EUR 12,418 k.

Summary of the principal accounting and measurement methods

The consolidated financial statements were prepared on the basis of historical acquisition and manufacturing costs with the exception of assets and liabilities for which measurement at fair value is mandatory in accordance with IFRS.

The fundamental accounting and measurement methods applied in preparing the consolidated financial statements are described below:

Consolidation methods

Assets and liabilities of the domestic and foreign companies included in the consolidated financial statements are recognized and measured according to the accounting policies that apply uniformly across the ElringKlinger Group.

Upon acquisition of a company, the assets and liabilities of the subsidiaries acquired are measured at their fair value at the time of acquisition. If the purchase price of the interest exceeds the identified assets and liabilities to be measured at fair value, the excess is capitalized as goodwill. If the difference is negative, the identifiable assets and liabilities are remeasured, as are the acquisition costs. Any remaining negative difference is recorded in income.

Any hidden reserves and liabilities that have been uncovered are rolled forward, depreciated, or released together with the corresponding assets or liabilities. Goodwill is not amortized, but is subject to annual impairment testing in accordance with IFRS 3.

If additional shares of an already fully consolidated subsidiary are acquired, the difference between the purchase price and carrying amount of non-controlling interests is recognized directly in equity.

The minority interest in subsidiaries held by shareholders outside the Group must be shown as a separate line item under group equity.

Net income for the year for subsidiaries acquired or sold in the course of the year are included in the group income statement from the effective time of acquisition or until the effective time of divestment.

The financial year of all consolidated companies, except the Indian subsidiary (March 31), corresponds to the financial year of the parent company. If the reporting dates differ, interim financial statements are prepared as of the reporting date of the parent company.

All receivables, liabilities, sales revenue, other income and expenses within the scope of consolidation are eliminated. Accumulated gains and losses from intercompany supplies are eliminated from inventories or non-current assets.

Currency translation

The reporting currency of the ElringKlinger Group is the euro.

Foreign currency transactions are translated in the annual financial statements of ElringKlinger AG and its consolidated companies at the rates current as of the transaction date. As of the end of the reporting period, assets and liabilities in foreign currency are measured at the closing rate. Differences arising on translation are posted through profit or loss.

Currency translation differences from monetary items that form part of a net investment in a foreign operation are reported in equity under other comprehensive income until the disposal of the net investment.

The financial statements of the foreign companies are translated into euros since this is the functional currency of the parent company. Since the subsidiaries operate their businesses independently in financial, economic and organizational respects, the functional currency is identical to the relevant national currency of the company. For reasons of simplification, the expenses and income from financial statements of entities included in the consolidated financial statements which were originally prepared in foreign currencies are translated at the average rate for the year. The average rate for the year is calculated on the basis of daily rates. Assets and liabilities are translated at the closing rate. Currency differences are reported in other comprehensive income and as a separate item in equity.

In the event of a disposal of a consolidated entity, accumulated currency differences are recorded as part of the gain or -loss on sale.

Currency	Abbr.	Closing rate Dec. 31, 2014	Closing rate Dec. 31, 2013	Average rate 2014	Average rate 2013
US dollar (USA)	USD	1.21410	1.37910	1.32108	1.33083
Pound (UK)	GBP	0.77890	0.83370	0.80310	0.85008
Franc (Switzerland)	CHF	1.20240	1.22760	1.21274	1.22906
Canadian dollar (Canada)	CAD	1.40630	1.46710	1.46358	1.37711
Real (Brazil)	BRL	3.22070	3.25760	3.10933	2.89373
Peso (Mexico)	MXN	17.86790	18.07310	17.64530	17.12746
RMB (China)	CNY	7.53580	8.34910	8.15428	8.17328
(South Korea) WON	KRW	1,324.80000	1,450.93000	1,392.14250	1,456.23833
Rand (South Africa)	ZAR	14.03530	14.56600	14.34063	13.01281
Yen (Japan)	JPY	145.23000	144.72000	140.50250	130.18167
Forint (Hungary)	HUF	315.54000	297.04000	309.98250	297.93333
Turkish lira (Turkey)	TRY	2.83200	2.96050	2.89420	2.56752
Leu (Romania)	RON	4.48280	4.47100	4.43848	4.41495
Indian rupee (India)	INR	76.71900	85.36600	80.70096	78.47108
Indonesian rupiah (Indonesia)	IDR	15,076.10000	16,764.78000	15,681.55750	14,067.13083
Bath (Thailand)	THB	39.91000	45.17800	42.98783	41.08033

The rates used for currency translation are shown in the table below:

Accounting policies

Goodwill

The goodwill is attributable to cash-generating units (segments) as follows

in EUR k	2014	2013
Original Equipment	134,015	130,793
Engineered Plastics	6,313	4,816
Aftermarket	1,658	1,658
Total	141,986	137,267

Goodwill is capitalized and subjected to impairment testing on an annual basis. If the value is no longer recoverable, impairment is recorded. Otherwise, the valuation of the previous year is retained. Impairment of goodwill is not reversed, even if the impairment has ceased to apply.

ElringKlinger conducts an impairment test of goodwill at least once annually. Annual impairment testing of goodwill is performed as of the closing date on December 31. During impairment tests, the recoverable amount of the cash-generating unit is compared to its carrying amount. Recoverable amount is measured at value in use.

The value in use of the cash-generating units is determined by discounting future cash flows. This calculation is based on the following key assumptions:

A detailed plan of the cash flows for the cash-generating units is established over the forecast period of five years. Subsequent periods are accounted for by a perpetual annuity determined on the basis of the average for the years 2015 to 2019.

The plan is based on expected future market developments taking into consideration the business development thus far. The material assumptions relate to the development of revenue and earnings after taxes.

Sales revenue planning at the ElringKlinger Group is performed at an individual component level. A variety of different information is used for the sales revenue planning. With regard to short-term planning, the current order backlog, information on the respective manufacturer and information from independent sources, such as advisory firms or automobile associations, is used. In the medium term, ElringKlinger, in performing its sales revenue planning, expects the global automotive markets to sustain a slight growth of around 2%.

Costs are also budgeted at an individual component level within the ElringKlinger Group. This takes into account both efficiency gains as well as cost increases. For the raw materials processed in the cash-generating units, group-wide uniform planning assumptions were applied. Excessive price increases are not expected in the prices of materials. For other costs, it is assumed that they will continue to develop in line with regional economic development and dependent on sales revenues.

The discount factor applied as of December 31, 2014 was the weighted average cost of capital (WACC) before taxes of 10.63% (2013: 10.70%). The WACC is determined on the basis of the risk-free rate according to the method of the IDW ["Institut der Wirtschaftsprüfer in Deutschland e.V., Düsseldorf": Institute of Public Auditors in Germany, Düsseldorf], the market risk premium and the beta factor. Beta represents the individual risk of a share as compared to a market index. It is calculated as the average value for the peer group. The credit spread, which expresses the premium over the risk-free rate, was derived from a rating of a peer group.

As in the previous year, the discount rate was used without applying a growth discount to determine the terminal value.

The impairment test performed as of December 31, 2014 did not result in the impairment of goodwill. Even changes in key parameters, which management deemed to be possible would not result in impairment.

Intangible assets

Purchased intangible assets, mainly patents, licenses and software, are recognized at cost.

Internally generated intangible assets, with the exception of goodwill, are capitalized if it is sufficiently probable that use of the asset is associated with a future economic benefit, the costs of the asset can be determined reliably, and the technical and economic feasibility along with the ability and intent to market it are ensured. The manufacturing costs of internally generated intangible assets are determined on the basis of directly attributable individual costs as well as their proportion of attributable overheads. The revaluation method, which is also permitted, is not applied.

With the exception of goodwill, all intangible assets in the Group have determinable useful lives and are amortized over these useful lives using the straightline method. Patents, licenses and software generally have useful lives of 10 years. Capitalized development costs and basic standard software have useful lives of 5 years. If the actual useful life is materially longer or shorter than 10 or 5 years, this actual useful life is recognized.

Property, plant and equipment

Tangible assets used in business operations for a period longer than one year are measured as property, plant and equipment at cost less straight-line depreciation in accordance with their useful life as well as any necessary impairment. The manufacturing cost of self-constructed property, plant and equipment is determined on the basis of directly attributable individual costs and their proportion of attributable overheads. The revaluation method, which is also permitted, is not applied.

Depreciation is calculated throughout the Group based on the following useful lives:

Category of property, plant and equipment	Years
Buildings	15 to 40
Plant and machinery	12 to 15
Special tooling	3
Operating and office equipment	3 to 15

The useful lives and the depreciation methods and residual carrying amounts are reviewed regularly in order to ensure that the depreciation method and period are consistent with the expected consumption of the economic benefit.

Investment property

Investment property is measured at cost less straightline depreciation. It is reported separately under non-current assets.

The useful lives of investment property are 40 years in the case of buildings and 20 years in the case of external facilities.

Impairment of property, plant and equipment and of intangible assets other than goodwill

Pursuant to IAS 36, property, plant and equipment and intangible assets are subjected to impairment testing at the end of each reporting period or if there is evidence of impairment. If the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognized to the recoverable amount. The recoverable amount is the higher of the following two amounts: the net realizable value less anticipated costs to sell or the value in use. If the recoverable amount for an individual asset cannot be determined, an estimate of the recoverable amount is made at the next higher level cash-generating unit.

In the event that the recoverable amount exceeds the carrying amount in subsequent periods, a reversal is recognized up to, at most, amortized cost.

Impairments and reversals are recorded through profit and loss.

Financial instruments

Under IAS 39, a financial instrument is a contract that constitutes a financial asset for one entity and a financial liability for another entity, or an equity instrument.

Financial instruments held within the Group are divided into the following categories:

• Financial assets measured at fair value through profit or loss
• Financial liabilities measured at fair value through profit or loss
• Loans and receivables
• Available-for-sale financial assets
• Held-to-maturity investments
• Other financial liabilities that are measured by the effective interest rate method at amortized cost

At their acquisition date, financial instruments are categorized on the basis of their intended use.

Financial assets include cash, trade receivables and other loans and receivables and derivative financial assets held for trading.

Financial liabilities include trade payables, bank debt, derivative financial liabilities held for trading and other financial liabilities.

Financial assets

Derivatives are recorded in the statement of financial position on the day of the trade and all usual purchases and sales of financial assets are recorded in the statement of financial position on the exercise date, i.e., on the day that the Group has entered into the obligation to purchase or to sell an asset.

Upon initial recognition, financial assets are measured at fair value. In the case of all financial investments that are not classified as "measured at fair value through profit or loss", transaction costs directly attributable to the purchase are included.

Financial assets that are not classified as "fair value through profit or loss" are reviewed for impairment at the end of each reporting period. If the fair value of the financial asset is lower than its carrying amount, the carrying amount is written down to its fair value. This reduction represents an impairment loss and is recognized as an expense. Any impairment previously recognized as an expense is reversed and credited to the income statement if warranted by events occurring after the original recognition of the impairment.

Changes to the fair value of financial assets classified as available for sale are recognized in equity under other comprehensive income after taking deferred taxes into account. Any arising foreign exchange gains or losses are recognized through profit or loss.

The fair values recognized in the statement of financial position generally correspond to the market prices of the financial instruments. If market prices are not available, the fair values are calculated using recognized measurement models and with recourse to current market parameters. The measurement methods include using the most recent transactions between knowledgeable, willing and independent business partners (i.e., at arm's length), comparison with a current fair value of another, substantially identical, financial instrument and the analysis of discounted cash flows.

A financial asset is derecognized if the contractual rights to receive cash flows from this financial asset have expired or have been transferred. In the framework of the transfer, essentially all risks and rewards connected with ownership of the financial asset or the power of control over the asset must be transferred.

Financial assets acquired for the purpose of sale in the near future (financial instruments held for trading) are recognized at their fair value through profit or loss. Within ElringKlinger, these are derivatives which do not meet the prerequisites for hedge accounting.

Financial assets resulting from money transfer, the rendering of services or the procurement of merchandise involving third parties are classified as loans and receivables. Current assets and liabilities classified in this category are measured at acquisition cost, whereas the non-current financial assets and liabilities are measured at amortized cost in accordance with the effective interest method.

Cash and cash equivalents includes cash in hand, bank deposits and short-term deposits with an original term of less than three months, and are measured at amortized cost.

Impairments on doubtful receivables involve to a considerable extent estimates and judgments of the individual receivables based on the creditworthiness of the customer concerned. If there is objective evidence of impairment of loans and receivables (e.g., major financial difficulties on the part of the debtor or negative changes in the market environment of the debtor), these are recognized in the income statement. Impairments of trade receivables are initially recognized in an adjustments account. The impaired receivable is derecognized when it is considered unrecoverable.

The financial instruments allocated to the category "held to maturity investments" are recorded at amortized cost using the effective interest method when the Group has the intent and the legal ability to hold them until maturity.

Assets are allocated to financial assets classified as available for sale if they are financial assets for which there is intention to sell and they were not acquired for trading purposes or cannot be allocated to any of the above categories. This category does not contain securities held for trading, for example. They are measured at fair value.

Financial liabilities

Financial liabilities comprise, in particular, trade payables, bank debt, derivative financial liabilities and other liabilities.

Upon initial recognition, financial liabilities are measured according to fair value less any transaction costs directly attributable to borrowing.

Financial liabilities are derecognized when the liability on which the obligation is based is settled, terminated or has expired.

At ElringKlinger, financial liabilities measured at amortized cost include trade payables and interestbearing loans. They are measured at amortized cost using the effective interest method. Gains or losses are recognized in the income statement when the liability is retired or has been redeemed.

Financial liabilities measured at fair value through profit or loss comprise the financial liabilities held for trading purposes, in this case, derivatives, including any embedded derivatives that have been separated from the host contract, if applicable, since these do not qualify for hedge accounting as a hedging instrument. Gains or losses are recognized in the income statement.

Derivative financial instruments and hedge accounting

Under IAS 39, all derivative financial instruments such as currency, price and interest swaps as well as forward exchange transactions, must be recognized at market values, independently of the purpose or the intent of the agreement under which they were concluded. Since no hedge accounting is applied in the ElringKlinger Group, the changes in the fair value of the derivative financial instruments are always recognized in profit or loss.

Derivative financial instruments used in the ElringKlinger Group are interest and price hedge transactions. The purpose of derivative financial instruments is to reduce the negative effects of interest and price risks on the assets, liabilities, financial position and profit or loss of the Group. As of the reporting date, there were four nickel hedging contracts and forward contracts for electricity and gas.

Inventories

Inventories are recognized at cost or the lower net realizable value. Raw materials, supplies and consumables as well as merchandise are measured at the average amortized cost. Manufacturing cost of work in progress and finished goods are determined on the basis of directly attributable individual costs and their proportion of production overheads. The proportion of overhead cost attributable to these products is determined on the basis of normal staffing levels. Manufacturing cost does not include selling expenses and borrowing cost. General administrative overheads are included in manufacturing cost if related to production. Net realizable value represents the estimated sales price less all estimated costs through to completion as well as the cost of marketing, sales and distribution. Markdowns are made for detectable impairment due to lack of marketability and quality defects, and to account for declining sales prices.

In the majority of cases, the customers acquire beneficial ownership of tools. The tools are recognized under inventories until the transfer of beneficial ownership.

Cash and cash equivalents

Cash and cash equivalents includes cash in hand, checks and bank deposits available on demand. No cash equivalents are held. Cash is recognized at amortized cost.

Non-current assets held for sale

Non-current assets classified as held for sale are carried at the lower of their carrying amount and fair value less costs to sell.

Provisions for pensions

Provisions for pensions are calculated on the basis of the projected unit credit method in accordance with IAS 19 (revised 2011). Measurement takes into account not only the pensions and vested benefits known at the end of the reporting period, but also expected future increases in pensions and salaries with a prudent estimate of the relevant variables and biometric assumptions.

Actuarial gains and losses resulting from the difference between the expected and actual accounting changes in headcount, as well as differences arising from changes to accounting assumptions, are recognized in full in the period in which they occur. They are recognized outside of the income statement under other comprehensive income.

In determining the discount interest rates, the company is guided by the interest rates observed in capital markets for corporate bonds with first class credit ratings (AA rating or better) which are denominated in the same currency and have similar terms.

Provisions

Provisions are recorded when a past event gives rise to a present legal or constructive obligation to a third party, utilization of the obligation is probable and the anticipated amount of the obligation can be estimated reliably.

The measurement of these provisions is at the present best estimate of the expenses necessary to fulfill the obligation. If appropriate, the amount of the provision corresponds to the present value of the expenditures expected to be necessary to meet the obligations. Refund claims are capitalized separately, if applicable. If the Group expects at least a partial refund for a provision, the refund is recognized under other assets if the return of the refund is virtually certain.

Leases

In lease relationships in which the Group is the lessee, beneficial ownership of the leased items is attributed to the lessee in accordance with IAS 17 to the extent that the lessee bears all risks and rewards associated with ownership of the leased item (finance leases). The depreciation methods and useful lives correspond to those of comparable purchased assets. The leased object is capitalized at the time the contract is concluded at its fair value or, if lower, at the present net value of the future minimum lease payments. Initial direct costs are accounted for as part of the asset. The lease obligations which correspond to the carrying amount of the leased object are shown under financial liabilities.

If beneficial ownership under a lease rests with the lessor (operating leases), the lessor recognizes the leased object in its statement of financial position. The lease expenditures incurred are then recorded as expenses over the term of the lease using the straightline method.

Lease relationships in which the ElringKlinger Group is the lessor, and for which the lessee does not for the most part bear all risks and rewards associated with ownership, are classified as operating leases. Income from operating lease relationships of the industrial park is recognized as sales revenues.

Recognition of income and expense

Sales revenues are measured at the fair value of the consideration received or to be received and represent the amounts that are to be obtained for goods and services in the normal course of business. The sales revenues are shown net of sales deductions, discounts and value added taxes.

Sales revenues are recorded when the performances due have been rendered and the principal risks and rewards have passed to the purchaser and receipt of the payment can be reliably expected.

Interest income is recognized on an accrual basis using the effective interest method.

Income from services is recognized as soon as the services have been rendered.

Dividend income from financial investments is recorded at the time the payment claim arises.

Other income is recognized on an accrual basis in accordance with the substance of the underlying contract.

Operating expenses are recorded in the consolidated income statement at the time of performance or at the time of origination.

Research and development costs

Research costs are expensed at the time they are incurred. The costs for development activities are recognized if all the following criteria are satisfied.

• The development costs can be determined reliably.
• The product or the process can be realized technically and commercially.
• Future commercial benefits are likely.
• There is the intent and sufficient resources to complete the development and to use or sell the asset.

Capitalized costs are included under intangible assets. Other development costs are recognized as an expense when incurred. Capitalized development costs are amortized over five years.

Government grants

The Group receives government grants primarily for development projects. These are recorded in income in the period when they are received and reported as other operating income, since the expenses have already been incurred.

Borrowing costs

Borrowing costs directly associated with the acquisition, construction, or production of qualifying assets are added to the production costs of these assets until the period in which the assets are largely available for their intended use or for their sale. Interest not capitalized pursuant to IAS 23 is recognized on an accrual basis as an expense using the effective interest method. The actual borrowing costs are capitalized if a financing loan can be definitively assigned to a specific investment. Unless a direct relationship can be established, the Group's average interest rate for borrowed capital for the current period is used. The Group's average interest rate for borrowed capital for the financial year 2014 amounted to 2.24% (2013: 2.66%). In the financial year 2014 borrowing costs of EUR 340 k (2013: EUR 274 k) were recognized.

Income taxes and deferred taxes

The income tax expense represents the sum of current tax expense and deferred tax expense.

Current tax expense is determined on the basis of the taxable income for the relevant year. Taxable income differs from earnings before taxes as shown in the income statement, since it excludes expenses and income which will be tax deductible in earlier or later years or those which will never become taxable or tax deductible. The liability of the Group for current tax expense is calculated on the basis of applicable tax rates or tax rates established by law as of the end of the reporting period.

Deferred taxes are the expected tax charges and benefits from the differences in the carrying amounts of assets and liabilities in the tax base of the individual companies compared with the valuations in the consolidated financial statements under IFRS. The balance sheet liability method is applied. Such assets and liabilities are not recognized if the temporary difference is the result of (i) the first-time recognition of goodwill or (ii) the first-time recognition of other assets and liabilities resulting from occurrences that do not affect taxable income or earnings before taxes according to the income statement. Deferred taxes are recorded on all taxable temporary differences when it is probable that taxable profits will be available against which the deductible temporary differences can be offset. Otherwise, deferred tax assets are recognized on loss carryforwards to the extent that their future use may be anticipated.

The carrying amount of deferred tax assets is reviewed every reporting date.

Deferred taxes are measured at the future tax rates, i.e., those that are expected to apply at the time of realization.

Changes in deferred tax assets are recognized in the income statement as tax income or expense unless they relate to other comprehensive income or items recognized directly in equity; in these cases, changes in deferred taxes are also reported under other comprehensive income or directly in equity.

Contingent liabilities and contingent receivables

Contingent liabilities are not recognized. They are disclosed in the notes, unless the possibility of an outflow of resources with economic benefit is remote. Contingent receivables are not recognized in the financial statements. If the inflow of economic benefits is probable, they are disclosed in the notes.

Use of estimates

Financial statements are prepared in accordance with the pronouncements of the IASB using estimates which influence valuations of items in the statement of financial position, the nature and the scope of contingent liabilities and contingent receivables as of the end of the reporting period and the amounts of income and expenses in the reporting period. At ElringKlinger, the assumptions and estimates relate mainly to the recoverability of receivables, the recoverability of inventories, the recognition and measurement or provisions, the measurement of a financial liability from a written put option, the measurement of goodwill and the realization of future tax benefits as well as the assessment of contingent liabilities. Actual results may deviate from these estimates. Changes are recognized through profit or loss at the time better insights are available.

Warranty obligations may arise by force of law, by contract or for policy reasons. Provisions are recognized for the expected claims arising from warranty obligations. A claim may be expected especially if the warranty period has not yet expired, if warranty expenses have been incurred in the past, or if there is concrete evidence of warranty incidents being imminent. The warranty risk is determined on the basis of the circumstances from individual estimates or from past experience, and appropriate provisions are recognized.

The use of estimates for other items in the group statement of financial position and the group income statement are described in the accounting principles for the respective items. This pertains in particular to: useful lives of depreciable assets, impairments of goodwill, impairments of receivables, impairments of inventories, and the valuation of pension provisions.

Risks and uncertainties

As a rule, the global automotive markets develop similarly to the economy generally. This applies even more to the truck than to the passenger vehicle segment. If economic development cools down considerably, this represents a risk for passenger vehicle demand and ultimately also for vehicle production. This could result in lower demand for ElringKlinger components.

According to current assessments, there continue to be risks regarding economic development in some southern and western European markets as well as in the not insignificant vehicle markets in Brazil and Russia.

However, the International Monetary Fund anticipates 3.5% growth in the global economy for 2015.

With regard to the automotive industry, the solid customer demand in North American and Asian markets is expected to fuel further growth in global passenger vehicle production.

From today's perspective, the risk of a dramatic collapse in vehicle production – similar to the 2008/2009 crisis – can be ruled out in any case. ElringKlinger expects global vehicle production in 2015 to increase by around 2%.

ElringKlinger has a global reach and, with its broad customer structure, is neither dependent on individual markets nor on individual manufacturers. This means that an economic downturn in one region can at least be partially offset. Thanks to its flexible cost structures, ElringKlinger, in the event of greater economic turmoil, would be in the position to react immediately to the market conditions and quickly adjust the cost structures.

ElringKlinger makes adequate provision for economic risks during the planning stage. The budget is generally prepared on the basis of a cautious macroeconomic scenario.

Provisions are recognized for risks arising from litigation if an entity of the ElringKlinger Group is the defendant and the weight of evidence supports a negative outcome. The provision is recognized in the amount that the entity will probably lose in the case of a negative outcome. This amount includes any payments to be made by the entity such as compensation or severance pay and the expected costs of the lawsuit. In litigation in which the entity itself is the plaintiff, provisions are set up for the cost of the lawsuit only.

Individual disclosures on the Group Income Statement

1 Sales revenues

Sales revenues increased by EUR 175,751 k in comparison with 2013 to reach EUR 1,325,834 k. Sales revenues of the Group are made up as follows:

in EUR k	2014	2013
Sale of goods	1,313,314	1,137,720
Proceeds from the rendering of services	8,069	8,105
Income from rental and leasehold	4,451	4,258
Total	1,325,834	1,150,083

Breakdown by geographical markets:

in EUR k	2014	2013
Germany	388,116	360,796
Foreign	937,718	789,287
Total	1,325,834	1,150,083

The location of the customer is used to determine allocation of sales revenues. The division of group revenues by segment and region is presented in note (32) Segment reporting.

2 Cost of sales

The cost of sales shows the costs incurred to obtain the sales revenues.

Cost of sales includes:

in EUR k	2014	2013
Cost of materials	580,569	506,309
Personnel expenses	226,247	200,876
Depreciation and amortization	60,668	58,904
Other expenses	99,868	58,384
Total	967,352	824,473

3 Selling expenses

Selling expenses increased by EUR 11,948 k compared to 2013 to reach EUR 93,418 k. Selling expenses mainly include personnel expenses, material and marketing costs, as well as amortization and depreciation related to sales activities.

4 General and administrative expenses

General and administrative expenses primarily include personnel expenses and material costs as well as the amortization and depreciation related to the administrative area. General and administrative expenses rose by EUR 15,451 k compared to 2013 to reach EUR 61,449 k.

6 Other operating income

in EUR k	2014	2013
Government grants	7,433	7,261
Insurance reimbursements / claims reimbursements	3,272	565
Reimbursements from third parties	1,814	1,731
Reversal of provisions /deferred liabilities	1,450	482
Write-up of impaired receivables	327	279
Income from disposals of non-current assets	320	1,124
License fees	31	235
Other	4,080	21,316
Total	18,727	32,993

In connection with the transition to the full consolidation of ElringKlinger Marusan Corporation and ElringKlinger Korea Co., Ltd., other comprehensive income in 2013 contains income from the remeasurement of the shares held to date totaling EUR 18,942 k.

5 Research and development costs

Research and development costs include the personnel expenses and the cost of experimental materials and tools attributable to these activities, unless these are development costs that are required to be capitalized under the conditions set forth in IAS 38.57. Research and development costs increased by EUR 545 k compared to 2013 to reach EUR 57,253 k. Development costs of EUR 9,179 k (2013: EUR 8,985 k) were capitalized in the financial year 2014.

7 Other operating expenses

in EUR k	2014	2013
Other taxes (excl. income tax)	2,385	2,676
Impairment of receivables	1,260	1,170
Defaults on receivables	3,079	906
Expenditures for claims	802	772
Recognition of provisions / deferred liabilities	488	729
Losses on disposal of non-current assets	779	678
Other fees	593	249
Selling costs for machinery	275	20
Other	1,425	3,071
Total	11,086	10,271

8 Net finance costs

in EUR k	2014	2013
Finance income
Income from currency differences	17,491	8,358
Interest income	879	704
Other	122	296
Finance income, total	18,492	9,358
Finance costs
Expenses from currency difference	-7,541	-12,730
Interest expense	-11,816	-11,871
– thereof from derivative financial instruments	-63	-132
Other	-44	-13
Finance costs, total	-19,401	-24,614
Net finance costs	-909	-15,256

Of the interest expenses, EUR 3,679 k (2013: EUR 3,274 k) are related to interest portions of pension plans and the remainder to bank interest and interest expense from the reversal of discounts on longterm provisions. Borrowing costs for qualifying assets in the amount of EUR 340 k were capitalized in the reporting year (2013: EUR 274 k); this represents a corresponding improvement in the result. Interest expenses for finance leases are immaterial.

9 Income taxes

Income taxes are composed as follows:

in EUR k	2014	2013
Current tax expense	41,869	37,505
Deferred taxes	626	192
Tax expense reported	42,495	37,697

The income taxes consist of corporation and municipal trade taxes including the solidarity surcharge of the domestic Group companies as well as comparable income taxes of the foreign Group companies.

The income tax rate calculated for the German companies is 28.9% (2013: 27.7%). Foreign taxation is calculated at the rates applicable in the countries concerned and lies between 10.0% and 38.9% (2013: between 10.0% and 38.9%). The average foreign tax rate is 27.6% (2013: 27.2%).

Deferred taxes are calculated by applying the tax rates in force or expected to be in force in the different countries at the time of realization as the law presently stands.

The following table shows a reconciliation between the income tax expense that might theoretically be expected to arise for the Group under application of the current domestic rate of 27.9% (2013: 27.7%) and the income tax expense actually reported.

in EUR k	2014	2013
Earnings before taxes	153,094	148,900
Expected tax rate	27.9%	27.7%
Expected tax expenses	42,719	41,245
Change in the expected tax rate due to:
– Permanent differences	1,170	-4,027
– Difference in basis of assessment of local taxes	78	139
– Utilization of non-current tax loss carryforwards	-1,317	0
– Write-up of non-current and write-down of current tax loss
carryforwards (from other periods)	1,008	4,101
– Addition to non-current tax loss carryforwards (relating to the period)	1,239	1,544
– Taxes relating to other periods	1,320	172
– Deviations due to changes in tax rate	-3,388	-4,579
– Other effects	-334	-898
Current tax expense	42,495	37,697
Actual tax rate	27.8%	25.3%

Retained earnings of EUR 19,581 k (2013: EUR 13,897 k) at domestic and foreign subsidiaries will be distributed to ElringKlinger AG in the coming years. The tax expense on distributions in Germany amounts to EUR 274 k (2013: EUR 193 k) and was recorded as a deferred tax liability. Further retained earnings of domestic and foreign subsidiaries of EUR 316,801 k (2013: EUR 264,948 k) are intended to be permanently reinvested in those operations on the basis of current planning.

Deferred tax assets on tax loss carryforwards have been recognized in the amount of EUR 296 k (2013: EUR 1,171 k). No deferred tax assets were recognized in respect of tax loss carryforwards amounting to EUR 37,801 k (2013: EUR 32,302 k), since it was not expected that the deferred tax assets would be utilized in the foreseeable future.

Unused income tax loss carryforwards primarily relate to foreign subsidiaries. The expiration of carry forwards not recognized for tax purposes is as follows:

Expiration of loss carryforwards within in EUR k	Dec. 31, 2014	Dec. 31, 2013
One year	0	0
Two years	0	519
Three years	46	1,453
Four years	1,170	1,632
Five years	2,895	2,740
More than five years	21,240	17,902
Non-forfeitable	12,450	8,056
Total	37,801	32,302

Tax deferrals relate to the following line items:

Line items	Deferred tax assets		Deferred tax liabilities
in EUR k	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013
Intangible assets	347	334	9,370	9,517
Property, plant and equipment	2,686	1,898	31,502	31,799
Investment property	0	0	1,824	1,795
Financial assets	112	14	20	51
Other non-current assets	0	142	18	18
Inventories	2,781	2,945	2,060	1,604
Trade receivables	510	569	548	151
Other current assets	0	1,134	1,306	787
Cash and cash equivalents	1	1	0	0
Provisions for pensions	19,772	10,933	37	-734
Non-current provisions	2,673	1,207	24	0
Non-current financial liabilities	64	17	409	390
Other non-current liabilities	275	84	0	0
Current provisions	1,121	1,785	29	-72
Trade payables	41	45	36	23
Current financial liabilities	79	19	2	1
Other current liabilities	1,795	1,600	242	152
Deferred taxes associated with investments in subsidiaries	0	0	274	193
Tax loss carryforwards	296	1,171	0	0
Total	32,553	23,898	47,701	45,675
Offsetting of deferred tax assets against deferred tax liabilities	-23,771	-13,147	-23,771	-13,147
Shown in the statement of financial position	8,782	10,751	23,930	32,528

10 Basic and diluted earnings per share

To obtain the basic earnings per share, the period profit attributable to the shareholders of the parent company is divided by the number of individual shares.

Diluted earnings per share correspond to basic earnings per share and are calculated as follows:

	2014	2013
Profit/loss attributable to the shareholders of ­ElringKlinger AG (EUR k)	105,748	105,418
Average number of shares	63,359,990	63,359,990
Earnings per share in EUR	1.67	1.66

Disclosures on the Group Statement of Financial Position

11 Intangible assets

	Development		Patents, licenses,	Intangible assets under
in EUR k	costs (internally generated)	Goodwill (purchased)	software (purchased)	construction (purchased)	Total
Cost as of Jan. 1, 2014	37,326	150,340	52,969	85	240,720
Currency changes	302	1,654	415	0	2,371
Change in consolidated group	0	3,392	1,683	0	5,075
Additions	9,179	0	6,905	30	16,114
Reclassifications	406	0	175	-69	512
Disposals	3,102	0	163	0	3,265
As of Dec. 31, 2014	44,111	155,386	61,984	46	261,527
Depreciation and amortization
as of Jan. 1, 2014	20,576	13,073	30,361	0	64,010
Currency changes	164	327	294	0	785
Change in consolidated group	0	0	69	0	69
Additions	7,589	0	6,988	0	14,577
Disposals	3,102	0	155	0	3,257
As of Dec. 31, 2014	25,227	13,400	37,557	0	76,184
Net carrying amount as of Dec. 31, 2014	18,884	141,986	24,427	46	185,343
Cost as of Jan. 1, 2013	33,487	116,287	41,104	0	190,878
Currency changes	-166	-1,689	-350	0	-2,205
Change in consolidated group	0	35,742	9,604	0	45,346
Additions	8,985	0	2,556	85	11,626
Reclassifications	0	0	132	0	132
Disposals	4,980	0	77	0	5,057
As of Dec. 31, 2013	37,326	150,340	52,969	85	240,720
Depreciation and amortization as of Jan. 1, 2013	18,187	13,217	26,413	0	57,817
Currency changes	-102	-144	-205	0	-451
Additions	6,328	0	4,230	0	10,558
Disposals	3,837	0	77	0	3,914
As of Dec. 31, 2013	20,576	13,073	30,361	0	64,010
Net carrying amount as of Dec. 31, 2013	16,750	137,267	22,608	85	176,710

Purchase commitments to acquire intangible assets amounted to EUR 115 k as of December 31, 2014 (December 31, 2013: EUR 12 k).

All amortization of intangible assets is contained under the following line items in the income statement:

in EUR k	2014	2013
Cost of sales	11,528	7,506
Selling expenses	915	1,018
General and administrative expenses	1,415	1,405
Research and development costs	719	629
Total	14,577	10,558

12 Property, plant and equipment

As of Dec. 31, 2013	64,113	506,087	96,635	0	666,835
Disposals	250	5,561	5,568	0	11,379
Reclassifications	0	-1	1	0	0
Additions	7,019	48,841	7,463	0	63,323
Change in consolidated group	41	3,453	196	0	3,690
Currency changes	-773	-8,731	-626	0	-10,130
Depreciation and amortization as of Jan. 1, 2013	58,076	468,086	95,169	0	621,331
As of Dec. 31, 2013	312,000	776,890	137,745	52,308	1,278,943
Disposals	410	6,273	5,699	0	12,382
Reclassifications	5,464	31,110	2,322	-39,027	-131
Additions	19,720	38,143	10,527	45,553	113,943
Change in consolidated group	7,047	10,058	395	659	18,159
Currency changes	-3,657	-12,917	-997	-1,672	-19,243
Cost as of Jan. 1, 2013	283,836	716,769	131,197	46,795	1,178,597
Net carrying amount as of Dec. 31, 2014	282,775	306,705	47,486	71,014	707,980
As of Dec. 31, 2014	73,612	558,312	103,248	0	735,172
Disposals	66	4,562	3,133	0	7,761
Revaluations	0	208	0	0	208
Reclassifications	0	-50	50	0	0
Additions	7,966	47,612	8,822	0	64,400
Change in consolidated group	773	535	239	0	1,547
Currency changes	826	8,898	635	0	10,359
Depreciation and amortization as of Jan. 1, 2014	64,113	506,087	96,635	0	666,835
As of Dec. 31, 2014	356,387	865,017	150,734	71,014	1,443,152
Disposals	83	5,168	3,414	0	8,665
Reclassifications	12,689	29,459	3,065	-45,724	-511
Additions	25,795	47,717	11,692	61,776	146,980
Change in consolidated group	1,603	1,181	439	0	3,223
Currency changes	4,383	14,938	1,207	2,654	23,182
Cost as of Jan. 1, 2014	312,000	776,890	137,745	52,308	1,278,943
in EUR k	buildings	machinery	fixtures	construction	Total
	Land and	Technical equipment and	equipment furniture and	and equipment under
			Other	Property, plant

Property, plant and equipment contains technical equipment capitalized by the Group as the beneficial owner under lease arrangements in the amount of EUR 1,091 k (2013: EUR 778 k). In the financial year, amortization of leased assets amounted to EUR 289 k (2013: EUR 286 k).

In the financial year 2014, no impairments were recognized on property, plant and equipment. In the prior year, impairments, based on the fair value less costs to sell, of EUR 525 k were recognized on land and buildings in the Original Equipment segment.

Purchase commitments to acquire property, plant and equipment amounted to EUR 54,517 k as of December 31, 2014 (December 31, 2013: EUR 30,237 k).

13 Investment property

	Investment	Investment property under
in EUR k	property	construction	Total
Acquisition cost as of Jan. 1, 2014	23,512	96	23,608
Currency changes	-787	-5	-792
Additions	38	0	38
Disposals	1,416	0	1,416
As of Dec. 31, 2014	21,347	91	21,438
Depreciation and amortization as of Jan. 1, 2014	10,861	0	10,861
Currency changes	-272	0	-272
Additions	463	0	463
Disposals	1,326	0	1,326
As of Dec. 31, 2014	9,726	0	9,726
Net carrying amount as of Dec. 31, 2014	11,621	91	11,712
Acquisition cost as of Jan. 1, 2013	23,652	104	23,756
Currency changes	-217	-2	-219
Additions	77	0	77
Reclassifications	6	-6	0
Disposals	6	0	6
As of Dec. 31, 2013	23,512	96	23,608
Depreciation and amortization as of Jan. 1, 2013	10,427	0	10,427
Currency changes	-67	0	-67
Additions	501	0	501
As of Dec. 31, 2013	10,861	0	10,861
Net carrying amount as of Dec. 31, 2013	12,651	96	12,747

Investment property includes the Idstein and Kecskemét-Kádafalva (Hungary) industrial parks.

Investment property has a fair value of EUR 17,695 k as of the reporting date (2013: EUR 17,460 k). The input data used to determine the fair value correspond to stage 3 of the fair value hierarchy. The fair value is determined using the discounted cash flow method and official valuations. Under the discounted cash flow method, the surplus of expected future rental payments (lease agreements) over the expected cash expenses is discounted to the valuation date. The discount rate used in the calculation was 8.58% (2013: 8.69%). Measurement of the fair values was not performed by an independent expert.

All investment property is rented out under operating leases. The resulting rental income came to EUR 4,451 k (2013: EUR 4,258 k). Expenses directly connected with these financial investments amounted to EUR 4,192 k (2013: EUR 4,462 k). Material contractual commitments to acquire or maintain investment property did not exist as of the end of the reporting period. Furthermore, there were no limitations regarding the saleability of investment property.

14 Financial assets

	Investments accounted for
in EUR k	using the equity method	Non-current securities	Other financial assets	Total
Acquisition cost as of Jan. 1, 2014	0	1,940	101	2,041
Currency changes	0	43	1	44
Additions	0	497	1	498
Revaluations	0	16	0	16
Disposals	0	803	13	816
As of Dec. 31, 2014	0	1,693	90	1,783
Depreciation and amortization as of Jan. 1, 2014	0	61	0	61
Currency changes	0	5	0	5
Revaluations	0	5	0	5
Disposals	0	6	0	6
As of Dec. 31, 2014	0	55	0	55
Net carrying amount as of Dec. 31, 2014	0	1,638	90	1,728
Fair value Dec. 31, 2014	0	1,646	90
Acquisition cost as of Jan. 1, 2013	25,951	1,516	125	27,592
Currency changes	-4,726	-3	-1	-4,730
Change in consolidated group	-21,454	175	0	-21,279
Additions	0	966	5	971
Revaluations	229	20	0	249
Disposals	0	734	28	762
As of Dec. 31, 2013	0	1,940	101	2,041
Depreciation and amortization as of Jan. 1, 2013	0	26	0	26
Currency changes	0	-1	0	-1
Change in consolidated group	0	25	0	25
Additions	0	11	0	11
As of Dec. 31, 2013	0	61	0	61
Net carrying amount as of Dec. 31, 2013	0	1,879	101	1,980
Fair value Dec. 31, 2013	0	1,880	101

Of the non-current securities, EUR 1,365 k (2013: EUR 1,433 k) is pledged in full to secure pension claims.

15 Investment accounted for using the equity method

As of January 1, 2013, the then joint venture ElringKlinger Marusan Corporation, Tokyo, Japan, was disclosed as a financial asset using the equity method. In 2013, the ElringKlinger Group received dividends from joint ventures of EUR 40 k. The financial result includes an investment result of EUR 269 k from joint ventures. The entity has been fully consolidated since December 31, 2013.

16 Non-current income tax assets and other non-current assets

Non-current income tax assets contain mainly the corporate income tax credits of ElringKlinger AG capitalized at present value in the amount of EUR 1,341 k (2013: EUR 1,988 k). The corporate income tax credits are being disbursed to ElringKlinger AG in ten equal annual installments from 2008 until 2017.

Other non-current assets include an advance payment on future licensing expenses amounting to EUR 585 k (2013: EUR 645 k) as well as insurance receivables in the context of warranty claims of EUR 3,190 k (2013: EUR 0 k).

17 Inventories

in EUR k	Dec. 31, 2014	Dec. 31, 2013
Raw materials, consumables and supplies	86,208	74,759
Work in progress	54,364	47,436
Finished goods and merchandise	145,568	132,446
Advance payments	3,958	2,746
Total	290,098	257,387

Under inventories, mark-downs of EUR 17,881 k (2013: EUR 16,319 k) have been made to account for marketability risks. No write-ups were performed. Impairments are recognized in cost of sales.

18 Trade receivables, current income tax assets and other current assets

The carrying amount of the trade receivables and other assets corresponds to their fair values.

For trade receivables and other current assets, impairments of EUR 5,690 k (2013: EUR 4,698 k) were recognized for specific identifiable risks and likely use of discounts.

Trade receivables do not bear interest and are generally due in 30 to 120 days.

The adjustment account for trade receivables developed as follows:

in EUR k	2014	2013
As of Jan. 1	4,698	3,706
Additions	1,649	2,226
Reversals/utilizations	-537	-925
Exchange rate effects	-120	-364
Change in consolidated group	0	55
As of Dec. 31	5,690	4,698

All expenses from impairment of trade receivables or income from their reversal are presented under other operating expenses or income.

A breakdown of the due dates of the trade receivables is provided below:

in EUR k	Dec. 31, 2014	Dec. 31, 2013
Neither overdue nor impaired	201,349	170,351
Overdue, not impaired
– less than 30 days	22,261	17,504
– from 31 to 60 days	10,119	7,110
– from 61 to 90 days	2,345	3,985
– from 91 to 180 days	2,665	2,260
– more than 180 days	3,098	2,610
Total	40,488	33,469
Discounts	-246	-273
Impaired	3,493	3,906
Carrying amount	245,084	207,453

The need to recognize impairment losses is analyzed on every reporting date for major customers on an individual basis. Additionally, a large number of receivables are grouped into homogeneous groups and assessed for impairment collectively.

For the portfolio of receivables neither overdue nor impaired, there are no indications as of the reporting date that would indicate that the debtors will not meet their payment obligations.

The other current assets include receivables relating to VAT and other taxes amounting to EUR 13,410 k (2013: EUR 14,787 k), as well as insurance receivables in the context of warranty claims.

19 Cash and cash equivalents

The item cash and cash equivalents comprises cash and deposits held by the Group in current accounts. As in the previous year, there were no cash equivalents.

The carrying amount of these assets corresponds to their fair value.

20 Non-current assets held for sale

The property held for sale as of January 1, 2013 is a building held by ElringKlinger Korea Co., Ltd., Gumi, Korea, which was sold in the financial year 2013. This did not have any effect on earnings in 2013.

21 Equity

The changes in individual items of equity in the Group are shown separately in the "Statement of changes in equity".

The share capital of ElringKlinger AG amounted to EUR 63,359,990 as of December 31, 2014 and is divided into 63,359,990 registered shares, each entitled to a single vote. The share capital is paid in full. Each registered share represents a theoretical interest of EUR 1.00 of the share capital. Profit is distributed in accordance with §60 AktG in conjunction with § 23 no. 1 of the Articles of Association.

The Management Board is authorized, subject to the approval of the Supervisory Board, to increase the Company's share capital by issuing new shares for cash and/or in-kind contributions on one or more occasions, however by no more than EUR 31,679,995, by May 17, 2017 (Authorized Capital 2012). As a rule, the shareholders are entitled to subscription rights. The shares may also be acquired by one or more banks subject to the proviso that they offer them to the shareholders for subscription. However, the Management Board is authorized, subject to the approval of the Supervisory Board, to exclude shareholder subscription rights

• in order to eliminate fractional amounts;
• if the capital increase against in-kind contributions is implemented specifically for the purpose of acquiring companies, parts of companies, equity investments classified as fixed financial assets or other assets in connection with an intended acquisition or within the framework of business combinations;
• if the new shares are issued against cash contributions and if the issue price per new share does not fall significantly below the quoted price of shares already listed, and the shares issued without subscription rights pursuant to § 186 (3) sentence 4 AktG, do not represent more than 10% of the share capital, either on the date on which this authorization takes effect or on the date on which it is exercised. The upper limit of 10% of share capital includes any shares issued or sold during the term of this authorization in exclusion of shareholders' subscription rights in direct or indirect application of §186 (3) sentence 4 AktG.

The Management Board has not exercised the authorization to date.

The capital reserves were essentially created from the premium from the 2010 capital increase.

The revenue reserves contain the earnings generated by the group companies which have not yet been distributed. There is also an amount of EUR 26,181 k arising from the first application of IFRSs in 2005.

Other reserves contain actuarial gains and losses from pension commitments, equity impact of controlling interests and currency translation differences.

Under the German Stock Corporation Act (AktG), the distributable dividend is measured by the sum of retained earnings and the profit or loss for the year, as shown in the annual financial statements of ElringKlinger AG that have been drawn up according to the provisions of the German Commercial Code (HGB). In the financial year 2014, ElringKlinger AG distributed to its shareholders a dividend of EUR 31,680 k (EUR 0.50 per share) from the distributable dividend for 2013. In the financial year 2013, the distribution was EUR 28,512 k (EUR 0.45 per share) from the distributable dividend for 2012.

The Management Board and the Supervisory Board will propose to the Annual General Meeting held to ratify the 2014 financial statements on 13 May 2015, a distribution from distributable dividend amounting to EUR 34,848 k, a dividend of EUR 0.55 per share carrying dividend rights.

22 Non-controlling interests in equity and net income

ElringKlinger AG holds less than 100% of the shares in some of the companies that have been included in the consolidated financial statements. In accordance with IFRS 10, the relevant non-controlling interests are reported under equity in the group statement of financial position, separately from the equity attributable to the shareholders of the parent company. Similarly, non-controlling interests in the net income and in total comprehensive income are reported separately in the group income statement and in the consolidated statement of comprehensive income.

23 Provisions for pensions

The pension obligations of the Group's foreign companies mainly take the form of defined contribution plans while in the case of domestic companies, pension obligations take the form of defined benefit and defined contribution plans.

Under the defined contribution plans the company pays contributions to state or private pension schemes on the basis of statutory or contractual obligations or on a voluntary basis. Once the contributions are paid, the company has no further obligations, such as follow-up contribution payments. Current contribution payments are reported under personnel expenses in the reporting year; in the reporting year, the Group's contribution payments totaled EUR 19,004 k (2013: EUR 16,511 k) and are allocated to the relevant function costs.

The defined benefit plans are accounted for in the group through the recognition of provisions for pensions that are determined by the projected unit credit method in accordance with IAS 19. Under the defined benefit plans, the employees receive life-long pension payments once they have reached a certain age or suffered disability. In addition, surviving dependents also receive benefits. The amount of the benefit is determined by the length of service with the company and the employee's terminal salary. For employees subject to collective bargaining, the eligible service period is limited to 30 years. For executive employees, the benefit is limited to 35% or 45% of the terminal salary, whereby in certain cases the benefits from prior commitments do not count towards this limit.

In 2011, the ElringKlinger AG's pension system was partially modified. In order to secure pension payments going forward, the obligations to certain executive employees were transferred to Allianz Pensionsfonds AG and a provident fund covered by plan assets, Allianz Pensions-Management e.V. This does not affect the amount of benefits. The assets received by the pension fund constitute plan assets within the meaning of IAS 19.8 and are therefore netted against the obligation to the plan beneficiaries.

The pension plans of the Swiss companies insure employees against the economic consequences of old age, disability and death. Assets are fully covered by pension insurance policy. No shortfall can arise from an agreement at a fully insured pension fund.

The obligations from the benefits granted are subject to certain risks. The main risks are interest rate risks, where falling market interest rates lead to a higher present value of the obligation in the future, inflation risks, which may lead to higher pension benefits and longevity risks where benefits are paid over a period longer than the one assumed in the mortality tables.

The following assumptions were used as a basis for measuring the Group's obligations.

Measurement as of	Dec. 31, 2014	Dec. 31, 2013
Discount rate (vesting period)	1.84%	3.22%
Discount rate (pension period)	1.55%	2.94%
Expected salary increases (in %)	2.53%	2.53%
Future pension increases	1.75%	1.75%

The changes in the present value of the defined benefit obligation are as follows:

2014	2013
119,670	125,070
4,260	4,245
-22	-191
2,817	2,525
3,679	3,274
-5,449	-4,759
29,658	-8,959
777	-551
47	-2,918
571	1,935
156,008	119,670
40,411	32,036
115,597	87,634

The average weighted term of the defined benefit obligation amounts to 18 years (2013: 16 years). Actuarial gains and losses arise from the following effects:

in EUR k	2014	2013
Effects from changes in the interest rate	26,499	-9,276
Effects from changes in demographic assumptions	47	20
Effects from other experience-based adjustments	3,112	297
Actuarial gains/losses	29,658	-8,959

The table below shows the changes to the plan assets over the course of the financial year:

in EUR k	2014	2013
Market value as of Jan. 1	27,347	26,579
Change in consolidated group	346	108
Interest income	654	586
Employer contributions	2,460	1,957
Plan participant contributions	2,817	2,410
Service costs	-2,100	-1,525
Actuarial gains/losses	-166	29
Other	0	-2,388
Currency effects	560	-409
Market value as of Dec. 31	31,918	27,347

Plan assets comprise insurance claims. The plan assets and present value of defined benefit obligations are allocated to key countries as follows:

in EUR k	2014	2013
Present value of pension benefits as of Dec. 31
Germany	111,608	84,047
Switzerland	40,411	32,038
Other	3,989	3,585
Present value of pension benefits as of Dec. 31	156,008	119,670
Market value of plan assets as of Dec. 31
Germany	2,778	2,368
Switzerland	29,083	24,848
Other	57	131
Market value of plan assets as of Dec. 31	31,918	27,347

The actual return on plan assets amounted to EUR 799 k (2013: EUR 638 k).

In 2015, liquidity is likely to be reduced due to contributions to plan assets and the reimbursement rights and by direct Group benefit payouts, which are expected to amount to EUR 8,548 k (2013: EUR 7,739 k). The future payments from pension obligations are as follows:

in EUR k	2014	2013
For the next 12 months	8,548	7,739
Between one and five years	15,910	15,062
More than five years	220,148	227,017

The following amounts are reported in the income statement for defined benefit plans

in EUR k	2014	2013
Current service cost	4,260	4,245
Net interest expenses	3,025	2,688
Past service cost	-6	-190
Total pension expense	7,279	6,743

Net interest expenses comprise interest expenses of EUR 3,679 k (2013: EUR 3,274 k) as well as interest income from plan assets of EUR 654 k (2013: EUR 586 k).

The current service cost and past service costs are reported as part of the personnel expenses of the functional areas.

The full amount of actuarial gains and losses during the current year is reported under other comprehensive income. Changes are shown in the table below:

in EUR k	2014	2013
Actuarial gains (-) and (+) losses recognized in other
comprehensive income	29,816	-9,079
Deferred taxes on actuarial gains (-) and losses (+)
recognized under other comprehensive income	-7,964	3,088

The amount of the Group's obligation as reported on the statement of financial position is derived as follows:

2014	2013
156,008	119,670
31,918	27,347
124,090	92,323

With regard to sensitivities, the key actuarial assumptions determined were the discount rate, salary increases and future pension developments.

A 1% increase/decrease in the discount rate would lead to a decrease/increase in the DBO of EUR 86,700 k/EUR 143,225 k.

A 0.5% increase/decrease in future salary increases would lead to an increase/decrease in the DBO of EUR 113,775 k/EUR 108,953 k.

A change in future pension developments of +0.25%/-0.25% would lead to an increase/decrease in the DBO of EUR 115,182 k/EUR 106,399 k.

24 Other provisions

Other provisions can be broken down as follows:

in EUR k	Dec. 31, 2014	Dec. 31, 2013
Current provisions	16,469	19,472
Non-current provisions	16,638	10,345
Total	33,107	29,817

Current provisions:

	Personnel	Warranty	Expected losses from customer	Litigation
in EUR k	obligations	obligations	contracts	costs	Other risks	Total
As of Dec. 31, 2013	2,164	5,474	3,384	164	8,286	19,472
Exchange rate differences	0	59	10	1	91	161
Change in consolidated group	0	50	0	156	0	206
Utilization	2,379	1,881	3,394	76	7,005	14,735
Reversal	408	1,251	0	233	1,098	2,990
Addition	2,907	1,251	3,390	205	6,585	14,338
Reclassifications	0	-4	0	0	21	17
As of Dec. 31, 2014	2,284	3,698	3,390	217	6,880	16,469

The provisions for warranties are counterbalanced by reimbursement rights against third-party insurance providers of EUR 5,492 k, of which EUR 3,190 k is disclosed under other non-current assets. EUR 2,302 k is

The other risks relate to a variety of identifiable individual risks and uncertain obligations, which have been recognized as they are more likely than not to

disclosed under other current assets.

lead to an outflow of resources.

Personnel obligations	Warranty obligations	losses from customer contracts	Litigation costs	Other risks	Total
8,387	1,036	0	193	729	10,345
56	9	0	3	3	71
0	0	0	0	2	2
1,218	239	0	68	271	1,796
472	52	0	25	63	612
96	-82	0	0	4	18
3,161	5,008	0	222	236	8,627
71	4	0	0	-92	-17
10,081	5,684	0	325	548	16,638
			Expected

Non-current provisions:

Personnel provisions are recognized for phased retirement schemes, long-term service benefits and similar obligations.

The provision for warranties represents the best estimate of the management and was recognized on the basis of past experience and the industry average for defective products with regard to the Group's liability for a warranty of twelve months. In addition, specific individual warranties were taken into account.

25 N on-current and current financial liabilities
in EUR k	Domestic	Foreign	Total Dec. 31, 2014	Domestic	Foreign	Total Dec. 31, 2013
Overdrafts	114,213	149	114,362	52,582	2,884	55,466
Financial liabilities with a residual term of less than one year	14,199	19,971	34,170	26,450	38,967	65,417
Current financial liabilities	128,412	20,120	148,532	79,032	41,851	120,883
Financial liabilities with a residual term of between one and five years	161,227	93,643	254,870	165,357	53,536	218,893
Financial liabilities with a residual term of more than five years	13,638	0	13,638	18,453	0	18,453
Non-current financial liabilities	174,865	93,643	268,508	183,810	53,536	237,346
Total	303,277	113,763	417,040	262,842	95,387	358,229

This includes liabilities from finance leases in the amount of EUR 455 k (2013: EUR 608 k) with a nominal volume of EUR 473 k (2013: EUR 622 k).

The average interest rates were:

in %	Dec. 31, 2014	Dec. 31, 2013
Overdrafts:
Domestic	0.88	0.91
Foreign	3.50	6.20
Financial liabilities:
Domestic: less than one year	2.86	3.81
Domestic: between one and five years	2.30	2.19
Domestic: more than five years	1.84	1.79
Foreign: less than one year	2.28	2.81
Foreign: between one and five years	2.37	1.93
Foreign: more than five years	–	–

Fixed interest rates have been agreed for financial liabilities amounting to EUR 287,442 k (2013: EUR 291,745 k).

Land charges on company land with a carrying amount of EUR 117,863 k (2013: EUR 108,107 k), collateral on inventory with a carrying amount of EUR 6,759 k (2013: EUR 3,782 k) and collateral on receivables of EUR 6,017 k (2013: EUR 2,643 k) have been pledged as collateral. The secured liabilities amounted to EUR 47,385 k (2013: EUR 48,483 k) as of December 31, 2014.

As of December 31, 2014, the Group had unused lines of credit amounting to EUR 87,683 k (2013: EUR 117,140 k).

26 Trade payables and other current and non-current liabilities

Trade payables and other current and non-current liabilities consist of outstanding obligations from trade and current expenses.

The carrying amounts of trade payables approximate their fair value.

The trade payables and other current and non-current liabilities are not secured except for the retentions of title that are customary in trading relationships.

Other current and non-current liabilities include accrued liabilities relating to tooling revenue.

27 Hedging policy and financial instruments

Risks and hedging policy

As a consequence of the international nature of the activities of the ElringKlinger Group, changes in exchange rates, interest rates and prices of raw materials impact the assets, liabilities, financial position and profit or loss of the Group. The risks arise from currency and interest rate fluctuations in connection with business operations and financing. Further risks result from fluctuations in the market prices of raw materials. Additionally, there are liquidity risks which relate to credit and market risks or accompany a deterioration of business operations and financial market turmoil.

By concluding hedges, the Management Board of ElringKlinger AG aims to manage the risk factors that may adversely affect the assets, liabilities, financial position and profit or loss and thus to minimize these influences. Within the ElringKlinger Group, derivative financial instruments may only be entered into with the consent of the Management Board. Hedge accounting in accordance with IAS 39 was not applied.

Currency risk

Due to the international nature of its business, the ElringKlinger Group is exposed to currency risks in the normal course of business.

Exchange rate risk arises for the Group in relation to its operating business principally when sales revenues are generated in a different currency than that in which the related costs are incurred. Sales revenues are generally generated in the functional currency (which is the relevant national currency) of the Group entity concerned. In order to reduce currency risks from operating business, the purchases of goods, raw materials and services as well as investing and financing activities are generally accounted for in the functional currency of the group entity. The group also endeavors to minimize its foreign currency risk by manufacturing its products in the relevant local sales markets.

In order to further limit currency risk, current receivables and liabilities denominated in foreign currencies are hedged with forward currency transactions.

Subsidiaries are not permitted to take out financing in foreign currency or to invest it for speculative reasons. Intercompany financing and investment is usually denominated in the relevant functional currency.

Several ElringKlinger AG subsidiaries are domiciled outside the euro area. Since the euro is the reporting currency of the ElringKlinger Group, the income and expenses of these subsidiaries are translated into euros upon consolidation. Changes in the closing rates and changes in the closing rates compared to the average rates and historical rates can give rise to currency translation effects that are reflected in the equity of the Group under other comprehensive income.

Due to the inclusion of subsidiaries, the group also recognizes assets and liabilities relating to these subsidiaries outside of the euro area that are denominated in national currencies. When these assets are translated into euros, exchange rate fluctuations can lead to changes in value. The changes in these net assets are reflected in group equity under other comprehensive income.

A sensitivity analysis has been conducted in order to quantify the potential effects of exchange rate changes on consolidated net income. This analysis illustrates the change in consolidated net income in the event that the relevant functional currency of the Group companies appreciates or depreciates by 10% as compared to the foreign currency.

Dec. 31, 2014
in EUR k	CHF	CNY	EUR	KRW	INR	Other	Total
Local currency –10%
Consolidated net income	2,259	-2,127	1,527	-1,064	-838	-762	-1,005
Local currency +10%
Consolidated net income	-2,259	2,127	-1,527	1,064	838	762	1,005
Dec. 31, 2013
in EUR k	CHF	CNY	EUR	INR	KRW	Other	Total
Local currency –10%
Consolidated net income	2,138	-1,739	1,404	-932	-436	-541	-106
Local currency +10%
Consolidated net income	-2,138	1,739	-1,404	932	436	541	106

Interest rate risk

Interest rate risk arises primarily from financial assets that are subject to a floating rate of interest. The Group manages interest rate risk with the objective of optimizing its interest income and expense.

Fixed interest rates have been agreed mainly for the financing liabilities of the ElringKlinger Group. As a result, the risk arising from interest rate fluctuations is only slight.

Had market interest rates been 100 basis points higher on December 31, 2014, earnings would have been EUR 205 k (2013: EUR 446 k) greater. Had market interest rates been 100 basis points lower, earnings would have been EUR 24 k higher (2013: EUR 446 k lower).

Risk arising from prices for raw materials

ElringKlinger is exposed to risks from changes in the prices for the raw materials it uses in production. In order to mitigate fluctuations in the purchase prices for raw materials, ElringKlinger has entered into four nickel hedges. Where necessary, it is possible to secure acceptable procurement prices by means of additional derivatives.

ElringKlinger processes a significant volume of high-grade steel. This includes alloy surcharges, in particular for nickel, which is a listed metal subject to market price fluctuations. ElringKlinger uses derivative financial instruments to hedge portions of alloy surcharges assessed in cost calculations. A price corridor surrounding the average calculation cost is hedged. If the quoted exchange price of nickel exceeds the upper range of the corridor, ElringKlinger receives a compensatory payment. If the quoted exchange price of nickel falls below the lower range of the corridor, ElringKlinger has to pay a surcharge. The existing nickel hedges expire in the financial year 2015 and the latest expiration date is on December 31, 2015.

The Group manages the credit risk of derivatives by entering into derivative financial transactions exclusively with major banks of impeccable creditworthiness in accordance with uniform guidelines.

Had the market value of nickel been 10% higher on December 31, 2014, earnings would have been EUR 1 k (2013: EUR 48 k) greater. A 10% reduction would have resulted in EUR 282 k (2013: EUR 111 k) less in earnings.

Credit risk

Credit risk defines the risk of economic loss arising from a counterparty's failure to satisfy contractual payment obligations.

Credit risk encompasses both the direct risk of default, the risk of a ratings downgrade, and concentration risks. The maximum risk exposures of financial assets generally subject to credit risk correspond to their carrying amounts and can be described as follows:

Liquid funds

Liquid funds comprise primarily bank deposits available on demand. The ElringKlinger Group is exposed to losses from credit risks in connection with the investment of liquid funds if financial institutions fail to meet their obligations (counterparty risk). In order to minimize this risk, care is taken in selecting the financial institutions at which deposits are made. The maximum risk exposure corresponds to the carrying amount of the liquid funds at the end of the reporting period.

Trade receivables

Trade receivables relate primarily to the global sales of gaskets, sealing materials, plastic products and modules for the automotive sector and for the manufacturing industry in general. Credit risk resides in the possibility of counterparty default, and is characterized by the Group's customer base, which includes a number of key accounts.

In domestic business, most receivables are secured by retention of title. In order to limit credit risk, credit checks in the form of inquiries with credit information services are performed for selected counterparties. Moreover, internal processes are in place to continually monitor receivables where partial or complete default may be anticipated.

In its export business, ElringKlinger also assesses the credit standing of its counterparties by submitting inquiries to credit information services and on the basis of the specific country risk. In addition, credit insurance policies are taken out or letters of credit are required in certain cases. Trade receivables of EUR 10,490 k are secured by credit insurance policies.

Allowances are also recognized in respect of identifiable individual risks. The maximum risk exposure from trade receivables corresponds to the carrying amount of these receivables at the end of the reporting period. The carrying amounts of trade receivables, together with a separate breakdown of overdue receivables and receivables for which allowances have been recognized, can be found in note 18.

In 2014, the two largest customers accounted for 10.4% and 8.1% of sales, respectively (2013: 12.0% and 9.3%).

Liquidity risk

The solvency and liquidity of the ElringKlinger Group is constantly monitored by liquidity planning. Furthermore, a cash liquidity reserve and guaranteed credit lines ensure solvency and liquidity. Reference is also made to the financing risks presented in the risk report as part of the group management report of the ElringKlinger Group.

Expected cash outflows

The following table shows all contractually fixed payments for redemptions, repayments and interest from financial liabilities recognized in the statement of financial position, including derivative financial instruments that have a negative market value.

in EUR k	Trade payables	Financial liabilities	Finance leases	Derivatives	Total
As of Dec. 31, 2014
Carrying amount	68,753	416,585	455	140	485,933
Outflows
Expected outflows:	68,753	435,654	473	140	505,020
– less than one month	41,341	52,573	17	12	93,943
– between one and three months	22,988	7,184	32	23	30,227
– between three months and one year	2,265	95,014	167	105	97,551
– between one and five years	2,078	266,924	257	0	269,259
– more than five years	81	13,959	0	0	14,040
As of Dec. 31, 2013
Carrying amount	68,574	357,621	608	220	427,023
Outflows
Expected outflows:	68,574	376,988	622	220	446,404
– less than one month	42,602	45,494	40	110	88,246
– between one and three months	22,374	9,420	77	73	31,944
– between three months and one year	3,598	63,673	340	37	67,648
– between one and five years	0	239,172	165	0	239,337
– more than five years	0	19,229	0	0	19,229

Further disclosures on financial liabilities are provided under note (25).

28 Additional information on financial instruments

This section provides a comprehensive overview of the significance of financial instruments and offers additional information on line items of the statement of financial position containing financial instruments. No recognized financial instruments were offset.

The following table shows the carrying amounts (CA) and fair values (FV) of financial assets

	Cash and cash equiva lents	Trade re ceivables	Other current assets	Deriva tives		Non-current securities	Other financial assets		Total
in EUR k	CA	CA	CA	CA	CA	FV	CA	FV	CA
As of Dec. 31, 2014
Loans and receivables	68,733	245,084	945	0	0	0	76	76	314,838
Held to maturity	0	0	0	0	1,444	1,448	0	0	1,444
Held for trading	0	0	0	29	0	0	0	0	29
Available for sale	0	0	0	0	194	194	14	14	208
Total	68,733	245,084	945	29	1,638	1,642	90	90	316,519
As of Dec. 31, 2013
Loans and receivables	62,949	207,453	1,228	0	0	0	74	74	271,704
Held to maturity	0	0	0	0	1,433	1,431	0	0	1,433
Held for trading	0	0	0	87	0	0	0	0	87
Available for sale	0	0	0	0	446	446	27	27	473
Total	62,949	207,453	1,228	87	1,879	1,877	101	101	273,697

	Other current liabilities	Current financial liabilities	Trade payables		Derivatives		Non-current financial liabilities	Finance leases		Total
in EUR k	CA	CA	CA	CA	FV	CA	FV	CA	FV	CA
As of Dec. 31, 2014
Financial liabilities measured at acquisition cost	47,989	148,532	68,753	0	0	268,263	266,098	245	257	533,782
Financial liabilities measured at fair value through profit or loss	0	0	0	140	140	0	0	0	0	140
As of Dec. 31, 2013
Financial liabilities measured at
acquisition cost	49,040	120,883	68,574	0	0	237,184	239,273	162	165	475,843
Financial liabilities measured at fair value
through profit or loss	0	0	0	220	220	0	0	0	0	220

The following table shows the carrying amounts (CA) and fair values (FV) of financial liabilities:

Other current liabilities contain a purchase price liability of EUR 36,987 k (2013: EUR 37,054 k) from a written put option which is measured at amortized cost.

Management determined that the carrying amount of cash, trade receivables, other receivables, trade payables, other current financial liabilities and other current liabilities is virtually the same as their fair value primarily as a result of the short term of these instruments.

The fair value of the other financial instruments held to maturity is based on prices quoted in an active market as of the reporting date.

ElringKlinger determines the market value of non-current fixed-interest liabilities to banks, finance lease liabilities and derivatives by discounting expected future cash flows with the current prevailing interest rates for similar financial liabilities with comparable residual terms and the company-specific risk rate.

The fair value of the put option of non-controlling interests of ElringKlinger Marusan Corporation on their shares contained in other current liabilities is based on forecasts of it business value. For the measurement of this put option of non-controlling interests, estimates are made when forecasting business development as well as when selecting the interest rate used regarding the liability recognized. A 10% change in the business value causes the put option to increase/decrease by EUR 3,699 k.

in EUR k Level 1 Level 2 Level 3 Dec. 31, 2014 Financial assets Non-current securities 194 0 0 Other financial assets 14 0 0 Derivatives* 0 29 0 Total 208 29 0 Financial liabilities Derivatives* 0 140 0 Total 0 140 0 Dec. 31, 2013 Financial assets Non-current securities 446 0 0 Other financial assets 27 0 0 Derivatives* 0 87 0 Total 473 87 0 Financial liabilities Derivatives* 0 220 0 Total 0 220 0

Financial assets and liabilities measured at fair value are classified into the following 3-level fair value hierarchy as of the valuation date December 31, 2014:

* These are derivatives which do not meet the prerequisites for hedge accounting.

The following table shows the allocation of financial assets and liabilities that are not measured at fair value, but for which a fair value was disclosed, at the three levels of the fair value hierarchy as of the valuation date December 31, 2014:

in EUR k	Level 1	Level 2	Level 3
Dec. 31, 2014
Financial assets
Non-current securities	1,448	0	0
Other financial assets	0	0	76
Total	1,448	0	76
Financial liabilities
Non-current liabilities from finance leases	0	0	257
Non-current financial liabilities	0	266,098	0
Purchase price liability from written put option	0	0	36,987
Total	0	266,098	37,244
Dec. 31, 2013
Financial assets
Non-current securities	1,431	0	0
Other financial assets	0	0	74
Total	1,431	0	74
Financial liabilities
Non-current liabilities from finance leases	0	0	165
Non-current financial liabilities	0	239,273	0
Purchase price liability from written put option	0	0	37,054
Total	0	239,273	37,219

The levels of the fair value hierarchy are defined as follows:

Level 1: Measurement based on market prices

Level 2: Measurement based on market prices for similar instruments on the basis of measurement models based on inputs that are observable on active markets.

Level 3: Measurement based on inputs for assets and liabilities not representing observable market data.

An assessment is made at the end of every reporting period as to whether the assets and liabilities accounted for at fair value have been transferred between the levels of the fair value hierarchy. There were no reclassifications in the reporting period.

Net gains/losses on financial instruments

in EUR k	2014	2013
Held-for-trading financial instruments*	114	-121
Available-for-sale assets	0	20
Held-to-maturity investments	-4	-1
Loans and receivables	-2,132	-1,874
Financial liabilities measured at acquisition cost	4,370	-3,305

* These are derivatives which do not meet the prerequisites for hedge accounting.

Net gains and losses from derivatives include the effects from changes in market values, which were recorded in full in profit or loss for the period.

Net gains on disposal of available-for-sale assets include income from the fair value adjustment of securities recognized in other comprehensive income. There were no net gains that were reclassified from other comprehensive income to the income statement.

Net gains and losses on held-to-maturity investments include impairments and revaluations.

Net gains and losses on loans and receivables primarily consist of impairments and revaluations.

Net losses from financial liabilities measured at cost include currency translation losses.

Total interest income and expense for financial assets and liabilities that are not measured at fair value through profit and loss were as follows:

in EUR k	2014	2013
Total interest income	431	350
Total interest expense	-8,326	-8,162

As in the previous year, total interest income did not result in interest income from impaired financial assets.

Derivative financial instruments

As of the end of the reporting period, December 31, 2014, there were the following financial derivatives:

in EUR k	Fairvalue	Carrying amount	Line item
Commodities derivatives
Nickel hedge	29	29	Other current assets
Nickel hedge	-140	-140	Current provisions
Interest rate derivatives
Interest rate swap	0	0
Total	-111	-111

The market values of the financial derivatives are computed using recognized mathematical methods and the market data available as of the end of the reporting period (mark-to-market method).

29 Finance leases

Liabilities from finance leases relate to leases of property, plant and equipment which transfer substantially all risks and rewards of beneficial ownership to the Group as lessee. As of December 31, 2014, future minimum lease payments under finance leases amounted to EUR 473 k (2013: EUR 622 k). The reconciliation of future minimum lease payments from finance lease arrangements to the corresponding liabilities as of December 31, 2014 is as follows:

		Interest
		included in
	Minimum lease	minimum	Liabilities from
	payments	lease payments	finance leases
in EUR k	Dec. 31, 2014	Dec. 31, 2014	Dec. 31, 2014
Term
Less than one year	216	6	210
Between one and five years	257	12	245
More than five years	0	0	0
Total	473	18	455

30 Capital management

ElringKlinger believes that the Group's sound financial base is a prerequisite for further growth. The Group's solid capital resources render it possible to invest in future organic growth, as well as in external growth.

The Management Board of the parent company has set a target minimum equity ratio of 40% within the Group. ElringKlinger AG's Articles of Association do not define any capital requirements.

The management is authorized to buy back own shares up to a total of 10% of the share capital existing at the time of the resolution (May 21, 2010). The authorization is valid until May 21, 2015. There are no share option programs that impact the capital structure.

The following table presents changes in equity and total assets as of December 31, 2014 as compared to December 31, 2013.

in EUR million	2014	2013
Equity	775.2	701.4
as % of total capital	49.7%	50.4%
Non-current liabilities	439.4	379.0
Current liabilities	344.2	311.7
Debt	783.6	690.7
as % of total capital	50.3%	49.6%
Total capital	1,558.8	1,392.1

The change in equity from December 31, 2013 to December 31, 2014 was due primarily to an increase in revenue reserves and, on the other hand, to a decrease in other reserves. Debt was increased yearon-year by 13.5%.

The equity ratio of the Group (49.7%) exceeded the 40% target equity ratio set by the Supervisory Board and Management Board.

All covenants were satisfied during the reporting period.

For one loan, financial covenants have been agreed upon, and if these covenants are breached, the terms of the loans change and the loans become immediately callable. These can be broken down as follows:

Dec. 31, 2014 Covenant	Upper/lower limit	Value as of Dec. 31, 2014
Equity ratio within the Group	25%	41.1%1
Ratio of financial liabilities to EBITDA	2.8:1	1.75
Ratio of EBIT to interest expenses	3.5:1	19.09

1 The equity ratio within the Group is calculated on the basis of the equity capital and the balance sheet total, both adjusted for items that reduce equity, in accordance with the specifications of the lender.

31 Notes to the Statement of Cash Flows

The group statement of cash flows shows how the liquidity of the ElringKlinger Group has changed as a result of cash inflows and outflows in the course of the financial year. In accordance with IAS 7, cash flows are categorized as cash flows from operating activities, investing activities or financing activities.

The cash reported in the statement of cash flows comprises liquid funds reported on the statement of financial position, i.e., cash in hand, checks and bank deposits.

Cash flows from investing and financing activities are determined by reference to payments. By contrast, cash flows from operating activities are derived indirectly from earnings before taxes for the year. For the indirect computation, effects from currency translation and changes to the scope of the consolidated financial statements are eliminated from the changes to the items of the statement of financial position arising from operating activities. For this reason, it is not possible to reconcile the changes in the relevant items of the statement of financial position with the corresponding figures in the published group statement of financial position.

32 Segment reporting

The organizational and internal reporting structure of the ElringKlinger Group is centered around its five business divisions: "Original Equipment", "Aftermarket", "Engineered Plastics", "Services" and "Industrial Parks".

The activities in the "Original Equipment" and "Aftermarket" reporting segments relate to the manufacturing and distribution of parts and components for the engine, transmission and exhaust system in motor vehicles (powertrain), as well as battery and fuel cell components and tools machining.

The "Engineered Plastics" segment manufactures and distributes technical products made of high-performance PTFE plastics for the vehicle and general industrial sectors.

The "Services" reporting segment primarily operates engine test benches and contributes to the development of engines.

The "Industrial Parks" segment is responsible for the administration and leasing of land and buildings.

The "Consolidation" column in the "Segment reporting" table below provides an overview of consolidation entries between the segments. The "Other" column merely contains financial liabilities not directly attributable to the individual segments. Internal control and reporting are based on IFRSs. The Group measures the performance of its segments based on earnings before taxes in accordance with IFRSs. With the exception of the Original Equipment segment's provision of supplies to the Aftermarket segment, the extent of trade between the individual segments is insignificant. The exchange of goods and/or services between the segments takes place at arm's-length prices.

The segment results do not contain an impairment loss.

The Original Equipment segment generated more than 10% of the Group's consolidated sales revenues from one customer (EUR 138.4 k).

Segment reporting

Segment		Original Equipment		Aftermarket Engineered Plastics			Industrial Parks
in EUR k	2014	20135	2014	20135	2014	20135	2014	20135
External revenue	1,089,736	925,883	130,710	119,266	92,868	92,571	4,451	4,258
Intersegment revenue	24,698	18,499	0	0	542	156	234	302
Segment revenue1	1,114,434	944,382	130,710	119,266	93,410	92,727	4,685	4,560
EBIT2	111,151	123,212	25,129	22,454	15,438	16,070	408	114
+ Interest income	851	688	81	35	448	431	19	12
- Interest expense	-10,552	-10,573	-1,230	-1,135	-485	-569	-53	-39
Earnings before taxes	111,436	109,400	23,856	21,205	15,448	15,908	493	98
Depreciation and amortization3	71,880	67,928	1,715	1,165	4,230	3,698	414	436
Capital expenditures4	145,144	114,176	2,807	2,044	11,522	5,195	85	217
Segment assets	1,366,294	1,224,842	75,637	67,044	99,181	90,950	14,663	15,729
Segment liabilities	433,648	394,242	20,884	22,756	25,194	22,490	1,271	1,342

Segment	Services		Other		Consolidation1			Group
in EUR k	2014	20135	2014	20135	2014	20135	2014	20135
External revenue	8,069	8,105	0	0	0	0	1,325,834	1,150,083
Intersegment revenue	5,238	4,225	0	0	-30,712	-23,182	0	0
Segment revenue1	13,307	12,330	0	0	-30,712	-23,182	1,325,834	1,150,083
EBIT2	1,877	2,306	0	0	0	0	154,003	164,156
+ Interest income	30	20	0	0	-550	-481	879	705
- Interest expense	-46	-37	0	0	550	481	-11,816	-11,872
Earnings before taxes	1,861	2,289	0	0	0	0	153,094	148,900
Depreciation
and amortization3	1,202	1,167	0	0	0	0	79,441	74,394
Capital expenditures4	3,574	4,015	0	0	0	0	163,132	125,647
Segment assets	13,382	13,049	0	0	-10,338	-19,533	1,558,819	1,392,081
Segment liabilities	4,259	4,568	308,707	264,871	-10,338	-19,533	783,625	690,736

¹ See comments on page 176

² Earnings before interest and taxes

3 Depreciation and amortization including impairments

4 Investments in intangible assets and property, plant and equipment and investment property

Prior-year figures restated, see comments in section Restatement of previous year's figures

Segment reporting by region

Region			Non-current
in EUR k		Sales revenues1	assets	Investments
Germany	2014	388,116	421,025	72,293
	2013	360,796	385,784	52,791
Rest of Europe	2014	433,815	232,329	29,747
	2013	358,731	215,079	28,099
NAFTA	2014	220,415	73,055	21,544
	2013	200,302	53,920	19,416
Asia-Pacific	2014	225,634	153,613	35,668
	2013	164,585	124,194	17,884
South America and rest of the world	2014	57,854	26,741	3,880
	2013	65,669	24,568	7,457
Group	2014	1,325,834	906,763	163,132
	2013	1,150,083	803,545	125,647

¹ The location of the customer is used to allocate sales revenues to the region

Other disclosures

Contingent liabilities

As in the previous year, the ElringKlinger Group is currently not subject to contingent liabilities from guarantees, performance bonds or bills of exchange issued.

Contingent liabilities

For one group company, it was determined that formal requirements in approval and information processes for public authorities were not fully complied with. National legislation provide for corresponding fines in such a case. The authorities have not yet begun formal proceedings. We currently see it as not improbable that the authorities will do so. A potential cash outflow is expected to come to a mid seven-digit figure in euro. A potential refund of these possible cash outflows is not evident.

Operating leases

Expenses include payments from operating leases of EUR 6,769 k (2013: EUR 6,570 k).

At the end of the reporting period, the Group had outstanding obligations arising from binding operating leases that fall due as follows:

in EUR k	Dec. 31, 2014	Dec. 31, 2013
less than one year	3,548	3,359
between one and five years	8,768	7,763
more than five years	2,535	4,009
Total	14,851	15,131

Of the total, EUR 8,683 k (2013: EUR 9,072 k) is related to outstanding obligations from binding operating leases for commercial premises, EUR 3,531 k (2013: EUR 2,749 k) to office equipment, and EUR 2,637 k (2013: EUR 3,310 k) to other lease arrangements.

Finance leases

Information on the finance lease can be found in note (29).

Other financial commitments

Energy purchase commitments

in EUR k	Dec. 31, 2014	Dec. 31, 2013
less than one year	3,384	9,477
between one and five years	11,480	18,683
Total	14,864	28,160

Proceeds from lease agreements

The future lease payments due to ElringKlinger in relation to binding operating leases from letting the industrial parks Idstein and Kecskemét-Kádafalva (Hungary) are due as follows:

in EUR k	Dec. 31, 2014	Dec. 31, 2013
less than one year	1,414	1,412
between one and five years	2,056	2,414
more than five years	877	1,052
Total	4,347	4,878

Number of employees

The average number of employees during the year (excluding Management Board members) was as follows:

	2014	2013
Employees	6,793	6,373
Trainees	288	170
Total	7,081	6,543

Personnel expenses

Personnel expenses in the reporting year amounted to EUR 371,132 k (2013: EUR 325,439 k). Of that amount, 6.9% (2013: 6.8%) related to contributions to the statutory pension scheme.

Events after the end of the reporting period

After the end of the reporting period, ElringKlinger AG acquired all interests in US company M&W Manufacturing Co., with registered office in Warren, Michigan, USA from the former owner family. The purchase was completed with effect as of February 12. As a result, M&W's revenue and earnings in the financial year 2015 will contribute to the revenue and earnings of the ElringKlinger Group for 11 months. The preliminary purchase price was EUR 24,276 k. To date, the ancillary costs of the purchase of interests come to EUR 192 k and were recognized in administrative costs. The latest acquisition will allow the Specialty Gaskets division to underpin its regional presence in North America and its production activities in the US market. Together with US market leader M&W, ElringKlinger has advanced to become the premier supplier of transmission spacer plates. In addition to supplying the North American market, M&W has started to increasingly serve the Chinese market from its US production site. No measurements were yet available for calculating the further disclosures pursuant to IFRS 3 paragraph B64.

On March 23, 2015, the Management Board of ElringKlinger AG submitted for approval the consolidated financial statements to the Supervisory Board, which will meet on March 25, 2015.

Related-party disclosures

Transactions between the parent company, ElringKlinger AG, and its subsidiaries are eliminated in the course of consolidation and are therefore not discussed in this note. In addition, the following business relationships exist between companies of the ElringKlinger Group and related parties and companies controlled by related parties:

Cooperation agreement between ElringKlinger AG and Lechler GmbH, Metzingen, concerning traineeships. Mr. Walter Herwarth Lechler is the Chairman of the Supervisory Board of ElringKlinger AG and holds a significant interest in Lechler GmbH. ElringKlinger AG earned EUR 34 k during the reporting year (2013: EUR 80 k). As of the end of the reporting period, December 31, 2014, there was one outstanding receivable of EUR 10 k (2013: EUR 19 k).

Lease agreement between Technik-Park Heliport Kft., Kecskemét-Kádafalva, Hungary (TPH), and the Lechler GmbH subsidiary, Lechler Kft., Kecskemét-Kádafalva, Hungary. TPH earned EUR 200 k in rental income based on this lease during the reporting year (2013: EUR 200 k). As in the previous year, there were no open receivables as of the end of the reporting period.

Agreement between ElringKlinger Logistic Service GmbH, Rottenburg-Ergenzingen, and Lechler GmbH, Metzingen, regarding assembly activities and the storage of components. This agreement gave rise to EUR 532 k in sales revenues during the reporting year (2013: EUR 521 k). As of the end of the reporting period, December 31, 2014, there was one outstanding receivable of EUR 36 k (2013: EUR 38 k).

Business relations between the ElringKlinger subsidiary, Changchun ElringKlinger Ltd., China, (CEK), and CHYAP, the company controlled by Ms. Liu, who is a joint partner in CEK. CEK procured EUR 212 k worth of services under these business relations in 2014 (2013: EUR 99 k). As of December 31, 2014, there is EUR 50 k in liabilities (2013: EUR 8 k). Furthermore, CEK sold EUR 37 k worth of goods and raw materials to CHYAP (2013: EUR 17 k). As in the prior year, there were no trade receivables at the end of the reporting period.

Loan agreement between Lechler GmbH and ElringKlinger AG. Lechler GmbH granted ElringKlinger AG loans totaling EUR 12,000 k. A loan of EUR 7,000 k carries an interest rate of 1.6% p.a. and has a term until August 17, 2018. An additional loan of EUR 5,000 k carries an interest rate of 1.52% p.a. and has a term until June 19, 2017.

Supply agreement between Lechler GmbH and KOCHWERK Catering GmbH, a wholly owned subsidiary of ElringKlinger AG. KOCHWERK Catering GmbH supplies Lechler GmbH, Metzingen, Germany, with canteen food. This agreement gave rise to EUR 153 k in sales revenues during the reporting year (2013: EUR 69 k). As of the end of the reporting period there was one outstanding receivable of EUR 11 k (2013: EUR 10 k).

Master supply agreement between Rich. Klinger Dichtungstechnik GmbH & CO. KG, Gumpoldskirchen, Austria, and companies of the ElringKlinger Group concerning the procurement of materials. Mr. Klinger-Lohr is a shareholder and in the financial year 2013 was a member of the Supervisory Board of ElringKlinger AG and has a significant interest in Rich. Klinger Dichtungstechnik GmbH & Co. KG. ElringKlinger AG procured EUR 2,370 k worth of materials under this agreement in 2013. As of the reporting date, December 31, 2013, there was one outstanding receivable of EUR 190 k.

Master supply agreement between ElringKlinger AG and Klinger AG Egliswil, Switzerland, regarding the procurement of materials. Mr. Klinger-Lohr is a shareholder and in the financial year 2013 was a member of the Supervisory Board of ElringKlinger AG and member of the administrative board of Klinger AG Egliswil. ElringKlinger AG procured EUR 69 k worth of materials under this agreement in 2013. This did not result in any liabilities as of the end of the reporting period December 31, 2013.

The salaries of the employee representatives to the Supervisory Board are in line with market conditions.

Corporate bodies

Supervisory board
Walter Herwarth Lechler, Stuttgart, Chairman	Managing Partner of Lechler GmbH, Metzingen Governance roles: a) n.a.
	b) Lechler Ltd., Sheffield/United Kingdom
Markus Siegers*, Altbach, Deputy Chairman	Chairman of the Works Council of ElringKlinger AG
Gert Bauer*, Reutlingen	First General Representative and Treasurer of IG Metall trade union, Reutlingen/Tübingen Governance roles: a) Hugo Boss AG, Metzingen b) BIKOM GmbH, Reutlingen
Armin Diez*, Lenningen	Divisional Director of Cylinder-head Gaskets and Battery Technology/E-Mobility at ElringKlinger AG
Klaus Eberhardt, Lindau	Former CEO of Rheinmetall AG, Düsseldorf Governance roles: a) KSPG AG, Neckarsulm (until December 31, 2014) MTU Aero Engines AG, Munich Dürr AG, Stuttgart b) n.a.
Pasquale Formisano*, Vaihingen an der Enz	Chairman of the Works Council of ElringKlinger Kunststofftechnik GmbH
Dr. Margarete Haase, Cologne	Member of the Executive Board of DEUTZ AG, Cologne Governance roles: a) Fraport AG, Frankfurt am Main ZF Friedrichshafen AG, Friedrichshafen b) DEUTZ (Dalian) Engine Co. Ltd., Dalian/China Deutz Engines (Shandong) Co. Ltd., Changlin/China Deutz Engine (China) Ltd. Co, Linyi/China
Gabriele Sons, Ratingen (since May 16, 2014)	Member of the Management Board of ThyssenKrupp Elevator AG
Paula Monteiro-Munz* Grabenstetten	Deputy chairwoman of the Works Council of ElringKlinger AG
Prof. Hans-Ulrich Sachs, Bremen	Managing shareholder of betec Umformtechnik GmbH, Adelmannsfelden

Manfred Strauß, Stuttgart	Managing shareholder of M&S messebau und service GmbH, Neuhausen a. d. F. Governance roles: a) n.a. b) Pro Stuttgart Verwaltungs GmbH, Stuttgart Pro Stuttgart Verkehrsverein, Stuttgart Eroca AG, Basel
Gerhard Wick*, Geislingen a. d. Steige	First General Representative of IG Metall, Administra tion Office, Esslingen Governance roles: a) Stihl AG, Waiblingen WMF AG, Geislingen an der Steige WRS – Wirtschaftsförderung Region Stuttgart GmbH (since July 1, 2014) b) n.a.

* Employee representative

a) Membership in supervisory boards to be established by law within the meaning of Sec. 125 AktG b) Membership in comparable domestic and foreign supervisory bodies within the meaning of Sec. 125 AktG

Remuneration of the Supervisory Board

Total remuneration of the Supervisory Board of ElringKlinger AG amounted to EUR 608 k (2013: EUR 619 k) in the reporting period. In addition, travel expenses in the amount of EUR 2 k (2013: EUR 2 k) were reimbursed. The remuneration of the employee representatives in the Supervisory Board amounted to EUR 528 k in 2014 (2013: EUR 442 k) for their activities as employees.

Management Board

Dr. Stefan Wolf, Sindelfingen, Chairman	Responsible for all Group companies and the corporate functions of Finance, Controlling, Legal Affairs, Personnel, IT, Investor Relations, and Corporate Communications, as well as the Aftermarket and Industrial Parks divisions
Theo Becker, Metzingen	Responsible for the Cylinder-head Gaskets, Specialty Gaskets, Housing Modules/Elastomer Technology, Shielding Technology, E-Mobility, Exhaust Gas Purification Technology and Tooling Technology divisions, as well as the corporate functions Quality and Environment, Materials Management and ElringKlinger AG Plants
Karl Schmauder, Hülben	Responsible for Original Equipment Sales and New Business Areas
Governance roles in supervisory boards and other supervisory bodies
Dr. Stefan Wolf, Sindelfingen, Chairman	Member of the Supervisory Board of Fielman AG, Hamburg, and Chairman of the Supervisory Board of Norma Group AG, Maintal, member of the Supervisory Board of ALLGAIER Werke GmbH, Uhingen (since Novem ber 6, 2014) member of the Board of Directors of Micronas Semiconductor Holding AG, Zurich (probably until March 27, 2015)
Theo Becker, Metzingen	Member of the Supervisory Board of E.G.O. Blanc und Fischer & Co. GmbH, Oberderdingen (from November 24, 2014)
Karl Schmauder, Hülben	Chairman of the Advisory Board of e-mobil BW GmbH, Stuttgart, and Advisory Board member of Steiff Beteiligungs-GmbH, Giengen

Remuneration of the Management Board

The remuneration of the Management Board amounted to:

in EUR k	Dec. 31, 2014	Dec. 31, 2013
Short-term fixed remuneration	1,308	1,265
Short-term variable performance-based remuneration	3,117	2,311
Long-term variable performance-based remuneration	2,916	0
Long-term variable share-based remuneration	61	-57
Expenses from post-employment benefits	521	392
Total	7,923	3,911

In the financial year, total management board remuneration pursuant to Sec. 314 (1) No. 6a Sentence 1 to 4 HGB came to EUR 5,892 k (2013: EUR 4,020 k): The present value (DBO) of the pension provisions amounted to EUR 11,394 k (2013: EUR 7,335 k). The following stock appreciation rights stem from longterm performance-related remuneration:

As part of the long-term variable remuneration, the members of the Management Board were granted stock appreciation rights until the financial year 2013. Stock appreciation rights refer to a right to a cash settlement, not, however, for shares of ElringKlinger AG. It was planned that 30,000 stock appreciation rights would be granted to each member of the Management Board on February 1 of each year beginning in 2013. The strike price is calculated using the arithmetic mean of the market price of ElringKlinger's shares on the last 60 trading days prior to the grant date. The grant of the stock appreciation rights is subject to an investment by the Management Board members of one-tenth of the number of granted stock appreciation rights in shares of ElringKlinger AG. The holding period of the stock appreciation rights is four years. Within a period of two additional years after the holding period expires, a Management Board member may demand redemption of the stock appreciation rights. The redemption price is calculated using the average market price of ElringKlinger's shares of the last 60 trading days prior to redemption. Redemption of the stock appreciation rights may be demanded only if the redemption price exceeds the strike price by 25%. The total redemption price per tranche is limited to two fixed annual salaries at the time of redemption. Provisions are recognized in order to cover the estimated future obligation.

Prior to February 1, 2013, the stock appreciation rights were planned to be granted in five/four tranches. Two members of the Management Board were granted rights for the period from February 1, 2008 to February 1, 2012 and one member of the Management Board for the period from January 1, 2009 to January 1, 2012. The strike price is calculated using the arithmetic mean of the market price of ElringKlinger's shares on the last 60 trading days prior to the grant date. The number of stock appreciation rights was calculated based on the fixed remuneration of the respective board member and the strike price (fixed remuneration in relation to strike price = number of shares granted). The cash payment to be granted is calculated based on the difference between the redemption price, which is also calculated as an average of the stock price over the last 60 trading days, and the strike price. A payment is made only in the event that the share price of ElringKlinger AG increases more than the index in which ElringKlinger is listed (MDAX), but at least by 25%. The payment per tranche is limited to the fixed salary amount for the year. The waiting period is four years.

Provisions are recognized in order to cover the estimated future payments. The fair value of the obligation is determined based on the Cox-Ross-Rubinstein model and the Black-Scholes model using current market parameters. A risk-free interest rate ranging between 0.17% and 0.49% was used depending on the term. The volatility of the share price (29.12%), the MDAX index (13.48%), and a correlation of 58.11% were determined over a four-year period. The expected dividend was EUR 0.55 per share.

The previous model was terminated with the introduction of the new remuneration system for members of the Management Board. Tranches that are not yet exercisable remain unchanged.

For the financial year 2014, the following data arose:

Date tranche was issued	2011	2012	2013
Number of stock appreciation rights exercised
Value of stock appreciation rights exercised (EUR k)
Number of stock appreciation rights (not yet exercisable)	32,501	42,406	90,000
Average strike price (EUR )	24.83	19.43	24.54
Average remaining term to maturity in years	0.04	1.04	2.08
Value of stock appreciation rights held by members of the Management Board
December 31, 2014 (EUR k)	0	48	236
December 31, 2013 (EUR k)	24	69	129
December 31, 2012 (EUR k)	42	44	0
December 31, 2011 (EUR k)	21	0	0

Provisions for pensions and remuneration for former members of the Management Board

Provisions of EUR 12,939 k (2013: EUR 11,592 k) were recognized for pension obligations to former members of the Management Board, the management of merged companies, and their surviving dependents. The total remuneration of former members of the Management Board – including remuneration of former members of corporate bodies of merged companies – came to EUR 826 k (2013: EUR 823 k) during the financial year 2014.

The auditor fees amounted to:

in EUR k		2013
Audit of the annual financial statements	404	379
Other assurance services	22	9
Tax advisory	0	0
Other services	15	12
Total	441	400

Declaration of compliance with the German Corporate Governance Code

The Management Board and Supervisory Board issued a declaration of compliance on December 4, 2014 pursuant to §161 AktG on the German Corporate Governance Code and published it on the ElringKlinger AG website on December 4, 2014. This declaration of compliance will be available on the ElringKlinger AG website and therewith made permanently available to shareholders.

Dettingen/Erms, 23 March 2015 Management Board

Chairman/CEO

Dr. Stefan Wolf Theo Becker Karl Schmauder

Audit Opinion

We have issued the following opinion on the consolidated financial statements and the group management report, which has been combined with the management report of ElringKlinger AG:

"We have audited the consolidated financial statements prepared by ElringKlinger AG, Dettingen/Erms, comprising the income statement, the statement of comprehensive income, the statement of financial position, the statement of cash flows, the statement of changes in equity and the notes to the consolidated financial statements, together with the group management report which has been combined with the management report of ElringKlinger AG for the fiscal year from January 1 to December 31, 2014. The preparation of the consolidated financial statements and the group management report in accordance with IFRSs as adopted by the EU, and the additional requirements of German commercial law pursuant to Sec. 315a (1) HGB ["Handelsgesetzbuch": German Commercial Code] is the responsibility of the parent company's management. Our responsibility is to express an opinion on the consolidated financial statements and on the group management report based on our audit.

We conducted our audit of the consolidated financial statements in accordance with Sec. 317 HGB and German generally accepted 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 accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and the group management report. We believe that our audit provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion, based on the findings of our audit, the consolidated financial statements comply with IF-RSs as adopted by the EU, the additional requirements of [German] commercial law pursuant to Sec. 315a (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 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 23, 2015 Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft

Marbler Göhner Wirtschaftsprüfer Wirtschaftsprüfer

[German Public Auditor] [German Public Auditor]

Responsibility Statement

Responsibility Statement According to §§297(2) Sentence 4 and 315(1) Sentence 6 HGB (German Commercial Code)

To the best of our knowledge, and in accordance with the applicable reporting principles, the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss

Dettingen/Erms, March 23, 2015 Management Board

of the Group, and the Group management report, which has been combined with the management report of ElringKlinger AG, includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group.

Dr. Stefan Wolf Theo Becker Karl Schmauder

Chairman/CEO

Glossary

Financials

C Cash flow

Figure used to determine a company's financial strength. It measures the extent to which cash received as a result of the company's operating activities exceeds its cash outflows and shows the amount of cash generated by the company itself. For the purpose of determining cash flow, an entity's profit for the annual period is adjusted for items that do not produce an inflow or outflow of cash, such as depreciation or changes in provisions. Net cash from operating activities is the surplus of cash generated by operating activities.

Corporate Governance

Stands for corporate management and supervision that should be as responsible as possible and focused on sustainability and value generation over the long term.

E Earnings per share

Earnings per share (abbreviated: EPS) is used for the purpose of analyzing profitability and – at a cross-sector level – evaluating a company. EPS is calculated by dividing the profit attributable to shareholders of a stock corporation by the number of shares outstanding.

EBIT/Operating result

EBIT stands for earnings before interest and taxes. In most cases, it corresponds to the operating result before taking into account net finance costs. At the international level, this figure is commonly used to compare companies' earnings power. Adjusted EBIT corresponds to the operating result after eliminating non-recurring exceptional items. This indicator is used to illustrate a company's sustained earnings power at an operating level. ElringKlinger presents adjusted EBIT before purchase price allocation.

EBIT margin

EBIT expressed as a percentage of total Group sales revenue. The EBIT margin shows the profitability of a company's operating business over a specific period of time.

F Free cash flow

Free operating cash flow represents the funds freely available to the company for distribution. It is calculated by subtracting capital expenditure payments from net cash from operating activities.

Free float

Free float refers to a company's shares which can be freely traded on the exchange and which are not firmly held by certain groups of investors. According to the definition by Deutsche Börse AG, share packages under 5% are counted as part of the free float.

G GAS 20

German Accounting Standards (GAS, German acronym DRS) contain recommendations for group accounting. GAS 20 contains new rules in respect of the group management report and is first applicable in financial years beginning after December 31, 2012. It replaces the previous GAS 15 (management report) and GAS 5 (risk report) standards.

H HGB

Abbreviation for Handelsgesetzbuch (German Commercial Code). The financial statements of the parent company, ElringKlinger AG, are prepared in accordance with HGB.

I IFRS

Abbreviation for International Financial Reporting Standards. These contain accounting provisions for exchangelisted entities. The application of IFRS has been mandatory in the EU since January 2005. The transition from HGB to IFRS as regards ElringKlinger's consolidated financial reporting was made in 2004.

M MDAX

The Mid Cap Dax (MDAX) is a German stock market index introduced in 1996. It encompasses the stocks of 50 corporations (mostly small and medium-sized enterprises) that rank directly below the companies listed in Germany's main DAX index in terms of market capitalization and trading volume.

N Net debt

Figure that describes the level of indebtedness of a company if all liabilities were repaid by means of current assets. Net debt is calculated on the basis of interest-bearing liabilities (primarily bank borrowings) less cash and cash equivalents. Alternatively, it can be calculated on the basis of the entire liabilities recognized less cash and cash equivalents less pension provisions.

Net finance income/cost

Profit or loss arising from financial transactions, e.g. interest income and expenses, income and expenses attributable to investments or income and expenses attributable to exchange rate differences. Net finance income or cost is a component of pre-tax earnings presented in the income statement.

P Purchase price allocation

Purchase price allocation (PPA) refers to the allocation of the price paid in the purchase of a company or an interest in a company to the individual identifiable assets acquired as part of this transaction. These also include intangible assets, such as an existing customer base or order backlog.

S Statement of cash flows

The statement of cash flows shows the calculations for the flow of funds generated by a company from operating, investing and financing activities during the financial year. The statement of cash flows helps determine the company's ability to generate cash and cash equivalents.

W WpHG

Abbreviation for Wertpapierhandelsgesetz (Securities Trading Act).

Technology

A APU (Auxiliary Power Unit)

An energy generation system that operates without the need for an external power source and is used primarily for the purpose of mobile on-board power supply (vehicles, ships, aircraft). Among the fields of application targeted by ElringKlinger is fuel-cell-powered stationary air conditioning in trucks, which functions independently of the vehicle's engine. In this case, the available fuel is used to generate hydrogen gas via a reformer. This hydrogen supplies the fuel cell stack, which in turn generates electricity.

B Bipolar plates

Bipolar plates are the key mechanical components in fuel cell stacks (cf. "Stack"). Their function is to create an electrical interconnection between two cells. In other words, they transmit the electricity generated, supply the cells with hydrogen and oxygen, and distribute coolant. ElringKlinger develops and manufactures metal bipolar plates. Among the technical requirements for these components are high-precision metal-forming within the contact area (in the micrometer range), accurate, low-distortion laser welding of the cathode and anode plates, and suitable conductive and anti-corrosion coatings.

C CAFE regulations

The CAFE (Corporate Average Fuel Economy) regulations are the US equivalent of European CO2 legislation. They impose average permitted fleet consumption limits on US manufacturers. Failure to comply with the strict CAFE regulations can result in substantial fines.

CARB (California Air Resources Board)

The Californian environmental authority that determines and monitors standards for maintaining and improving air quality. ElringKlinger gained CARB certification in 2012 for Hug's mobicleanTM R filter system, which is mainly used to retrofit on-road diesel vehicles over 6.3 metric tons as required by law.

Catalytic oxidation of carbon monoxide (CO) and hydrocarbon (HC)

Method used for the purpose of reducing carbon monoxide and hydrocarbons in the exhaust gas. Carbon monoxide is mainly produced by the incomplete burning of fossil fuels. It is a colorless, odorless and poisonous gas. When the hazardous exhaust gases pass through a catalytic converter (usually made of a ceramic material) and come into contact with its active surface featuring a precious-metal coating, a chemical reaction takes place and the gases are converted into non-toxic components (carbon dioxide and water). See also "Methane catalyst."

Cell connector/Cell contact system

The cell contact systems developed by ElringKlinger for lithium-ion batteries consist of cell connectors and a cell carrier in which the connectors are integrated as a robust laser-welded construction. Via the cell connectors, the individual battery cells are connected both in a row and parallel to one another. They act as conductors, absorb cell energy and contain sensors. The system consists of a control interface with thermal and electric monitoring.

CleanCoatTM

See "DPF coating"

Combined heat/power generation (CHP)

This concept involves actively reusing the waste heat created as a by-product of electricity generation in order to heat domestic or industrial premises. This leads to a particularly high degree of overall efficiency. Among other things, ElringKlinger is working on fuel cell stacks (cf. "Stacks") for micro-cogeneration units designed to supply houses and apartment buildings with electricity and heat.

D Downsizing

In the automotive industry, downsizing is a concept that refers to a reduction in engine capacity while improving the engine's efficiency. One of the most common ways of achieving this is to feed in air under increased pressure (compressor/turbocharger). A reduction in engine size means lower fuel consumption and therefore lower emissions. At the same time, higher injection pressures generate a greater thermal and mechanical stress in the engine. In turn, this makes greater demands in terms of gasket design and thermal management.

DPF (Diesel Particulate Filter)

The job of a diesel particulate filter is to filter out the harmful particulates (soot) from diesel engine exhaust gases. One of the most common designs involves a wall flow filter made of ceramic (e.g. silicon carbide). The porous filter walls extract over 99% of the particulates contained in the exhaust gases. Stricter Euro exhaust standards for both passenger cars and trucks prescribe specific limits on particulates. In response, virtually all new cars and commercial vehicles in the EU are now fitted with a DPF. Increasingly, filter systems are also being fitted to ships' diesel engines, which are often powered by heavy fuel oil, and to locomotives and stationary diesel and gas engines. ElringKlinger's subsidiary Hug develops filter technologies for numerous niche applications, such as the shipping industry, and for stationary plant and equipment in power stations and greenhouses.

DPF coating

The soot particles deposited in the diesel particulate filter (DPF) must be burned off in order to regenerate the filter. Most filters have a catalytic coating to accelerate the reaction. The catalytic effect lowers the temperature required to burn off the soot particles and oxidize any remaining hydrocarbons or carbon monoxide into CO2 and water. In most cases, the catalytic coating material is based on precious metals (platinum, rhodium, palladium). However, ElringKlinger uses its own coating material known as CleanCoatTM, which is based on an alkali silicate substance. CleanCoatTM is free of precious and heavy metals and is highly active even at low temperatures. It is used at the series production level in the mobicleanTM R diesel particulate filter systems made by ElringKlinger subsidiary Hug.

E Elastomer

Plastics/polymers can be divided into three main categories depending on their processing properties: thermoplasts, duroplasts and elastomers. The distinctive feature of elastomers is that their shape can be changed temporarily through the application of pressure or stretching before they return to their original form ("rubber"). The final material varies depending on the raw materials, manufacturing process and additives used. In the field of sealing technology, ElringKlinger utilizes its own elastomers that have been specially developed and optimized to meet individual customer requirements.

European emission standards

The emission standards prescribed by the European Parliament specify emission limits for HC (hydrocarbons), CO (carbon monoxide), NOx (nitrogen oxides) and particulates. These limits are mandatory for all newly registered vehicles in Europe. Different limits apply to diesel and petrol engines. The Euro 6 standard, which introduces much stricter limits on nitrogen oxides in diesel-powered vehicles, came into force for passenger cars in 2014. From 2014 onwards, Euro VI will also impose drastic reductions on heavy truck emissions of HC, CO and particularly NOx.

F Fracking

Extraction of oil or gas by means of deep-level drilling through rock formations, combined with the use of chemicals

Fuel cell

Fuel cells are a highly effective method of converting chemical fuel energy into electrical energy. In order to perform this reaction, the cell requires oxygen and hydrogen. The hydrogen can be obtained from a hydrocarbonbased fuel. This involves a reformer providing the cell with hydrogen gas, derived from diesel or natural gas, for example. Unlike batteries, fuel cells do not store energy, but rather convert it. There are different types of fuel cell technologies that offer specific advantages depending on their application. ElringKlinger develops and manufactures components for the SOFC high-temperature fuel cell (mostly stationary applications), the PEM low-temperature fuel cell and the DMFC direct methanol fuel cell.

H Hybrid drive

In the automotive sector, this term refers to combinations of different drive systems. This usually involves combining a combustion engine with an electric engine.

Hydroforming

Hydroforming is a manufacturing technique that involves forming a metal tube under high pressure in a forming tool with the help of a fluid inside the tube. See also "PMH (Polymer Metal Hybrids)."

L Lithium-ion battery

Lithium-based batteries are rechargeable, durable, highenergy batteries with a high energy density. They are primarily used in electric and hybrid vehicles. ElringKlinger develops and produces, among other things, modular cell contact systems for such batteries.

M Meander, honeycomb and segment stoppers

Stoppers are structural features contained in the spring steel layers of cylinder-head gaskets that help to seal engine combustion chambers. Coined meander, honeycomb and segment stopper geometries have taken over from folded and laser-welded stoppers as the state of the art when it comes to making optimum use of the geometric space available. New embossing/coining and stamping technologies provide engineers with a variety of possibilities for influencing the distribution of pressure in the sealing gap.

Metal-elastomer gaskets

Gaskets made from a metal core with vulcanized elastomer profiles for sealing power-transmitting connections, for example oil pump gaskets and timing case gaskets.

MetaloflexTM

Brand name of ElringKlinger metal layer cylinder-head gaskets made from beaded, elastomer-coated spring steel layers – single-layer or multilayer depending on the application.

MetalosealTM

The specialty and exhaust gaskets marketed under the brand name MetalosealTM are based on the functional principle of linear sealing using a bead. The versatile sealing system consists of both pure metal and elastomercoated metal gaskets to cover virtually all requirements for engines, transmissions, exhaust systems and auxiliary units.

Methane catalyst/ Rekukat

Owing to lean-burn operation (with excess air) and low service temperatures, the methane (one of the main components of natural gas) in gas engines is not actually burned off completely. Methane catalysts remove a large part of the unburnt methane still present in the exhaust gas mixture. Methane is much more aggressive than CO2 as a greenhouse gas. ElringKlinger's subsidiary Hug has patented a methane catalyst (Rekukat) that is highly effective even at low initial temperatures and can be used for large engines in gas-fired power stations or in greenhouses.

MoldflonTM

See "PTFE"

MuCell

An ultralight polyamide plastic material which, thanks to its innovative pore structure, permits additional weight savings in the production of technical plastic housing modules, such as cam covers, oil pans and oil suction pipes.

N Nitrogen oxides (NOx)

The internationally recognized abbreviation NOx is used for compounds of nitrogen and oxygen. These gases, which form in the exhausts of combustion engines, are harmful to humans and the environment. Emissions standards are becoming increasingly stringent worldwide and now prescribe strict limits for NOx. SCR technology can be used to neutralize nitrogen oxides (cf. "SCR").

NOx

See "Nitrogen oxides"

O Organo sheet method

Innovative method of lightweight construction as part of which so-called organo sheets – particularly light yet extremely sturdy thermoplastic structural components with embedded fiber-reinforced composites – are processed and plastic elements for additional component functions are injection-molded in the tool itself.

P PEM fuel cell

PEM stands for "Proton Exchange Membrane." PEM fuel cells work at low temperatures of around 90°C and have a polymer membrane as their central element. In the synthetic reaction known as "cold combustion," oxygen and hydrogen react with one another, aided by a catalyst, releasing electricity and causing water to form. ElringKlinger has developed metallic bipolar plates for the PEM fuel cells used in cars. One single stack can contain several hundred cells.

Plug-in hybrid

This is a specific form of hybrid technology. The on-board energy storage unit is recharged not only from a combustion engine but, alternatively, also from an external electric power source. However, this technology entails relatively high production costs.

PMH (Polymer Metal Hybrid)

These are structural components made of polymers and metal that are manufactured in a single tool using a combination of hydroforming (glossary) and plastic injection molding techniques. The process involves a single step and not only combines the strengths of both materials, but also allows for very light components with complex geometries to be manufactured. At ElringKlinger, this new technique is used to make cockpit and front-end carriers, for example.

Polyamide

Polyamides are polymers (plastics) and usually refer to synthetic thermoplastics. ElringKlinger uses polyamide in the production of lightweight plastic housing modules (cf. "MuCell").

PTFE (polytetrafluoroethylene)

The thermoplastic high-performance plastic PTFE – commonly known by the trade name Teflon – has a very low coefficient of friction and is particularly resistant to most aggressive chemicals and external influences, such as moisture and UV radiation. PTFE is resistant to temperatures as low as -200 °C and only melts at over 320 °C. With its modified material MoldflonTM, which is registered as a trademark, ElringKlinger Kunststofftechnik has the first ever injection-moldable PTFE high-performance material with a wide range of potential applications, for instance in the field of medical technology.

S SCR (Selective Catalytic Reduction)

Technology for the reduction of toxic nitrogen oxides (NOx). This technique involves adding a urea solution to the exhaust gas mixture. When this mixture passes through the catalyst, the nitrogen oxides react with the urea solution and are converted into harmless nitrogen and water. By incorporating SCR modules, the exhaust gas purification systems developed by ElringKlinger subsidiary Hug are able to reduce NOx levels by up to 99%.

SOFC (Solid Oxide Fuel Cell)

Solid oxide fuel cells are also known as "high-temperature fuel cells," owing to their high operating temperatures (approx. 800°C). This type of fuel cell can be operated with a wide range of fossil fuels, from which hydrogen gas is obtained using a reformer.

Stack

In a fuel cell context, the term "stack" refers to a complete stack of individual fuel cells including bipolar plates and retaining and connecting devices. To boost performance, the individual fuel cells are connected in series.

T Tier 1 / Tier 2

Automotive companies that supply vehicle manufacturers (OEMs) directly are known as Tier 1 suppliers. They generally source some of their products from their own suppliers, which are then referred to as Tier 2, Tier 3 suppliers and so on, reflecting their position in the supply chain. Most of ElringKlinger's products go directly to vehicle manufacturers, making it a Tier 1 supplier. With regard to exhaust technology and transmission components, it mostly acts as a Tier 2 supplier.

Turbocharger

Turbochargers increase the air flow rate in engines by compressing the air that is necessary for combustion. The turbocharger is one of the key factors in engine downsizing, as it permits an equivalent or even better performance with a reduced engine capacity. In turn, this creates significant potential for reducing fuel consumption.

192

Imprint

ElringKlinger AG

Max-Eyth-Straße 2 D-72581 Dettingen/Erms Phone +49 (0)71 23/724-0 Fax +49 (0)71 23/724-90 06 www.elringklinger.com

IR Contact

Stephan Haas Phone +49 (0)71 23/724-137 Fax +49 (0)71 23/724-85 137 stephan.haas@elringklinger.com

Conception & Design 3st kommunikation GmbH, Mainz

Picture Credits

Andreas Mader, Marcus Pietrek, Stephanie Trenz

ElringKlinger AG assumes no responsibility for data and statistics originating from third-party publications.

Paper

Algro Design Duo, 300 g/m2 (Cover), Arctic Volume White, 115 g/m2 (Inside) If you would like to receive our interim reports by e-mail, please send your details to: stephan.haas@elringklinger.com or give us a call at Phone +49 (0)71 23/724-137

Further information is available at www.elringklinger.com

This Annual Report has been produced in a carbon neutral manner. The CO2 emissions caused by its production were compensated for by certified climate protection projects.

Disclaimer – Forward-looking Statements and Forecasts

This report contains forward-looking statements. These statements are based on expectations, market evaluations and forecasts by the Management Board and on information currently available to them. In particular, the forward-looking statements shall not be interpreted as a guarantee that the future events and results to which they refer will actually materialize. Whilst the Management Board is confident that the statements as well as the opinions and expectations on which they are based are realistic, the aforementioned statements rely on assumptions that may conceivably prove to be incorrect. Future results and circumstances depend on a multitude of factors, risks and imponderables that can alter the expectations and judgments that have been expressed. These factors include, for example, changes to the general economic and business situation, variations of exchange rates and interest rates, poor acceptance of new products and services, and changes to business strategy.

This report was published on March 31, 2015, and is available in German and English. Only the German version shall be legally binding.

Corporate Calendar 2015

Financial Calendar

03/31/2015	Annual Press Conference, Stuttgart Analysts' Meeting, Frankfurt/Main
05/06/2015	Interim Report on the 1st Quarter of 2015
05/13/2015	110th Annual General Shareholders' Meeting, Stuttgart, Cultural and Congress Center Liederhalle, 10:00 a.m. CEST
08/05/2015	Interim Report on the 2nd Quarter and 1st Half of 2015
11/09/2015	Interim Report on the 3rd Quarter and First Nine Months of 2015
05/31/2016	111th Annual General Shareholders' Meeting, Stuttgart

Calendar Trade Fairs 2015

04/13 – 17	Hannover Messe, MDA – Motion, Drive & Automation, Hanover, Germany
04/2 0 – 2 9	Auto Shanghai, Shanghai, China
0 4 /21 – 2 3	MEDTEC Europe, Stuttgart, Germany
0 5 /04 – 0 7	OTC – Offshore Technology Conference, Houston, USA
0 5 /20 – 2 2	Automotive Engineering Exposition, Yokohama, Japan
0 6 /02 – 0 5	Nor-Shipping, Oslo, Norway
0 6 /09 – 11	Power-Gen Europe, Amsterdam, Netherlands
0 6 /15 – 19	ACHEMA, Frankfurt/Main, Germany
0 6 /16 – 17	International VDI Congress "Drivetrain for Vehicles", Friedrichshafen, Germany
08/29 – 09/06	Caravan Salon, Dusseldorf, Germany
0 9 /15 – 2 7	IAA International Motor Show – Cars, Frankfurt/Main, Germany
0 9 /23 – 2 6	Monaco Yacht Show, Monaco
10 /05 – 0 7	The Aachen Colloquium Automobile and Engine Technology, Aachen, Germany
1 0 /13 – 17	Equip Auto, Paris, France
1 0 /13 – 17	Fakuma – International trade fair for plastics processing, Friedrichshafen, Germany
11 /04 – 0 6	The Aachen Colloquium China Automobile and Engine Technology, Beijing, China
12 /08 – 0 9	International CTI Symposium – Automotive Transmissions, HEV and EV Drives, Berlin, Germany
12 /08 – 10	POWER-GEN USA, Las Vegas, USA

For further events and trade fairs please visit our websites: www.elringklinger.de/en/press-events www.hug-eng.ch/en-messen.html

45 Sites worldwide

Germany

• ElringKlinger AG Dettingen/Erms, Langenzenn, Runkel, Geretsried-Gelting, Thale, Lenningen
• ElringKlinger Kunststofftechnik GmbH Bietigheim-Bissingen, Heidenheim
• Elring Klinger Motortechnik GmbH Idstein, Bietigheim-Bissingen
• ElringKlinger Logistic Service GmbH Rottenburg/Neckar
• Hug Engineering GmbH Magdeburg
• new enerday GmbH Neubrandenburg
• Polytetra GmbH Mönchengladbach

ElringKlinger is a supplier to the vast majority of the world's vehicle and engine manufacturers. This is a tribute to the work of some 7,400 employees at 45 sites around the globe.

ElringKlinger worldwide

North America

• ElringKlinger Canada, Inc. Leamington/Canada
• ElringKlinger North America, Inc. Plymouth, Michigan/USA
• M&W Manufacturing Company, Inc. Warren, Michigan/USA
• ElringKlinger USA, Inc. Buford, Georgia/USA
• ElringKlinger Engineered Plastics North America, Inc. Buford, Georgia/USA
• Hug Engineering Inc. Austin, Texas /USA
• Elring Klinger México, S.A. de C. V. Toluca/Mexico

South America

— Elring Klinger do Brasil Ltda. Piracicaba/Brazil

Europe

• Elring Klinger (Great Britain) Ltd. Redcar/Great Britain
• Elring Parts Ltd. Gateshead/Great Britain
• ElringKlinger Meillor SAS Nantiat/France, Chamborêt/ France, Poissy/France

• Elring Klinger, S.A. U. Reus /Spain

• ElringKlinger Abschirmtechnik (Schweiz) AG Sevelen/Switzerland

• Hug Engineering AG Elsau/Switzerland
• ElringKlinger Italia Srl Settimo Torinese/Italy

• Hug Engineering S.p.A. Mailand/Italy

• Technik-Park Heliport Kft. Kecskemét-Kádafalva/ Hungary

• HURO Supermold S.R.L. Timisoara/Romania
• ElringKlinger TR Otomotiv Sanayi ve Ticaret A.Ş. Bursa/Turkey
• Codinox Beheer B.V. Enschede/Netherlands

ElringKlinger AG Max-Eyth-Straße 2 72581 Dettingen /Erms (Germany)