Annual Report • May 20, 2021
Annual Report
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We protect your assets under the most severe conditions
Professional solutions for heat and cold insulation
Engineered solutions to fit your purpose
Special requirements need special solutions
Competence and quality – first time right
Experienced specialists for all your projects
We continuously improve our technologies and services to remain the quality leader in our markets and to improve our position in the industry. Our customers, suppliers and employees value us as a professional and dependable partner.
As a company, we are firmly rooted in our tradition of Hanseatic German values. Muehlhan stands for quality, integrity, reliability and respect.
The Muehlhan Group is one of a few full-service providers that offer their customers a broad spectrum of industrial services with professional industrial quality standards. Our customers benefit from our exceptional organizational skills, on-time delivery, the technical expertise that differentiates us from our competitors, and over 135 years of experience.
Our Ship, Oil & Gas, Renewables and Industry/Infrastructure business segments offer firstclass solutions for surface protection, insulation, passive fire protection, access technology, and scaffolding and steel construction. With more than 2,750 employees at over 30 locations worldwide, we generated €260 million of revenues in 2020.
We will continue to focus our efforts on steadily improving our technologies and services while actively developing new markets in order to continue expanding our business going forward.
| in kEUR | 2020 | 2019 | |
|---|---|---|---|
| Results | |||
| Revenues | 260,382 | 295,269 | |
| Earnings from operations before depreciation and amortization (EBITDA) | 14,403 | 24,505 | |
| Earnings from operations (EBIT) | 3,035 | 12,400 | |
| Earnings before income taxes (EBT) | 1,336 | 10,513 | |
| Consolidated income attributable to shareholders of Muehlhan AG | 305 | 6,323 | |
| Earnings per share from continuing operations | in EUR | 0.02 | 0.33 |
| Cash flow from operating activities | 11,759 | 10,888 | |
| Investments in property, plant and equipment (not incl. leases) | 4,311 | 8,129 | |
| Balance sheet | 12/31/2020 | 12/31/2019 | |
| Total assets | 161,596 | 175,370 | |
| Fixed assets1 | 63,490 | 68,634 | |
| Equity | 69,164 | 71,761 | |
| Equity ratio | in % | 42.8 | 40.9 |
| Employees | 2020 | 2019 | |
| Employees (annual average) | number | 2,790 | 3,103 |
1 Fixed assets: total of non-current assets less deferred tax assets
| 01 Management |
02 |
|---|---|
| Executive Board | 04 |
| Letter from the Executive Board | 04 |
| Supervisory Board | 06 |
| Supervisory Board Report | 06 |
| Overview | 14 |
|---|---|
| Group Fundamentals | 15 |
| Objectives and Strategy | 16 |
| Control of the Group | 18 |
| Research and Development | 19 |
| Economic Report | 19 |
| Forecast and Report on Opportunities and Risks | 24 |
| Legal Disclosures | 29 |
| Independent Auditors' Report | 84 |
|---|---|
| Contact and Financial Calendar | 87 |
Insulation work on a gas liquefaction station in Russia
Stefan Müller-Arends Chairman of the Executive Board, CEO Hamburg, Germany
Stefan Müller-Arends has a degree in business administration. Following positions as Controller and CFO, including at Rheinbraun AG and the French DMC Group, he served as CEO of packaging group Mauser AG for 11 years. Since 2011, he has been leading the Muehlhan Group as Chief Executive Officer.
Dr. Andreas C. Krüger Member of the Executive Board, COO Hamburg, Germany
Dr. Andreas C. Krüger holds a doctorate in engineering. As a manager and chairman, he previously headed several German and foreign industrial companies, among them Friatec AG, Mannheim. In 2004, he became a member of the Executive Board in Muehlhan and is responsible for the operating business.
James West Member of the Executive Board Aberdeenshire, UK
James West is an engineer. He has spent his entire career in the oil and gas industry in the United Kingdom and abroad. Mr. West has been Managing Director of Muehlhan Industrial Services Ltd., Aberdeen, Scotland since 2010 and is the Executive Board member responsible for the Oil & Gas segment.
For Muehlhan too, the year 2020 was dominated by the COVID-19 pandemic and its impact on business. Early action taken at all levels, some ongoing major projects and positive results in the Renewables segment made it possible to avoid a loss in this extraordinary year. The results are nonetheless a great disappointment for everyone. We consider our future profitable growth to be founded in our strategic focus on the Renewables segment in conjunction with our core business in the maritime sector and in infrastructure. This we complement with continuous improvements achieved on the basis of numerous operating parameters and business processes. The fact that results in the reporting year were unsatisfactory due to the pandemic does not alter our conviction that our strategy is right for the company and has to be continued.
Revenues fell in the reporting year by 11.8% to €260.4 million. EBIT went down by 75.5% from €12.4 million to €3.0 million and the EBIT margin contracted accordingly from 4.2% to 1.2%. Consolidated income dropped by 79.6% to €1.3 million, compared with €6.3 million in the previous year. After deducting minority interests, income of €0.3 million is attributable to Muehlhan's shareholders. Cash flow from operating activities of €11.8 million was gratifying by contrast.
The Renewables segment generated impressive results in the reporting year, with a steep increase in revenues and disproportionately higher EBIT. As a full-service provider that supports both wind power station manufacturers and offshore wind farm operators throughout the entire lifecycle of the equipment, Muehlhan is exceedingly well positioned for continued growth in the various submarkets in the future. The expansion of service and maintenance business also reduced dependence on the offshore newbuild business, which is in long-term decline and more exposed to cyclical volatility.
The other business segments were mostly hard hit by the COVID-19 pandemic. The Ship segment and the Oil & Gas business generated positive results despite lower revenues. The Industry/Infrastructure segment suffered from project interruptions and postponements, particularly in the USA and the Middle East, and reported lower revenues and a net loss.
Our strict risk management and selective project screening standards were applied again in the reporting year.
We see the Renewables, Ship and Infrastructure segments as our growth markets.
The market for renewable energy sources, in particular the offshore wind power segment, offers Muehlhan new growth areas in Europe and other parts of the world. We are working to expand our position in the industry as a recognized specialist in surface protection and to leverage our position as a full-service provider for wind turbine manufacturers and offshore wind farm operators in order to benefit from growth in this market.
The aim is to maintain and develop our strong market position in the Ship and Infrastructure segments, where we are leaders in some areas. This will be supplemented by adjusting and expanding the range of services offered in order to meet customer wishes as fully as possible.
Muehlhan does not have the critical mass in the North Sea Oil & Gas business segment to play an active role in the process of consolidation. This segment will therefore be sold. Activities on oil rigs off the coast of Brazil, Africa and in the Gulf of Mexico will be expanded.
In addition to coping with the impact of the pandemic, we also focused on consistently implementing our strategy again this year, as in the past, and on operational improvements. The continuous improvement of project controlling is just one example of the numerous measures that all have one thing in common – they cover all the aspects of the organization, they are mostly unspectacular, and they take time and a lot of management energy before they are sustainably established in the organization and have an effect.
We would like to thank our approximately 2,750 employees for their steadfast commitment in a challenging environment. We also want to thank our shareholders, partners and business associates, many of whom have placed their trust in us for many years. We hope that you will continue to accompany and support us on our journey, and we will do everything in our power to fulfill your expectations to the best of our abilities.
Hamburg, March 2021,
The Executive Board
Stefan Müller-Arends Dr. Andreas C. Krüger James West
Philip Percival London, UK
Chairman of the Supervisory Board
Dr. Gottfried Neuhaus Hamburg, Germany
Deputy Chairman of the Supervisory Board Managing shareholder of Neuhaus Partners GmbH, Hamburg
Andrea Brandt (née Greverath) Hamburg, Germany
Member of the Supervisory Board Managing Partner of GIVE Capital GmbH, Hamburg
The COVID-19 pandemic and its impact were the dominant themes at Muehlhan too in 2020. Early action taken at all levels and some ongoing major projects despite the pandemic made it possible to avoid a loss in this extraordinary year. The results are nonetheless a great disappointment for everyone.
EBIT fell by 75.5% from €12.4 million to €3.0 million. The EBIT margin contracted accordingly from 4.2% to 1.2%. Cash flow from operating activities was positive, however, at €11.8 million. The companies in the Group were affected differently by the pandemic. Some were able to continue working almost unhindered, whereas business at others came almost to a complete standstill due to travel and contact restrictions and the closure of construction sites. One of the most important strategic decisions in recent years was to expand Muehlhan's activities in the renewable energy market, specifically for offshore and onshore wind farms (Renewables segment). The success of this segment shows that it is the right strategy. Another decision
was to expand and complete the range of services offered in the Ship and Industry/Infrastructure segments, so that the breadth of services requested by customers can also be offered in these markets. Another part of Muehlhan's strategy is to withdraw from markets that no longer support its strategic objectives. In the reporting year, this concerns the oil and gas business in the North Sea. Muehlhan has not achieved the critical mass in recent years to play an active role in the upcoming process of consolidation. No dividend was paid from 2019 earnings in financial year 2020 due to the unpredictable development of the pandemic. For 2021, and in view of the stable liquidity position, the Supervisory Board will make a proposal to the Annual General Meeting to resume dividend payments and distribute €0.12 per share.
The expectation is that the business segments will resume their positive trend of recent years as soon as the pandemic has been overcome successfully. A return to growth would be delayed if the pandemic lasted for a long time, however.
As in prior years, there are further risks from political developments and their impact on global trade and value chains.
Meanwhile, the strategic challenges remain largely unchanged from the previous years and will preoccupy the Executive Board and Supervisory Board again in the current financial year:
of surface coating maintenance and renovation services, ranging from last-minute repair work on exterior walls to the complex restoration of water, ballast, fuel and cargo tanks.
• The period of low oil prices that has been ongoing since 2014 has had a deep impact on the oil and gas industry's maintenance and investing activities. These have remained low since 2015 and there are no indications that there will be a turnaround. Since Muehlhan does not have the scale required to play an active role in the ongoing consolidation process, it is preparing to exit the North Sea oil and gas business. In the future, Muehlhan will concentrate its activities on offshore oil rigs off the coast of Brazil and Africa and in the Gulf of Mexico.
As in previous years, in financial year 2020 the Supervisory Board performed the duties assigned to it by law and the Articles of Association. It regularly consulted with the Executive Board and carefully supervised its work. The Supervisory Board and the Executive Board remained in close contact, even between meetings. For example, the Chairman of the Supervisory Board regularly exchanged information about current business performance and major transactions with the Chairman of the Executive Board.
In 2020, the Executive Board's regular written and oral reports to the Supervisory Board concerning business developments within the Muehlhan Group and at Muehlhan AG once again formed the core of the cooperation between the two management bodies. The effects of the COVID-19 pandemic on the performance and results of the Muehlhan Group were monitored particularly closely in 2020. The future direction and strategy of the Muehlhan Group were also discussed intensively. The Executive Board also provided the Supervisory Board with comprehensive reports regarding the effects of the pandemic and the financial position, earnings performance, and short-term and medium-term business plans of Muehlhan AG and of its subsidiaries.
A total of five meetings were held in 2020 and attended by the Executive Board: on February 11, March 24, June 17, October 22 and December 15, 2020. The meeting on October 22, 2020, was held in Hamburg. The meetings on February 11, March 24, June 17 and December 15, 2020, were held online because of the pandemic.
All the members of the Executive Board and Supervisory Board attended all the meetings. One Executive Board member attended the meeting on October 22 in Hamburg by video conference. Regular topics of discussion at the Supervisory Board meetings included the trend in revenues, income and employment as well as the financial position and liquidity trend of Muehlhan AG and the Group, especially given the particular challenges of the year 2020. The meetings also featured discussions of trends in the company's main business segments and its strategic direction and development, taking into account the business situation in each of its international markets.
In cases where the Supervisory Board required further information, this was quickly supplied both verbally and in writing by the Executive Board. Regular exchanges of information and consultations between the Executive Board and the Supervisory Board, including between meetings, ensured that specific questions about important developments and business transactions at Muehlhan could be discussed and dealt with at any time.
In addition to the regular issues, the following topics, in particular, were discussed in detail at the 2020 meetings of the Supervisory Board:
At the Supervisory Board meeting on February 11, 2020, the preliminary business figures for 2019 were discussed.
The subject of the Supervisory Board meeting held on March 24, 2020, was the 2019 separate and consolidated financial statements of Muehlhan AG and the audit of the 2019 separate and consolidated financial statements of Muehlhan AG and its business performance in the first two months of 2020. The initial impact of the COVID-19 pandemic and the resulting collapse in the oil price were also discussed.
The latest developments in the pandemic and its impact on the results were discussed at the meeting on June 17, 2020, as well as preparations for the virtual Annual General Meeting held the next day.
The Supervisory Board meeting on October 22, 2020, dealt with the latest results and developments, especially in the Middle East. The future direction of the Muehlhan Group was also discussed.
The last Supervisory Board meeting of the year on December 15, 2020, discussed the latest results and discussed and approved the 2021 budget.
No committees were set up.
The financial statements and the management report for Muehlhan AG were prepared in accordance with the requirements of the German Commercial Code (HGB), while the consolidated financial statements and the Group management report were prepared in accordance with International Financial Reporting Standards (IFRS) in conjunction with Article 315e HGB.
The Supervisory Board commissioned Warth & Klein Grant Thornton AG Wirtschaftsprüfungsgesellschaft, Hamburg, to audit the financial statements of Muehlhan AG and the Group pursuant to the resolution adopted by Muehlhan AG's Annual General Meeting on June 18, 2020. Warth & Klein Grant Thornton has audited the consolidated financial statements for the period ending on December 31, 2020, the Group management report for the financial year beginning on January 1 and ending on December 31, 2020, the financial statements of Muehlhan AG for the period ending on December 31, 2020, and the management report for Muehlhan AG for the financial year beginning on January 1 and ending on December 31, 2020, and has given them an unmodified audit opinion.
The audit focused on the following:
Pursuant to Article 317, paragraph 4 HGB, the auditors reviewed and found that the Executive Board has set up a monitoring system, that the statutory requirements for early detection of risks posing a threat to the company as a going concern have been met and that the Executive Board has taken appropriate steps to ensure that it can detect trends and avert risks at an early stage.
Muehlhan AG's financial statements and the consolidated financial statements, the management report for Muehlhan AG's financial statements, and the management report for the consolidated financial statements, the proposal for the use of retained earnings and the associated audit reports were sent to each member of the Supervisory Board for their independent review. At the meeting on March 30, 2021 the Supervisory Board once again thoroughly discussed and reviewed all the documents in the presence of the auditors. Upon completion of this review, no objections were raised.
Based on the final results of its reviews, the Supervisory Board has no objections to the financial statements for Muehlhan AG and the consolidated financial statements prepared by the Executive Board, or the results of the financial statement audits, and it approves Muehlhan AG's financial statements and the consolidated financial statements dated December 31, 2020. The financial statements are therefore adopted. The Supervisory Board agrees with the Executive Board's proposal regarding the appropriation of annual net income.
The auditors also reviewed the report on relationships with affiliated companies (affiliated companies report) prepared by the Executive Board pursuant to Article 312 AktG and issued the following opinion:
"We have duly examined and assessed the report and hereby certify that:
The auditors submitted the audit report to the Supervisory Board. The Supervisory Board examined the affiliated companies report and the audit report for completeness and accuracy. Based on the final results of its examination, the Supervisory Board agrees with the results of the review by the auditors and raises no objections to the statement by the Executive Board at the end of the report, which is reproduced in the Group management report.
The COVID-19 pandemic meant that 2020 took the company a step backwards on the road to sustainably profitable business performance. The Executive Board responded successfully to the impact of the pandemic and prevented a loss. Once the pandemic comes to an end, the conditions are in place for the Group to return to growth and successfully overcome future challenges.
The Supervisory Board looks forward to continuing its support for the Executive Board's strategy to secure the future of the Muehlhan Group in a sustainable way. We thank the Executive Board and the Group's employees for their work and high level of commitment and we also would like to thank Muehlhan's customers and business partners for their continued confidence during the past financial year.
Hamburg, March 2021
Philip Percival Chairman of the Supervisory Board of Muehlhan AG
02 Our Share
The Muehlhan share came under severe pressure at times as a result of the COVID-19 pandemic and lost value over the year.
The year 2020 got off to a quiet start. The share price was stable until the end of February 2020 and at times was well above €3.00. It reached a high for the year on February 20 at €3.50. From late February until mid-March the price then fluctuated between €2.80 and €2.96 per share. From March 12, 2020, the share price collapsed amid the general stock market turbulence caused by the pandemic. The low for the year was €1.92 per share on March 24. After recovering in the final days of the first quarter, the share closed the quarter down 22.5% at €2.48.
In the second quarter, the price initially recovered to €2.54 per share, before falling back to €2.16 per share by June 30. The share price of Muehlhan AG therefore fell 32.5% in the first half of 2020.
The Muehlhan share followed the positive general trend in the third quarter, rising to €2.70 as of September 30, 2020 with significant volatility at times.
In early October, the share started well, before following the negative market trend from early November as lockdowns were imposed again. The share price initially settled at around €2.50 before closing the year at €2.64 on December 31, 2020.
The price of the Muehlhan share therefore fell by 17.5% in the course of the year.
The volume of Muehlhan shares traded rose year-over-year by 1,288,736 shares to 3,066,347 in 2020.
As of the editorial deadline the market capitalization was €52.7 million (March 26, 2021, XETRA closing price: €2.70).
| Nominal (accounting) value | No-par-value bearer shares |
|---|---|
| Number of shares issued | 19,500,000 |
| Initial listing | 10/26/2006 |
| Issue price | €5.80 |
| High for 2020 (XETRA) | €3.50 |
| Low for 2020 (XETRA) | €1.92 |
| Designated sponsor | Pareto Securities AS, Frankfurt Branch |
| Coverage | M.M. Warburg Research, Hamburg |
| Share buyback handled by | Pareto Securities AS, Frankfurt Branch |
| Market capitalization as of December 31, 2020 (XETRA: €2.64) |
€51,480,000 |
The Muehlhan share is listed on the Open Market of the Frankfurt Stock Exchange.
There were no major changes to the shareholder structure as of December 31, 2020, in comparison with December 31, 2019. More than 50% of the shares remain in the possession of the family that founded the company. Management also holds shares.
Service work on wind turbine Surface protection work in the blasting and coating facility of Muehlhan Deutschland GmbH in Bremen
Spraying
For Muehlhan too, the year 2020 was dominated by the COVID-19 pandemic and its impact on business. Early action taken at all levels, the well-performing offshore wind power industry and some major projects that continued during the pandemic under more difficult conditions were able to prevent a loss in this exceptionally negative year. The results are nonetheless a great disappointment for everyone. Revenues fell by 11.8% to €260.4 million. EBIT went down by 75.5% from €12.4 million to €3.0 million and the EBIT margin contracted accordingly from 4.2% to 1.2%. Consolidated income dropped by 79.6% to €1.3 million, compared with €6.3 million in the previous year. After deducting minority interests, income of €0.3 million is attributable to Muehlhan's shareholders. Cash flow from operating activities of €11.8 million was gratifying by contrast.
The pandemic affected Group companies in different ways. Whereas a few companies were able to continue working almost unhindered, business activity at others was brought almost to a complete standstill by travel and contact restrictions or the complete closure of construction sites, offshore platforms and shipyards. Overall, the state of the Group was stable at all times, however, and management was able to limit the impact of the pandemic by acting swiftly and appropriately in each specific situation.
Among the strategic decisions taken in recent years is Muehlhan's growing presence in the market for renewable energy from offshore and onshore wind turbines ("Renewables"). Muehlhan supports the development of a sustainable energy supply along the entire value chain, with its surface protection services for producing components of wind turbines, assembly and sub-contracting work to install wind power stations and transformer platforms, and maintenance work on existing installations. The success of Muehlhan Wind Service A/S, which was founded in 2017 and again demonstrated impressive growth with revenues of €36 million in the reporting year, shows that this is the right strategy. Another key decision relates to the expansion and completion of the service portfolio in the Ship and Industry/Infrastructure segments, in order to offer the breadth of services requested by many customers in these markets also.
Management has regularly pointed out in recent years that – as in the past – Muehlhan will leave markets which for various reasons no longer support the company's strategic objectives. In the reporting year, this concerns the oil and gas business in the North Sea. Muehlhan has not achieved the critical mass in recent years to play an active role in the upcoming process of consolidation.
Overview _ Group Fundamentals _ Objectives and Strategy _ Control of the Group _ Research and Development _ Economic Report _ Forecast and Report on Opportunities and Risks _ Legal Disclosures
Acquisitions and the establishment of new companies as part of an organic growth process are always considered by Muehlhan as a means of achieving its strategic objectives. No acquisitions were made or new companies established under the particularly difficult conditions in the reporting year, however. Instead, the focus was on coping with the COVID-19 pandemic and implementing operating improvements within the existing companies.
Despite the difficulties caused by the pandemic, management continues to work on numerous parameters at the operations level: more precise selection criteria for projects and the use of strict risk management contribute to reducing or ideally avoiding project losses. Improved, system-based project controlling makes it possible to detect variations from the plan and thus to take countermeasures at an earlier stage.
The Renewables segment generated impressive results in the reporting year, with a steep increase in revenues and disproportionately higher EBIT. As a full-service provider that supports both wind power station manufacturers and offshore wind farm operators throughout the entire lifecycle of the equipment, Muehlhan is exceedingly well positioned for continued growth in the various submarkets in the future. The expansion of service and maintenance business has also reduced dependence on the offshore newbuild business, which is in long-term decline and more exposed to cyclical volatility.
Most of the other business segments were hard hit by the impact of the COVID-19 pandemic. The Industry/Infrastructure segment suffered from project interruptions and postponements, particularly in the USA and the Middle East, and reported lower revenues and a net loss. The Ship and Oil & Gas segments achieved positive results despite lower revenues.
As the effects of the pandemic recede, the Muehlhan Group expects to quickly resume the upward trend of recent years. Our confidence is based on the greater resilience the Group has developed thanks to the strategic decisions taken in recent years, the increasingly wide range of services we offer and the operating improvements. When a return to normality will be reached, however, depends on how restrictions are lifted in the countries where the Group operates.
Notwithstanding the ongoing pandemic, day-to-day business focuses on risk management and continuous improvements in order to secure the success and stability of the Muehlhan Group.
Muehlhan AG (MYAG), Hamburg, is the holding company for a total of 33 directly and indirectly held companies in Europe, the Middle East, North America and the Rest of the World. Of this number, 29 companies are currently included in the consolidated financial statements.
Muehlhan AG is a listed corporation traded on the Open Market of Frankfurt Stock Exchange.
As one of the few full-service providers in its industry, the Muehlhan Group offers its customers a broad spectrum of industrial services. Muehlhan combines very strong organizational skills, extensive technical expertise, more than 135 years of experience and exacting quality standards into a professional industrial approach that satisfies the highest quality demands of our customers.
The services we provide range from work on ships, offshore and onshore oil and gas installations, offshore and onshore wind power stations and industrial sites, to work on construction and infrastructure projects.
The Muehlhan Group offers the following services:
Surface protection: Muehlhan provides surface protection services in all markets. These play a major part in protecting and maintaining maritime and industrial infrastructure.
They include:
03 Group Management Report
Overview _ Group Fundamentals _ Objectives and Strategy _ Control of the Group _ Research and Development _ Economic Report _ Forecast and Report on Opportunities and Risks _ Legal Disclosures
Passive fire protection: Passive fire protection has become increasingly important in recent years. Applications include industry, infrastructure and the oil and gas industry. Structures with static loads are protected using cementitious, intumescent materials that ensure their stability as long as possible in the event of fire. This keeps load-bearing structures with emergency exits, stairways and roof structures accessible to emergency teams and firefighters for a longer period of time, thereby saving lives.
Scaffolding and access technology: Scaffolding and access technology are parts of the Group's activities since both services are closely linked to the expansion of the Oil & Gas and Renewables business segments. Accordingly, Muehlhan provides both onshore and offshore scaffolding and access technology services. Muehlhan is also an important partner for construction companies involved in civil engineering and facade construction, for oil and gas exploitation companies, for companies in the wind power segment and for shipyards. Muehlhan is one of the few companies capable of satisfying the high technical demands placed on the construction of offshore
transformer stations and foundations for offshore wind farms and provides special access technologies such as hydraulic lifts, hydraulic work platforms and rope-assisted access systems. In addition, Muehlhan has the knowhow and the technical skills to install complex, customized scaffolding and tribune structures.
Steel construction: The company provides steel construction services for both shipyard and industrial/infrastructure customers. Steel construction services encompass welding work on ships, bridges and offshore facilities as well as installation work on wind turbines, smokestacks, ships, and other industrial facilities. As a result of its high skill level, Muehlhan also provides training programs and courses.
Insulation: Thermal insulation and soundproofing as well as full coating and insulation remediation are particularly important for industrial plants and construction projects and over the long term help to lower costs and to comply with environmental standards.
Wind turbine services: Through its Danish subsidiary Muehlhan Wind Service A/S, Middelfart, Denmark, Muehlhan offers a wide range of services for wind turbines. The company's portfolio includes assembly work, installation, services, electrical work and surface protection.
There were no changes in the Group's objectives in the reporting year. It still aims for strong profitability in the individual business segments and to achieve and build on a leading market position. The intention is still to achieve this by adapting and expanding the range of services offered, with financial stability and strong organizational skills. Within the framework of this strategy, the Executive Board and Supervisory Board decided in the reporting year to dispose of the Oil & Gas business segment in the North Sea, where Muehlhan has no leading market position.
Specific objectives and strategy are discussed below:
The Group operates in Europe, the Middle East and North America. Every local commitment is measured against strict criteria such as profitability, cash generation, sustainability, portfolio range and minimum size. If these criteria are not met over the long term, steps are taken to ensure they are satisfied again, or the site will be sold or shut down. The goal is to increase profitability and, along with it, the Group's long-term shareholder value.
Muehlhan concentrated on developing and consolidating the existing companies and on coping with the COVID-19 pandemic in the reporting year.
The goal set by management and the Supervisory Board is for the company to achieve a market leadership position in every segment within five to seven years. In what is overwhelmingly a fragmented competitive environment, Muehlhan uses long-term investments in employee training and continuing education, reserve capacity that is available on short notice, technical innovations, higher quality and higher productivity as well as in the financial options available to a Group with international operations, to offset the structural cost advantages enjoyed by some smaller competitors.
A key element of the adjusted strategy is to expand activities in the energy market with the Renewables (wind power) business segment. The growing market for renewable energy sources, in particular the offshore wind power segment, offers Muehlhan new growth areas in Europe and other parts of the world. Muehlhan is working to expand its position as a recognized specialist in surface protection and to leverage its position as a full-service provider – both for wind power station manufacturers and offshore wind farm operators – so that it can benefit from growth in this market. One example is our subsidiary Muehlhan Wind Service A/S in Denmark, which has enabled us to significantly expand the range of services Muehlhan offers in the area of wind turbines and which is an acknowledged service provider for the major wind turbine manufacturers and operators.
The aim is to maintain and develop our strong market position in the Ship and Infrastructure segments, where we are leaders in some areas. This will be accompanied by targeted adjustments and additions to the range of services offered. Clients in the maritime business generally want surface protection as a stand-alone service, but in some cases are also interested in upstream and downstream services. By contrast, the customers in many infrastructure and industrial projects require a complete range of services comprising scaffolding, insulation, surface protection, fire protection, industrial cleaning and sometimes other services too. In order to satisfy these requirements, where it is possible and makes sense, Muehlhan is expanding its range of services, adapting them to meet customer needs and improving connections between individual services in order to provide customers with an optimal package.
Even during a pandemic, the key characteristics that distinguish the Group from its competitors are its financial stability, financial flexibility for growth initiatives, and strong organizational skills. Attention is focused on ensuring financial stability at all times and reinforcing it where necessary. From our customers' standpoint, Muehlhan is therefore a reliable, stable partner that can be entrusted with one or more major projects at the same time. This allows us to constantly improve our strong organizational skills and to take full advantage of synergy and best-practice effects.
Corrosion protection coating work on the Rio Vista Bridge, California, USA
In addition to traditional customer requirements such as price, efficiency and productivity, short project turnaround times and reliable implementation, other increasingly important competitive criteria include comprehensive and proper documentation of the steps involved in implementing and completing a major project and compliance with all legal provisions regarding environmental protection and occupational health and safety. Muehlhan does everything in its power to comply at all times with all provisions regarding environmental protection and occupational health and safety and to reduce accidents to a minimum. These goals are accomplished through effective, regular training and a proactive approach in every segment.
Muehlhan tracks all of its business processes as well as the requirements and rules in the areas of organization, quality, environmental protection, and health and safety in an integrated management system. This is certified on a regular basis by an external certification company in accordance with ISO 9001:2015 (Quality Management Systems), ISO 14001:2015 (Environmental Management Systems) and OHSAS 18001:2007 and ISO 45001:2018 (Occupational Health and Safety Management Systems).
This systematic, process-based approach helps Muehlhan to satisfy constantly increasing worldwide customer demands and government regulatory requirements in the areas of quality, on-time delivery, occupational safety, accident prevention and sustainable environmental protection, and therefore also boosts its competitiveness. In addition, Muehlhan practices fair forms of communication in line with legal standards with its employees and subcontractors.
Muehlhan Group is managed by a three-member Executive Board. The Supervisory Board consists of three members. It advises and supports the Executive Board in its management of the company and regularly discusses major topics such as planning, strategy, business performance and opportunities and risks.
The Muehlhan Group is managed from the Group's Hamburg headquarters on the basis of traditional key financial, asset and earnings figures that are provided on a monthly basis. The main financial performance indicators are revenues, earnings from operations (earnings before interest and taxes; EBIT), free cash flow and, generally, the development of the company's value. Strategic management is carried out in business segments. The Group's operations management is handled primarily by region, and since 2020 also by segment.
Within the Muehlhan Group, particular attention is paid to compliance with accident-prevention regulations, and therefore to avoiding accidents. One of the non-financial performance indicators used by Muehlhan is the accident rate, an internal accident statistic that is defined as the number of accidents per million working hours. Every month, all the operating companies report occupational accidents and the number of hours worked by employees and subcontractors to the Corporate Manager for SHEQ (Safety, Health, Environment and Quality) in Hamburg.
The Ship segment encompasses both the Ship Newbuilding segment and the Ship Repair segment in Europe. The process of consolidation and contraction in this market seemed to have run its course, but the sharp fall in demand for cruise ships due to the pandemic has caused it to accelerate again. The remaining shipyards in Europe concentrate on building specialty ships, megayachts, cruise ships and naval vessels, and on offshore wind turbines, transformer platforms and other components for offshore wind power stations. Muehlhan provides shipping companies and shipyards with highgrade surface coatings for newbuilds and a wide array of surface coating maintenance and renovation services, ranging from last-minute repair work on exterior walls to the complex restoration of water, ballast, fuel and cargo tanks. Other services include insulation work on new vessels.
The Oil & Gas business segment combines business with both offshore and onshore customers in the oil and gas industry. Muehlhan works as a partner to major companies in the offshore oil and gas and petrochemical industries. In these areas, Muehlhan is renowned for its surface protection, fire protection, insulation and scaffolding.
The North Sea oil and gas business is held for sale.
Muehlhan provides surface protection services to the growing market for Renewables – i.e., renewable energy from offshore and onshore wind turbines – especially for wind turbines and transformer platforms. In recent years, the Group has become a specialist provider of surface protection for wind turbines and rotor blades and thus a coveted partner for leading wind turbine manufacturers. Since 2017, Muehlhan has been a full-service provider for the wind power market, offering a wide array of services including installation through Muehlhan Wind Service A/S in Denmark.
In the Industry/Infrastructure business segment, Muehlhan provides long-lasting coating solutions for steel and concrete structures and scaffolding for civil engineering, for new bridge construction and renovation work, locks, water utility and transportation infrastructure projects and specialty machinery. In addition to working at customers' premises, Muehlhan also operates its own fixed blasting and coating facilities. One other service is passive fire protection, which is used in large steel structures such as airports, bridges, skyscrapers and industrial buildings.
Muehlhan Group currently operates on three continents. The Group has 16 subsidiaries in Europe. In the Middle East, the Muehlhan Group has four operating companies in the United Arab Emirates, Qatar and Oman. In North America, Muehlhan operates mainly in the states on the West Coast. The Rest of the World region refers mainly to the two subsidiaries of MSI that are working on offshore oil rigs off the coasts of Brazil and Africa.
Since 2020, the individual companies in the Muehlhan Group have been divided into the Energy and Marine & Construction segments. The Energy segment comprises the oil and gas business in the North Sea, activities on offshore oil rigs and everything related to wind power stations and transformer platforms. The Marine & Construction segment consists of the Ship and Industry /Infrastructure units.
Traditionally, the Muehlhan Group has been a pioneer in developing and applying innovative technologies and is one of the few companies operating in the surface protection segment that is actively engaged in research and development in this field. Its R&D work not only includes in-house projects on improving productivity and profitability, but also collaboration within international standard-setting organizations and cooperative arrangements with various research institutions.
Muehlhan views itself as a market leader in the area of surface protection technology. Muehlhan Group is actively working on products and equipment aimed at further developing sustainable, environmentally friendly surface protection techniques. The Group has two employees working in this area on a full-time basis and brings in other employees when needed. In addition, the Group works closely with renowned research institutes and other specialized third-party companies. R&D expenses totaled €0.3 million and consisted mainly of expenses for employees.
The world economy contracted by 3.5% in the reporting year, compared with growth of 2.8% the previous year. The main reason for the recession was the COVID-19 pandemic, which has had a dramatic impact worldwide since March 2020.
All relevant economies were and are affected. China's GDP growth rate fell by 3.7%, but remained positive at 2.3%. GDP was down by 3.4% in the USA and by 7.2% in Europe, although Germany was better than average at -5.4%.
Forecasts from January 2021 predict a significant recovery in the global economy and growth of 5.5% in 2021. The USA and Europe are below the global average with forecast growth rates of 5.1% and 4.2% respectively. Further global economic growth of 4.2% is expected for 2022.
These forecasts are subject to great uncertainty, however. They were made on the assumption that the vaccination programs launched in December 2020 would rapidly have a positive effect and that travel restrictions and lockdowns could be lifted quickly. New waves of infection and new variants of the coronavirus could slow these developments, however, and have a correspondingly negative impact on the global economy. The basic assumption nevertheless remains that the world economy will pick up again quickly and recover when the pandemic comes to an end.
As in previous years, the forecasts are additionally subject to other uncertainties. Increasing geopolitical risks such as the simmering conflict on the Arabian Peninsula, tensions between Iran and the USA, increasingly tough talk on trade with China and the levying of tariffs may significantly influence future developments.
The effects of the financial crisis, the current COVID-19 pandemic and the resulting great uncertainty about future developments have caused interest rates to remain at a historically low level. Against the background of the pandemic, no change in monetary policy in the relevant countries or a significant increase in interest rates is expected for 2021.
The oil price fell sharply to less than US\$50 per barrel at the start of 2020. When the pandemic began in March 2020 the oil price even fell below US\$ 20 per barrel for a short period. As the economy gradually recovered, the oil price picked up again, to close the year at over US\$50 per barrel.
1 International Monetary Fund: Global Economic Outlook, January 2021
Overall, the oil price in 2020 was significantly below the level of previous years. It is expected to increase again in 2021 in a scenario in which the pandemic comes to an end, the economy revives again and demand for oil rises sharply due to catch-up effects. Here too, geopolitical risks or longer-lasting effects of the pandemic could have a significantly adverse impact.
In the Ship segment, the process of consolidation and the relocation of shipbuilding to Asia have been concluded. The German shipyards have adapted to the structural changes by successfully establishing themselves in high value-added niches. This positioning allows them to offset their Asian competitors' lower labor costs with higher added value. They mainly serve niche markets such as naval shipbuilding, cruise ships, specialty ships and megayachts, as well as customers in the wind power segment. The shipyards remain busy in particular thanks to high demand for more energy-efficient ships and naval vessels. Shipyards that specialize in cruise ships have experienced a significant impact from the COVID-19 pandemic on planned deliveries and forecast new orders, by contrast. Muehlhan does not work on these shipyards in Germany.
The continued fall in the oil price in 2020 put great pressure on all companies in the oil and gas sector. Challenges therefore remain significant for companies active in the oil and gas sector. Cost-cutting measures, such as job cuts and the postponement of capital expenditure and maintenance work increased margin pressure through the value chain, but are now largely complete. Maintenance and investment by oil exploration companies increased again slowly, partly because of the investment backlog, but recently came to an almost complete standstill due to the effects of the pandemic, particularly the travel restrictions. As a supplier to this market, Muehlhan also had to adjust its structures to reduced demand and higher cost pressures in the reporting year. It will withdraw from the North Sea oil and gas market and has put this unit up for sale.
In the Renewables segment, wind turbines with a total capacity of almost 63 GW were installed in Germany in 2020, of which offshore wind farms accounted for some 7.5 GW. New wind power installations with 1,650 MW were completed in the reporting year, most of them onshore. Offshore wind power stations only accounted for 219 MW. Another 1 GW of offshore power is currently under construction.2 Other European countries are developing offshore wind power much faster. Muehlhan has an opportunity to make use of its great experience in surface protection, scaffolding and steel construction in this market and also to serve the growing market for installation and service business with Muehlhan Wind Service A/S.
The Industry/Infrastructure segment serves a very broad range of markets and customers. In the construction sector, Muehlhan provides scaffolding and passive fire services, primarily in the Middle East and Europe. The Group company in the USA has a good reputation as a specialist for the steel-construction bridges that are common there and regularly wins contracts under the multi-billion-dollar national infrastructure repair program. With few exceptions, the segment suffered badly from the restrictions due to the COVID-19 pandemic in 2020. Many projects were interrupted or postponed several times. A recovery and resumption of activities are expected for 2021 as soon as the effects of the pandemic come to an end.
Below, we will discuss the business performance, including special developments and events, through reference to income, net assets and financial position.
The Muehlhan Group's performance in 2020 was significantly worse than originally expected due to the pandemic. In view of the pandemic, the results are still satisfactory, however.
Revenues for the reporting year totaled €260.4 million, which was 11.8% down on the previous year (€295.3 million). The cost of materials and purchased services fell in line with revenues by 10.8%, from €98.9 million to €88.1 million. Personnel expenses fell by 9.7% to €123.3 million. Other operating expenses were almost unchanged at €41.8 million. Whereas travel expenses went down, many costs for rent, repairs and maintenance of technical equipment remained constant. Exchange rate losses increased. In total, EBITDA (earnings before interest, taxes, depreciation and amortization) fell at a faster rate than revenues by 41.2% to €14.4 million. Depreciation and amortization of €11.4 million was €0.7 million lower due to reduced capital expenditure.
The result is a decline in EBIT (earnings before interest and taxes) of 75.5% from €12.4 million to €3.0 million. The EBIT margin fell accordingly by 4.2% to 1.2%. The significant reduction in EBIT and the EBIT margin is due to the effects of the COVID-19 pandemic. Muehlhan took various measures to address the fall in revenues, such as reducing the use of subcontractors, and was able to report significantly positive EBIT, even in these difficult times. Government assistance was only used to a minor degree by some companies.
2 Homepage of the German Wind Energy Association (Bundesverband WindEnergie), February 2021
The financial result improved by €0.2 million to €-1.7 million, mainly due to lower interest expenses on borrowings.
The tax result of €-0.1 million is only slightly negative because of tax loss carryforwards.
Consolidated income from discontinued operations relates to MGR, a Greek subsidiary of Muehlhan AG, which was sold in the reporting year. The company had no business activity in the reporting year. Consolidated income declined from €6.3 million to €1.3 million, of which €1.0 million stems from non-controlling interests (previous year: €-0.1 million), whereby the non-controlling interest in Muehlhan Wind Service A/S accounts for the main share. The consolidated income attributable to shareholders of Muehlhan AG was therefore €0.3 million (previous year: €6.3 million).
Revenues in the Ship segment declined by €3.8 million to €65.6 million. EBIT fell by half to €3.6 million.
The Oil & Gas segment had serious problems as a result of the COVID-19 pandemic and the related travel restrictions, as well as low oil prices, and reported a fall in revenues of €18.0 million to €60.4 million. EBIT of €0.3 million was still positive (previous year: €6.1 million).
In the Renewables business unit, revenues rose by €17.9 million to €63.5 million, largely due to increased maintenance work for wind turbines. EBIT came to €6.1 million, compared with negative EBIT the previous year because of losses and a provision for onerous contracts relating to a project that has since been ended.
The Industry/Infrastructure business suffered worst from the COVID-19 pandemic. Project interruptions and postponements due to numerous restrictions caused revenues to fall by €31.1 million to €71.0 million. EBIT of €-4.2 million was significantly negative (previous year: €3.8 million) due to the effects of the pandemic and loss allowances on receivables. The US subsidiaries were particularly affected by the pandemic, because after successfully completing bridge projects the previous year they were not able to start follow-up projects in the reporting year.
A regional review shows that revenues in Europe increased by 2.3% from €233.3 million to €238.8 million in the reporting year. A key factor for the increase, despite the pandemic, was the successful expansion of wind service activities in Denmark. EBIT fell by €2.2 million to €8.6 million since most of the European companies were hit by the effects of the pandemic.
In the Middle East, which for Muehlhan's purposes comprises the United Arab Emirates, Qatar and Oman, revenues fell significantly by €8.5 million to €14.3 million. The decline is partly due to the effects of the pandemic and generally lower investments. In addition, very long payment deadlines meant that projects were screened more selectively. EBIT was significantly negative at €-2.6 million. Earnings were also reduced by retentions and loss allowances on receivables. Litigation to recover receivables was started in the reporting year.
Business in North America came to a virtual standstill due to the pandemic. Ongoing projects had to be interrupted, new projects could not start and no bids could be made for tenders that were postponed. Revenues came to just €4.6 million compared with €24.4 million in the previous year. EBIT fell to €-2.3 million compared with an above-average €3.5 million the previous year for project-related reasons.
The situation in the Rest of the World was similar. Travel restrictions and platform closures made it virtually impossible to complete oil and gas projects off the coast of Brazil and Africa. Revenues were down by €11.7 million to €3.9 million and EBIT was negative at €-1.0 million (previous year: €1.6 million).
Revenues in the Energy segment of €113.6 million in 2020 were almost constant compared with €114.5 million the previous year. EBIT of €5.5 million was also roughly stable compared with €5.9 million the previous year. Although revenues and earnings fell significantly in the oil and gas business, the Renewables segment reported a significant increase in revenues and earnings.
The Marine & Construction segment reported revenues of €148.6 million, which was €34.6 million down on the year 2019. EBIT fell from €10.1 million to €0.9 million, partly due to the pandemic and partly to loss allowances on receivables.
Orders on hand as of the reporting date increased year-over-year from €219 million to €272 million, although Muehlhan changed the measurement of orders placed under framework agreements in 2020. Until 2019, only legally binding orders up to the earliest possible termination date were counted, although the maximum contract term and the integration of Muehlhan services in the production process suggested that the economic value of the order book was higher. This was adjusted in 2020 to present a more realistic amount of orders on hand. The effect came to €65 million. A major addition to the order book was a contract for around €40 million over three years between Muehlhan's British subsidiary and a large customer in the North Sea for offshore maintenance and scaffolding services. The order book also increased due to new orders that could not be started because of
the pandemic. Another important component is the framework agreement signed in 2017 with the oil and gas production company Total S.A. (formerly Maersk Oil) for a fabric maintenance program, which still has three years to run and represents orders of €35.0 million as of the reporting date.
The average number of employees went down to 2,790 (previous year: 3,103 employees). Muehlhan received a small amount of government aid in some countries to cope with the COVID-19 pandemic, but has already repaid part of it. The general aim is to retain employees and their knowledge in the Group, in order to maintain the high level of quality and safety going forward.
One of the non-financial performance indicators used by Muehlhan is the accident rate, an internal accident statistic that is defined as the number of accidents per million working hours. The working environment and the demands on Muehlhan's employees are not without risks; consequently, while Muehlhan can apply a broad set of measures to reduce occupational accidents, it cannot eliminate them entirely. 42 accidents were recorded in the reporting year, which is two fewer than the previous year. The lower number of hours worked meant the accident rate rose from 4.8 to 5.7.
The table below provides an overview of changes in the capital structure:
| 2020 | 2019 | |||
|---|---|---|---|---|
| In % | In % | |||
| In € | of total | In € | of total | |
| million | assets | million | assets | |
| Equity | 69.2 | 42.8%. | 71.8 | 40.9%. |
| Borrowings | 31.8 | 19.6%. | 34.2 | 19.5%. |
| Trade payables, contract liabili | ||||
| ties and other liabilities | 46.7 | 28.9%. | 55.0 | 31.1%. |
| Total assets | 161.6 | – | 175.4 | – |
The Muehlhan Group's financing is supported by its strong equity base. Equity fell by €2.6 million compared with the previous year, but lower total assets meant the equity ratio went up to 42.8%. The main reason for the decline in equity was the measurement of assets and liabilities in foreign currencies without effect on income or cash flow.
Borrowings consisted mainly of borrowings totaling €27.4 million under the syndicated loan agreement, €4.0 million of which is current and €21.9 million of which is non-current. The non-current portion of the syndicated loan agreement and other bank loans is €22.5 million.
Components for offshore wind power stations
After deducting cash and cash equivalents, net debt totaled €18.6 million (previous year: €24.2 million).
The company was in compliance with the financing terms at all times during the past year.
During the reporting year, Muehlhan invested €4.3 million in intangible assets and property, plant and equipment (previous year: €8.2 million). Capital expenditure was reduced as a result of the COVID-19 pandemic. In addition to maintenance investment, €2.0 million was invested in growth projects, primarily in Europe in the Renewables and Industry/Infrastructure units.
The Muehlhan Group's financial management is handled centrally by the holding company. Financial management includes managing liquidity, arranging financing and managing financial risks. Since the local operating units often are required to undergo a prequalification process for major projects, sufficient liquidity and bonding capacity must be maintained on the reporting date, including at individual company level, especially in the United States.
At €11.8 million, the Group's cash flow from operating activities was above the previous year's figure of €10.9 million.
During the financial year, Muehlhan invested a total of €4.3 million in property, plant and equipment (previous year: €8.1 million; each without right-ofuse assets). Cash outflows for financing activities amounted to €4.3 million (previous year: €3.1 million). Cash and cash equivalents came to €13.2 million as of the reporting date (previous year €10.0 million). Unutilized credit lines and guarantee facilities totaled €107.3 million on the reporting date (previous year: €114.7 million). In 2020, the Muehlhan Group was therefore in a position to satisfy its payment obligations at all times. Minor amounts of state aid were received in order to conserve liquidity during the COVID-19 pandemic – in France, Denmark and the USA for example. Some of this aid has already been repaid.
As of the reporting date, non-current assets (excluding deferred tax assets) totaled €63.5 million, compared with €68.6 million the previous year. The decline results from lower capital expenditure and lower long-term security deposits. The ratio of fixed assets to total assets was 26.1%, compared with 25.7% the previous year, which includes scaffolding with a carrying amount of €18.8 million (previous year: €21.0 million). Non-current assets (excluding deferred tax assets) accounted for 39.3% of total assets (previous year: 39.1%). On the reporting date, trade receivables and contract assets stood at €63.2 million (39.1% of total assets) and were therefore €10.1 million lower than in the previous year (€73.2 million; 41.8% of total assets).
For Muehlhan too, the year 2020 was dominated by the COVID-19 pandemic and its impact on business. Early action taken at all levels and some major projects that continued during the pandemic under more difficult conditions were able to prevent a loss in this exceptionally negative year. The result is nonetheless a great disappointment. EBIT is positive and the shareholders of Muehlhan AG broke even with a result of €0.3 million. The Group's financial position remains stable and its asset and capital structure is balanced. Cash flow from operating activities is positive, but this is partly due to the decrease in revenues.
In our forecast for 2020 we assumed revenue and earnings growth compared with 2019. The outbreak of the COVID-19 pandemic and the resulting restrictions meant that this forecast could not be achieved. It is also only possible to provide a rough forecast for the 2021 financial year, because the course of the ongoing pandemic will affect the results for 2021. Generally speaking, however, the markets in which Muehlhan operates will not be permanently impaired once the pandemic has receded.
Revenues and earnings in the Ship business unit are expected to be slightly lower than in 2020 if the restrictions due to the pandemic continue throughout the whole year 2021. Any lifting of restrictions would improve revenues and EBIT. However, even if all restrictions were to be lifted, revenues and earnings would not match those of 2019.
The same applies to the Oil & Gas unit. Depending on the progression of the pandemic, revenues and earnings are expected to be in the same range as 2019 if progression is positive, and the same range as 2020 if progression is negative. A sustained rise in the oil price would have a positive effect on revenues and earnings, but only with a significant delay. A potential disposal of the North Sea oil and gas activities could also have a significant impact on revenues and earnings.
Revenue and earnings growth in the Renewables business segment should increase again significantly, especially due to the expansion of service activities. In this fast-growing market, major orders and new projects may have a negative impact on earnings in the short term due to capital expenditures but should result in significant improvements in earnings over the medium term.
In the Industry/Infrastructure business segment, further project delays would result in significant lost revenues of the same magnitude as in 2020. EBIT would again be negative. If the restrictions are lifted soon, significantly higher revenues than in 2020 and positive EBIT are anticipated.
For 2021 in Europe, we expect slightly lower revenues and EBIT at the same level as 2020 if the course of the pandemic is negative and restrictions remain in place all year. If the progression is positive and restrictions are lifted soon, revenues could rise compared with 2020 and EBIT could return to the level of 2019.
Regardless of COVID-19, profitability which is appropriate to the risks and to capital commitment coupled with falling sales revenue is expected in the Middle East due to the planned concentration on demanding projects. EBIT was reduced by loss allowances on receivables in the reporting year and should again be slightly positive in 2021.
Performance in North America depends to a significant extent on the course of the pandemic. If restrictions remain in place for the whole of 2021, revenues will be around the same level as 2020, accompanied by the corresponding losses. If ongoing projects are resumed again soon and new projects can be started, revenues will rise significantly compared with 2020 and earnings will probably be positive.
The Muehlhan region Rest of the World will be similar to the other regions. A continuation of the pandemic would lead to similar results to the reporting year, whereas an end to the pandemic would result in revenues and earnings on par with 2019. Muehlhan completed a business combination between Marine Service International AS (MSI), Drobak, Norway, and a company of TPO Group ApS (TPO), Gentofte, Denmark, as of January 1, 2021. This company has similar offshore activities to MSI, but with a slightly different technical focus and other customers. The transaction was completed without the use of cash. TPO contributed its activities and Muehlhan transferred some 40% of the shares in MSI to the existing TPO shareholders. Muehlhan now holds some 60% of the shares in MSI. This is expected to generate higher sales revenue for the Group, even if the pandemic continues.
Overview _ Group Fundamentals _ Objectives and Strategy _ Control of the Group _ Research and Development _ Economic Report _ Forecast and Report on Opportunities and Risks _ Legal Disclosures
In current circumstances, the Energy segment is expecting revenues and earnings to be at the same level as 2020. An end to the pandemic would result in significantly higher revenues and a corresponding improvement in EBIT.
The same applies to the Marine & Construction segment. A return to a life without restrictions would bring significantly higher revenues and improved EBIT compared with the year 2020. With the restrictions, revenues and earnings are expected to be on par with 2020.
Cash flow from operating activities will depend largely on revenues. Higher revenues will cause a temporary increase in working capital. Revenues at the same level as 2020 would result in stable cash flow from operating activities in 2021, whereby significant payments by customers shortly before or after the reporting date can have a considerable effect.
As in the past, acquisitions and cooperative arrangements will continue to be an option for advancing and implementing our strategic objectives. However, we will apply strict standards in measuring the appropriateness of the purchase price and the strategic and cultural fit. Significant investment is not planned due to the pandemic.
The forecast for 2021 depends to a large extent on the further course of the pandemic. The Executive Board and Supervisory Board of Muehlhan are expecting revenues and earnings for 2021 to be similar to 2020, if there is no significant improvement in fighting the pandemic. Even if all the restrictions are lifted in the short term, it will scarcely be possible to match 2019 revenues and earnings because it takes time to resume all economic activities in full and more than two months have already passed under lockdown at the time this report was written.
The accident rate, a non-financial performance indicator, should be better than in the reporting year. The aim is always to have no accidents.
As a project business service provider, Muehlhan cannot completely eliminate exposure to risks that reduce earnings. These may be operating or strategic risks. Operating risks are an unavoidable part of our business. We counter such risks through an appropriate risk management system. Strategic risks result from changes in external factors to which we did not respond properly in a timely manner in the past or to which it was impossible to respond. We counter such risks by taking decisive corrective actions; however, such actions may entail non-recurring expenses. Possible project losses are operating risks, whereas strategic risks could be the performance of the oil and gas business in the North Sea. Based on currently available information, we do not expect any further significant strategic corrective actions to be necessary in the future. However, one should keep in mind that the company may need to make further adjustments if the economic environment in specific markets should deteriorate.
This outlook contains forward-looking statements that do not describe past events but rather reflect our assumptions and expectations. These statements are based on plans, estimates and forecasts currently available to the Executive Board of Muehlhan AG. The statements are therefore subject to risks and uncertainties, particularly during the COVID-19 pandemic. Actual results and performance may deviate significantly from the assumptions made by us today. We assume no obligation to update such statements to take into account more recent information or future events.
From the company's perspective, there are no risks that could threaten its existence as a going concern. Even in light of the current restrictions on public life and business activities, we believe Muehlhan is well equipped to emerge well from this extraordinary situation.
Listed below are risks that could have a material influence on the Group's net assets, financial position and results of operations. Both our organization and our control systems are designed to optimize the way we deal with existing risks and to address newly emerging risks in a timely manner.
In accordance with Section 91, paragraph 2 of the German Stock Corporation Act (AktG), the Executive Board must take appropriate steps to set up and/or manage a monitoring system that will identify in a timely manner any risks that might threaten the company as a going concern. The company must have an adequate reporting system for this purpose that reports directly to the Executive Board and is continuously expanded and updated.
The Executive Board regularly notifies the Supervisory Board about the company's ongoing business activities and significant risks.
Muehlhan's risk management process consists of a standardized risk identification and reporting system at individual company level. The reported risks are aggregated and consolidated at Group level and presented to the Executive Board. Any material changes from previously reported and/or identified risks are also reported separately, i.e., outside of the regular reporting schedule. The Executive Board evaluates and controls risks on this basis. The risk management process includes deciding, on a case-by-case basis, whether the risk must be avoided, reduced, transferred to others or accepted.
Our company is subject to general market risks and opportunities that may arise from changes in our markets, the introduction of new technologies and coating processes, changing customer needs or increasing competition from market players from related industries or service sectors. In recent years, in particular, our business has also been affected by general economic trends. The Executive Board systematically monitors the relevant markets around the world with risks in mind. The local managing directors and regional managers support the Executive Board in these efforts.
As a service provider, Muehlhan has a relatively high commitment to its existing sites and their economic environment. Negative changes in the economic environment can influence the profitability of a location or company with possible effects on existing goodwill.
Generally speaking, however, it is possible to follow markets to any geographic region at short notice, to set up sites there within a short period of time and to provide flexible support to customers using our own resources, even at the new sites. In turn, this is an opportunity for Muehlhan to generate additional business.
The creation of new sites entails the fundamental risks that exist with any building project such as delays or an unexpected increase in the investment volume.
The COVID-19 pandemic is currently significantly affecting the entire market, and Muehlhan is not immune to this. Travel and contact restrictions mean that many projects cannot be started or continued. Further delays would result if the pandemic persists. On the other hand, Muehlhan is able to start work again and begin new projects quickly when the restrictions are lifted.
It is possible that other pandemics, military conflicts and other extraordinary events may pose risks in the future, but there are opportunities for Muehlhan to gain new business once this pandemic abates.
In the past, the permanent shift to Asia of large-scale shipbuilding and the bulk of the ship repair market represented a strategic risk for the Muehlhan Group. The Group responded to this and other processes of structural change by closing or decommissioning sites and by expanding regional focal points, developing niche markets and diversifying the range of services it offers. Muehlhan combines its own very strong organizational skills and extensive technical expertise into a professional industrial approach that increases the Group's opportunities for developing new markets in specific countries and products.
The COVID-19 pandemic has no significant influence on the corporate strategy or risks and opportunities of strategic importance to the company, since the pandemic is considered to be a temporary phenomenon.
By increasing reliability, further improvements in coating materials will lead to longer surface maintenance intervals, giving rise to the basic risk of a declining demand for surface protection work. On the other hand, due to ship size, the number of ships and the safety equipment installed (e.g. double-hulled ships), there is an opportunity in the fact that the volume of steel surfaces in the maritime business segments will increase. The same applies to the industrial segments. In particular, the additional public funding forecast for the maintenance and repair of transport infrastructure projects in Europe and the United States, especially for steel bridge construction, should stimulate this market.
Where technically feasible, Muehlhan uses steel grid for surface-preparation blasting. Muehlhan would be directly affected by an increase in the price of this process material, but even here only to a very limited extent, since this material can be recycled. There would continue to be a price advantage over a non-reusable material such as copper slag. There is a risk of defective materials being used. The Group has implemented various preventive measures and controls to minimize this risk.
Muehlhan has an advanced inventory of equipment that was developed in the past with the help of only a few manufacturers. In principle, there is a risk that one of these manufacturers might cease production. In this case, Muehlhan can find new solutions on short notice. As we worked closely with our suppliers on the development of the equipment in the past and performed a significant share of our own development work, we also have a high degree of in-house expertise. This means that we can produce equipment that is compatible with our existing inventory of equipment within a short period of time, even with new suppliers.
Surface protection is quite labor-intensive. However, energy is also required for air conditioning in large steel structures while work is being performed, for running air compressors that transport abrasives and for powering pumps to generate high-pressure water. Accordingly, Muehlhan is directly affected by higher energy costs. The only way we can counter such developments is by increasing prices for our own services. However, Muehlhan uses environmentally friendly and energy-saving technologies, so a price increase for energy tends to improve our competitiveness.
Competition for qualified executives and quality-conscious technical employees continues to be high in the industries in which Muehlhan is active. Experience from previous financial years has demonstrated that the submarkets in which Muehlhan operates are "people businesses" in which individual employees can affect the success of the Group. Our future success therefore depends in part on the extent to which we are successful over the long term at competing with other industries to recruit the required technical professionals from outside the company, integrating them into existing work processes and retaining them over the long term. One approach of our strategy to ensure that we recruit qualified young talent is our participation in academic training programs at universities in Hamburg, Germany, and in Gdansk, Poland.
At the same time, we intend to take advantage of our employees' already high level of identification with our company and its services and to systematically prepare suitable employees from our own ranks for strategically important assignments within the company.
The companies of the Muehlhan Group also work at fixed prices and sometimes carry out a large portion of their services in advance of payment. Our customers expect this type of (pre)financing, which has developed into a major component of the services we offer. When the financial crisis started, customers began increasingly to exceed our already generous payment terms, especially in the Middle East; such customer credits have remained at an unacceptably high level ever since. Litigation reduces the risk of losing the entire receivable, but can have an impact on future business.
Muehlhan operates in the project business. With major projects, there is always a risk that the contractor will suffer a loss and become insolvent. In Muehlhan's case, this especially affected shipyards in the past. Muehlhan has therefore implemented precise criteria for its project selection and stringently applies various risk management measures. Muehlhan carefully reviews its customers' liquidity situations before accepting orders and manages receivables in a regular and systematic way. It also insures credit risks on a case-by-case basis, to the extent they are insurable. Improved, system-based project controlling will moreover enable us to detect deviations from the plan and thus enable us to take countermeasures at an earlier stage. We plan to continue this practice in the future. Generally speaking, however, defaults – including large losses – cannot be ruled out.
Short-term overdrafts pay interest at floating rates and are subject to the normal risk of interest-rate fluctuations.
The master syndicated loan agreement entails the risk that future variablerate interest payments will change, with corresponding negative effects on the company's cash flow. Muehlhan countered the risk by entering into an interest rate cap with the same maturity that limits negative effects on cash flow to a certain amount. The interest rate cap covers almost all the non-current portion of the syndicated loan facility and the associated risks. Failure to comply with the ratios ("covenants") contained in the master syndicated loan agreement would also entail risks.
Early communication with banks was sought in the reporting year following the outbreak of the COVID-19 pandemic and the resulting restrictions. The risk of non-compliance with the covenants in the master syndicated loan agreement was managed by temporarily suspending the covenants. In addition, the existing syndicated loan agreement was increased by €5.0 million in December and the whole agreement extended for a year until mid-2023.
The solid financing strategy with the long-term syndicated loan agreement, early communication with the banks, the prompt implementation of countermeasures, and not least the intact business model and comparatively mild financial effects of the crisis, mean that the financial position of the Muehlhan Group remains stable even in the pandemic.
Loans to and from subsidiaries outside of the euro area are subject to a basic exchange rate risk which, where possible, is countered by measures aimed at equity financing.
Tax risks have been adequately covered in the consolidated financial statements. Nevertheless, additional tax claims could emerge if the tax authorities' opinion of the law differs from that of the taxed company in particular cases.
Appropriate liquidity planning systems are used to deal with risks from cash flow fluctuations at an early stage.
Muehlhan Group companies primarily offer surface protection application services on a project basis. These are often provided in conjunction with other technical work and frequently under considerable time pressure. In some cases, the full scope of the services to be provided only emerges after the work has begun. Muehlhan protects itself from these contingencies by assessing the likelihood of additional costs, such as those resulting from a change in the services required or a change in scope, even in the early stages of the contract negotiations. This assessment is taken into consideration in determining the price for the quotation and subsequently in preparing the final contract documents.
At the same time, the local project managers can count on capable support from the holding company. In many projects, the deployment of Group specialists to address technical, business or legal issues has proven its worth, enabling the company to respond more quickly and in a more personalized manner to the respective customer's needs than would have been the case with external support.
As a company working on international projects and/or as a group of companies with international operations, Muehlhan is aware that claims by or even
Work on the Øresund Bridge in Denmark
against Muehlhan may require a court settlement. Muehlhan has taken legal action against other market players, including customers, in the past and is currently involved in litigation against customers and suppliers.
The Polish subsidiary Muehlhan Polska Sp.z o.o., Szczecin, maintained branch offices in Germany, Belgium and Denmark in 2020.
The Cypriot subsidiary Muehlhan Cyprus Limited, Limassol, had an independent branch office in Greece and a branch office in Ghana.
The Danish subsidiary Muehlhan A/S, Middelfart, had branch offices in Slovakia, the UK and the Faroe Islands.
The Danish subsidiary Muehlhan Wind Service A/S, Middelfart, maintained branch offices in France, the UK and Taiwan in the reporting year.
Pursuant to Article 312 of the German Stock Corporation Act (AktG), the Executive Board has prepared a report on relationships with affiliated companies that includes the following closing statement:
"We declare that Muehlhan AG and its subsidiaries received appropriate consideration for all the legal transactions listed, in accordance with the circumstances known to them on the date when the legal transactions were entered into."
The company has no knowledge of any legal risks that could threaten the
continued existence of the Muehlhan Group.
The Executive Board's compensation consists of a fixed component and a variable component. The variable compensation consists of short-term and long-term components and is based on increases in the corporate value (change in equity value) of the Group. The short-term component is based on the year-over-year increase in the corporate value (change in equity value) and payment is made in the form of a cash bonus. The long-term component is based on a sustainable increase in the corporate value (sustainable change in equity value) and payment is made in shares.
The Supervisory Board's compensation consists of a fixed compensation component and a variable component that depends on the level of consolidated earnings achieved.
With regard to information according to Section 160 sentence 1 (2) AktG, we refer to the explanations in the notes to Muehlhan AG's separate financial statements published December 31, 2020.
Hamburg, March 30, 2021
Executive Board
Stefan Müller-Arends Dr. Andreas C. Krüger James West
| ASSETS in kEUR | Notes | 12/31/2020 | 12/31/2019 |
|---|---|---|---|
| NON-CURRENT ASSETS | |||
| Intangible assets | 1 | 17,285 | 18,233 |
| Property, plant and equipment | 1, 2, 3 | 42,174 | 45,043 |
| Financial assets | 24 | 33 | 166 |
| Other non-current assets | 4 | 3,998 | 5,192 |
| Deferred tax assets | 5 | 3,698 | 1,954 |
| Total non-current assets | 67,188 | 70,588 | |
| CURRENT ASSETS | |||
| Inventories | 6 | 6,571 | 6,169 |
| Trade receivables and contract assets | 7 | 63,231 | 73,232 |
| Cash and cash equivalents | 8 | 13,175 | 9,999 |
| Other current assets | 9 | 11,430 | 14,862 |
| Total current assets | 94,407 | 104,263 | |
| Assets and disposal groups held for sale | 10 | 0 | 519 |
| TOTAL ASSETS | 161,596 | 175,370 |
| EQUITY AND LIABILITIES in kEUR | Notes | 12/31/2020 | 12/31/2019 |
|---|---|---|---|
| EQUITY | 11 | ||
| Subscribed capital | 19,500 | 19,500 | |
| Capital reserve | 13,621 | 14,178 | |
| Treasury shares | -340 | -679 | |
| Other reserves | -148 | 3,747 | |
| Retained earnings | 32,719 | 32,260 | |
| Non-controlling interests | 3,811 | 2,755 | |
| Total equity | 69,164 | 71,761 | |
| NON-CURRENT LIABILITIES | |||
| Pension provisions and similar obligations | 12 | 842 | 879 |
| Other non-current provisions | 15 | 925 | 1,389 |
| Non-current borrowings | 13, 14 | 22,459 | 26,285 |
| Other non-current liabilities | 7,077 | 5,897 | |
| Deferred tax liabilities | 5 | 0 | 300 |
| Total non-current liabilities | 31,302 | 34,749 | |
| CURRENT LIABILITIES | |||
| Current provisions | 15 | 5,145 | 4,871 |
| Current borrowings | 13, 14 | 9,292 | 7,912 |
| Trade payables and contract liabilities | 16 | 18,477 | 27,312 |
| Other current liabilities | 17 | 28,216 | 27,648 |
| Total current liabilities | 61,130 | 67,743 | |
| Liabilities directly associated with non-current assets and disposal groups | |||
| classified as held for sale | 10 | 0 | 1,117 |
| TOTAL EQUITY AND LIABILITIES | 161,596 | 175,370 |
| in kEUR | Notes | ||
|---|---|---|---|
| 2020 | 2019 | ||
| Revenues | 18 | 260,382 | 295,269 |
| Other operating income | 21 | 7,227 | 7,369 |
| Cost of materials and purchased services | 19 | -88,145 | -98,853 |
| Personnel expenses | 20 | -123,262 | -136,509 |
| Other operating expenses | 21 | -41,800 | -42,770 |
| Earnings from operations before depreciation and amortization (EBITDA) | 14,403 | 24,505 | |
| Depreciation and amortization of intangible assets and property, plant and equipment | 1, 2, 3 | -11,368 | -12,105 |
| Earnings from operations (EBIT) | 3,035 | 12,400 | |
| Financial result | 22 | -1,699 | -1,887 |
| Earnings before income taxes (EBT) | 1,336 | 10,513 | |
| Income tax result | 23 | -63 | -3,042 |
| Consolidated income from continuing operations | 1,273 | 7,471 | |
| Consolidated income from discontinued operations | 0 | -1,221 | |
| Consolidated income | 1,273 | 6,250 | |
| Consolidated income attributable to shareholders of Muehlhan AG | 968 | -73 | |
| Consolidated income attributable to shareholders of Muehlhan AG | 305 | 6,323 | |
| EARNINGS PER SHARE IN EUR | 25 | ||
| Shares number |
19,195,386 | 19,236,738 | |
| in continuing operations | |||
| basic | 0.02 | 0.33 | |
| diluted | 0.02 | 0.33 | |
| from discontinued operations | |||
| basic | 0.00 | -0.06 | |
| diluted | 0.00 | -0.06 |
Rounding differences may occur.
| in kEUR | Notes | 2020 | 2019 |
|---|---|---|---|
| Consolidated income | 26 | 1,273 | 6,250 |
| Recyclable items | |||
| Currency translation differences (legally independent entities abroad) | -3,675 | -2,092 | |
| Currency translation differences reclassified to the consolidated income statement | 0 | 1,524 | |
| Future cash flow hedge (effective cash flow hedge) | 2 | 23 | |
| Non-recyclable items | |||
| Remeasurement of defined benefit plans | -16 | -17 | |
| Other comprehensive income | -3,689 | -562 | |
| Income taxes on other comprehensive income | -1 | -7 | |
| Other comprehensive income after taxes | -3,690 | -569 | |
| Total comprehensive income | -2,417 | 5,681 | |
| of which attributable to non-controlling interests | 752 | -21 | |
| Shareholders of Muehlhan AG | -3,331 | 5,702 | |
| Total comprehensive income from continuing operations | -2,417 | 5,681 | |
| Total comprehensive income from discontinued operations | 0 | 0 | |
| in kEUR | Notes | 2020 | 2019 |
|---|---|---|---|
| Consolidated income attributable to shareholders of Muehlhan AG | 27 | 305 | 6,323 |
| Depreciation of fixed assets | 1, 2, 3 | 11,368 | 12,105 |
| Gain/loss from disposal of fixed assets | 1, 2, 3 | -95 | 483 |
| Non-cash expenses/income from the allocation of gains/losses to non-controlling interests | 968 | -73 | |
| Other non-cash income/expenses | -6,507 | -3,284 | |
| Decrease in provisions | 12, 15 | -228 | -155 |
| Cash flow | 5,811 | 15,399 | |
| Decrease/increase in inventories, trade receivables, contract assets and other assets | 6, 7, 9 | 13,826 | -20,228 |
| Decrease/increase in trade payables and other liabilities, contract liabilities and other liabilities | 16, 17 | -7,086 | 17,772 |
| Income taxes paid | 9, 17, 23 | -792 | -2,054 |
| Cash flow from operating activities | 11,759 | 10,888 | |
| from discontinued operations | -35 | -46 | |
| Proceeds from disposals of fixed assets | |||
| in property, plant and equipment | 396 | 959 | |
| Capital expenditures | |||
| in intangible assets | 1 | -22 | -60 |
| in property, plant and equipment | 2 | -4,311 | -8,129 |
| Interest received | 22 | 14 | 144 |
| Cash used in investment activities | -3,923 | -7,086 | |
| from discontinued operations | 0 | 0 | |
| Payments to shareholders and non-controlling shareholders (dividends) | Changes in Group equity |
-335 | -1,971 |
| Payments for acquisition of non-controlling interests | -134 | 0 | |
| Cash flow from taking up/repayment of current borrowings* | 27 | 1,380 | -10,176 |
| Cash flow from repayment of/taking up non-current borrowings* | 27 | -3,826 | 10,903 |
| Interest paid | 22 | -1,336 | -1,857 |
| Cash used in financing activities | -4,251 | -3,101 | |
| from discontinued operations | 0 | -214 | |
| Currency, scope of consolidation and valuation-related changes in cash and cash equivalents | -409 | -601 | |
| Total changes in cash and cash equivalents | 3,176 | 100 | |
| Cash and cash equivalents at the beginning of the period | 8 | 9,999 | 9,900 |
| Cash and cash equivalents at the end of the period | 8 | 13,175 | 9,999 |
* Proceeds and payments are shown on a net basis. Unnetted amounts are explained in the notes to the consolidated financial statements.
Cash and cash equivalents correspond to the balance sheet item "Cash and cash equivalents".
| Subscribed capital |
Capital reserve |
Other reserves |
||||
|---|---|---|---|---|---|---|
| in kEUR | Profit reserves | Conversion reserve |
Cash flow hedge reserve |
Adjustment from currency translation |
||
| 01/01/2019 | 19,500 | 13,826 | 5,586 | -91 | -17 | -576 |
| Changes in treasury shares | 0 | 0 | -112 | 0 | 0 | 0 |
| Changes in non-controlling interests | 0 | 0 | 0 | 0 | 0 | 0 |
| Contribution to share-based payment | 0 | 157 | 0 | 0 | 0 | 0 |
| Withdrawal from profit reserves | 0 | 0 | -525 | 0 | 0 | 0 |
| Withdrawal from retained earnings | 0 | 190 | 104 | 0 | 0 | 0 |
| Dividends paid | 0 | 0 | 0 | 0 | 0 | 0 |
| Other changes | 0 | 5 | 0 | 0 | 0 | 0 |
| Total comprehensive income | 0 | 0 | -17 | 0 | 15 | -620 |
| 12/31/2019 | 19,500 | 14,178 | 5,036 | -91 | -2 | -1,196 |
| Changes in treasury shares | 0 | 0 | -119 | 0 | 0 | 0 |
| Changes in non-controlling interests | 0 | 0 | 0 | 0 | 0 | 0 |
| Contribution to share-based payment | 0 | -493 | 0 | 0 | 0 | 0 |
| Transfer from capital reserve | 0 | -64 | 0 | 0 | 0 | 0 |
| Transfer from retained earnings | 0 | 0 | -341 | 0 | 0 | 0 |
| Dividends paid | 0 | 0 | 0 | 0 | 0 | 0 |
| Other changes | 0 | 0 | 39 | 0 | 0 | 0 |
| Total comprehensive income | 0 | 0 | -17 | 0 | 2 | -3,458 |
| 12/31/2020 | 19,500 | 13,621 | 4,598 | -91 | 0 | -4,653 |
| Non-controlling interests | |||
|---|---|---|---|
| Equity | Treasury shares | Retained earnings | |
| 2,779 | 65,479 | -537 | 27,788 |
| 0 | -254 | -142 | 0 |
| 44 | 0 | 0 | 0 |
| 0 | 157 | 0 | 0 |
| 0 | 0 | 0 | 525 |
| 0 | 0 | 0 | -294 |
| -47 | -1,924 | 0 | -1,924 |
| 0 | -153 | 0 | -158 |
| -21 | 5,701 | 0 | 6,323 |
| 2,755 | 69,006 | -679 | 32,260 |
| 0 | 220 | 339 | 0 |
| 299 | 0 | 0 | 0 |
| 0 | -493 | 0 | 0 |
| 0 | 0 | 0 | 64 |
| 341 | -341 | 0 | 0 |
| -335 | 0 | 0 | 0 |
| 0 | 129 | 0 | 90 |
| 752 | -3,168 | 0 | 305 |
| 3,811 | 65,353 | -340 | 32,719 |
Muehlhan AG (hereinafter "MYAG" or "the company") and its subsidiaries operate in the Ship, Oil & Gas, Renewables and Industry/Infrastructure sectors, where they provide surface protection, passive fire protection, scaffolding and access technology, steel construction and insulation services.
The company is headquartered at Schlinckstrasse 3, 21107 Hamburg, Germany, and is recorded in the Commercial Register at the Hamburg Municipal Court under HRB 97812.
Scaffolding in a storage tank
The consolidated financial statements of MYAG as of December 31, 2020, were prepared in accordance with the International Financial Reporting Standards (IFRS) promulgated by the International Accounting Standards Board (IASB), as adopted by the European Union, including the interpretations of the International Financial Reporting Interpretations Committee (IFRIC) and the complementary provisions of German commercial law applicable under Article 315e, paragraph 1 of the German Commercial Code (HGB).
The consolidated financial statements follow all IFRSs adopted as of the reporting date whose application is mandatory in the European Union. Compliance with the standards and interpretations ensures that the financial statements present a true and fair view of the Group's net assets, financial position and results of operations.
By preparing the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS), MYAG availed itself of the option stipulated in Article 315e, paragraph 3 of the HGB to prepare the consolidated financial statements in accordance with internationally recognized accounting principles and simultaneously to forgo preparing a set of consolidated financial statements in accordance with the accounting principles set forth in the HGB.
In preparing the consolidated financial statements, assets and liabilities are shown at amortized cost, with the exception of certain financial instruments, which are measured at fair value. The consolidated income statement within the statement of comprehensive income is prepared using the total cost method. Assets and liabilities are broken down by maturity.
The consolidated financial statements were prepared in euros in accordance with the going-concern principle.
As the calculations of the individual items included are presented in full figures, rounding differences may occur where amounts are shown in millions or thousands of euros.
The consolidated financial statements covering the period ending on December 31, 2020, are in compliance with all the mandatory IFRS and IFRIC interpretations adopted by the EU Commission for which application is mandatory as of the reporting date.
These are listed below:
| Standard/Interpretation | Note | Effective date | Effect |
|---|---|---|---|
| Amendments to IAS 1 Presentation of Financial Statements and |
The amendments relate to the definition of "material" and standardize this within the IFRS |
01/01/2020 | no material effect |
| IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors |
|||
| Amendments to IFRS 3 Business Combinations | Amendment to the definition of a business | 01/01/2020 | no material effect |
| Amendments to IFRS 9 Financial Instruments, | Interest Rate Benchmark Reform (Phase 1); | 01/01/2020 | no material effect |
| IFRS 7 Financial Instruments: Disclosures and | Phase 1 deals with pre-replacement issues (issues | ||
| IAS 39 Financial Instruments: Recognition and Measurement | affecting financial reporting in the period before the replacement of an existing interest rate benchmark) |
||
| Amendments to IFRS 16 Leases | Covid-19-Related Rent Concessions | 06/01/2020 | no material effect |
| IFRS Conceptual Framework | Amendments to references to the conceptual framework in IFRS |
01/01/2020 | no material effect |
The following new, amended and /or revised published standards and interpretations adopted by the EU Commission had not yet been applied during the reporting year:
| Standard/Interpretation | Note | Effective date | Expected effect |
|---|---|---|---|
| Amendments to IFRS 4 Insurance Contracts | Effective date of IFRS 9 deferred | 01/01/2021 | no material effect |
| Amendments to IFRS 9 Financial Instruments, | Interest Rate Benchmark Reform (Phase 2); | 01/01/2021 | no material effect |
| IFRS 4 Insurance Contracts, | Phase 2 deals with replacement issues (issues that | ||
| IFRS 7 Financial Instruments: Disclosures | might affect financial reporting when an existing interest | ||
| IFRS 16 Leases and | rate benchmark is replaced) | ||
| IAS 39 Financial Instruments: Recognition and Measurement |
The following new, amended and /or revised published standards and interpretations, which have not yet been adopted by the EU commission, had not yet been applied during the reporting year:
| Standard/Interpretation | Note | Effective date | Expected effect |
|---|---|---|---|
| IFRS 17 Insurance Contracts | Accounting for insurance contracts | 01/01/2023 | no impact |
The IASB has adopted additional (amendments to) accounting rules not listed here which have not been applied and which will not affect the presentation of Muehlhan's net assets, results of operation and financial position.
First-time application of the respective standards is planned for the date when they go into effect. The Group has decided not to avail itself of the right to apply the standards and interpretations earlier.
The IASB has adopted other accounting standards and amendments which are not mentioned above, are not mandatory before January 1, 2022 and have not yet been endorsed by the European Commission. They are not listed here.
The consolidated financial statements include the financial statements of the parent company, MYAG, and the 29 subsidiaries it controls (previous year: 30). MYAG has control if it controls rights at these companies that give it the ability to direct the relevant activities of these companies in order to influence the companies' earnings. Control further requires MYAG to be exposed to variable returns from the subsidiaries and to have the ability to affect those variable returns through its decision-making power. Subsidiaries are included in the consolidated financial statements (full consolidation) from the date on which control is established over the subsidiary and until the date on which control over the subsidiary ends. Accordingly, the results of operations of the subsidiaries acquired or sold during the year are included in the consolidated income statement and in the Group's other comprehensive income from the date of acquisition and/or until the date of disposal.
The consolidated group changed as follows against December 31, 2019:
Muehlhan Hellas S.A. (MGR), Athens, Greece, was disposed of and deconsolidated as of July 20, 2020. The deconsolidation effect totaled €11 thousand and is included under other operating income.
The first-time consolidations and deconsolidations will not limit comparability with prior-year financial statements.
Surface protection work on a module for an oil rig
The list of shareholdings as of December 31, 2020, is presented below. In addition, each company is assigned to a cash-generating unit (CGU) and a geographic segment, as well as to the business segments and services.
| Shareholding | Shareholding | |||||
|---|---|---|---|---|---|---|
| Symbol | Company | in % | in % | Held by | CGU | |
| 2020 | 2019 | |||||
| MYAG | Muehlhan AG, Hamburg, Germany | Parent company | Parent company | – | ||
| AJS | Allround Job Services Sp. z o.o., Szczecin, Poland | 100 | 100 | MPL | MPL | |
| CCC | Certified Coatings Company, Fairfield, CA, USA | 100 | 100 | MSPU | MCC | |
| GMH | Gerüstbau Muehlhan GmbH, Hamburg, Germany | 100 | 100 | MYAG | GMH | |
| MBL | Muehlhan Bulgaria Ltd, Varna, Bulgaria | 75 | 75 | MYAG | MD | |
| MCA | Muehlhan Canada Inc., Windsor, Ontario, Canada | 100 | 100 | MYAG | – | |
| MCC | Muehlhan Certified Coatings Inc., Fairfield, CA, USA | 100 | 100 | MSPU | MCC | |
| MCL | Muehlhan Cyprus Limited, Limassol, Cyprus | 51 | 51 | MYAG | MCL | |
| MD | Muehlhan Deutschland GmbH, Bremen, Germany | 100 | 100 | MYAG | MD | |
| MDK | Muehlhan A/S, Middelfart, Denmark | 100 | 100 | MYAG | MDK | |
| MDQ | Muehlhan Dehan Qatar W.L.L., Doha, Qatar | 100 | 100 | MYAG | MDQ | |
| MES | Muehlhan Equipment Services GmbH, Hamburg, Germany | 100 | 100 | MYAG | – | |
| MF | Muehlhan S.A.R.L., Saint-Nazaire, France | 100 | 100 | MYAG | MF | |
| MGB | Muehlhan Industrial Services Ltd., Aberdeen, Scotland, UK | 100 | 100 | MYAG | MGB | |
| MIF | Muehlhan Industrial France S.A.R.L., Le Havre, France | 100 | 100 | MF | MF | |
| MIS | Muehlhan Industrial Services Inc., Fairfield, USA | 100 | 100 | MSPU | – | |
| MMEH | Muehlhan Middle East Holding Limited, Dubai, UAE | 100 | 100 | MYAG | – | |
| MMF | Muehlhan Morflot OOO, St. Petersburg, Russia | 70 | 70 | MYAG | MMF | |
| MNL | Muehlhan B.V., Vlaardingen, Netherlands | 100 | 100 | MYAG | MNL | |
| MOM | Ruwad Al Athaiba International LLC, Muscat, Oman | 100* | 100* | MMEH | PRA | |
| MPL | Muehlhan Polska Sp. z o.o., Szczecin, Poland | 100 | 100 | MYAG | MPL | |
| MRO | Muehlhan S.R.L., Galati, Romania | 51 | 51 | MYAG | MCL | |
| MSI | Marine Service International AS, Drøbak, Norway | 100 | 100 | MYAG | MSI | |
| MSIB | MSI do Brasil Serviços Marítimos Ltda. Brasil, Rio de Janeiro, Brazil | 99.8 | 99,8 | MSI | MSI | |
| MSIS | MSI Coating Services PTE Ltd., Singapore | 100 | 100 | MSI | MSI | |
| MSPU | Muehlhan Surface Protection Inc., Fairfield, CA, USA | 100 | 100 | MYAG | – | |
| MWS | Muehlhan Wind Service A/S, Middelfart, Denmark | 56 | 51 | MDK | MWS | |
| MWY | Beschichtungswerk Wyhlen GmbH, Wyhlen, Germany | 100 | 100 | MD | MD | |
| PRA | Procon Emirates L.L.C., Abu Dhabi, UAE | 100* | 100* | MMEH | PRA | |
| PRD | Procon Emirates L.L.C., Dubai, UAE | 100* | 100* | MMEH | PRA |
* 49% of the shares in PRA and PRD are held directly or indirectly via a subsidiary and 51% are managed for the Group by a trustee.
70% of the shares in MOM are held indirectly via a subsidiary and 30% are managed for the Group by a trustee.
Companies were assigned to CGUs and to the regions based on geographic criteria.
conjunction with Article 325 HGB for Muehlhan Deutschland GmbH, Bremen, Muehlhan Equipment Services GmbH, Hamburg, Beschichtungswerk Wyhlen GmbH, Wyhlen, and Gerüstbau Muehlhan GmbH, Hamburg.
The Group took advantage of its exemption from the preparation of the notes and the management report as well as the disclosure requirement pursuant to Section 264, paragraph 3 of the German Commercial Code (HGB), in
| Parent company – |
– | Holding company | – | – |
|---|---|---|---|---|
| MPL | Marine & Construction | Europe | Ship, Renewables, Oil & Gas, Industry/Infrastructure | Surface protection, scaffolding, steel construction |
| Marine & Construction | North America | Renewables, Oil & Gas, Industry/Infrastructure | Surface protection | |
| Marine & Construction | Europe | Ship, Renewables, Industry/Infrastructure | Scaffolding | |
| Marine & Construction | Europe | Ship, Renewables, Oil & Gas | Surface protection | |
| – | North America | – | – | |
| Marine & Construction | North America | Renewables, Oil & Gas, Industry/Infrastructure | Surface protection | |
| Marine & Construction | Europe | Ship, Renewables, Oil & Gas, Industry/Infrastructure | Surface protection, scaffolding | |
| Marine & Construction | Europe | Ship, Renewables, Oil & Gas, Industry/Infrastructure | Surface protection | |
| Energy | Europe | Renewables, Oil & Gas, Industry/Infrastructure | Surface protection, scaffolding | |
| Marine & Construction | Middle East | Ship, Industry/Infrastructure | Surface protection, scaffolding, fire protection | |
| – | Holding company | – | – | |
| Marine & Construction | Europe | Ship, Renewables, Oil & Gas, Industry/Infrastructure | Surface protection | |
| Energy | Europe | Oil & Gas, Industry/Infrastructure | Surface protection, scaffolding, fire protection | |
| – | Europe | – | – | |
| – | North America | – | – | |
| – | Middle East | – | – | |
| Marine & Construction | Europe | Ship, Oil & Gas, Industry/Infrastructure | Surface protection, fire protection | |
| Marine & Construction | Europe | Ship, Renewables, Oil & Gas, Industry/Infrastructure | Surface protection, scaffolding | |
| Marine & Construction | Middle East | Industry/Infrastructure | Fire protection | |
| Marine & Construction | Europe | Ship, Renewables, Oil & Gas, Industry/Infrastructure | Surface protection, scaffolding, steel construction | |
| Marine & Construction | Europe | Ship, Renewables, Oil & Gas, Industry/Infrastructure | Surface protection, scaffolding | |
| Energy | Rest of the World | Oil & Gas | Surface protection | |
| Energy | Rest of the World | Oil & Gas | Surface protection | |
| – | Rest of the World | Oil & Gas | Surface protection | |
| – | North America | – | – | |
| Energy | Europe | Renewables | Wind service | |
| Marine & Construction | Europe | Industry/Infrastructure | Surface protection | |
| Marine & Construction | Middle East | Industry/Infrastructure | Fire protection | |
| Marine & Construction | Middle East | Industry/Infrastructure | Fire protection | |
The following companies are not included in the consolidated financial statements:
| Symbol | Company | Shareholding in % | Equity in kEUR | Results in kEUR | ||||
|---|---|---|---|---|---|---|---|---|
| 12/31/2020 | 12/31/2019 | 12/31/2020 | 12/31/2019 | 2020 | 2019 | |||
| MFP | Muehlhan Grand Bahama Ltd., Nassau, Bahamas | 100 | 100 | 0.1 | 0.1 | 0.0 | 0.0 | |
| MPM | Muehlhan Project Management GmbH, Hamburg, | |||||||
| Germany | 51 | 51 | 27.7 | 37.1 | -43.0 | 33.5 | ||
| MKSA | Muehlhan Saudi Arabia LLC, Riyadh, Saudi Arabia | 100 | 100 | -407.7 | 116.0 | -204.1 | -335.0 | |
| MIND | Muehlhan India Private Limited, Chennai, India | 99.99 | 99.99 | -58.7 | 12.6 | -73.7 | -92.7 |
Muehlhan Grand Bahama Ltd., Bahamas, has no commercial operations.
Muehlhan Project Management GmbH, Hamburg, Germany, Muehlhan Saudi Arabia LLC, Saudi Arabia and Muehlhan India Private Limited, India, are immaterial for an assessment of the net assets, financial position and results of operations of the Group since the balance sheet and income statement items for this entity account for less than 1% of the consolidated financial statements of Muehlhan AG.
The shareholding in MPM is held indirectly via MCL.
The financial year of the Group, the parent company and all subsidiaries included in the consolidated financial statements coincides with the calendar year.
Blasting work on storage tank
The equity of the subsidiaries is consolidated using the purchase method of accounting. The cost of the acquisition is measured at the fair value of the assets acquired and the liabilities incurred and/or assumed on the transaction date. In the initial consolidation, assets, liabilities and contingent liabilities identifiable within the scope of a business combination are recognized at the fair value on the acquisition date, irrespective of the size of any non-controlling interests. The excess of the purchase price of the acquisition over the Group's share in the net assets measured at fair value is reported as goodwill. If, upon remeasurement, the costs of acquisition are lower than the fair value of the net assets of the acquired subsidiary, the resulting difference is recognized directly in profit or loss. Acquisition-related transaction costs are expensed when they are incurred.
Intragroup receivables and payables are eliminated. Any cexchange rate effects arising from such eliminations during the reporting period are recognized in profit or loss.
To eliminate intercompany profit and loss, intercompany sales and intragroup earnings are offset against the related expenses. Unrealized intercompany profits and losses are eliminated with a corresponding effect on net income.
Deferred taxes are recorded to reflect consolidation effects.
Foreign currency transactions in the separate financial statements of consolidated Group companies are translated at the exchange rate applicable on the date of the transaction. On the balance sheet, non-derivative (monetary) items denominated in foreign currencies are translated at the mid-rate on the reporting date; exchange rate gains and losses are recognized as income or expenses on the income statement. Non-monetary items in a foreign currency that are measured at fair value are translated at the rate applicable at the time the fair value is determined. Non-monetary items measured at acquisition or production cost are converted at the exchange rate on the initial recognition date.
The assets and liabilities of foreign subsidiaries with a functional currency other than the euro are translated into euros at the mid-rate on the reporting date. Income and expenses are translated at average annual rates. Differences arising from the translation of net assets at exchange rates different from those in the previous year are recognized in other comprehensive income and are reported separately under equity in the currency translation reserve. When disposing of a foreign operation, all exchange rate effects aggregated under equity that are allocable to the Group from that operation will be reclassified to the income statement. The goodwill of foreign subsidiaries is shown in local currency. Differences arising from the conversion into euros are reported in the currency translation reserve.
Income statement items are translated into euros using the weighted average rate of exchange for the year.
The euro exchange rates for the main currencies are shown in the following table:
| ISO code |
Exchange rate on re porting date |
Average rate |
Exchange rate on re porting date |
Average rate |
|
|---|---|---|---|---|---|
| 12/31/2020 | 2020 | 12/31/2019 | 2019 | ||
| United Arab Emirates dirham |
AED | 4.51 | 4.21 | 4.12 | 4.11 |
| Brazilian real | BRL | 6.38 | 6.02 | 4.52 | 4.41 |
| Danish krone | DKK | 7.44 | 7.45 | 7.47 | 7.47 |
| British pound | GBP | 0.90 | 0.89 | 0.85 | 0.87 |
| Polish złoty | PLN | 4.58 | 4.47 | 4.26 | 4.30 |
| Qatari riyal | QAR | 4.47 | 4.18 | 4.08 | 4.07 |
| US dollar | USD | 1.23 | 1.15 | 1.12 | 1.12 |
The gain or loss and every component of other comprehensive income is allocated to the shareholders of MYAG and to the non-controlling interests. This applies even if it results in a negative balance for the non-controlling interests.
The separate financial statements of domestic and foreign companies included in the consolidated group are prepared in accordance with accounting and valuation methods that are applied consistently throughout the Group.
The significant accounting and valuation methods applied during preparation of the consolidated financial statements are presented below. The methods described are used consistently, unless indicated otherwise.
Preparations for offshore transport
A financial instrument is a contract that results in a financial asset for one entity and in a financial liability or an equity instrument for another entity. As a rule, financial instruments recognized as financial assets or financial liabilities are presented separately. Financial instruments are recognized as soon as Muehlhan becomes a party to the financial instrument.
Financial assets particularly include trade receivables, receivables and cash and cash equivalents. For market-standard purchases and sales of financial assets, the trading date is used both for first-time recognition and derecognition.
Financial instruments are recognized for the first time at fair value. Transaction costs directly attributable to the purchase or the issue are included in the measurement of the carrying amount if the financial instrument is not measured at fair value through profit or loss.
Financial instruments are classified according to the business model for which they are held and their cash flow characteristics. For subsequent measurement, the financial instruments are assigned to one of the valuation categories defined in IFRS 9 Financial Instruments:
The business model is determined at the portfolio level and depends on the intentions of management and on past transactions. Cash flows are examined at the level of the individual instrument.
Financial assets carried at amortized cost are non-derivative financial assets with contractual payments consisting solely of principal and interest on the nominal amount and which are held with the intention of collecting the contractually agreed cash flows, such as trade receivables or cash and cash equivalents (business model "held to collect"). Cash and cash equivalents particularly include cash in hand and checks. Cash and cash equivalents are the same as the item cash and cash equivalents in the consolidated cash flow statement.
After first-time recognition, these financial assets are measured at amortized cost using the effective interest method, less any impairments. Gains and losses are recognized in consolidated income if the loans and receivables are impaired or derecognized. The interest effects of applying the effective interest method and translation differences are also recognized through profit or loss.
Muehlhan holds almost only financial assets at amortized cost.
Financial assets at fair value through other comprehensive income are non-derivative financial assets with contractual payments consisting solely of principal and interest on the nominal amount and which are held both with the intention of collecting the contractually agreed cash flows and for resale to achieve a defined liquidity objective (business model "held to collect and sell"). This category also includes equity instruments not held for trading and for which the option of recognizing fair value changes in other comprehensive income has been exercised.
After initial measurement, financial assets in this category are measured at fair value through other comprehensive income, whereby unrealized gains and losses are recognized in other comprehensive income. When debt instruments in this category are disposed of, the cumulative gains and losses from fair value measurement recognized in other comprehensive income are recycled through profit or loss. Interest received from financial assets measured at fair value through other comprehensive income is included as interest income and recognized in profit or loss using the effective interest method. Changes in the fair value of equity instruments measured at fair value through other comprehensive income are not recognized in profit or loss, but reclassified to profit reserves on disposal.
Financial assets are measured at fair value through profit and loss if the business model in which they are held is not "held to collect" or "held to collect for sale" or if their contractual cash flows do not consist entirely of principal and interest.
Every reporting date, impairment is recognized for financial assets not measured at fair value through profit and loss, which reflects the expected credit losses for this instrument. The expected credit loss approach uses three levels to allocate impairment:
Level 1 generally includes new contracts and those for which payments are not yet due. The expected credit losses over the life of the instrument due to a default within the next twelve months are recognized.
A financial asset is classified in Level 2 if it is due or has seen a significant increase in credit risk since initial recognition, but is not credit-impaired. Expected credit losses over the full lifetime of the financial asset due to potential defaults are recognized as a loss allowance.
A financial asset is allocated to Level 3 if it is credit-impaired or in default. Expected credit losses over the full lifetime of the financial asset are recognized as a loss allowance. Objective indications that a financial asset is credit-impaired include a table of outstanding receivables by region and other information about key financial difficulties affecting the debtor.
Determining whether the credit risk for a financial asset has increased significantly is largely based on information about overdue payments. Estimates are also made of default probabilities, which use both external rating information and internal information about the credit quality of the financial asset.
A financial asset is transferred to Level 2 when it becomes due or its credit risk has increased significantly since its initial recognition date. The credit risk is estimated on the basis of the default probability. The simplified approach is used for trade receivables, whereby expected credit losses over the full lifetime are recognized on initial recognition.
In Levels 1 and 2, the effective interest income is determined on the basis of the gross carrying amount. As soon as the credit quality of a financial asset is impaired and it is allocated to Level 3, the effective interest income is calculated on the basis of the net carrying amount (gross carrying amount less loss allowance).
Expected credit losses are calculated using the following factors:
Estimates of these risk parameters include all available relevant information. In addition to historical and current information about losses, this also includes reasonable and reliable forward-looking information about these factors. The information includes macroeconomic factors and forecasts of future economic conditions.
A financial instrument is derecognized when it can be reasonably assumed that a financial instrument is no longer recoverable in full or in part, e.g., once insolvency proceedings are over or following court decisions.
Significant modifications in financial assets (e.g., a change of 10% in the present value of contractual cash flows) result in their derecognition. If contract terms are renegotiated or modified and this does not result in derecognition, the gross carrying amount of the contract is recalculated and any difference recognized through profit or loss.
The effective interest method is a method for calculating the amortized cost of a financial asset and allocating interest income to the relevant periods. The effective interest rate is the interest rate used to discount estimated future cash receipts (including all fees that are part of the effective interest rate, transaction costs and other premiums and discounts) to the carrying amount over the expected life of the financial instrument or a shorter period, if applicable. Income is recognized on an effective interest basis for debt instruments.
Financial liabilities particularly include trade payables, contract liabilities, liabilities to banks and other liabilities.
After initial recognition, the financial liabilities are measured at amortized cost using the effective interest method.
Financial liabilities at fair value through profit or loss include financial liabilities held for trading. Muehlhan does not hold such liabilities.
Embedded derivatives are separated from the underlying transaction and recognized separately. They are not separated if the underlying transaction is a financial asset, if the entire hybrid contract is measured at fair value through profit and loss or if the embedded derivative is closely linked with the host contract.
Derivative financial instruments are recognized at fair value on initial recognition and every subsequent reporting date. The fair value of listed derivatives is their positive or negative market value. If market values are not available, they are calculated using acknowledged mathematical models, such as discounted cash flow or option pricing models. Derivatives are recognized as assets if their fair value is positive and as liabilities if their fair value is negative.
When the transaction is concluded, the Group documents the hedging relationship between the hedging instrument and the hedged item, the aim of its risk management, the underlying hedging strategy, the type of hedging relationship, the hedged risk, the name of the hedging instrument and the hedged item and an assessment of the criteria for the effectiveness of the hedge, which include the mitigation of economic risk, the effects of credit risk and the appropriate hedging ratio. IFRS 9 no longer requires a documented description of the method of measuring effectiveness. Hedge accounting for an individual hedging relationship is to be ended prospectively when it no longer meets the criteria of IFRS 9. Possible reasons for ending hedge accounting include the absence of an economic relationship between the hedged item and the hedging instrument, the disposal or termination of the hedging instrument, or a change in the documented aim of risk management for a specific hedging relationship. Cumulative hedging gains and losses from cash flow hedges remain in reserves and are only derecognized on maturity if the hedged future cash flows are still expected. In other cases the cumulative hedging gains and losses are derecognized immediately through profit or loss.
Muehlhan only uses derivative financial instruments to hedge financial risks resulting from operating businesses or refinancing activities. One interest rate risk was hedged in the reporting year.
Muehlhan meets the criteria of IFRS 9 and designates the derivative financial instrument as a hedge against certain risks of fluctuating cash flows associated with a recognized liability (cash flow hedges).
The effective after-tax portion of changes in the fair value of the cash flow hedge is initially recognized in other comprehensive income.
Financial assets and financial liabilities are netted and the net amount reported in the consolidated balance sheet if an enforceable legal right to offset the recognized amounts currently exists and the intention is either to settle the net amount or to extinguish the corresponding liability at the same time as the asset is recovered.
Intangible assets with an identifiable useful life are recognized at cost and amortized on a straight-line basis over their useful lives. The useful life is usually between three and 17 years. The residual values and useful lives of intangible assets are reviewed at least on every consolidated reporting date. If expectations deviate from current estimates, any adjustments or impairment losses are accounted for as changes in accounting estimates in accordance with IAS 8. In order to determine whether there is a requirement to record the impairment of an intangible asset, the recoverable amount of the respective asset (the higher of the fair value less costs to sell and the value in use) is compared with the carrying amount of the asset. If the recoverable value is lower than the carrying amount, the difference is recognized as an impairment loss. If the reason for the recognized impairment no longer applies, a reversal of the impairment loss not exceeding the amortized cost is recorded.
If an intangible asset is disposed of or if no further benefit can be expected from use of the asset or its disposal, the carrying amount of the intangible asset will be derecognized. The gain or loss from disposal of the intangible asset is the difference between the net realizable value and the carrying amount and is recognized in profit or loss on the date of derecognition.
The positive difference between the cost of acquiring a company and the fair value of the Group's interest in the net assets of the acquired company at the time of acquisition is defined as goodwill. Any goodwill arising from a company acquisition is recorded under intangible assets pursuant to IFRS 3 and, in accordance with IAS 38.107, is not subject to amortization.
An impairment test is carried out at least once a year and may lead to an impairment loss. For the impairment test, the acquired goodwill associated with a merger is allocated to the cash-generating unit or the group of cash-generating units expected to benefit from the synergies of the combination. Muehlhan AG determines a cash-generating unit's recoverable amount on the basis of the discounted cash flow (value in use). If the reason for the recognized impairment no longer applies, there is no reversal of impairment loss with respect to goodwill.
There are no other intangible assets with an indefinite useful life.
Welding work
Property, plant and equipment is valued at the cost of acquisition or production less depreciation and, if applicable, impairment. The depreciation period is based on the useful life and within the Group depends on the type of asset:
| Type of property, plant and equipment | Useful life | |||
|---|---|---|---|---|
| Buildings | 5 to 50 years | |||
| Technical equipment and machinery | 2 to 15 years | |||
| Other equipment, operating and office equipment | 2 to 15 years |
Depreciation is carried out on a straight-line basis unless another depreciation method would more closely reflect the actual future economic life.
If expectations deviate from current estimates, any adjustments are accounted for as changes in accounting estimates in accordance with IAS 8.
Property, plant and equipment is tested for impairment if there is reason to believe that the assets may be impaired. In order to determine whether there is a requirement to record the impairment of property, plant and equipment, the recoverable amount of the respective asset (the higher of the fair value less costs to sell and the value in use) is compared with the carrying amount of the asset. If the recoverable value is lower than the carrying amount, the difference is recognized as an impairment loss. If the reason for the recognized impairment no longer applies, a reversal of the impairment loss not exceeding the amortized cost is recorded.
If a fixed asset is disposed of or if no further benefit can be expected from use of the asset or its disposal, the carrying amount of the asset will be derecognized. The gain or loss from disposal of the fixed asset is the difference between the net realizable value and the carrying amount. It is recognized in profit or loss on the date of derecognition.
Repair and maintenance costs are expensed when incurred. Major renovations and improvements are capitalized if the criteria for the recognition of an asset are met.
The determination as to whether an agreement is or includes a lease is made on the date when the agreement is concluded, based on the economic substance of the agreement. It requires assessing whether the fulfillment of the contractual agreement is dependent on use of a specific asset or assets against the payment of a charge and whether the agreement grants a right to use the asset, even if this right is not expressly stated in the agreement.
The following notes relate to a lessee's recognition of leases. Muehlhan does not act as a lessor.
The Group recognizes an asset for the right of use granted and a lease liability on the provision date. The right of use is initially measured at cost in the amount of the first-time measurement of the lease liability adjusted for payments effected on or before the provision date plus any initial direct costs and the estimated costs of dismantling or disposing of the underlying asset or of reinstating the underlying asset or site at which it is located, less any lease incentives involved.
The right of use is subsequently amortized on a straight-line basis from the provision date until the end of the leasing period unless ownership of the underlying asset is transferred to Muehlhan at the end of the lease term or the right-of-use costs take into account the fact that the Group will exercise its option to purchase the asset. In this instance, the right of use is amortized over the useful life of the underlying asset, this being determined on the basis of the provisions for property, plant and equipment. The right of use is additionally adjusted for impairment on an ongoing basis if necessary and for certain revaluations of the lease liability.
The lease liability is initially discounted at the present value of the lease payments not yet effected on the provision date using the effective interest method. Discounting is effected using the interest rate implicit in the lease or, if this cannot be readily determined, using Muehlhan's incremental borrowing rate. Muehlhan usually uses its incremental borrowing rate as a discount rate. Muehlhan uses the interest rates of various external financial sources to determine its incremental borrowing rate and makes certain adjustments to take into account the lease conditions and the type of asset.
The lease payments taken into account in measurement of the lease liability comprise
Muehlhan does not recognize right-of-use assets and lease liabilities for leases of low-value assets or for short-term leases. The payments resulting from leases are recognized as expenses on a straight-line basis over the lease term.
Inventories are stated at the lower of acquisition cost and net realizable value.
If the net realizable value of inventories is lower than the carrying amount, inventories are written down to the net realizable value and an impairment is reported on the income statement. All impairment of inventories and all inventory losses are to be recognized as expenses in the period in which the impairment or loss occurred. If the net realizable value of previously impaired inventories rises, the resulting reversal of impairment loss is recognized as a reduction in the cost of materials or as an increase in inventories. Net realizable value is the estimated proceeds that can be obtained from sales in the ordinary course of business, less the estimated costs until completion and estimated disposal and selling expenses.
Income taxes include both current income taxes payable immediately and deferred taxes. Current and deferred taxes are recognized on the consolidated income statement unless they relate to items that are recognized either in other comprehensive income or directly in equity. In the latter case, the current and/or deferred taxes are also recognized in other comprehensive income or directly in equity.
Deferred taxes resulting from temporary differences in the amounts shown in the separate balance sheets prepared for tax purposes and the corresponding figures for the individual companies calculated in accordance with IFRS, as well as from consolidation entries, are netted separately for each taxable entity and shown either as deferred tax assets or liabilities. If separate netting for each taxable entity is not possible when making consolidation entries, the Group tax rate is applied. Moreover, deferred tax assets may also include claims for tax reductions deriving from the expected utilization of existing loss carryforwards in future years if there is sufficient certainty that they will be realized. Deferred taxes are calculated using the tax rates for reversal that apply and will enter into force or have been adopted in the respective countries on the reporting date. No deferred taxes are recognized for temporary differences relating to shares in subsidiaries if the date of reversal of the temporary differences can be controlled by the Group and it is likely that these will not be reversed in the foreseeable future. Deferred tax assets are recorded only to the extent that the respective tax benefits are likely to materialize. If this criterion is not met, impairment losses are recognized based on past earnings and business expectations for the foreseeable future.
Provided that the conditions set forth in IAS 12.74 have been met, deferred tax assets and liabilities are netted. Basically, this applies if the deferred taxes relate to income taxes that are levied by the same taxing authority and on the same taxable entity within the meaning of IAS 12.74 and current taxes can be netted against each other.
Other non-financial assets are recognized at amortized cost. Non-financial assets are tested for impairment losses if there is reason to believe that the assets may be impaired. In order to determine whether there is a requirement to record the impairment of an asset, the recoverable amount of the respective asset (the higher of the fair value less costs to sell and the value in use) is compared with the carrying amount of the asset. If the recoverable value is lower than the carrying amount, the difference is recognized as an impairment loss. If the recoverable amount for the individual asset cannot be estimated, then the calculation will be carried out at the level of the cash-generating unit (CGU) to which the respective asset is allocated. The amount is allocated to the specific cash-generating units and/or to the smallest group of cash-generating units on a reasonable and consistent basis.
Cash and cash equivalents include cash on hand, bank balances and other highly liquid financial assets with a maturity not exceeding three months. At the present time, bank balances not required immediately to finance current assets are invested for a term of up to three months. The carrying amount shown on the balance sheet for cash and cash equivalents is equal to their market value. The total amount of cash and cash equivalents, excluding current account liabilities, is equal to the total liquid assets shown in the cash flow statement. Utilized overdraft facilities are shown on the balance sheet under current borrowings.
This item is recognized if specific non-current assets or groups of assets (disposal groups) are available for sale in their present condition and their sale within one year is highly probable. The prerequisite for the existence of a disposal group is that the assets be designated for disposal in a single transaction or as part of an overall plan. A discontinued operation is a business segment (component of an entity) that either has been disposed of or is classified as held for sale and both operationally and for financial reporting purposes can be clearly distinguished from the entity's other activities. Moreover, to qualify as a discontinued operation, the component must represent a separate, major line of business or a specific geographic business segment of the Group. Non-current assets designated for sale individually or as part of a disposal group or belonging to a discontinued operation are no longer subject to depreciation. They are stated at the lower of the original carrying amount or fair value less any costs of disposal that may yet be incurred. If the fair value is below the carrying amount, impairment occurs. The result from the fair-value measurement of business segments designated for sale, less any costs of disposal that may yet be incurred, and gains and losses from the disposal of discontinued operations, as well as the earnings from these business segments' normal operating activities are reported separately as "Earnings from discontinued operations" on the Group's income statement. The corresponding assets are reported in a separate balance sheet item.
In addition to defined contribution plans which, apart from current contributions, do not involve any further pension commitment, there are also defined benefit plans, for which the required provision in Germany relates exclusively to a pension commitment to a retired former managing director of a subsidiary. In addition, in some countries – for example, in France and Poland – there are statutory requirements to set up provisions for pension commitments. A defined benefit pension plan generally specifies the amount of pension benefits an employee will receive upon retirement; this amount depends on one or more factors, such as age, length of service or salary. Pension provisions are generally calculated by an independent actuary using the projected unit credit method. The amount recognized on the reporting date is the present value of the defined benefit obligation (DBO). This actuarial determination of the present value of accumulated plan benefits takes into account not only current pension payments and vested rights to future pension payments as of the reporting date, but also expected future increases in salaries and pensions.
Any effects from the remeasurement of defined benefit pension plans are recognized immediately in other comprehensive income. The provision is reduced by the amount of any plan assets.
Current and past service costs are shown under personnel expenses, while net interest expense relating to interest payments on the defined benefit obligation and any plan assets is shown under financial expenses.
The present value of the defined benefit obligation (DBO) is calculated by discounting the expected future payments at the interest rate applicable to toprated corporate bonds denominated in the currency in which payments have to be made and at maturities matching those of the pension obligations.
Contribution payments made under defined contribution plans are shown under personnel expenses; a provision or a liability is recorded only for the amounts outstanding on the reporting date.
In accordance with IAS 37, other provisions are set up for any risks discernible on the reporting date or obligations to third parties based on past transactions or events whose amounts or maturities are uncertain. The amounts reported under provisions are the best estimates of the settlement amounts; these amounts are not netted against positive performance contributions. Provisions are set up only if the Group has a legal or de facto obligation to a third party. They are also set up for onerous contracts. A contract is deemed to be onerous if the unavoidable costs exceed the benefit expected from the contract.
If the interest effect from discounting is material, non-current provisions are stated at their discounted settlement amount on the reporting date. Any increases in provisions resulting purely from the compounding of interest are recognized as interest expense on the income statement. The settlement value also includes cost increases that must be recognized on the reporting date pursuant to IAS 37.
Contingent liabilities are potential or current obligations for which an outflow of resources with economic benefits is unlikely or for which the amount of the obligation cannot be estimated with adequate certainty. Contingent liabilities are generally not recognized on the balance sheet.
Other non-financial liabilities are recognized at amortized cost. Contract liabilities are recognized when one of the parties has fulfilled its contractual obligation.
Revenues are recognized when control of distinct goods or services is transferred to the customer, i.e., when the customer is able to determine the use of the transferred goods or services and essentially derives the remaining benefit from them. This is on condition that a contract with enforceable rights and obligations exists and that receipt of consideration is probable, given the creditworthiness of the customer. Revenues correspond to the transaction price to which Muehlhan expects to be entitled. Variable consideration is included in the transaction price if it is highly probable that a significant portion of revenues will not be returned as soon as the uncertainty concerning the variable consideration no longer exists. The amount of variable consideration is calculated using either the expected value method or at the most probable amount, whichever most accurately estimates the variable consideration. If the period between the transfer of the goods or services and the date of payment exceeds twelve months and either or both parties derive a significant benefit from the financing, the consideration is adjusted for the time value of money. If a contract covers several distinct goods or services, the transaction price is allocated to the performance obligations on the basis of the respective individual transaction prices. If individual transaction prices cannot be observed directly, they are estimated. Revenues for every performance obligation are either recognized at a point in time or over time.
Revenues are recognized on a straight-line basis over time, or if the performance obligation is not satisfied on a straight-line basis, according to the percentage of completion. Invoices are sent in accordance with the terms of the contract; payment terms are generally within 30 days of the invoice date.
The estimate of the percentage of completion is particularly important when this method is used; it may also entail estimates of the scope of delivery or performance necessary to satisfy the contractual obligations. These key estimates comprise estimated total costs, total revenues, contract risks – including technical, political and regulatory risks – and other relevant variables. Changes in estimates can increase or reduce revenues when the percentage of completion method is used. An estimate is also required of whether the continuation or termination of a contract is the most probable scenario. For this estimate, all the relevant facts and circumstances are taken into account for each individual contract.
Revenues are recognized at the time control passes to the buyer, generally when the goods are delivered. Invoices are sent as of this date; payment terms are generally within 30 days of the invoice date.
Interest is recognized as expense and/or income on an accrual basis. Interest expenses and income are recognized on a pro-rata basis, applying the effective interest method.
Dividends are reported on the date of the decision to make a distribution.
The Group has granted a number of share-based payments to employees for settlement using equity instruments of the parent company. The recognition and measurement provisions as per IFRS 2 are to be applied to these compensation components. The basis of assessment is a sustainable increase in the enterprise value of the Group and its individual companies – referred to as the change in equity value.
When share-based compensation is granted that will be settled through equity instruments, the fair value calculated is expensed on a straight-line basis over the vesting period, with a corresponding increase in equity.
Any intangible asset resulting from research is not recognized. The IAS 38 requirements for capitalizing development costs are not satisfied because it is generally impossible to separate research and development costs, because marketability and/or technical feasibility cannot be assumed and because there is no guarantee of a future economic benefit.
Expenses for research and development work are recognized in profit or loss in the period in which they are incurred.
Government grants in property, plant and equipment are treated as deferred income and recognized as income over the expected useful life of the related asset. Government grants paid as compensation for past expenses or losses or for immediate financial support without any associated future expenses are recognized through profit and loss in the period in which the corresponding entitlement arises.
Insulation work
| Acquisition and production costs | ||||||||
|---|---|---|---|---|---|---|---|---|
| As of | First-time appli | Reclassification | Currency translation |
As of | ||||
| in kEUR | 01/01/2020 | Additions | cation of IFRS 16 | Disposals | Transfers | under IFRS 5 | differences | 12/31/2020 |
| Intangible assets | ||||||||
| Concessions, industrial property and similar rights and licenses |
2,817 | 22 | 0 | -1 | 0 | 0 | -15 | 2,824 |
| Goodwill | 35,296 | 0 | 0 | -1,906 | 0 | 0 | -990 | 32,401 |
| Prepayments on intangible assets | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 38,113 | 22 | 0 | -1,907 | 0 | 0 | -1,005 | 35,224 | |
| Property, plant and equipment | ||||||||
| Land, land rights and buildings including buildings on third-party land |
11,330 | 37 | 0 | -513 | 45 | 0 | -294 | 10,605 |
| Technical equipment and machinery | 81,085 | 3,458 | 0 | -1,840 | 76 | 0 | -1,701 | 81,079 |
| Other equipment, operating and office | ||||||||
| equipment | 12,616 | 783 | 0 | -860 | 76 | 0 | -478 | 12,137 |
| Prepayments and equipment under construction |
184 | 32 | 0 | -129 | -78 | 0 | 0 | 9 |
| Right-of-use assets | 9,974 | 4,950 | 0 | -1,817 | -119 | 0 | -259 | 12,729 |
| 115,189 | 9,261 | 0 | -5,158 | 0 | 0 | -2,733 | 116,559 |
Rounding differences may occur.
| Acquisition and production costs | ||||||||
|---|---|---|---|---|---|---|---|---|
| in kEUR | As of 01/01/2019 |
Additions | First-time appli cation of IFRS 16 |
Disposals | Transfers | Reclassification under IFRS 5 |
Currency translation differences |
As of 12/31/2019 |
| Intangible assets | ||||||||
| Concessions, industrial property and similar rights and licenses |
2,954 | 60 | 0 | 0 | 0 | -202 | 6 | 2,817 |
| Goodwill | 35,945 | 0 | 0 | -874 | 0 | 0 | 226 | 35,296 |
| Prepayments on intangible assets | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 38,899 | 60 | 0 | -874 | 0 | -202 | 232 | 38,113 | |
| Property, plant and equipment | ||||||||
| Land, land rights and buildings including buildings on third-party land |
11,186 | 399 | 0 | -426 | 0 | -15 | 187 | 11,330 |
| Technical equipment and machinery | 80,839 | 6,285 | 0 | -5,686 | 474 | -1,449 | 621 | 81,085 |
| Other equipment, operating and office equipment |
12,165 | 1,172 | 0 | -532 | -10 | -281 | 101 | 12,616 |
| Prepayments and equipment under construction |
321 | 273 | 0 | 0 | -417 | 0 | 5 | 184 |
| Right-of-use assets | 0 | 1,495 | 9,015 | -554 | -48 | 0 | 67 | 9,974 |
| 104,511 | 9,624 | 9,015 | -7,199 | 0 | -1,745 | 981 | 115,189 |
| Accumulated depreciation and amortization | |||||||
|---|---|---|---|---|---|---|---|
| Currency Reclassification translation As of As of Disposals Transfers under IFRS 5 differences 12/31/2020 12/31/2020 |
Additions | As of 01/01/2020 |
|||||
| 1 0 0 15 -2,707 116 |
-133 | -2,590 | |||||
| 1,831 0 0 591 -15,232 17,169 |
-364 | -17,290 | |||||
| 0 0 0 0 0 |
0 | 0 | |||||
| 1,832 0 0 606 -17,939 17,285 |
-497 | -19,880 | |||||
| 415 0 0 141 -6,458 4,147 |
-502 | -6,513 | |||||
| 1,606 -7 0 1,416 -54,701 26,378 |
-6,066 | -51,651 | |||||
| 803 -70 0 424 -9,674 2,463 |
-1,114 | -9,716 | |||||
| 129 0 0 0 0 |
-129 | 0 | |||||
| 1,647 77 0 50 -3,552 9,177 |
-3,060 | -2,266 | |||||
| 4,600 0 0 2,031 -74,385 42,174 |
-10,871 | -70,145 |
| Accumulated depreciation and amortization |
|---|
| ------------------------------------------- |
| Carrying amounts | Accumulated depreciation and amortization | ||||||
|---|---|---|---|---|---|---|---|
| As of | As of | Currency translation |
Reclassification | As of | |||
| 12/31/2019 Previous year |
12/31/2019 | differences | under IFRS 5 | Transfers | Disposals | Additions | 01/01/2019 |
| 227 | -2,590 | -6 | 201 | 0 | 0 | -119 | -2,667 |
| 18,007 | -17,290 | -279 | 0 | 0 | 874 | -1,200 | -16,685 |
| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 18,233 | -19,880 | -285 | 201 | 0 | 874 | -1,319 | -19,352 |
| 4,817 | -6,513 | -52 | 15 | 0 | 200 | -569 | -6,107 |
| 29,435 | -51,651 | -470 | 1,397 | -22 | 5,132 | -6,004 | -51,682 |
| 2,900 | -9,716 | -86 | 268 | -3 | 499 | -1,369 | -9,024 |
| 184 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 7,708 | -2,266 | -1 | 0 | 24 | 554 | -2,844 | 0 |
| 45,043 | -70,145 | -609 | 1,680 | 0 | 6,385 | -10,786 | -66,813 |
In accordance with IAS 36, an impairment test was performed in the past financial year. This involved allocating goodwill to cash-generating units (CGUs).
An overview of the allocation of the Group companies to CGUs and an allocation to geographic segments and services can be found under "Consolidated group" in Section V.
Sales revenue and EBIT summarized by CGU and geographic segment are listed under note 18, Revenues and segment reporting.
The following table shows the changes by geographic segment:
| In EUR million | 12/31/2019 | Impairment/ additions |
Currency translation differences |
12/31/2020 |
|---|---|---|---|---|
| Europe | 15.9 | 0.0 | -0.4 | 15.5 |
| Middle East | 0.4 | -0.4 | 0.0 | 0.0 |
| Rest of the | ||||
| World | 1.7 | 0.0 | 0.0 | 1.7 |
| TOTAL | 18.0 | -0.4 | -0.4 | 17.2 |
The local goodwill for ZGE PRA of €0.4 million was written off in full in the reporting year, following the recognition of a partial impairment loss the previous year. The impairment is in connection with the ongoing process of concentrating activities in the Middle East.
The goodwill arising in connection with the acquisition of a foreign operation is presented in the functional currency in accordance with IAS 21.47 and translated at the exchange rate on the reporting date pursuant to IAS 21.39 and 42. The resulting translation differences are recognized through other comprehensive income and presented under equity as adjustment from currency translation.
Based on the carrying amount of the goodwill allocated to the CGUs, two major items stand out: the MD CGU, with €7.2 million of goodwill (previous year: €7.2 million) and the MPL CGU, with €5.2 million of goodwill (previous year: €5.6 million; change due to presentation in functional currency and the related translation difference). Together, the two CGUs accounted for 72% (previous year: 71%) of total goodwill as of December 31, 2020.
Goodwill for the respective units was tested for impairment by applying the DCF (discounted cash flow) method to the value in use based on four-year business plans (Level III valuation). The business plans were drawn up in the fourth quarter of 2020 and have been approved by the Executive Board and the Supervisory Board. The business plans are based on historical data, such as experience with existing customer relationships, and incorporate assumptions regarding market trends. To the extent possible, projections are based on expected sales revenue and income for each customer. The cash flows cover the planning periods 2021–2024
There are uncertainties regarding the underlying assumptions used in the CGU calculations, particularly with respect to growth of sales revenue during the budget period, the trend in the EBIT margin during the budget period, the discount factor (interest rate) and the growth rate on which the cash flow projections beyond the budget period are based.
The discount rate used in the calculations was the weighted average cost of capital (WACC) for each unit after taxes. The discount rates used for the units fell into the following ranges:
| Region | 2020 | 2019 |
|---|---|---|
| Germany | 7.8% | 7.8% |
| Poland | 10.2% | 10.3% |
| Rest of Europe | 7.9%–12.5% | 7.9%–12.7% |
| Middle East | – | 8.2%–9.6% |
| Rest of the World | 8.9% | 8.5% |
The weighted average cost of capital rates reflect the current market estimates of the specific risks allocable to the respective cash-generating units. These were determined on the basis of the weighted average cost of capital customary for the respective industries. The interest rate was further adjusted to take into account market estimates of all risks specifically allocable to the CGUs for which estimates of future cash flows were not adjusted. We assumed perpetuity growth rates of 0.5% for Europe (previous year: 0.5%) and 0.0% for the Rest of the World (previous year: 0.0%). A growth rate of 0.5% was also assumed for Russia as of December 31, 2020 (previous year: 2.5%). The growth rates are based on the nominal growth rates used and reflect long-term, market-specific inflation rates that were adjusted to reflect the specific business segments' expected trends.
As part of a sensitivity analysis for CGUs to which substantial goodwill has been allocated, the particularly sensitive parameters EBIT margin and discount rate (WACC) were tested. A 1.5% decrease in the EBIT margin would result in impairment losses to the MPL and MF CGUs of €0.3 million and €0.1 million, respectively. An increase in the WACC of three percentage points would result in an impairment loss at the MPL CGU of €0.1 million. A lower decrease in the EBIT margin and/or a lower increase in the WACC would not lead to any impairment loss. In the previous year, the threshold for recognition of an impairment loss was 1% in each case.
After careful consideration, management has concluded that the negative changes are unlikely to occur.
No impairment losses on property, plant and equipment were recognized or reversed in the reporting year or in the previous year. Borrowing costs were not capitalized.
The gross carrying amount of prepayments and equipment under construction is €0.1 million (previous year: €0.2 million) for property, plant and equipment under construction.
There was an order commitment for property, plant and equipment of €0.6 million as of the reporting date, mainly for an office building in Denmark (previous year: €0.0 million).
In the area of property, plant and equipment, right-of-use assets from leases are recognized pursuant to IFRS 16.
Right-of-use assets are spread across the following property, plant and equipment classes:
| in kEUR | 12/31/2020 | 12/31/2019 |
|---|---|---|
| Land, land rights and buildings including buildings | ||
| on third-party land Technical equipment and machinery |
6,511 18 |
5,885 283 |
| Other equipment, operating and office equipment | 2,648 | 1,540 |
| TOTAL RIGHT-OF-USE ASSETS | 9,177 | 7,708 |
Depreciation and amortization of right-of-use assets is spread across the property, plant and equipment classes as follows:
| in kEUR | 2020 | 2019 |
|---|---|---|
| Land, land rights and buildings including buildings on | ||
| third-party land Technical equipment and machinery |
1,727 4 |
1,797 119 |
| Other equipment, operating and office equipment | 1,326 | 929 |
| TOTAL DEPRECIATION OF RIGHT-OF-USE ASSETS | 3,056 | 2,844 |
Interest expenses from the compounding of lease liabilities totaled €0.4 million in the reporting year (previous year: €0.3 million). Muehlhan's incremental borrowing rate of 4.0% was used for discounting. Cash used for leases amounted to €6.7 million.
The undiscounted lease liabilities have the following maturities:
| in kEUR | 12/31/2020 | 12/31/2019 |
|---|---|---|
| Up to 1 year | 2,912 | 2,172 |
| Between 1 and 5 years | 4,824 | 3,541 |
| More than 5 years | 7,971 | 8,741 |
| TOTAL UNDISCOUNTED LEASE LIABILITIES | 15,707 | 14,468 |
The material liability comes from a leasehold agreement for a site in the UK with a residual term of 90 years.
Expenses for leases accounted for in line with IFRS 16.6 came to €4.1 million in the reporting year (previous year: €4.4 million). Muehlhan engages in project business and often rents/leases space, buildings, premises and technical equipment on a temporary basis for the duration of the projects.
Other non-current assets consist of financial and non-financial assets.
Other non-current financial assets almost exclusively consist of non-current project-related security deposits from customers.
The company's deferred taxes pertain to the following items:
| Deferred tax assets | Deferred tax liabilities | |||||
|---|---|---|---|---|---|---|
| in kEUR | 12/31/2020 | 12/31/2019 | 12/31/2020 | 12/31/2019 | ||
| Accumulated tax loss carryforwards | 5,847 | 2,896 | 0 | 0 | ||
| Intangible assets | 0 | 0 | 262 | 212 | ||
| Property, plant and equipment | 190 | 237 | 2,382 | 2,293 | ||
| Financial assets | 0 | 0 | 0 | 0 | ||
| Inventories | 150 | 76 | 0 | 0 | ||
| Trade receivables and contract assets | 29 | 26 | 2,312 | 2,826 | ||
| Other assets | 0 | 0 | 89 | 4 | ||
| Pension provisions and similar obligations | 89 | 92 | 0 | 0 | ||
| Borrowings | 2,170 | 1,781 | 186 | 140 | ||
| Other provisions | 249 | 727 | 0 | 0 | ||
| Trade payables and contract liabilities | 64 | 1,190 | 0 | 0 | ||
| Other liabilities | 140 | 155 | 0 | 49 | ||
| Netting acc. to IAS 12.74 | -5,230 | -5,224 | -5,230 | -5,224 | ||
| TOTAL | 3,698 | 1,954 | 0 | 300 |
In Germany, there were €13.7 million of trade tax loss carryforwards (previous year: €13.6 million) and €14.2 million of corporation tax loss carryforwards (previous year: €13.7 million) as of the reporting date. There were €13.9 million of tax loss carryforwards abroad (previous year: €7.4 million).
According to the medium-term forecasts of the companies involved, a tax benefit of €5.9 million (previous year: €3.0 million) will accrue over the next five years, which we have already capitalized since there is a high probability that the companies in question will have taxable profit against which the deferred tax assets can be utilized. Overall, in Group companies that reported a loss in the previous year or the current year, a surplus of deferred tax assets totaling €5.7 million was recognized (previous year: €2.1 million). The future use of these tax benefits depends exclusively on the generation of future taxable income. There is substantial evidence that this income will be generated, including long-term customer loyalty, detailed budgets and long-term contracts. In addition to the deferred tax assets recognized for loss carryforwards, there are also domestic corporation tax losses of €1.3 million (previous year: €7.2 million) and trade tax losses of €1.0 million (previous year: €7.3 million), the realization of which is not sufficiently certain and for which therefore no deferred tax assets have been recognized. Based on current laws, the loss carryforwards cannot expire. As of the reporting date, foreign loss carryforwards for which no deferred tax assets have been recognized totaled €3.6 million (previous year: €2.3 million) and in most cases may be utilized without restriction within three to 15 years.
There are taxable temporary differences relating to investments in subsidiaries (outside basis differences) totaling €1.4 million (previous year: €1.7 million) for which no deferred tax liabilities have been recognized in accordance with IAS 12.39 because there are no plans to either distribute profits or to dispose of the investments.
Inventories may be broken down as follows:
| in kEUR | 12/31/2020 | 12/31/2019 |
|---|---|---|
| Raw materials, consumables and supplies | 6,240 | 6,045 |
| Prepayments | 332 | 124 |
| TOTAL | 6,571 | 6,169 |
Impairment in the amount of €0.2 million was recognized on raw materials, consumables and supplies (previous year: €0.2 million).
Trade receivables include the following items:
| in kEUR | 12/31/2020 | 12/31/2019 |
|---|---|---|
| Trade receivables from services rendered | 50,391 | 59,566 |
| Trade receivables from construction con | ||
| tracts/contract assets | 39,970 | 40,511 |
| Prepayments received on work in progress | -27,130 | -26,844 |
| TOTAL | 63,231 | 73,232 |
As a rule, trade receivables from services rendered are due and payable within 30 days. In exceptional cases, the time to maturity may be up to one year. Trade receivables from construction contracts have the same maturities.
Overdue trade receivables for which no impairment has been recognized totaled €15.2 million as of the reporting date (previous year: €20.7 million).
Regarding trade receivables that are due, trade receivables that are not due and trade receivables for which no impairment has been recognized, there is no evidence as of the reporting date that the debtors will not satisfy their payment obligations. Any change in creditworthiness since the payment terms were granted is taken into account when testing trade receivables for impairment. There is currently no significant concentration of the default risk.
Applying insulation to a pipeline in a refinery
The following table shows impairments on trade receivables that are recognized through profit or loss on the consolidated income statement:
| in kEUR | 12/31/2020 | 12/31/2019 |
|---|---|---|
| Impairment – as of January 1 | -4,942 | -3,163 |
| Additions (loss allowance) | -3,898 | -2,991 |
| Reversals (other operating income) | 403 | 705 |
| Derecognition of impaired trade receivables |
1,318 | 610 |
| Currency translation differences | 251 | -103 |
| IMPAIRMENT – AS OF DECEMBER 31 | -6,868 | -4,942 |
There were no changes year-over-year in the assumptions made regarding the volume of expected losses. Losses in the amount of 0.0% to 2.5% were expected on trade receivables from services rendered. The change in the gross carrying amounts of trade receivables and contract assets had an effect of €0.1 million (previous year: €-0.2 million) on the volume of expected losses, which is included in income from the reversal of loss allowances.
As of the reporting date, the company had credit insurance for €2.6 million (previous year: €2.6 million) of trade receivables. The framework for credit insurance was €4.6 million (previous year: €5.2 million). There is no concentration of the default risk as Muehlhan is active in various markets on three continents with a variety of customers.
Muehlhan transferred trade receivables to a customer in exchange for cash and cash equivalents (true factoring). The receivables were derecognized as all the risks and opportunities – first and foremost the default risk – were transferred to the purchaser.
The receivables were held in a business model designed for the collection of cash flows.
Cash and cash equivalents amounted to €13.2 million as of December 31, 2020 (previous year: €10.0 million), and, aside from available cash and sight balances, also included overnight deposits. Interest on overnight deposits averaged 0.1% (previous year: 0.1%) on the reporting date. As of the reporting date, there were no drawing restrictions.
There are no relevant default risks as Muehlhan only works with banks that are regularly tested by the European Central Bank and others.
Tank coating
Other current assets consist of financial and non-financial assets.
The other current financial assets can be broken down as follows:
| in kEUR | 12/31/2020 | 12/31/2019 |
|---|---|---|
| Security deposits | 2,515 | 2,757 |
| Receivables related to employees | 719 | 843 |
| Receivables due from damage claims/insurance compensation |
||
| payments | 438 | 509 |
| Credits with suppliers/bonuses | 304 | 220 |
| Creditors with debit balances | 111 | 108 |
| Sundry current financial assets | 2,877 | 1,231 |
| TOTAL | 6,964 | 5,667 |
Other current non-financial assets can be broken down as follows:
| in kEUR | 12/31/2020 | 12/31/2019 |
|---|---|---|
| Deferrals and accruals | 1,626 | 1,502 |
| Income tax receivables | 810 | 1,337 |
| Other tax receivables | 761 | 5,805 |
| Advance payments | 714 | 0 |
| Receivables related to employees | 252 | 312 |
| Sundry current non-financial assets | 303 | 239 |
| TOTAL | 4,466 | 9,194 |
All other financial and non-financial assets are due within one year. For initial and subsequent measurement see note 24, Financial instruments.
During the reporting year, impairment of €0.3 million was recognized for other financial assets (previous year: €0.1 million). No additional impairment was necessary for financial or non-financial assets that were neither overdue nor impaired. There were no other significant financial or non-financial assets that were overdue but not impaired. Additions to and reversals of impairments are recognized through profit or loss in other operating income and expenses.
In the previous year, a decision was taken to sell the Greek business segment as represented by the subsidiary MGR, along with all existing assets and liabilities. The sale took place on July 20, 2020.
The company reported no revenues, and earnings (EBIT) of €-7 thousand (previous year: €-73 thousand) in the reporting year prior to the sale. The result of deconsolidation was €11 thousand.
The potential disposal of the North Sea oil and gas business does not meet the recognition criteria in IFRS 5.
The authorized capital reported for the parent company is equal to the authorized capital reported for the Group. It is divided into 19,500,000 no-parvalue bearer shares, each with a proportional amount of the authorized capital of €1.00 per share. The authorized capital is fully paid in.
Pursuant to the resolution adopted by the Annual General Meeting on June 18, 2020, the parent company's authorized capital amounts to €9,750 thousand (previous year: €9,750 thousand).
The effects on the capital reserve relate to the compensation program for the Group's senior managers (see "Treasury shares") and to withdrawals from/reclassification to retained earnings.
Muehlhan AG's Annual General Meeting on June 18, 2020, passed a resolution again authorizing the Executive Board to acquire treasury shares with a nominal value of up to €1.95 million. A share buyback program that began in 2018 came to an end in April 2020. 97,526 treasury shares were purchased for €280,553 in the reporting year. In the previous year, 210,158 shares were purchased for €593,989.
In 2020, 218,243 shares (previous year: 164,074 shares) were transferred under the Employee Program. Treasury shares are shown separately as deduction items totaling €340 thousand (previous year: €679 thousand) in the consolidated statement of changes in equity. Treasury shares are measured at the average price on the reporting date.
In the previous year, Muehlhan AG updated the compensation program for the Group's senior managers, which has been in place since 2010. The current program has two components: a performance bonus and a value bonus. In addition to other agreed criteria, eligibility for the performance bonus is the result primarily of a year-over-year increase in the corporate value (change in equity value) of the individual company in question and of the Group. Payment is made in the form of a cash bonus.
The amount of the value bonus is based on measurement of the sustainable increase in the corporate value (sustainable change in equity value) of both the respective company and the Group. The beneficiary is allocated a virtual share portfolio, its value equal to the identified amount of the value bonus for previous years. The shares are transferred to the recipient of the bonus in four equal tranches in the years following the year of assessment. For any transfer to take place in subsequent years, the beneficiary must still be employed by the Group. Any future negative virtual share allocations will be netted directly against existing claims.
Once a year, the agreement can be terminated.
In 2020, a tranche of 218,243 shares (previous year: 164,074 shares) with a value of €501 thousand (previous year: €342 thousand) was transferred to the bonus beneficiaries. The fair value of the shares to be issued is measured at the share price on the grant date. The total cost of the value bonus will be divided over the four periods from the grant date until the shares vest. In 2020, the Group recognized an associated expense of €129 thousand (previous year: €541 thousand). The issuance of rights to shares is recognized in equity under capital reserve. As of the reporting date, Muehlhan AG held 119,684 treasury shares (previous year: 245,301 treasury shares).
Other reserves are made up of profit reserves, conversion reserve, cash flow hedge reserve and currency translation adjustments.
Profit reserves changed in the reporting year due to the valuation of treasury shares, a reclassification to non-controlling interests and effects from the remeasurement of net debts from defined benefit obligations (after tax) which are recognized here without effect on income.
The conversion reserve results from the first-time preparation of IFRS consolidated financial statements and the first-time application of IFRS 9 in 2018.
The cash flow hedge reserve results from an interest rate cap arranged in 2017. The change in the reporting year is the result of the current valuation.
The currency translation adjustment relates to foreign currency effects presented in equity.
The main changes in retained earnings are the 2020 consolidated income attributable to shareholders of Muehlhan AG and reclassifications from other equity items.
No dividend was distributed in 2020 for the financial year 2019. In 2019, the distribution came to €0.10 per share with dividend entitlement. With the Supervisory Board's approval, the Executive Board will propose to the Annual General Meeting that for financial year 2020 a dividend of €0.12 per share be distributed on the €19,500,000.00 of shares with dividend rights. As a result, the total dividend distribution will be €2,340,000.00, less the dividend on treasury shares. Payment of this dividend will be dependent on approval by the Annual General Meeting on May 18, 2021. The dividend liability will be recognized after approval by the Annual General Meeting in financial year 2021.
MMF, MCL, MRO, MBL and MWS had non-controlling interests as of the reporting date. Muehlhan AG holds a 75.0% stake in MBL, a 70.0% stake in MMF, a 55.5% stake in MWS and stakes of 51.0% in MCL and MRO. The equity interest in MWS increased year-over-year by 4.5%. The other equity interests were unchanged from the previous year. The previous year's stake in MGR was sold in the reporting year.
The following table shows the items of the balance sheet and the income statement, including earnings after taxes, of the principal companies with non-controlling interests for the financial year, pursuant to IFRS 12:
| in kEUR | MCL | MWS |
|---|---|---|
| 12/31/2020 | 12/31/2020 | |
| Non-current assets | 3,535 | 1,205 |
| Current assets | 8,586 | 13,990 |
| Equity | 4,304 | 2,256 |
| of which non-controlling interests | 2,158 | 927 |
| Non-current liabilities | 274 | 543 |
| Current liabilities | 7,543 | 12,396 |
| 2020 | 2020 | |
| Revenues | 23,570 | 36,446 |
| Earnings from operations (EBIT) | 775 | 2,602 |
| Earnings after income taxes | 474 | 1,809 |
| of which non-controlling interests | 232 | 733 |
| Earnings after income taxes, previous year | 480 | 299 |
| of which non-controlling interests | 222 | 149 |
The earnings after taxes must be allocated to the other shareholders in accordance with their respective shareholdings. During the reporting year, €335 thousand of dividends were distributed to non-controlling interests (previous year: €44 thousand).
Provisions for pensions and similar obligations totaled €0.8 million (previous year: €0.9 million). There are no plan assets.
There is a defined benefit pension commitment for a retired former managing director of a subsidiary in Germany. In addition, there are some minor defined benefit pension commitments in Poland and France.
The calculation of the provision for defined benefit retirement plans is based on the projected unit credit method, in accordance with IAS 19. The present value of the defined benefit obligation (DBO) is calculated by actuaries based on assumptions about life expectancy, increases in salary and retirement income, employee turnover, changes in the interest rate and other computational parameters. After deducting unrecognized service costs, the obligation is accrued under pension provisions.
Actuarial gains and losses based on empirical adjustments and changes in actuarial assumptions are recognized in equity under other comprehensive income in the period in which they occur, with no effect on the income statement. Past service costs are recognized in profit or loss.
The discount factor is an important parameter for calculating the amount of the provision for pensions and similar obligations. For pension obligations, it is determined based on the yields on senior fixed-interest corporate bonds observable in the financial markets on the reporting date.
Through the plans, the Group is normally exposed to the following actuarial risks:
A decline in the coupon rate will result in an increase in the plan liability.
The present value of the defined benefit obligation under the plan is determined based on the best possible estimate of the expected mortality of the employee beneficiary, both during the employment contract and after it has ended. An increase in the life expectancy of the employee beneficiary will lead to an increase in the plan liability.
Insulation work on a gas liquefaction station in Russia
The present value of the defined benefit obligation under the plan is determined based on the future salaries of the employee beneficiaries. Therefore, increases in the salaries of the employee beneficiaries will lead to an increase in the plan liability.
Some pension benefits are indexed to inflation and higher inflation will lead to an increase in the plan liability.
The present value of the defined benefit obligation under pension commitments was calculated based on the following actuarial assumptions:
| in % | Germany | Poland | France | |||
|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |
| Discount rate | 0.4 | 0.6 | 1.3 | 2.5 | 0.3 | 1.6 |
| Future increases in salaries and pensions |
0.7 | 0.7 | 3.0 | 3.0 | – | – |
| Inflation rate | – | – | 2.5 | 2.5 | 2.0 | 2.0 |
Employee turnover was taken into account.
The assumptions used to calculate the pension obligation in Germany are based on the "2018G Actuarial Tables" of Klaus Heubeck. A retirement age of 65 is assumed. The assumptions used to calculate the pension obligation in Poland are based on assumptions by Poland's Central Statistical Office (GUS) and the Government Social Insurance Agency (ZUS). The assumed retirement age is 65 for men and 60 for women.
Pension provisions and similar obligations developed as follows:
| in kEUR | 2020 | 2019 |
|---|---|---|
| As of January 1 | 879 | 816 |
| Current service cost | -17 | 30 |
| Interest effect for vested pension entitlements | 37 | 30 |
| Pension benefits paid | -58 | -50 |
| Actuarial gains and losses | 16 | 50 |
| Exchange differences | -15 | 2 |
| As of December 31 | 842 | 879 |
The actuarial gains and losses resulted from the change in financial assumptions.
Holding the calculation method constant, a 1% change in the aforementioned actuarial assumptions would not result in any material change in the DBO. As a result, we will dispense with a detailed presentation of the sensitivity analysis.
Since the amount of the obligation is low, Muehlhan AG has dispensed with a detailed risk management strategy for pension provisions, instead applying the general risk management concept.
For 2021 and the following years, the pension payment is expected to be at the same level as in the reporting year.
Aside from the ongoing contribution payment, defined contribution pension commitments will not lead to any additional pension obligations. Expenses for defined-contribution pension plans in Germany did not exceed €50 thousand (previous year: did not exceed €50 thousand).
The carrying amounts of borrowings can be broken down as follows:
| in kEUR | 12/31/2020 | 12/31/2019 |
|---|---|---|
| Borrowings | ||
| Non-current | 22,459 | 26,285 |
| Current | 9,292 | 7,912 |
| TOTAL | 31,751 | 34,197 |
In the reporting year Muehlhan AG modified a syndicated loan agreement for Group financing with a total credit line of €65.0 million, which was lead managed by Commerzbank AG in July 2017. The modifications – which are not significant according to IFRS 9 – raised the credit line by €5.0 million, temporarily suspended compliance with some covenants and extended the term by one year. The loan is divided into three tranches. Tranche A is a term loan for €20.0 million maturing in 2022. Tranche B is a bullet loan for €20.0 million maturing in 2023 (before modification: 2022) with a one-year renewal option. Tranche C for €30.0 million (before modification: €25.0 million), with the option of increasing by up to another €25.0 million, is a revolving loan that is available until mid-2023 to finance working capital requirements, with the option of renewing until mid-2024 (before modification; until mid-2022 with a renewal option until mid-2023). All the tranches pay interest at EURIBOR plus a margin of 2.0% to 3.5%, dependent on performance indicators. The main subsidiaries have provided guarantees to the banking syndicate as collateral for the loan. No tangible collateral was provided. Muehlhan AG has agreed to comply with terms and conditions for the financing. In addition to obligations to notify the banking syndicate, these primarily include compliance with an equity ratio, a net debt ratio and an interest coverage ratio. The financing terms and conditions were satisfied in the previous year and during the current financial year. The loans were measured at amortized cost after allowing for the transaction costs in 2017 and 2020 (€0.7 million). The loans totaled €27.4 million on the reporting date (previous year: €30.9 million). In addition, the subsidiaries had other non-current and current borrowings.
The Muehlhan Group has credit lines totaling €64.4 million (previous year: €63.5 million). These include loans with scheduled monthly payments of principal and interest, as well as freely available bank credit lines, some of which can also be used for guarantees. Additionally, it has guarantee facilities totaling €101.7 million (previous year: €114.7 million) from Euler Hermes Kreditversicherungs AG, Zurich Versicherung Aktiengesellschaft and Zurich Insurance Public Limited Company, USA. In addition to borrowings totaling €31.8 million (previous year: €34.2 million), guarantee credits totaled €27.1 million as of December 31, 2020 (previous year: €29.2 million). On the reporting date, aside from cash and cash equivalents, the company had at its disposal unutilized loan, overdraft and guarantee facilities in the amount of €107.3 million (previous year: €114.7 million). The effective interest rate on borrowings averaged 3.11% during the financial year (previous year: 2.64%). As the effective interest method was applied, the figures shown on the balance sheet were equal to the fair value.
The term loans will result in cash outflows of €4.1 million in 2021 (previous year, for 2020: €4.1 million) and €2.1 million in 2022 (previous year, for 2021: €4.1 million). In the period thereafter (two to five years), cash used for term loans will total €0.2 million (previous year: €2.2 million).
State aid, such as interest-free loans, was only used to a small extent by some companies and has already been partly repaid.
As a cash flow hedge, Muehlhan AG has entered into an interest rate cap transaction ("cap") to limit the variable interest rate on a portion of the syndicated loan. As of the reporting date, the fair value of the cap was €0 thousand (previous year: €-2 thousand). The cap and the syndicated loan have matching maturities. In the consolidated statement of comprehensive income, the effect of the cap in the reporting year was €2 thousand (previous year: €23 thousand).
Welding
Other provisions developed as follows:
| in kEUR | As of 01/01/2020 | Utilization | Reversal | Addition | Currency translation effect |
As of 12/31/2020 |
|---|---|---|---|---|---|---|
| Employees | 3,041 | -2,866 | -171 | 3,597 | -191 | 3,411 |
| Litigation | 70 | -70 | 0 | 675 | -8 | 668 |
| Warranty | 696 | -17 | -483 | 366 | -4 | 560 |
| Anticipated losses | 1,833 | -1,647 | -186 | 137 | -9 | 128 |
| Tax risks | 527 | -489 | 0 | 0 | -12 | 26 |
| Other | 92 | -92 | 0 | 1,314 | -36 | 1,277 |
| TOTAL | 6,260 | -5,181 | -840 | 6,090 | -259 | 6,070 |
Breakdown of other provisions by the date of their expected utilization:
| in kEUR | As of 12/31/2020 |
Due <1 year |
Due 1–5 years |
Due >5 years |
|---|---|---|---|---|
| Employees | 3,411 | 2,701 | 0 | 710 |
| Litigation | 668 | 668 | 0 | 0 |
| Warranty | 560 | 346 | 214 | 0 |
| Anticipated losses | 128 | 128 | 0 | 0 |
| Tax risks | 26 | 26 | 0 | 0 |
| Other | 1,277 | 1,277 | 0 | 0 |
| TOTAL | 6,070 | 5,146 | 214 | 710 |
The provision for onerous contracts was due to delays in the construction of a production facility for the Renewables segment on Germany's North Sea coast and was utilized in the reporting year. Litigation is pending in connection with the construction of the production facility.
All liabilities have a term to maturity of one year or less. Trade payables include contract liabilities of €1.6 million (previous year: €5.0 million) and result from payments demanded and received without any obligations having been performed to date and from long-term warranty obligations for a completed project. The contract obligations shown as contract liabilities will be settled within the next five years. Income is allocated to contract liabilities using the percentage of completion method.
Other current liabilities consist of financial and non-financial liabilities.
The other current financial liabilities can be broken down as follows:
| in kEUR | 12/31/2020 | 12/31/2019 |
|---|---|---|
| Liabilities to employees | 8,518 | 10,037 |
| Lease liabilities Debtors with credit balances |
2,560 47 |
1,952 39 |
| Security deposits | 12 | 232 |
| Sales bonuses/bonuses | 0 | 699 |
| Liabilities from the purchase of property, plant and equipment |
0 | 5,593 |
| Sundry current financial liabilities | 2,865 | 1,071 |
| TOTAL | 14,002 | 19,624 |
The other short-term, non-financial liabilities can be broken down as follows:
| in kEUR | 12/31/2020 | 12/31/2019 |
|---|---|---|
| Liabilities attributable to social security | 5,738 | 2,317 |
| Liabilities attributable to other taxes | 3,565 | 2,935 |
| Liabilities to employees | 1,211 | 1,379 |
| Income tax liabilities | 1,132 | 495 |
| Deferrals | 201 | 41 |
| Prepayments received | 13 | 775 |
| Sundry current non-financial liabilities | 2,355 | 81 |
| TOTAL | 14,214 | 8,024 |
Muehlhan generates revenues by providing services in the areas of surface protection, passive fire protection, scaffolding and access technology, steel construction and insulation. For a more detailed description of the geographic segments, please refer to the comments in the Group management report. The overview in Section V. Consolidated group, shows which services are provided by each geographic segment.
Segment reporting is based on the management approach, in accordance with IFRS 8. Management control and, therefore, internal reporting are both organized primarily by geographic region and segment. The regions are Europe, Middle East, North America and Rest of the World and the segments are Energy and Marine & Construction. Central functions and consolidation effects are shown separately in order to ensure that they are reconciled to the Group as a whole. The Muehlhan Group's internal reporting distinguishes the following business segments: Ship, Oil & Gas, Renewables, and Industry/Infrastructure. Reporting is broken down by external revenues and earnings from operations (EBIT) in line with the accounting and valuation methods discussed in these notes.
Assets and liabilities are not broken down by segment, as this information is not collected for internal reporting purposes. The same applies to income taxes paid and income tax refunds. The financial result is primarily allocated to the holding company.
Intersegment sales and revenues are always reported at prices that would also apply to arm's length transactions. Depending on where the respective companies are headquartered, external revenues come primarily from:
| in kEUR | 2020 | 2019 |
|---|---|---|
| Denmark | 97,491 | 77,891 |
| Germany | 52,829 | 54,800 |
| Netherlands | 26,823 | 28,211 |
| Poland | 19,249 | 18,324 |
| USA | 4,681 | 24,377 |
| Other | 59,310 | 91,666 |
| TOTAL | 260,382 | 295,269 |
Other countries each account for less than 10% of the Group's external revenues.
2020
The MSI Group, which is allocated to Rest of the World, generally provides offshore services in international waters.
in kEUR Europe Middle East North America Rest of the World Holding company Reconciliation Group External revenues 238,218 14,341 4,581 3,084 159 0 260,382 Intersegment revenues 542 0 0 740 2,682 -3,964 0 Revenues 238,760 14,341 4,581 3,823 2,841 -3,964 260,382 Earnings from operations before depreciation and amortization (EBITDA) 17,284 -1,985 -1,519 -940 1,563 0 14,403 Depreciation and amortization of intangible assets and property, plant and equipment -8,710 -652 -811 -64 -1,131 0 -11,368 Earnings from operations (EBIT) 8,574 -2,637 -2,331 -1,003 432 0 3,035 Investment in property, plant and equipment 4,184 92 8 8 19 0 4,311
| in kEUR | Europe | Middle East | North America | Rest of the World |
Holding company |
Reconciliation | Group |
|---|---|---|---|---|---|---|---|
| External revenues | 233,085 | 22,885 | 24,377 | 14,742 | 180 | 0 | 295,269 |
| Intersegment revenues | 259 | 0 | 42 | 95 | 8,197 | -8,592 | 0 |
| Revenues | 233,343 | 22,885 | 24,419 | 14,837 | 8,377 | -8,592 | 295,269 |
| Earnings from operations before depre ciation and amortization (EBITDA) |
19,411 | 2,688 | 4,634 | 1,642 | -3,870 | 0 | 24,505 |
| Depreciation and amortization of intangible assets and property, plant and equipment |
-8,656 | -975 | -1,116 | -81 | -1,277 | 0 | -12,105 |
| Earnings from operations (EBIT) | 10,754 | 1,713 | 3,518 | 1,561 | -5,146 | 0 | 12,400 |
| Investment in property, plant and equipment |
7,286 | 262 | 29 | 3 | 549 | 0 | 8,129 |
Application of surface protection on the Øresund Bridge in Denmark
The following table provides a breakdown of external revenue and EBIT by business segment:
| External revenues | EBIT | |||
|---|---|---|---|---|
| in kEUR | 2020 | 2019 | 2020 | 2019 |
| Ship | 65,616 | 69,421 | 3,624 | 7,555 |
| Oil & Gas | 60,359 | 78,310 | 313 | 6,136 |
| Renewables | 63,453 | 45,548 | 6,068 | -1,050 |
| Industry/Infrastructure | 70,796 | 101,909 | -4,213 | 3,808 |
| Holding company/ consolidation |
159 | 81 | -2,757 | -4,049 |
| TOTAL | 260,382 | 295,269 | 3,035 | 12,400 |
The following table provides a breakdown of external revenue and EBIT by segment:
| External revenues | EBIT | |||
|---|---|---|---|---|
| in kEUR | 2020 | 2019 | 2020 | 2019 |
| Energy | 113,629 | 114,485 | 5,454 | 5,879 |
| Marine & Construction | 148,649 | 183,227 | 891 | 10,130 |
| Holding company/ consolidation |
-1,896 | -2,442 | -3,310 | -3,609 |
| TOTAL | 260,382 | 295,270 | 3,035 | 12,400 |
The companies are allocated to business segments and services based on their business activities during the reporting year. Knowledge and the necessary materials and equipment can be transferred quickly within the Group, meaning it is generally quite feasible to enter new business segments and to provide additional services. Such flexibility means we are well equipped to satisfy customer needs.
Revenues are generated almost exclusively by providing services in the regions, business units and segments mentioned. Contracts with customers include both fixed prices and variable payments as work is completed. For contracts with variable payments the work completed is billed monthly. Payments on account are agreed for fixed-price contracts, especially if the performance obligation is satisfied over a longer period.
Work has begun on contracts for a total of €38.7 million. Income of €162.6 million is expected from these contracts, of which €152.4 million has been or is expected to be performed in 2021 but has not yet been billed. Contracts with forecast income of €8.2 million will be performed in 2022 and other contracts with a volume of €2.0 million will be performed after 2022.
Guarantees and warranty obligations exist for the statutory periods or those customary in the industry.
No costs have been capitalized for acquiring contracts. On the reporting date, costs in connection with the performance of customer contracts are reported under trade receivables and contract assets.
This item may be broken down as follows:
| in kEUR | 2020 | 2019 |
|---|---|---|
| Cost of raw materials, consumables and supplies | -31,013 | -48,579 |
| Cost of purchased services | -57,132 | -50,275 |
| TOTAL | -88,145 | -98,853 |
The average number of employees was as follows:
| Number | 2020 | 2019 |
|---|---|---|
| Europe (incl. holding company) | 2,278 | 2,396 |
| Middle East | 462 | 591 |
| North America | 38 | 102 |
| Rest of the World | 12 | 14 |
| TOTAL | 2,790 | 3,103 |
Personnel expenses included:
| in kEUR | 2020 | 2019 |
|---|---|---|
| Wages and salaries | -101,800 | -114,777 |
| Social security contributions, pension and other benefit expenses |
-21,462 | -21,732 |
| TOTAL | -123,262 | -136,509 |
Expenses for research and development, which consist mainly of personnel expenses, totaled €0.3 million for the financial year (previous year: €0.3 million.) Government assistance, such as pay for short-time working in Germany was only used to a minor degree by some companies.
Other operating income consisted of:
| in kEUR | 2020 | 2019 |
|---|---|---|
| Exchange rate gains | 2,827 | 662 |
| Income from the reversal of provisions | 840 | 224 |
| Income from the reversal of impairments of trade receivables and contract assets |
403 | 705 |
| Income from the sale of property, plant and equipment |
226 | 467 |
| Sundry other operating income | 2,931 | 5,312 |
| TOTAL | 7,227 | 7,369 |
Sundry other operating income includes €11 thousand from the deconsolidation of Muehlhan Hellas S.A. (MGR), Athens, Greece.
Other operating expenses consisted of:
| in kEUR | 2020 | 2019 |
|---|---|---|
| Travel expenses | -6,371 | -7,986 |
| Repairs | -4,246 | -3,860 |
| Expenses for short-term leases and for leases of | ||
| low-value assets | -4,082 | -4,435 |
| Impairment losses on trade receivables and contract | ||
| assets | -3,898 | -3,013 |
| Consultancy fees | -3,652 | -4,529 |
| Training and other HR activities | -3,319 | -2,295 |
| Motor vehicle expenses | -3,162 | -3,062 |
| Exchange rate losses | -2,091 | -923 |
| Insurance | -1,751 | -2,411 |
| Sundry operating expenses | -9,227 | -10,255 |
| TOTAL | -41,800 | -42,770 |
The aforementioned exchange rate gains and losses relate to exchange differences within the meaning of IAS 21.52a.
Scaffolding work in Greece
The financial result included €0.1 million (previous year: €0.2 million) of interest income and total financial expenses consisting of interest expense and guarantee fees of €1.8 million (previous year: €2.1 million). The effect of the interest income and expenses for financial assets and liabilities as calculated using the effective interest method was €-0.3 million, with €-0.4 million resulting from the discounting of lease liabilities.
Current income taxes for domestic Group companies were calculated at a corporate tax rate of 15.5% (previous year: 15.5%) and a trade tax rate of 15.8% (previous year: 15.8%). Foreign deferred tax rates ranged from 10.0% to 35.0% (previous year: 10.0% to 35.0%) and the domestic deferred tax rate was 31.5% (previous year: 31.5%).
Taxes on income may be broken down as follows:
| in kEUR | 2020 | 2019 |
|---|---|---|
| Current income taxes | -1,956 | -2,785 |
| Deferred taxes | 1,893 | -257 |
| TOTAL | -63 | -3,042 |
Reconciliation of theoretical and actual tax expense:
| in kEUR | 2020 | 2019 |
|---|---|---|
| Earnings before income taxes from continuing operations |
1,336 | 10,513 |
| Theoretical tax expenses at MYAG's tax rate of 31.5% |
-421 | -3,312 |
| Differing foreign tax rates | -315 | 595 |
| Tax-free income and non-deductible expenses | -9 | -1,014 |
| Impairment and/or non-recognition of deferred | ||
| tax assets | 63 | -51 |
| Effects of impairment of goodwill | -75 | 115 |
| Effects of changes in tax rates | 67 | 9 |
| Effects of previously unrecognized deferred tax assets on tax loss carryforwards and temporary |
||
| differences | 1,110 | 519 |
| Prior period tax expenses (previous year: income) | -399 | 113 |
| Withholding tax effects | -3 | 86 |
| Other | -82 | -101 |
| Income tax expense for continuing operations | ||
| recognized on the income statement | -63 | -3,042 |
| Effective tax rate | 4.7% | 28.9% |
Muehlhan carries financial assets and liabilities almost exclusively at amortized cost using the effective interest method, less impairments. Gains and losses are recognized in consolidated income if the loans and receivables are impaired or derecognized. The interest effects of applying the effective interest method and translation differences are also recognized through profit or loss.
Equity interests must be measured at fair value. Amortized cost is a reasonable estimate of fair value for the recognized equity interests, since there is not sufficient more recent information available to measure fair value.
Earnings per share are calculated as follows:
| 2020 | 2019 | ||
|---|---|---|---|
| Consolidated income from continu ing operations |
in kEUR | 1,273 | 7,471 |
| Consolidated income from discon tinued operations |
in kEUR | 0 | -1,221 |
| Consolidated income | in kEUR | 1,273 | 6,250 |
| Consolidated income attributable to shareholders of Muehlhan AG |
in kEUR | 968 | -73 |
| Consolidated income attri butable to shareholders of Muehlhan AG |
in kEUR | 305 | 6,323 |
| Average number of ordinary shares | number | 19,195,386 | 19,236,738 |
| Consolidated income per share | |||
| from continuing operations | in EUR | 0.02 | 0.33 |
| Consolidated income per share from discontinued operations |
in EUR | 0.00 | -0.06 |
Since there were no potential ordinary shares as of the reporting date, basic and diluted earnings per share are identical.
The item "Future cash flow hedge" amounting to €2 thousand contains a tax component of €-1 thousand (previous year: €-7 thousand). As in the previous year, the item "Currency translation differences" does not contain a tax component.
Rio Vista Bridge in California, USA
The following table shows the reconciliation of the items in cash used in/cash flow from financing activities, in accordance with IAS 7.44A et seq.:
| Changes affecting cash flow | Non-cash changes | |||||
|---|---|---|---|---|---|---|
| in kEUR | 12/31/2019 | Repayments | Borrowings | Currency transla tion differences |
Change in fair value |
12/31/2020 |
| Non-current borrowings | 26,285 | -4,055 | 262 | -18 | -15 | 22,459 |
| Current borrowings | 7,912 | -18,094 | 19,555 | -81 | 0 | 9,292 |
| TOTAL LIABILITIES FROM FINANCING ACTIVITIES |
34,197 | -22,149 | 19,817 | -99 | -15 | 31,751 |
Cash flow from leases is reported as cash flow from operating activities.
The Muehlhan Group pursues the goal of securing the entire amount of shareholders' equity reported on the balance sheet for the long term, while generating a reasonable return on capital employed. At the same time, external minimum capital requirements are taken into account. In order to secure the equity shown on the balance sheet, the Group may, among other things, change dividend payments to shareholders (see note 11, Equity). The objectives, guidelines and procedures are the same as in the previous year. The Group pursues the goal of generating a reasonable return on capital by continually adjusting and expanding the range of services offered, through efficient corporate management and through organic growth and acquisitions.
As of December 31, 2020, the Group had an equity ratio of 42.8% (previous year: 40.9%). Every month, external minimum capital requirements are reviewed in connection with the syndicated loan agreement (see note 13, Borrowings).
The parent company performs various treasury services for the Group companies. On the one hand, it prepares a liquidity forecast at regular intervals; on the other hand, a cash pooling system is used whenever it is structurally possible to do so. In addition, the parent company administers, monitors and issues loans and provides bonding capacity, both on its own and in cooperation with specialized outside companies. We assess the specific risk exposures as follows:
Default or credit risks exist when contractual partners do not meet their obligations. Muehlhan regularly analyzes the creditworthiness of every major debtor and grants credit limits on this basis. As the Muehlhan Group operates worldwide and has a diversified customer base, there are no significant concentrations of default risk. The Muehlhan Group's maximum default risk is equal to the carrying amount of all financial assets plus the not yet invoiced portion of contract performance bonds issued minus receivables covered by credit insurance and prepayments received (see note 7, Trade receivables and contract assets). The COVID-19 pandemic did not result in any relevant or higher defaults in the reporting year.
Around 77% (previous year: more than 66%) of the Group's revenues are generated in euros or Danish krone, which scarcely fluctuates in relation to the euro. Basically, the remaining sales revenue generated in foreign currencies is offset by expenses in the same currencies, meaning that the currency risk from operations for the other Group companies is limited to the respective companies' contribution to income. This does not apply to the MSI Group, whose operating business has exposure to foreign currency risks involving the Brazilian real, the Norwegian krone, the US dollar and the euro. The Polish companies are exposed to currency risks between the Polish złoty and the currencies of the countries in which they operate. The issuance of intragroup loans from the holding company to foreign subsidiaries and vice versa also involves currency risks.
The Group generally does not hedge this risk. The Group posted an exchange rate gain of €0.7 million for 2020 (previous year: loss of €0.3 million).
IFRS 7 requires a sensitivity analysis of each type of market risk to which the company is exposed; in addition, the materiality principle must be observed, in line with IAS 1. Sensitivity analyses are used to determine which effects a change in the respective risk variables would have on profits/losses and on equity as of the reporting date. The periodic effects are determined by relating the hypothetical changes in the risk variables to the position on the reporting date. It is assumed that the position on the reporting date is representative of the entire year. The sensitivity analysis showed that there was no material exchange rate risk.
Liquidity planning systems ensure early detection of any risks from cash flow fluctuations. The syndicated loan agreement concluded in 2017 and modified in 2020 has effectively improved the Group's liquidity situation and provides flexibility for financing growth projects (see note 13, Borrowings).
Interest rate risk exists because of potential changes in the market rate of interest; such risk may lead to a change in the fair value of financial instruments with fixed interest and to fluctuating interest payments on financial instruments with variable interest. The Group has no fixed interest financial instruments. Financial instruments at floating rates of interest primarily include the syndicated loan (see note 13, Borrowings) and cash and cash equivalents. A portion of the syndicated loan is hedged against additional interest rate increases above a defined interest rate (see note 14, Derivative financial instruments).
Museum of the Future, Dubai, United Arab Emirates
The main variable interest rate risk positions are shown in the following table:
| in kEUR | As of 12/31/2020 |
<1 year | 1–5 years |
>5 years |
|---|---|---|---|---|
| Cash and cash equivalents | 13,175 | 13,175 | 0 | 0 |
| Borrowings | 31,751 | 9,292 | 22,459 | 0 |
| Net risk position | -18,576 | 3,883 | -22,459 | 0 |
The interest rate risk is shown by means of a sensitivity analysis in accordance with IFRS 7. This presents the effects of a change in market interest rates on consolidated profit.
A 100 basis point (-50 basis point) increase/decrease in the relevant interest rates would have changed consolidated profit as of December 31, 2020, as follows:
| 12/31/2020 | |||
|---|---|---|---|
| in kEUR | +100 BP | -50 BP | |
| Effect on earnings | -389 | 110 |
The negative or positive effect of a 100 basis point (-50 basis point) increase/decrease in the base rate is due to the discounting of non-current assets and liabilities, lease liabilities and borrowings.
To fulfill our duties when preparing the consolidated financial statements, we sometimes have to make discretionary decisions, assumptions and estimates that affect the amounts of assets and liabilities, income, expenses and contingent liabilities reported, as well as how these are classified. Estimates and discretionary decisions are reassessed continually and are based on historical experience and other factors, including expectations about future events that appear reasonable given the circumstances. The Group makes assumptions and estimates about the future. Actual values may differ from the assumptions and estimates in particular instances. Adjustments are recognized in profit or loss on the date that more information becomes available.
On the reporting date, management mainly made the following future-oriented assumptions and identified discretionary decisions and major sources of uncertainty relating to estimates which may give rise to a significant risk that a substantial adjustment will have to be made within the next financial year to the assets and liabilities shown:
• Testing goodwill for impairment: The impairment test for goodwill is based on forward-looking assumptions. The Group conducts these
tests annually and more often if there is evidence that a goodwill impairment might have occurred. It entails measuring the recoverable amount for the cash-generating unit, which is the higher of fair value less costs of disposal and the value in use. Calculating the value in use involves making adjustments and estimates relating to the projection and discounting of future cash flows. Although management believes the assumptions used to calculate the recoverable amount are appropriate, any unforeseeable changes in these assumptions could result in impairment losses which could adversely affect the net assets, financial position and results of operations.
not traded in an active market are determined using appropriate measurement techniques selected from a wide variety of methods. The valuation parameters required to value the instruments on the reporting date are based as far as possible on available market terms and conditions and as little as possible on company-specific data. The Group uses the present value method to determine the fair value of financial assets available for sale that are not traded in active markets.
Transactions between affiliated companies have been eliminated upon consolidation and are not discussed in these notes. Transactions with related parties are conducted at terms that would also apply to arm's length transactions. Only a small number of transactions involved unconsolidated Group companies (sales revenue of unconsolidated companies with consolidated companies: €0.1 million; previous year: €0.1 million).
The composition of the Executive Board and the Supervisory Board is discussed in note 33, Executive Board, and note 34, Supervisory Board. Supervisory Board member Ms. Andrea Brandt (neé: Greverath) is also a related party within the meaning of IAS 24.9. Ms. Brandt and the companies controlled by her are referred to as "Greverath Property" in the following paragraphs. In 2020, the Group's expenses relating to Greverath Property totaled €257 thousand (previous year: €261 thousand) and consisted of rent, real estate taxes and Supervisory Board compensation (see note 34, Supervisory Board).
As of the reporting date, there were no liabilities to Greverath Property (previous year: €11 thousand).
On the reporting date, performance bonds issued entailed the customary contingent liabilities. There were no other financial obligations of material significance as of the reporting date.
The Annual General Meeting appointed Warth & Klein Grant Thornton AG Wirtschaftsprüfungsgesellschaft, Hamburg, to audit the consolidated financial statements for financial year 2020. In 2020, the auditors' total fees amounted to €139 thousand for financial statement auditing services (previous year: €125 thousand) and €3 thousand for other assurance services (previous year: €59 thousand), bringing the total amount charged for all services to €142 thousand (previous year: €184 thousand).
The following persons were members of the parent company's Executive Board:
One Executive Board member may represent the company jointly with another Executive Board member or an authorized signatory (Prokurist), with the authority to enter into legal transactions with a third party on behalf of the company. The compensation for the Executive Board covered by Muehlhan AG totaled €1,068 thousand for the financial year, including €780 thousand of ongoing fixed compensation, €245 thousand of ongoing variable compensation and €42 thousand of expenses for the bonus program (previous year: €1,636 thousand, including €853 thousand of fixed compensation, €440 thousand of variable compensation and €342 thousand of expenses for the bonus program). Expenses relating to the bonus program constitute share-based compensation; other compensation consists of payments that are due in the short term.
During the reporting year, the following persons were members of the Supervisory Board:
The Supervisory Board was paid €50 thousand for reimbursement of expenses for the financial year (previous year: €68 thousand). As in the previous year, €50 thousand of this was the fixed component, while the variable component accounted for €1 thousand (previous year: €18 thousand). Payments to reimburse expenses are payable within the short term.
Muehlhan completed a business combination between its subsidiary Marine Service International AS (MSI), Drobak, Norway, and TPO Group ApS (TPO), Gentofte, Denmark, as of January 1, 2021. The TPO Group has very similar offshore activities to MSI, but with a somewhat different technical focus and other customers. The transaction was completed without the use of cash. The TPO Group contributed its activities, and Muehlhan transferred some 40% of the shares to the existing TPO shareholders. Muehlhan now holds some 60% of the shares in MSI.
The consolidated financial statements and the Group management report of Muehlhan AG are published in the electronic version of the Federal Gazette (Bundesanzeiger). On March 30, 2021, the consolidated financial statements and the Group management report were approved for publication by the Executive Board.
Hamburg, March 30, 2021
Executive Board
Inspection of rotor blades on wind power stations
Grinding weld seams
To Muehlhan AG, Hamburg
We have audited the consolidated financial statements of Muehlhan AG, Hamburg, and its subsidiaries (the Group), which comprise the consolidated balance sheet as of December 31, 2020, the consolidated statement of comprehensive income, the consolidated statement of changes in Group equity and the consolidated cash flow statement for the financial year from January 1, 2020, to December 31, 2020, as well as the notes to the consolidated financial statements, including a summary of significant accounting policies. In addition, we have audited the Group management report of Muehlhan AG, Hamburg, for the financial year from January 1, 2020, to December 31, 2020.
In our opinion, on the basis of the knowledge obtained in the audit,
Pursuant to Article 322, paragraph 3, sentence 1 HGB, we declare that our audit has not led to any reservations relating to the legal compliance of the consolidated financial statements and of the Group management report.
We conducted our audit of the consolidated financial statements and of the Group management report in accordance with Article 317 HGB and in compliance with the German Generally Accepted Standards for Financial Statement Audits promulgated by the Institute of Public Auditors in Germany (IDW). Our responsibilities under those requirements and principles are further described in the "Auditor's Responsibilities for the Audit of the Consolidated Financial Statements and of the Group Management Report" section of our auditor's report. We are independent of the Group entities in accordance with the requirements of German commercial and professional law, and we have fulfilled our other German professional responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions on the consolidated financial statements and on the Group management report.
The executive directors and Supervisory Board are responsible for the other information. The other information comprises the 2020 Annual Report with the exception of the audited consolidated financial statements and Group management report and our auditor's report.
Our audit opinions on the consolidated financial statements and on the Group management report do not cover the other information, and consequently we do not express an audit opinion or any other form of assurance conclusion thereon.
In connection with our audit, our responsibility is to read the other information and, in so doing, to consider whether the other information
The executive directors are responsible for the preparation of the consolidated financial statements that comply, in all material aspects, with the IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to Article 315e, paragraph 1 HGB, and for ensuring that the consolidated financial statements, in compliance with these requirements, give a true and fair view of the net assets, financial position and results of operations of the Group. In addition, the executive directors are responsible for such internal control as they have determined necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the executive directors are responsible for assessing the Group's ability to continue as a going concern. They also have the responsibility for disclosing, as applicable, matters related to going concern. In addition, they are responsible for financial reporting based on the going concern basis of accounting unless there is an intention to liquidate the Group or to cease operations, or there is no realistic alternative but to do so.
Furthermore, the executive directors are responsible for the preparation of the Group management report that, as a whole, provides an appropriate view of the Group's position and is, in all material respects, consistent with the consolidated financial statements, complies with German legal requirements and appropriately presents the opportunities and risks of future development. In addition, the executive directors are responsible for such arrangements and measures (systems) as they have considered necessary to enable the preparation of a Group management report that is in accordance with the applicable German legal requirements and to be able to provide sufficient appropriate evidence for the assertions in the Group management report.
The Supervisory Board is responsible for overseeing the Group's financial reporting process for the preparation of the consolidated financial statements and of the Group management report.
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatements, whether due to fraud or error, and whether the Group management report as a whole provides an appropriate view of the Group's position and, in all material aspects, is consistent with the consolidated financial statements and the knowledge obtained in the audit, complies with the German legal requirements and appropriately presents the opportunities and risks of future development, as well as to issue an auditor's report that includes our audit opinions on the consolidated financial statements and on the Group management report.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Article 317 HGB and in compliance with the German Generally Accepted Standards for Financial Statement Audits promulgated by the Institute of Public Auditors in Germany (IDW) will always detect a material misstatement. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and this Group management report.
We exercise professional judgment and maintain professional skepticism throughout the audit. We also:
assumptions used as a basis. There is a substantial unavoidable risk that future events will differ materially from the prospective information.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
Hamburg, March 30, 2021
Warth & Klein Grant Thornton AG Wirtschaftsprüfungsgesellschaft
von Oertzen Pritsch Wirtschaftsprüfer Wirtschaftsprüfer [German Public Auditor] [German Public Auditor]
Schlinckstrasse 3 21107 Hamburg, Germany Phone +49 (0)40 752 71-0 Fax +49 (0)40 752 71-123 www.muehlhan.com
Frithjof Dorowski Phone +49 (0)40 752 71-166 [email protected]
| 04/30/2021 | Publication of results for the first quarter of 2021 |
|---|---|
| 05/18/2021 | Virtual Annual General Meeting of Muehlhan AG |
| 07/30/2021 | Publication of half-yearly report 2021 |
| 10/29/2021 | Publication of results for the third quarter of 2021 |
Publisher: The Executive Board of Muehlhan AG Editing and Coordination: Frithjof Dorowski Concept, design and translation: Berichtsmanufaktur GmbH, Hamburg Photography: Muehlhan Group Printing: MOD Offsetdruck GmbH, Dassow Published: March 2021 © Muehlhan AG
The Annual Report is published in German and English. The German version is authoritative. For further information about the company, please visit www. muehlhan.com.
This report contains forward-looking statements regarding the future development of Muehlhan AG. These statements reflect the management's current views and are based on the corresponding plans, estimates and expectations. We would like to point out that the statements contain certain risks and uncertainties that may lead to the actual results differing significantly from those forecast. Although we are certain that the statements we have made are realistic, we cannot guarantee that future developments will match these statements.
Annual Report 2020
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