technology and services

A N N U A L R E P O R T

2003

This division, representing 10.1 percent of revenue, operates in two distinct markets: since 1995,

technotrans has been a successful supplier of systems used in the production of optical storage

media – CDs and DVDs. More recently we have been using this expertise to make inroads into a

new area of application, microstructure technology.

M I C R O T E C H N O L O G I E S

Services designed to complement the technical divisions round off technotrans' portfolio of

activities. These services include providing customer support for the installation, maintenance

and operation of systems, and compiling technical documentation, including for manufacturers

from other sectors. Services generated 23.7 percent of revenue in 2003.

S E R V I C E S

technotrans systems and equipment control and monitor a wide range of liquid technology

processes in the offset printing environment. We have steadily been expanding the product range

over many years. The Print Division contributed 66.2 percent of revenue in the 2003 financial year.

P R I N T

REVENUEby segment

Micro Technologies…10.1%

Services…23.7%Print…66.2%

73,373

58,212

4,503

10,580

25,588

10,297

8,403

8,247

8,169

4,246

5.8

0.71

0.38

6,000

29,059

72.5

15.5

40,073

13,899

32,383

25.2

6.4

411

17,147

23.4

179

2,796

1,449

2,000,000

22.86

11.12

€'000

€'000

€'000

€'000

€'000

€'000

€'000

€'000

€'000

€'000

%

€

€

€'000

€'000

%

%

€'000

€'000

€'000

%

%

€'000

%

€'000

€'000

€'000

€

€

104,927

76,650

11,808

16,469

34,389

12,934

10,755

9,676

9,700

5,405

5.2

0.88

0.42

6,180

36,778

49.6

16.4

74,195

20,152

59,697

16.2

53.8

543

24,632

23.5

193

4,574

- 15,572

2,060,000

53.17

12.82

130,990

98,733

11,526

20,731

41,623

14,150

10,726

9,130

7,525

3,421

2.6

0.53

0.23

6,600

54,756

55.3

7.5

99,042

24,244

80,450

9.4

37.7

687

33,634

25.7

191

4,272

- 6,827

2,200,000

48.02

9.83

117,012

80,623

10,861

25,528

37,695

10,897

7,587

5,887

5,626

2,620

2.2

0.40

0.20

6,600

51,720

55.9

4.9

92,541

21,981

74,291

7.2

29.5

639

31,920

27.3

183

10,077

7,470

6,600,000

17.85

4.81

02 01 00 9903

TECHNOTRANS GROUP KEY DATA (IFRS)

* Earnings per share, dividend and historical share prices adjusted to reflect share-split1 EBIT = operating profit + foreign currency gains/losses2 EBITA = EBIT + amortisation of goodwill3 EBITDA = EBIT + amortisation of goodwill + depreciation of property, plant and equipment

and intangible assets4 capital employed = interest-bearing liabilities + equity5 ROCE = EBIT / Capital employed6 Gearing = (interest-bearing liabilities – liquidity) / equity7 Cash flow = Net cash from operating activities acc. to Cash flow Statement8 Free cash flow = Net cash from operating activities + net cash used for investments acc. to Cash flow Statement

106,737

70,631

10,774

25,332

35,929

12,685

9,084

7,522

7,377

-10,960

-10.3

-1.66

0.30

6,600

36,288

50.1

-30.2

72,391

24,318

55,305

13.3

27.5

593

29,275

27.4

180

6,491

5,394

6,600,000

12.64

3.81

Profit

Revenue

Print

Micro Technologies

Services

Gross profit

EBITDA 3

EBITA 2

Operating Profit

Earnings before interest and tax (EBIT) 1

Net profit for the year

as % of revenue

Earnings per share (IAS) *

Dividend per share*

Balance sheet

Issued capital

Equity

Equity ratio

Return on equity

Balance sheet total

working capital

capital employed 4

ROCE 5

Gearing 6

Employees

Number of employees (yearly average)

Employee costs

as % of revenue

Revenue per employee

Cash flow

Cash flow 7

Free cash flow 8

Shares

Number of shares (at 31.12)

share price (max) *

share price (min) *

Systems supplier for liquid technology

technotrans has been concentrating

on applications for offset printing since

the early 1980s. The product range

has gradually been extended and now

comprises a wide range of systems

and equipment for controlling and moni-

toring liquid technology processes in

printing. Major printing press manufac-

turers worldwide are our key custom-

ers. They frequently equip their printing

presses ex works with technotrans

equipment. Various products in addi-

tion aimed directly at end users have

been developed in recent years; these

further automate procedures in the

printing shop or help to use resources

more efficiently.

…page 4

1 9 8 0 >

Along with the increasing mass pro-

duction of CDs, technotrans likewise

gained a foothold in this growing mar-

ket. Customers use our systems to

produce a kind of »negative« of optical

storage media, so that copies of these

can then be made. technotrans has

been the unchallenged market leader

for these electroforming systems since

2001. Once again, they are based on

a liquid technology process.

…page 10

1 9 9 5 >

The same technology as in the CD/DVD

Division is used in the manufacturing

of minute components measuring no

more than a few hundredths of a mil-

limetre. This still young area of appli-

cation is finding its way into markets

as diverse as telecommunications,

biotechnology and display technology,

and is yet to realise its potential.

…page 10

2 0 0 1 >

PRINT

CD/DVD

MICROSTRUCTURETECHNOLOGY

■ Core skill of liquid technology■ Concentration on niche markets■ Systematic broadening of product range

Letter to the Shareholders…2 | Divisions…4 | R&D…18 Employees…20 | Share/Corporate Governance…22 |

Group Management Report…26 | Consolidated Financial Statements…44 | History…99

technotrans is a leading systems supplier of plant for the production of

print media and microstructures. Within these niche markets, we have been

concentrating successfully on applications based on our core skill of liquid

technology for many years now. With our 13 locations and over 600 employ-

ees, we enjoy a presence in all major markets worldwide. In close coopera-

tion with our customers, we are tapping new potential by steadily broadening

our range of products and venturing into new markets and segments. Our

strategy focuses on sustained, earnings-driven development.

technotrans is a systems supplierof high-tech plant and servicesfor the production of print mediaand microstructures.

Dear shareholders, dear business associates,

2003 was the third year in succession in which our company was confronted with

enormous challenges due to the unsatisfactory progress of those markets in which we

operate. The printing industry has been experiencing the worst crisis in its history

since 2001, and the propensity to invest in Micro Technologies likewise suffered from

the paralysis of the global economy. We can at least report that our Services Division

has fared well in this adverse climate. technotrans now generates 21 percent of its

revenue in the important North American markets; the exceptionally low value of the

dollar consequently further undermined our revenue. Our competitive position, on the

other hand, if anything improved last year as a result of a number of smaller players

going under.

Despite the difficult circumstances, we succeeded in posting an operating result of

€ 7.5 million from revenue of € 106.7 million in 2003. In view of the situation in the

CD/DVD segment, which has still failed to live up to the expectations that prompted

us to acquire the Toolex Division in 2001, we have reduced the remaining goodwill.

As a reflection of the fact that we purchased the American company Ryco, of Chicago,

when the Print sector was booming in 2000, we have likewise adjusted the acquired

goodwill to a more conservative level. In view of these measures, for the first time in

the company's history we report a loss of € 11 million, but at the same time we have

adjusted the risks in the balance sheet and have consequently already absorbed po-

tential burdens in forthcoming years in the 2003 annual accounts. We have therefore

cleared the way for an even more profitable future.

This future will continue to bear the hallmark of our long-standing successful strategy

of growth: the broadening of our product range with a view to boosting our content per

printing press. We had already disclosed details of one such measure in the form of

2

the scheduled takeover of Baldwin. Following the collapse of this transaction by

Baldwin, we once again find ourselves in the position of competitors in the market-

place, and will for our part concentrate on further strengthening the sound position

that technotrans enjoys among its customers. We will also undoubtedly examine

other options more closely and opt for the most promising among them.

The experience of recent years has confirmed something we have always believed:

that our company is capable of taking on exceptional challenges and overcoming

them successfully. Our employees have played a major part in this; thanks to their

remarkable dedication, creativity and inimitable feel for the right decision, they were

instrumental in enabling us to pave the way for future success last year. We are proud

and appreciative of them, and look forward to tackling the exciting tasks of the future

together with them. We know they will remain instrumental to the success of our

group.

Thank you for your interest in our Annual Report; we hope that you will continue to

follow the fortunes of technotrans. We are convinced that 2004 will be an interesting

year for all of us, not least because of the forthcoming DRUPA exhibition.

L E T T E R T O T H E S H A R E H O L D E R S 3

Wolfgang Breme, John A. Stacey, Ralph Teunissen, Heinz Harling

4

PRINTD I V I S I O N

D I V I S I O N S 5

technotrans has been honing its profile as a supplier to the printing

industry since the early 1980s, and is now a leading system partner

with an international presence. The product range with liquid technology

at its core has been systematically extended. We have deliberately

concentrated on niche markets in which we have been able to become

a leading player.

The clear strategy, our high degree of specialisation and the close, constructive coop-

eration between ourselves and the leading printing press manufacturers that often

cuts in as early as the development phase for new machinery has helped technotrans

to evolve into a leading international system supplier in the print sector.

Old economy meets high tech

The present-day printing industry stretches back to Johannes Gutenberg's invention

in around 1450 AD, and can therefore with some justification be classed as an "old

economy" activity. The market volume in 2002 totalled some 12 billion euros world-

wide, with printing presses and accessories accounting for the lion's share of this

figure. Two-thirds of all presses worldwide are German-built, with the market being

dominated by Heidelberger Druck, MAN Roland and Koenig & Bauer, followed by

Japanese manufacturers such as Komori, Ryobi and Mitsubishi, and the American

company Goss.

Some two-thirds of all printed products worldwide are produced by offset printing: busi-

ness cards, posters, newspapers, and also this Annual Report. There are many argu-

ments in favour of offset printing: among other things, its high quality and the fact that

the production process is straightforward and economical. Depending on the number of

pages and the quantity to be printed, cut sheets of paper are printed by the sheet-fed

"More technotransper printing press"

■ High-tech products for offset printing

■ Around 80 percent of revenue generated

as partner of the printing press manufacturers

■ In the wake of the economic crisis, the industry

is looking forward to the DRUPA in 2004.

6

method, or in the case of very high print runs rotary offset printing is used, with the

paper supplied from a reel.

The technology of offset printing is based on the fact that oil and water repel each

other. Zones which attract the oil-based printing ink are created on the printing plate

by photo-technical means. The other zones repel the ink, instead of which they are

wetted with a water-based dampening solution. The interplay between these two liquids

produces the printed image on the printing plate, which is then reproduced on the paper,

up to 18,000 times an hour in the case of a sheet-fed offset printing press. This is

moreover not the only area in which the old economy and high technology have formed

a rewarding symbiotic relationship.

Liquid technology everywhere on the printing press

The first devices with which technotrans became world market leader in the early 1990s

were systems for preparing this dampening solution. They mix together the solution from

water, alcohol and a variety of chemical additives, and are capable of supplying the

printing press continuously with several hundred litres of this solution per hour. Today,

all leading printing press manufacturers fit most of their presses with technotrans

equipment ex works.

In the years which followed, we systematically extended the range of products based

on liquid technology, adding for example ink roller temperature control units. The oil-

based ink reacts highly sensitively to changes in temperature. In order to stabilise the

printed results, the temperature of the ink rollers is adjusted to compensate for fluc-

tuations in the production conditions. Ink supply is another example: technotrans now

offers an extensive range of equipment and systems for the ink supply to printing

presses. These range from manual aids for smaller or older presses, through fully

automatic supply systems for cutting-edge sheet-fed offset printing presses, to supply-

ing large newspaper presses from central tanks, complete with the pumps, the compo-

nents for monitoring the levels in the tanks and for gauging ink consumption levels.

Varnish is finding increasing use in high-end printed productions. Glossy or protective

coatings refine the appearance of printed articles. technotrans' contribution: a device

that preheats the varnish so that it reaches the printing press at the correct consistency.

D I V I S I O N S 7

World market leader: dampening solution preparation from technotrans

The first technotrans products that penetrated the inner workings of printing presses

were spray dampening systems intended primarily for large newspaper presses. The

spray dampening systems technology of our American subsidiary has been installed

several thousand times over, and "microspray" permits an ultra-even coating of the

dampening solution thanks to special lamellar valves.

An ecological approach to printing that pays its way

Many technotrans devices are essential to the proper functioning of the printing press.

Others have been developed to make the printing process more efficient, for instance

by boosting the degree of automation or helping to make better use of the resources

in question. Certain technotrans products in addition combine persuasive economic

benefits with hard-and-fast ecological aspects. Such as ecoclean, a product range for

the recovery of washing agent. In order to clean the printing cylinders of the press from

ink residue among other things, solvent-based cleaning agents are used for the regular

washing processes. ecoclean enables the printer to recondition these cleaning agents

and use them again. This drastically reduces not only the consumption of cleaning

agent, but also the amount to be disposed of, as well as the cost this involves.

2004: a DRUPA year

The printing industry is dominated by German companies, so it comes as no surprise

that the biggest exhibition in the world for this industry, the DRUPA, takes place in

Düsseldorf every four years. This year's exhibits are likely to focus on new develop-

ments that boost the efficiency of printing presses, make them simpler to operate

and secure greater flexibility for the customer.

ecoclean.line saves money and preserves resources.

8

Alongside a wide range of improved and extended functions on existing systems, techno-

trans will once again be presenting an entirely new product: spinclean. This device is our

first product to target customers from the pre-press stage. spinclean has been devel-

oped for cleaning the developer fluid used in CtP plate exposure. In field tests the spin-

clean has demonstrated the ability to cut consumption of developer fluid by over 70

percent. The response from its first customers was correspondingly positive, and we

await the official market launch at this year's DRUPA with very high hopes.

Potential for the future

The printing industry has experienced its worst ever crisis in recent years, but there

have been increasing signs of a turn in the tide since the second half of 2003. We have

been doing our homework: after years of growth, occasionally of a sensational magni-

tude, we have latterly taken the opportunity to optimise our processes, cut our costs and

steadily strengthen our market position thanks in no small measure to our healthy

financial state.

Experience has shown that the printing industry worldwide expands at a similar rate

to gross domestic product. The market for system suppliers, which has an estimated

volume of almost 600 million euros in the area of our core skills, is developing with

appreciably greater dynamism. In the context of our long-term strategy, we will contin-

ue to seize the opportunities that present themselves. The present circumstances in

particular, dominated as they are by consolidation, provide a particularly favourable

opportunity to target and exploit fresh potential.

In view of the overall volume of our market and position, we are confident of returning

rapidly to our former trend of growth if the underlying economic figures move closer to

the positive zone. There is ample potential for our high tech in the old economy.

D I V I S I O N S 9

MARKET SHARE PRINTING PRESS MANUFACTURERS

MAN Roland (G)…19.7%

Koenig & Bauer (G)…16.5%

Komori (J)…10.6%

Other…12.5%

Mitsubishi (J)…5,8%

Heidelberger (G)…34.9%

technotrans has been exploring additional applications for its liquid

technologies in the field of Micro Technolgies since 1995. technotrans

systems are used for the manufacture of tools that are required in the

production of optical storage media, in other words CDs and DVDs.

These systems have recently also been used in the volume production

of minute components measuring just a few hundredths of a millimetre.

D I V I S I O N S10

D I V I S I O N

11

MICRO TECHNOLOGIES

Taking its core skill of liquid technology as its starting point, technotrans has been

developing the systems required in the manufacture of optical storage media, meaning

initially CDs (compact discs) and then DVDs (digital versatile discs), since 1995. We

have been the world leader in this market since 2001.

The "masters" for more than half of all these silver discs worldwide are made on technotrans systems

In order to make CDs and DVDs out of plastic, the digital data first needs to be pre-

pared in the form of a tool for the injection moulding process. To this end, the data is

burned into a varnish coating with the aid of a laser beam. The burned areas are then

rinsed and the structure that is left behind is coated with a wafer-thin layer of metal.

A solid nickel disc is then produced on this surface in a technotrans system by means

of an electrodepositing process – a liquid technology process.

"Our smallest worker is the nickelmolecule"

■ World market leader for systems for the production of CDs and DVDs

■ Strategic line: venturing into new markets with familiar technology

■ Microstructure technology with potential for the future

12

This master disc constitutes the basis of the subsequent replication process, where

polycarbonate is pressed onto the nickel disc up to 150,000 times, at a pressure run-

ning into tonnes. The result is a very familiar object: CDs containing everything from

music to computer programs, and DVDs with films or music concerts.

Market with big aspirations: microstructure technology

There is already a wide range of additional applications for this technology. Minute

components are used for example in sensors, in glass fibre technology and in biotech-

nology. These components, which are often just a few hundredths of a millimetre in

size, are produced using the same technology as optical storage media. We are suc-

cessfully venturing into these new markets of microstructure technology.

In 2003, for example, a system that is to be used for the production of displays was

shipped to Taiwan. A special plastic disc to which tiny lenses are applied using the

technotrans plant ensures that the displays are illuminated more evenly and efficiently.

technotrans systems on which work is already being performed on potential series pro-

ducts of the future are in use at several research and development centres worldwide.

The Micro Technologies Division still accounts for 10 percent of technotrans revenue,

but there is immense potential for these innovative applications. This is why we have

invested extensively in this expertise over the past two years, and gathered experience

in this innovative area. We have identified numerous products as a result, and are

collaborating on their realisation. It is entirely possible that one or more of these will

achieve a breakthrough and create a new market. It is equally possible that we will

need a little more time and patience before this breakthrough materialises.

D I V I S I O N S 13

The moulds used in the manufacturing of microstructure components are produced on technotrans systems.

technotrans' two technical divisions are complemented by services

through which we support the customer for instance with the install-

ation or operation of systems, or provide assistance in the event of

hitches. Our technicians also serve as our "finger on the pulse" of

the market, enabling us to steadily improve in our efforts to meet

the customer's needs.

D I V I S I O N S14

15

D I V I S I O NSERVICES

technotrans equipment is used for governing applications that are frequently of critical

importance to the customer, as a result of which maintaining its availability is general-

ly a top priority. technotrans has consequently developed a comprehensive range of

services to provide our customers with the best possible support, in line with their

individual preferences.

This support often starts as early on as the installation and training processes, be-

cause expert users not only achieve better results in their everyday use of our equip-

ment; they are also more satisfied customers.

Rapid response for emergencies

If an operating fault should nevertheless occur, a carefully coordinated chain of mea-

sures cuts in, like interlocking gearwheels, to come swiftly to the customer's aid. The

international hotline makes an initial attempt to narrow down the source of the prob-

lem and produce interim solutions. Sophisticated logistics ensure that the necessary

spare parts are shipped as swiftly as possible to the customer, who, thanks to the

modular design of our equipment, will then often be able to exchange the relevant part

themselves. If it is nevertheless necessary to call out a member of our service team,

aid can be summoned straight away.

"Services when andwhere the customerneeds them"

■ Comprehensive support for customer-critical applications

■ Services to enhance customer satisfaction

■ Technical documentation offering own software solution

16

And many emergencies can be avoided by preventive maintenance, which we are also

able to provide via the Internet. Our experience has shown that many faults can be

anticipated from the operating data, with the result that regular operations can be

maintained with minimal effort.

Technical documentation for high-tech products

technotrans has also been offering a technical documentation service for some time.

This term includes such documents as installation, maintenance, operating and ser-

vice manuals, whether available in printed form, on CD-ROM or on the Internet. As an

international system supplier, we very early on developed these activities into a core

skill of our group and also offer other manufacturers a documentation service for their

technical systems and equipment in whatever language it is required.

We have now even developed our own software solution, which we are marketing with

notable success. As well as providing efficient translation management, this tool for

example makes it easier for the customer to update documentation efficiently. If a com-

ponent or assembly has been modified, the program knows at the press of a button

which passages in the documentation are affected by this change. We believe that

documentation is a core skill of technotrans, and do our utmost to investigate and

find every opportunity for producing it even faster and more efficiently.

The operating status of numerous devices can alreadybe monitored over the Internet, and emergencies thuspre-empted.

D I V I S I O N S 17

"R&D constitutes the basis for our strategy"

■ R&D target is to set new standards

■ In 2003 we invested € 3.6 million on R&D

18

As a technology company, technotrans naturally attaches considerable importance to

research and development. This field of activity in effect serves as the basis of our

strategy: we aim to expand or grow in new markets with our established technology, by

implementing new technology in established markets.

Automatic ink supply ink.line replaces the spatula

Our development activities – free from the pressure of day-to-day business yet never

very far from the customer – focus on very specific projects, the results of which play

a part in continuing to boost the technotrans content per printing press. A typical ex-

ample: ever since the invention of offset printing, printers have had to stand next to

their sheet-fed machines and dispense printing ink into the ink duct manually. A tedious

chore that is now superfluous, because we have replaced the need for a spatula with

the automatic ink supply system. The sensor-controlled ink.line system dispenses the

ink from cartridges to precisely the ink duct where it is needed. The printer can now

concentrate instead on the core task, which is the real key to creating "value added".

Over 6,000 systems have been installed worldwide since DRUPA 2000, when ink.line

marked its debut.

R&D with environmental benefit: spinclean

Greater automation, the desire to boost efficiency or simply the ambition to use

resources more effectively: the motives of our engineers are as diverse as the pro-

ducts that they develop. At this year's DRUPA, we will be unveiling the spinclean, for

example: a device that continually cleans the developer fluid that is used in the pro-

duction of printing plates. Initial field tests have revealed that at least 70 percent of

R E S E A R C H & D E V E L O P M E N T 19

R&D EXPENSES in million €

3.7 3.3 3.4 2.3 3.0

9999 0000 0011 0022 0033

% of sales

the developer fluid can be recovered in this way. This is a technology that rapidly pays

its way and protects the environment, because it also reduces the amount of chemi-

cals that need to be disposed of.

Development of new standards through listening to the market

In addition to developing new technologies and products, the aim of development is to

throw established ideas open to question. Part of this involves listening to the market

and identifying potential trends in customers' everyday practices. By adopting this

approach, we have succeeded in developing an array of new filtration systems, includ-

ing the adoption of separator technology in dampening solution supply devices. And as

so often in the past, we are convinced that this pioneering technology again will estab-

lish a new benchmark in the market.

We have also embarked on a quest to establish the standard in the domain of

microstructure technology. Over the past two years we have invested considerably in

the development of series-production devices that can be used to manufacture minute

components. Here too, we believe that standard technology will be used when industrial-

scale production gets off the ground. It is our aim to cement this market lead now.

We invested around € 3.6 million on development activities last year, thus making a

significant contribution towards consolidating and building on our position as a tech-

nology group in every market segment. To complement our activities, we are conduct-

ing cross-company research projects and collaborating with other research institutes.

A sound investment in the future of technotrans.

5.0 3.1 2.6 2.0 2.8

technotrans is a young company which offers its employees a distinctly international

working context, for all the provincial location of its headquarters in Sassenberg, in

the Münster region. The corporate philosophy of "Think-Learn-Act", in which aspects

such as customer orientation and open communication play as central a role as re-

sponsiveness and the challenge to question established concepts, is acted out direct-

ly in the day-to-day working environment. This means flat hierarchies, short decision-

making routes and ample space for creativity.

technotrans' employees are likewise young, with an average age of 36. More than

one-fifth of them have an academic education, including a large number of graduates

in various engineering disciplines. They particularly appreciate the freedom that techno-

trans gives them to attain their objectives. A system of remuneration that closely re-

flects personal performance and a group-wide stock options scheme ensure that all

employees are able to share directly in the company's success.

This climate that is characterised by trust and a genuine team spirit has also made

it possible to overcome successfully the economic challenges of the past few years.

From a shorter working week to wage concessions and short-time, no measure was

left unexplored as a means of steering the company through the industry-wide crisis.

The cooperative attitude of the Works Council deserves particular mention in this

specific connection. Thanks to these measures, job losses since 2001 have been

"Ample latitude for our employees"

■ Promoting frank exchanges and entrepreneurial thinking through

the corporate philosophy of "Think – Learn – Act"

■ Prominence of training and advancement at the company

■ Sense of solidarity even in difficult times

20

kept just a little above 100. This trend was moreover reversed in the latter months of

2003, and for the first time in a long while production capacity was increased. There

were 596 employees at technotrans at the end of the year.

Learning is an elementary pillar of technotrans' corporate culture, and training and ad-

vancement consequently enjoy a prominent status at the company. Each year, school-

leavers embark on apprenticeships in various vocations at our company. In view of

the chronic shortage of apprenticeships in Germany, we have in addition decided to

increase significantly the number of apprentices taken on by technotrans in the cur-

rent year. The company moreover offers its employees a wide range of opportunities

for acquiring additional specialist and personal qualifications. These include English

courses, special management development schemes and product training courses,

and even back training and give-up-smoking courses.

As a listed company, technotrans very early on started to help its employees to save

for the longer term. In recent years, a portion of the voluntary Christmas bonus has

regularly been paid to employees in the form of shares. Over the years, outside ex-

perts have helped us to develop an extensive range of individual savings products now

comprising three alternative forms of pension fund, a direct insurance policy, two ver-

sions of a second top-up pension and capital formation contributions. In-depth infor-

mation events and individual advisory sessions were arranged to enable every em-

ployee to choose which savings scheme best suited their needs.

E M P L O Y E E S 21

EMPLOYEES ACCORDING TO QUALIFICATION

Graduates…21%

Trainees…4%

Technical…22%

Other…9%Specialist trades…44%

NUMBER OF TECHNOTRANS EMPLOYEES

439 580 698 621 596

9999 0000 0011 0022 0033

Germany

outside Germany

technotrans AG has been a listed company since March 1998. Both we and our

shareholders have been subjected to a roller-coaster experience on the Neuer Markt

in recent years, with technotrans shares experiencing almost every conceivable turn of

fortune: from an inconspicuous security to a high flyer that for a long time flourished

independently of market trends, it was included in the Nemax 50 index in mid-2002

before finally plummeting irrationally and over the odds.

The shares started 2003 on 4.89 euros. The switch to Deutsche Börse's Prime

Standard and the abolition of the Nemax 50 blue-chip index finally put an end to the

fundamentally incomprehensible nosedive in the share price. The tide turned in mid-

March 2003, after our shares had hit an all-time low of 3.81 euros. By way of compar-

ison, the issue price in 1998 was 11.23 euros. This exaggeratedly depressed price

was corrected as the year went on, with the shares closing on 11.65 euros at the

end of December. This represents an increase of over 200 percent compared to the

record low. Alongside the fact that the shares were fundamentally undervalued, this

price appreciation was attributable to the brighter prospects for the economy in gen-

eral and the markets in which technotrans is active.

"technotrans sharesback on track"

■ Switch to the Prime Standard

■ Considerable investor confidence in our business model

■ Open dialogue with the capital market

22

STOCK EXCHANGES: FRANKFURT, XETRA ISIN DE0007449001

SHAREHOLDER STRUCTURE as of 31.12.2003

Free Float…87.5%

WestKB…5.45%

Management…7.05%

S H A R E / C O R P O R A T E G O V E R N A N C E 23

Year-high

Year-low

Year-end

Earnings per share

Cash flow per share

Dividend per share

* Dividend proposal

0203

KEY DATA

12.64

3.81

11.65

-1.66

1.02

0.30*

17.85

4.81

4.89

0.40

1.53

0.20

€

€

€

€

€

€

TECHNOTRANS SHARE MOVEMENT

175%

02.01.2003 = 5.08 €

250% 18.02.2004 = 13.90 €

TecDax

technotrans

We have naturally maintained a dialogue with the capital market throughout these

times, regularly staged roadshows in Germany and internationally, and were again able

to welcome over 30 analysts to our annual conference. Following this difficult year, we

can even take some pride in the fact that our investor base remains virtually unchanged.

The basis for this stability – an understanding of the company and its business model

as well as confidence in the management – is something we detected in many of the

discussions we held. This is the best motivation for us to continue along our chosen

path of partnership-driven success on the capital market.

Our objective is maximum transparency, as for example explicitly stated in the Investor

Relations section of our website. With a view to informing all capital market players

simultaneously, we offer an opportunity to register for the email subscription feature.

This enables us to supply interested parties automatically with all current news items

that are of relevance for the ongoing development of the company. We naturally regis-

tered a record number of visits following the disclosure of our plans to acquire Baldwin

in December 2003. We set up a special area providing information on all questions

concerning this topic.

Corporate governance

Most of the principles of corporate governance laid out in the recommendations have

been standard practice at technotrans for many years. The May 2003 version of the

German Corporate Governance Code incorporated further extensive additions, and

while many aspects of the Code reflect the current legal position, a great many of the

specifications are also aimed at companies and circumstances that are not wholly

applicable in the case of technotrans. For this reason, the 2003 Declaration of Com-

pliance by the Board of Management and Supervisory Board contained more qualifica-

tions than in the previous year.

The departures from the Corporate Governance Code relate on the one hand to aspects

that are not yet common practice at technotrans but which are to be taken into account

in the future. These include this corporate governance report in the Annual Report, and

the explanation of departures from the requirements, as well as the announcement of

the basic principles of the remuneration system for the Board of Management on the

Internet and the corresponding notes in the Annual Report, and notification of the Share-

holders' Meeting of the basic principles and changes. We in addition report shareholders'

equity in investments for the first time on page 52 of this Annual Report.

24

Interested parties will find the full current wording of the Declaration of Compliance

in the Investor Relations area of our website. www.technotrans.de

S H A R E / C O R P O R A T E G O V E R N A N C E 25

On the other hand, as mentioned above, various aspects of the Code relate to prac-

tices that are not relevant to technotrans, as a result of which we have decided not to

adopt the Code's specifications on certain matters. These include the requirement of

an excess for D&O insurance cover. The current policies do not envisage an excess,

nor do we perceive any need to take out new policies at the current time. A cap on

gains from our stock options scheme is likewise not envisaged. We provide detailed

information on the scheme on pages 69-70. In view of its special form and demanding

objectives, it serves as an appropriate means of motivating virtually all employees

within the company, and a cap specifically for members of the Board of Management

is neither envisaged nor particularly advisable in this instance.

After carefully weighing up the public interest against the interests of the members of

the Board of Management and Supervisory Board, we have moreover decided to pub-

lish details of their remuneration, broken down according to fixed and variable compo-

nents, but not individually for each member of these corporate bodies. We believe that

the knowledge gained by the public by the latter measure would encroach unreason-

ably on the private sphere of these members.

Group Management Report

26

General economic situation2003 was another year in which worldwide growth predictions failed to materialise.

The weak start to the year could not be made good in the second half, with the result

that the growth originally expected did not in the end take shape.

The underlying economic figures improved in the course of the year: the war in Iraq

was over relatively quickly, and a marked recovery on stock markets foreshadowed the

impending economic recovery. This trend was underpinned by the stabilisation of the

price of oil and comparatively very low interest rates.

Extreme fluctuations on foreign exchange markets, in particular the dramatic apprecia-

tion of the euro against the US dollar, were unable to stop the positive development in

the second half of 2003. In some quarters, the strengthening of the euro was regard-

ed as a sign of new confidence in the single currency.

The US economy made unexpectedly good progress, with domestic product growing by

3.0 percent, and the business confidence index for the eurozone has likewise been

pointing to growth since July. Germany put in a below-par performance with a year of

economic stagnation. The situation on the labour market remained difficult.

Situation in our branchThe printing industry, as the core market of technotrans' Print segment – it accounts

for two-thirds of the company's revenue – experienced a third year of crisis. The

German printing press manufacturers Heidelberger Druckmaschinen AG, MAN Roland

AG and Koenig & Bauer AG – which between them supply two out of three of all print-

ing presses worldwide – reported a sharp drop in orders, which in some categories

were down by more than 30 percent. As a consequence they were obliged to focus on

restructuring measures last year.

This Management Report

as well as the following

sections of the Annual

Report up to page 98

are a translation of the

German original. In the

case of doubt, the

German original takes

precedence.

G R O U P M A N A G E M E N T R E P O R T 27

Advertising spending is to some extent the driving force behind the printing industry.

Spending from this source was decidedly weak at the start of the year, though the

positive signs increased significantly in number in the second half. According to recent

research findings, advertising spending in Germany in 2003 rose by 3.3 percent to its

highest level since 2000. The volume for daily newspapers showed positive progress,

growing by more than 10 percent to € 4.1 billion (by comparison: Internet € 265 mil-

lion, +3.7 percent).

The second technology segment of technotrans, the Micro Technologies Division,

depends on the one hand on the market for systems for the production of optical stor-

age media, and on the other hand on microstructure production facilities. The number

of CDs and DVDs being produced continues to grow worldwide (at varying rates,

depending on format), but the installed capacity of electroforming systems is largely

sufficient to cover this demand. Investment spending in new equipment in the first

instance represents replacement investment. The field of microstructure technology is

rated by experts as a vigorously growing, innovative market that spans a wide range of

branches of industry. The potential for the manufacturing technology of these new

applications is thought to be vast, but cannot yet be clearly demarcated.

Revenue and earnings

Revenue growth delayed until second half

As a result of the protracted crisis in the printing industry, revenues in the first half of

the year were ultimately much lower than had been expected at the start of the year.

Compared with the rest of the world, the markets in the US, Europe and particularly

Germany were manifestly weak. The recovery in the second half of the year brought

the desired turn of fortunes. Revenue rose for the first time in two years in the third

and fourth quarters, in the latter case by more than 9 percent. This was nevertheless

insufficient to achieve the original revenue target for 2003 of € 115-120 million.

Revenue fell short of expectations by around € 10 million, at € 106.7 million (previ-

ous year: € 117.0 million, -8.8 percent).

28

In view of the question marks over an economic recovery in our main markets, we

resolved very early on to take appropriate measures to tackle the continuing fall in

demand. By winding up our production plant in Colchester, England, and transferring

operations to Sassenberg, Germany, in the first half of 2003 we were able to make

better use of existing capacity and optimise our cost structures.

Gross profit target achieved

Despite an almost 9 percent fall in revenue, technotrans succeeded in achieving its

earnings targets for its operations. This demonstrates that we have adapted flexibly to

fluctuating demand at a time of economic slackness, and have successfully shored up

our profitability through focused cost management. Although gross profit of € 35.9

million did not match the previous year's figure (-4.7 percent), the gross margin rose

from 32.2 percent to 33.7 percent.

Operating profit up 28 percent

The operating profit was up 27.8 percent on the previous year (€ 5.9 million) to slight-

ly more than € 7.5 million. With an operating margin of 7 percent as against 5 per-

cent in the previous year, we are able to report a significant improvement in this area,

too. Administrative costs were inflated in particular by consultancy costs of more than

€ 1.6 million for the planned takeover of the American company Baldwin Technology, Inc.

A letter of intent had been made public by both companies on December 12, 2003,

but Baldwin terminated negotiations at the end of January 2004. On the other hand,

SALES by region

other Europe…27%

USA…21%

Asia…10%

other…2%Germany…40%

SALES by segment in € million

73.4 104.9 131.0 117.0 106.7

9999 0000 0011 0022 0033

Print

ServicesMicro Technologies

G R O U P M A N A G E M E N T R E P O R T 29

this expense was partly offset by the excess of proceeds over book value from the

sale of the production building in Colchester. Research and development costs rose

as expected from € 2.3 million to € 3 million in the run-up to this year's DRUPA. The

prior-year result was diminished by the creation of a provision of € 3.3 million for the

patent dispute with Baldwin.

Currency effects have minimal influence

Interest expense was reduced by 23.5 to just over € 1 million in 2003 thanks to the

reduction in long-term borrowings (by € 3.1 million). The influence of currency effects

was again minimal in 2003; technotrans benefits on the one hand from the fact that

the bulk of its revenue is billed in euros, and on the other hand from the fact that its

own production companies in America supply the same currency zone and that foreign

exchange losses from the financing of foreign entities (subsidiaries) are "parked" with-

in equity, with no effect on income, according to IAS.

Impairment of goodwill

In addition to regular goodwill amortisation (€ 1.7 million in 2003), a need for impair-

ment of goodwill and intangible assets in the Print and Micro Technologies segments

was ascertained in the year under review. technotrans had purchased the American

company Ryco Graphic Manufacturing, Inc., Chicago, in 2000, when the industry was

at its peak, at a price of € 18.6 million; a goodwill amount of € 15.4 million had to

be capitalised at the time. This goodwill constitutes part of the "Print" unit. The value

in use of the "Print" unit undercut its carrying amount by € 8.6 million, with the result

that the goodwills for this unit were reduced by the same amount.

The situation at the end of 2003 for the goodwill and intangible assets from the acqui-

sition of a Toolex division in 2001, which became part of the Micro Technologies seg-

ment, was similar. In this case, the remaining goodwill was reduced by € 2.8 million

and patents and expertise with a value of € 0.8 million written down.

30 This amortisation is tax-deductible in part, resulting in a one-off effect from impair-

ment of € 11.05 million. Both measures contribute towards reducing potential risks to

the future financial performance of technotrans.

In connection with the adjustments to goodwills, a valuation allowance was applied in

full to the deferred taxes of the two American companies and to the subsidiary in

Sweden. If the profitability of these companies should turn out to be more positive

than expected in the future, with the result that it might be possible to use the tax

loss carryforwards, this would result in a noticeably lower tax burden for the group.

Earnings dented by one-off effects

The reduction in revenue in the second year in succession made it necessary to

review the goodwills, intangible assets and the deferred tax assets. Generally speak-

ing, balance sheet measures as well as consultancy costs in connection with the

planned acquisition reduced the results, consequently producing a loss for the 2003

financial year of € 11 million (previous year: € +2.6 million). The one-off effects in

detail are shown in the adjacent table.

Increased dividend

The earnings per share according to IFRS are

consequently € -1.66 for the year. The Board

of Management and Supervisory Board will

propose a dividend of € 0.30 per share (pre-

vious year: € 0.20) to the Shareholders'

Meeting on May 28, 2004; with 6.6 million

shares in existence, this represents an

amount for distribution of € 1.98 million.

ONE-OFF EFFECTS IN 2003 € '000€ '000

Net loss for the year

Impairment acc. to IAS 36, Print segment

Impairment, Micro Technologies segment

Total

Project acquisition, net

Derecognition of deferred taxes

Non-capitalisation of deferred taxes

on tax losses for 2003

Effect of impairment test on income

tax expense

Special effects of taxes

Result before special effects

-10,960

12,222

990

2,341

4,593

8,591

3,631

2,432

876

-1,172

205

G R O U P M A N A G E M E N T R E P O R T 31

Print segmentThe level of demand continued to fall in 2003 due to the crisis in the printing industry,

reaching the nadir mid-way through the year. The second half of the year, by contrast,

showed a marked improvement. Revenue for the Print segment amounted to € 70.6

million for the year as a whole. Although this figure was € 10 million or 12.4 percent

down on 2002, the decrease in 2002 had been in the order of € 18 million. The rev-

enue shortfall – particularly in the first half of the year – was nevertheless higher than

initially planned, not least because of exchange-rate effects. Print still accounted for

two-thirds of revenue in 2003.

As a result, structures were once again adjusted, including the closing-down of produc-

tion operations in Colchester and their transfer to Sassenberg. Even at this revenue

level, we thus succeeded in posting a positive operating result. The segment reported

earnings of € 1.8 million (previous year: € 0.6 million) at the end of the year. A sum

of slightly more than € 1.6 million in consultancy costs for the intended acquisition

constituted a charge for which it was not possible to budget. Without these costs, the

rate of return for the segment would have been 4.9 percent, not 2.6 percent, and

therefore on a par with the prior-year operating result in spite of the lower revenue.

SALES by segment

Micro Technologies…10.1%

Services…23.7%Print…66.2%

OPERATING PROFIT in € million

8.25 9.68 9.13 5.89 7.52

9999 0000 0011 0022 0033

32 Micro Technologies segmentRevenue for the Micro Technologies segment, which brackets together the areas

CD/DVD and microstructure technology, totalled € 10.8 million in 2003, thus once

again matching the prior-year level. This is all the more gratifying considering that

demand from the CD/DVD sector remained flat for the third year in succession, as

well as the fact that the market witnessed considerable competition, with the strength

of the euro against the US dollar presenting us with an added hurdle. The revenue

contribution of microstructure technology activities was welcome, though the growth

rates, starting from a very low base level, are not yet sufficient to outweigh the eas-

ing-off of demand from the CD/DVD sector, let alone emulate the past growth rates

of this segment.

The result for the segment continues to be diminished by the cost of developing the

future growth area of microstructure technology, totalling € 641,000 compared with

€ 819,000 in the previous year. In addition to a substantial improvement in profitability

at the end of the year, one-off effects amounting to € 600,000 at group level and

associated among other things with the valuation allowances on goodwill in the annual

financial statements were the reason why we were able to post a positive result at

year-end. Depreciation for the segment will be € 300,000 lower from 2004. This,

together with various internal measures, should help to provide sustained revenue.

Services segmentFollowing a surge in growth in 2002 (+23.1 percent), revenue for the Services seg-

ment of € 25.3 million was maintained at the previous year's level (€ 25.5 million).

Its proportion of total revenue rose from 21.8 percent to 23.7 percent. Due to the pre-

vailing economic situation, the emphasis for installations shifted more towards mainte-

nance and spare parts, as expected. The Technical Documentation business area like-

wise posted positive progress. In this area, more than half of external revenue for 2003

was generated through our self-developed software doculab.

The Services segment remains a dependable source of earnings for the group in these

difficult times. The result for the segment of € 4.8 million represents 63.5 percent of

consolidated operating earnings. Services which yield above-average profitability, such

as the sale of software licences, helped to boost the margin to a satisfying 18.9 per-

cent for the year under review (previous year: 15.9 percent). Since the fourth quarter,

however, it has become evident that the temporary need to provide more intensive sup-

port for new products appearing on the market, as is the case before the DRUPA indus-

try exhibition, is having an adverse effect on the result.

G R O U P M A N A G E M E N T R E P O R T 33

BALANCE SHEET STRUCTURE GROUP in € million

Cash…8.8 21.8…Short-term debt

14.3…Long-term debt

36.3…Equity

Receivables and prepaid expenses…19.2

Inventories…18.2

Non-current assets…26.2

72.4 72.4

Assets Liabilities

Balance sheet structureThe balance sheet total at December 31, 2003 was € 72.4 million (previous year:

€ 92.5 million). Allowances for goodwill made at the end of the year were the main

reason for this fall. They had become necessary in order to bring the balance sheet

values in line with the discounted cash flows over the remainder of the amortisation

period. Goodwill was consequently reduced by amortisation and impairment as well as

by exchange-rate losses of € 2.3 million booked with no effect on income, from € 19.8

million in the previous year to € 4.5 million (-77.5 percent). In this connection, the level

of deferred tax assets was likewise reduced from € 4.4 million at the end of 2002 to

€ 1.1 million at December 31, 2003. This measure will reduce potential future balance-

sheet risks.

Improved liquidity

The increase in current assets is attributable almost exclusively to a renewed improve-

ment in liquidity. Compared with € 7.3 million at the end of 2002, cash now totalled

€ 8.8 million (+20.1 percent). Inventories remained almost unchanged (€ 18.2 mil-

lion as against € 17.9 million).

In line with the changes on the assets side, the principal changes to equity and

liabilities relate to the item equity. This fell by € 15.4 million, from € 51.7 million to

€ 36.3 million, in particular as a result of the accumulated loss (€ 11.0 million), the

distribution of dividend for 2002 (€ 1.3 million) and exchange-rate losses not affect-

ing income (€ 2.9 million).

34 Long-term borrowings were again reduced in 2003 (-3.3 million, -21.5 percent). The

main changes within short-term borrowings related to the typical decrease in advances

received as a reflection of the order mix (€ -0.7 million) and a slight increase in pro-

visions (€ 9.0 million compared with € 8.4 million).

Sound balance sheet indicators

The main balance sheet indicators remain virtually unaffected by these changes, or

have improved significantly as a result (prior-year figures in brackets): the equity ratio

remains satisfactory at 50.1 percent (55.9 percent), the capital employed (as the sum

of interest-bearing liabilities and equity) fell to € 55.3 million (€ 74.4 million), the

return on capital employed (ROCE; operating profit + currency result as a ratio of capi-

tal employed) rose to 13.3 percent (7.6 percent).

Investment and finance€ 3.1 million (previous year: € 2.8 million) were invested in intangible assets and

property, plant and equipment in the past year. Investment was consequently lower

than depreciation (€ 5.3 million). This investment in the first instance took the form of

spending on extensions to the IT infrastructures and replacement investment, for

example for service vehicles. As a company with low manufacturing penetration, no

maintenance investment in plant and machinery was necessary, nor was any expan-

sion to capacity required in the light of the prevailing economic situation in 2003.

Investment was financed from cash flow; cash flow from operating activities amounted

to € 6.5 million (previous year: € 10.1 million). Although the free cash flow of € 5.4

million was unable to match the previous year's high level (€ 7.5 million), this figure

was positive for the second year in succession. On the other hand, we easily achieved

our aim of posting a positive free cash flow of at least the same magnitude as the tar-

geted earnings.

Procurement and productiontechnotrans develops, manufactures and sells equipment and systems for the printing

industry (Print segment) and electroforming systems for the manufacturing of

microstructures (Micro Technologies segment). The development of these systems and

the assembly of their components are among technotrans' core skills, whereas the

manufacturing of the components is outsourced to specialist suppliers. Our manufac-

turing penetration is thus exceptionally low.

INVESTMENT in € million CASH FLOW from operating activitiesin € million

2.8 4.6 4.3 10.1 6.5

9999 0000 0011 0022 0033

9999 0000 0011 0022 0033

G R O U P M A N A G E M E N T R E P O R T 35

Specialised locations worldwide

technotrans had five production locations worldwide at the end of 2003; the largest of

these locations act as centres of expertise for a particular technology. The production

companies use the group's entire network of 13 locations worldwide for their distribu-

tion and service activities. In Germany, various ancillary units for the printing industry

and systems for the Micro Technologies sector are manufactured at Sassenberg,

whereas the Stadtbergen plant, near Augsburg, has specialised in ink supply equip-

ment. Chicago is the production centre for spray dampening systems. Specific ancil-

lary units for the American offset printing market are made in Corona, near Los

Angeles. Beijing is our smallest production operation; it predominantly supplies pre-

assembled components for other production sites.

Ample capacity for handling an economic recovery

The question of production capacity utilisation has become more pertinent in the cur-

rent economic climate. With its very low manufacturing penetration technotrans is

demonstrably able to respond very flexibly to fluctuating demand. Capacity utilisation

in the traditional sense therefore refers exclusively to the floor space at the production

plants and the employees who work there. The company has no machinery or plant

that would cause a bottleneck when demand is running at a high level nor the corre-

sponding depreciation which diminishes profitability when demand is low. The existing

production area provides ample reserves for improved capacity utilisation when

demand recovers.

Investments – Other assetsInvestments – Property, plant and equipmentDepreciation

20

10

36 Suppliers tightly integrated

In view of the company's spread over five production sites and the low manufacturing

penetration, procurement management has become increasingly important. The aim is

to pool demand rationally for all manufacturing group companies worldwide, to inte-

grate suppliers closely into the production procedures and to develop joint strategies

for coping with fluctuating demand. We of course have sufficiently close ties with most

of our long-standing suppliers that any difficulties at those suppliers would become

evident well in advance, allowing us to arrange suitable alternatives.

Personnel and welfareThe number of employees within the technotrans Group again eased off in 2003. At

December 31, 2003 there were 596 (previous year 621) employees, a decrease of

4 percent. Whereas the workforce was trimmed in the first half of the year due to the

fall in demand, capacity was once again built up in the second half. The revenue per

employee (based on the average employee total for the year) has not changed sub-

stantially from the previous year, and was € 180 thousand (€ 183 thousand) for the

year under review.

In order to adapt to fluctuations in demand, priority measures implemented in 2003

involved the introduction of more flexible working hours and the postponement of the

collectively negotiated pay increase (at Sassenberg).

Personnel costs fell to € 29.3 million (previous year: € 31.9 million); this item as a

proportion of revenue remained almost unchanged at 27.4 percent (2002: 27.3 per-

cent).

Last year the employees once again received shares as a form of voluntary Christmas

bonus, with a two-year holding period. Six years on from the initial public offering, over

90 percent of all employees own shares in the company. The third tranche of stock

options was moreover issued after the Shareholders' Meeting in May 2003. These

stock options provide every employee with an opportunity to purchase shares at a

predetermined price after a waiting period of no less than two years, provided the per-

formance targets have been met. Further details of the stock options scheme are pro-

vided in the Notes, under Equity.

G R O U P M A N A G E M E N T R E P O R T 37

EMPLOYEES by segment

MicroTechnologies…8%

Services…26%Print…6%

Risk reportAs a worldwide technology and services group, technotrans is naturally exposed to a

large number of risks. We analyse and approach these on the basis of our principle of

dealing with potential risks responsibly.

Our risk management system is fundamentally aimed at assuring a uniform aware-

ness of risks among all employees, and forms an integral part of our business opera-

tions. To this end, potential risks in the various functional areas are systematically

identified and assessed. Where risks exceed defined thresholds of significance, they

are observed continually and corresponding measures initiated. The management is

informed promptly of potential risks and of the measures that have been taken.

Recent years have demonstrated that periods of economic slackness constitute a sig-

nificant risk for many companies, including in the printing industry. The current invest-

ment reticence among end customers, in other words printers, is being further exag-

gerated by the fact that DRUPA 2004 is looming large. On top of this, the structure of

the printing press industry resembles an oligopoly, dominated as it is by a small num-

ber of manufacturers. It is therefore only logical that technotrans generates over 60

percent of consolidated revenue in the Print segment from the world's five largest

printing press manufacturers. It would not be possible to compensate in the short

term for the unexpected loss of one such customer, and indeed would be difficult to

38 do so in the medium term. We are tackling economic and industry risks by constantly

analysing the market situation, exploiting scope for rationalisation, steadily expanding

our range of customer-focused services and extending both the depth and breadth of

our product range.

Every company has to use certain assumptions about how markets will develop as the

basis for its plans. The failure of anticipated figures to materialise can have an unsched-

uled impact on the company's development, which must then be assessed as part of

the risk management process and countermeasures then taken as appropriate.

The Micro Technologies segment is likewise exhibiting a protracted reluctance to invest.

Surplus capacity in the market is hindering demand. The market for microstructure appli-

cations is still young and expanding, and we believe it still harbours immense potential

for our equipment lines. The risks stem from the uncertainty as to how a young market

will develop.

As a company with international activities, technotrans has to contend with a large

number of legal constraints. There exists a particular risk in connection with the patent

dispute with a competitor that has been dragging on for several years. technotrans was

defeated in this lawsuit at the second instance. The ruling at the second instance of

November 14, 2002 paves the way for a claim for compensation, the level of which

may have to be determined in further legal proceedings. To minimise the risk, a provi-

sion totalling € 3 million was created, reflecting the value of the matter in dispute of

€ 2.5 million at the second instance as well as further legal expenses. technotrans

has filed a complaint against the non-admission of an appeal with the Federal Supreme

Court and lodged a revocation action against the enforced patent of its competitor with

the Federal Patents Court. There are no other legal proceedings of any significance. In

order to counteract potential risks from the wide range of tax, environmental, competi-

tion and other regulations and laws, we strictly adhere to laws and regulations and

obtain comprehensive advice both from our own employees and, in certain cases, from

established experts. As well as taking out an appropriate and economically justifiable

level of insurance cover, the company takes its own precautionary measures to guard

against the risk of elementary losses such as fire and loss of production.

In the light of volatile financial markets, the increasingly international scale of busi-

ness operations harbours risks in particular as a result of exchange rate movements.

Risks to business operations can largely be eliminated by natural hedging, which

means that the currencies in which purchases and sales are conducted are system-

atically harmonised. Group-wide finance management reduces further risks by hedging

substantial transactions. We aim to compensate for competitive disadvantages as a

result of exchange rate factors by implementing technological measures.

G R O U P M A N A G E M E N T R E P O R T 39

The adverse overall economic situation has prompted a rise in bankruptcies among

end customers and a deterioration in payment habits. We counteract this through a

stringent approach to the management of receivables and creditworthiness. Appropriate

specifications are applied as a means of reducing the credit risk by basing the provi-

sion of sales and services on the prevailing risk.

As a system supplier, the development of pioneering technologies is a key success

factor for us. Close cooperation with our customers right from the initial product idea,

through the development of the specific systems, to the drafting of concepts for

improvements, enables us to minimise potential risks at an early stage. We have also

established partnerships with research bodies, assuring the transfer of knowledge on

new potential applications. Both highly qualified and experienced employees safeguard

the necessary expertise for technotrans in this area.

This presentation of the applicable risks by no means constitutes an exhaustive sum-

mary – aspects of IT security, the valuations of inventories and technological substitu-

tion risks are also constantly monitored, for example. However, it is clear on the whole

that the level of exposure is limited by our adopting a responsible approach to identi-

fied and analysed risks, and that the only serious threat to technotrans is in the sum

of a large number of individual risks We have currently identified no risks which could

endanger the company's survival.

Research and developmentOur research and development activities make a significant contribution towards consol-

idating and building on our position in every market segment as an efficient, internation-

ally active technology group. Innovative capability is a decisive competitive advantage.

To complement this, pioneering technology trends are investigated and shaped at an

early stage through cross-company research projects and in collaboration with other

research institutes.

40 Pre-DRUPA year sees rise in spending

A total of € 3.6 million (previous year: € 3.3 million) was spent on research and devel-

opment in 2003. Of this amount, € 0.6 million was to be capitalised in accordance with

IFRS criteria (previous year: € 1.1 million). This total amount is spread between the Print

and Micro Technologies segments.

Activities for the Print segment focused on innovations that will be on show for the first

time at this year's DRUPA, the largest industry exhibition. Developments include an auto-

mated cartridge changer for the ink.line ink supply system. This reduces manual inter-

vention by the printer and responds to calls for a greater degree of automation.

We are also presenting our first product for the pre-press area: the spinclean is a de-

vice for cleaning the developer fluid used in printing plate exposure. Use of the spinclean

reduces the high costs arising from replacing and disposing of the developer fluid by

more than 70 percent. This is an outstanding example of how ecology and economics

can enter into a successful alliance.

In the Micro Technologies segment, the projects of the past year – above all the large-

area electroplating system "microform.400" – were largely completed. As well as this

large-format system, a system for smaller formats has been developed and well received

by the market.

Environmental protectionEnvironmental protection is regarded as a high priority at technotrans, even though

no immediate hazards to either the employees or the environment are created by the

company's activities of assembling plant and equipment. There is nevertheless a spe-

cial team by the name of technosafe, which has the purpose of identifying and elimi-

nating hazards.

The company's everyday operations also include a whole range of activities focusing

for example on reducing the amount of packaging, minimising the consumption of

water, electricity and gas, and making increased use of returnable packaging and

interchangeable containers as part of an ongoing process of optimisation.

A detailed survey of the situation at the largest production plant at Sassenberg car-

ried out in 2001, in line with the requirements of DIN EN ISO 14001 standard, con-

firmed our belief that technotrans has an efficient environmental protection system,

and there was consequently no immediate need for a further-reaching environmental

audit.

G R O U P M A N A G E M E N T R E P O R T 41

A whole array of our products also help to preserve natural resources. There is for

example ecoclean, the washing agent recovery system for the printing process. As

well as cutting the amount of solvent that the printer has to buy by around 90 percent,

it reduces the amount of toxic waste to be disposed of. We are conscious of our re-

sponsibility for our products and for the markets in which we operate. Our sales and

service employees actively endorse these principles in their dealings with customers,

and espouse the cause of protecting the environment.

Supplementary reportAfter the end of the financial year, Baldwin Technology Company, Inc., of Shelton,

Connecticut, USA, informed us on January 30, 2004 that it no longer wished to pur-

sue the negotiations on a potential merger of the two companies.

OutlookThe average growth rate forecasts for various national economies in the current finan-

cial year are 6 percent (Asia), 3 percent (USA), 1.8 percent (eurozone) and 1.5 to 2

percent (Germany). Global stimuli are being provided by Japan, Argentina and Brazil,

which appear to have pulled through the crisis. The semiconductor industry, which

kicked off the calamitous global downturn as a sector at the vanguard of the econom-

ic cycle, started 2004 just 14 percentage points down on the record highs of 2000.

Thanks to improved worldwide and internal basic data, a change for the better appears

to be more probable. Adjustment measures within the industry are likewise bearing

fruit: companies' profits have latterly risen by 15 percent and it is expected that

investment will pick up as a result.

Foreign exchange markets are one potential risk to global growth. The appreciation of

the euro has meant that percentage price increases for goods run into double digits,

with the result that although exports within the euro zone have gone up, sales to the

USA have fallen.

42 Germany anticipates growth

The experts expect that Germany will benefit in full from the economic recovery.

The IFO business confidence index has latterly returned to the level of late 2000 and

many early indicators lend substance to this confidence. Uncertainty as to forthcoming

reforms continues to cloud the horizon, with the result that the consumer sector is

still failing to deliver any impetus. Growth rates of 2.5 percent are expected for the

mechanical engineering sector in 2004; the priority remains to invest in rationalisation

measures rather than in additional capacity. This will consequently not ease the situa-

tion on the labour market in the short term.

As the printing industry lags behind in the economic cycle, it generally reflects trends

somewhat later. Experience has shown that an economic recovery generally goes hand

in hand with a rise in advertising spending, which provides printers with a reason to

invest in replacement and additional equipment. Whereas advertising spending in the

expanding markets of the USA (+4.7 percent) and Asia (+6 percent) is forecast to rise

sharply, the experts predict growth of 1 percent for Germany.

DRUPA 2004: how good will it be?

As matters stand, we therefore expect that the crisis in the printing industry will be

overcome in 2004; the intensity and sustainability of this recovery, on the other hand,

remain unclear. At this early stage of the recovery, we do not anticipate this year's

industry exhibition DRUPA 2004 to provide anything like the impetus of the previous

event in 2000. From a technical viewpoint, the spotlight will be less on trailblazing

innovations than on updated versions of established products in every area, the

focus being on enhanced efficiency and greater flexibility.

Our expectations are reflected by our targets of revenue growth ranging between eight

and ten percent for the Print segment. Our strategy remains to boost the technotrans

content per printing press. In a relevant market worth around € 600 million, we have

formulated various objectives for ourselves in order to tap further potential for the

future. This is another reason why we are convinced that we will very rapidly be able

to return to a course of growth, and one that is not solely dependent on an economic

recovery. We are also paying particular attention to the market of Japanese printing

press manufacturers, to which we attach considerable importance above all as a

gateway to the growth region of Asia.

G R O U P M A N A G E M E N T R E P O R T 43

Micro Technologies: still finding its feet

In 2004 the Micro Technologies segment is likely to remain on a par with the previous

year. We expect that our market for electroforming systems for the manufacture of

optical storage media will exhibit rather restrained progress as a result of the high

installed base and the disparity between the euro and the US dollar, whereas the area

of microstructure technology (MST) could make good progress but still remains of only

marginal significance to the revenue total for this segment. We are likely to concen-

trate on a number of applications that we consider to be particularly promising, such

as display technology and metallic MST parts.

The experience of recent years has demonstrated that our international expansion in

the Services segment has proved particularly beneficial. We will consequently be work-

ing intensively on further expanding our worldwide service structure.

Improved earnings in 2004

technotrans has used the crisis to optimise its cost structures and processes. Our

attention will be focused on keeping these aspects tightly under control even once the

recovery is under way, and thus on ensuring that any growth above all has a dispropor-

tionately high impact on earnings. The only factor to detract from earnings will be the

costs of participating in the DRUPA exhibition – staged only once every four years –

which will be of the customary magnitude. Risks from the recent exchange-rate devel-

opments have no immediate influence on our earnings plans, as our structure with

production plants in the USA and Europe is readily able to absorb such fluctuations.

As matters stand, we therefore expect the group to post revenue of € 115 million in

2004. Our aim will once again be to improve profitability this year. Our objective for

EBITA (earnings before interest, taxes and amortisation) is to draw closer to double

figures (2003: 8.4 percent). We expect the net profit for the year to be in the order of

€ 5.5 to 6 million. The free cash flow should likewise rise to between € 7 and 8 mil-

lion.

technotrans has ridden out the crisis well and we are convinced that the company is

suitably equipped to profit from an upcoming recovery in 2004. We will seize the

opportunities that this offers, as a company focusing on the two pillars of technology

and growth.

44

Consolidated FinancialStatements

Consolidated Balance Sheet …45 |

Consolidated Income Statement …46 |

Cash Flow Statement …49 |

Statement of Movements in Equity …50 |

Notes …51 |

Independent Auditors' Report …90 |

Proposal for the Distribution of Accumulated Profit …92 |

Corporate Bodies …94 |

Report of the Supervisory Board …96 |

€ '000€ '000€ '000

Note

Consolidated Balance Sheet

Assets

Current assets

Cash (1) 8,769 7,300 5,031

Trade receivables (2) 16,973 16,638 17,312

Inventories (3) 18,200 17,930 22,538

Income tax rebates 841 1,452 280

Prepaid expenses and other short-term receivables (4) 1,374 1,403 1,474

46,157 44,723 46,635

Non-current assets

Property, plant and equipment (5) 16,963 19,116 20,710

Intangible assets (6) 3,034 4,099 3,388

Goodwill (7) 4,470 19,824 24,531

Deferred tax (8) 1,112 4,374 3,091

Other long-term assets (9) 655 405 687

26,234 47,818 52,407

Total assets 72,391 92,541 99,042

Equity and liabilities

Short-term debt

Short-term borrowings and short-term component of long-term borrowings (10) 6,100 6,166 5,696

Trade payables (11) 2,904 3,075 3,758

Advances received (12) 1,696 2,398 3,749

Provisions (13) 9,029 8,446 5,258

Income taxes payable (14) 290 780 1,368

Other short-term debt (15) 1,820 1,877 2,562

21,839 22,742 22,391

Long-term debt

Long-term borrowings (10) 12,076 15,390 19,354

Deferred tax (16) 1,604 1,538 1,773

Provisions for pensions (13) 151 136 124

Other long-term debt (17) 433 1,015 644

14,264 18,079 21,895

Equity (18)

Issued capital 6,600 6,600 6,600

Capital reserve 36,412 36,406 36,396

Revenue reserve -493 9,569 8,447

Hedging reserve -425 -591 -387

Exchange differences -5,808 -2,360 1,664

Accumulated loss/profit 2 2,096 2,036

36,288 51,720 54,756

Total equity and liabilities 72,391 92,541 99,042

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 45

31.12.200131.12.200231.12.2003

Consolidated Income Statement

€ '000€ '000€ '000

200120022003

Revenue (19) 106,737 117,012 130,990

of which

Print 70,631 80,623 98,733

Micro Technologies 10,774 10,861 11,526

Services 25,332 25,528 20,731

Cost of conversion (20) -70,808 -79,317 -89,367

Gross profit 35,929 37,695 41,623

Distribution costs (21) -12,388 -12,503 -15,238

Administrative costs (22) -12,464 -12,083 -11,970

Research and development costs (23) -2,970 -2,321 -3,388

Other operating income and expenses (24) 1,122 -2,940 183

Amortisation of goodwill (25) -1,707 -1,961 -2,080

Operating profit 7,522 5,887 9,130

Interest revenue/expense (26) -1,027 -1,387 -1,648

Foreign currency gains/losses (27) -145 -261 -484

Impairment loss acc. to IAS 36 (6,7) -12,222 0 -1,121

Accounting profit -5,872 4,239 5,877

Income tax expense (28) -1,752 -3,066 -3,407

Deferred tax (28) -3,336 1,447 951

Net loss/profit for the year -10,960 2,620 3,421

Earnings per share (€) (29)

(basic) -1.66 0.40 0.53

(diluted) -1.66 0.40 0.53

46

Note

Segment Report according to division

External revenue 2003 70,631 10,774 25,332 0 0 106,737

2002 80,623 10,861 25,528 0 0 117,012

2001 98,733 11,526 20,731 0 0 130,990

Internal revenue 2003 12,322 1,830 6,077 0 -20,229 0

2002 12,679 1,608 7,619 0 -21,906 0

2001 13,259 3,398 6,513 0 -23,170 0

Inter-segment revenues 2003 0 0 1,324 0 -1,324 0

2002 0 0 1,378 0 -1,378 0

2001 0 0 1,825 0 -1,825 0

Segment result before 2003 3,067 1,115 4,776 271 0 9,229

amortisation of goodwill 2002 2,078 1,301 4,049 420 0 7,848

2001 5,661 1,109 4,021 419 0 11,210

Segment result 2003 1,834 641 4,776 271 0 7,522

2002 599 819 4,049 420 0 5,887

2001 4,065 625 4,021 419 0 9,130

Segment assets 2003 41,468 7,274 12,926 0 10,723 72,391

2002 52,121 10,802 16,338 155 13,125 92,541

2001 61,665 13,844 15,132 0 8,401 99,042

Segment liabilities 2003 10,926 1,316 3,100 0 20,760 36,103

2002 11,783 1,902 2,310 0 24,826 40,821

2001 11,874 1,323 2,898 0 28,191 44,286

Investment 2003 2,028 430 646 0 0 3,104

2002 1,628 646 344 155 0 2,773

2001 9,933 10,672 1,308 0 0 21,913

Depreciation 2003 3,378 1,048 882 0 0 5,308

2002 3,287 1,037 947 0 0 5,271

2001 3,836 1,058 610 0 0 5,504

Other non-cash expenses 2003 3,625 368 653 0 0 4,646

2002 5,775 393 1,197 0 0 7,365

2001 4,302 912 500 0 0 5,714

€ '000 € '000 € '000 € '000 € '000 € '000

Print Micro Services Other Consolidated/ GroupTechnologies not allocated

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 47

Segment Report according to geographical region

External revenue 2003 42,520 29,470 22,512 10,720 1,515 0 106,737

2002 55,621 30,808 22,074 8,457 52 0 117,012

2001 58,140 32,796 30,172 7,942 1,940 0 130,990

Segment assets 2003 47,562 1,344 10,086 2,676 0 10,723 72,391

2002 43,325 9,091 24,134 2,866 0 13,125 92,541

2001 47,088 9,685 31,836 2,032 0 8,401 99,042

Investment 2003 2,307 584 103 110 0 0 3,104

2002 2,219 261 140 153 0 0 2,773

2001 10,394 6,034 5,334 151 0 0 21,913

€ '000 € '000 € '000 € '000 € '000 € '000 € '000

Germany Rest of Europe USA Asia Other Not allocated Group

48

Cash Flow Statement

€ '000€ '000€ '000

Cash flow from operating activities (30)

Net loss/profit for the year -10,960 2,620 3,421

Adjustments for:

Depreciation 5,308 5,271 5,504

Impairment loss acc. to IAS 36 12,222 0 1,121

Deferred tax expense (+)/income (-) 3,336 -1,447 -951

Profit (-)/loss (+) on the disposal of property, plant and equipment -594 19 -29

Foreign exchange losses (+)/gains (-) 145 -784 -451

Cash flow from operating activities before working capital changes 9,457 5,679 8,615

Change in receivables -617 -427 -2,991

Change in inventories -1,078 4,608 -2,946

Change in other long-term assets -294 282 -687

Change in liabilities -1,296 -3,307 1,868

Change in provisions 319 3,242 413

Net cash from operating activities 6,491 10,077 4,272

Cash flow from investing activities (31)

Acquisition of subsidiaries less acquired liquid assets 0 0 -5,195

Retrospective adjustment of purchase price for subsidiary 0 0 422

Acquisition of intangible assets and of property, plant and equipment -3,104 -2,773 -7,380

Proceeds from the sale of property, plant and equipment 2,007 166 1,054

Net cash used for investments -1,097 -2,607 -11,099

Cash flow from financing activities (32)

Proceeds from injection of equity 0 0 9,498

Cash receipts from the raising of short-term and long-term loans 794 470 4,469

Cash payments from the repayment of loans -3,087 -4,040 -2,576

Cash payments for finance leases 0 0 -50

Distributions to investors -1,320 -1,540 -2,575

Net cash used in financing activities -3,613 -5,110 8,766

Change in cash from exchange rate movements -312 -91 -43

Increase in cash 1,469 2,269 1,896

Cash at start of period 7,300 5,031 3,135

Cash at end of period (33) 8,769 7,300 5,031

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 49

200120022003Note

Statement of Movements in Equity

€ '000 € '000 € '000 € '000 € '000 € '000 € '000

Issued Capital Revenue Hedging Exchange Accumulated Equitycapital reserve reserve reserve differences profit

50

01.01.2001 6,180 20,066 6,643 -251 886 3,003 36,527

Exchange rate movements 0 0 0 0 778 -9 769

Change from approved capital 420 16,350 0 0 0 0 16,770

Payment into the revenue reserve 0 0 1,804 0 0 -1,804 0

Change in market value of financial instruments 0 0 0 -136 0 0 -136

Net profit for the year 0 0 0 0 0 3,421 3,421

Distribution of profit 0 0 0 0 0 -2,575 -2,575

Other 0 -20 0 0 0 0 -20

31.12.2001 6,600 36,396 8,447 -387 1,664 2,036 54,756

01.01.2002 6,600 36,396 8,447 -387 1,664 2,036 54,756

Exchange rate movements 0 0 0 0 -4,024 485 -3,539

Payment into the revenue reserve 0 0 1,505 0 0 -1,505 0

Change in market value of financial instruments 0 0 0 -204 0 0 -204

Net profit for the year 0 0 0 0 0 2,620 2,620

Distribution of profit 0 0 0 0 0 -1,540 -1,540

Other 0 10 -383 0 0 0 -373

31.12.2002 6,600 36,406 9,569 -591 -2,360 2,096 51,720

01.01.2003 6,600 36,406 9,569 -591 -2,360 2,096 51,720

Exchange rate movements 0 0 0 0 -3,448 504 -2,944

Withdrawals from the revenue reserve 0 0 -9,689 0 0 9,689 0

Payments into the revenue reserve 0 0 7 0 0 -7 0

Change in market value of financial instruments 0 0 0 166 0 0 166

Net loss for the year 0 0 0 0 0 -10,960 -10,960

Distribution of profit 0 0 0 0 0 -1,320 -1,320

Other 0 6 -380 0 0 0 -374

31.12.2003 6,600 36,412 -493 -425 -5,808 2 36,288

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 51

Notes to the Consolidated Financial Statements

I. Application of the IFRS – basic notes

The consolidated financial statements of technotrans AG at December 31, 2003

are prepared in accordance with the International Financial Reporting Standards (IFRS)

applicable on that date. In accordance with Section 292a of German Commercial

Code, no consolidated financial statements in accordance with German accounting

standards were prepared, as the relevant requirements had been satisfied.

The consolidated financial statements are based on standard recognition and meas-

urement principles. They are expressed in € thousand.

The shares of technotrans AG are traded on the regulated market of the Frankfurt

Stock Exchange, in the Prime Standard segment. To assure consistency of presenta-

tion, these accounts have been formatted in accordance with the rules and regula-

tions of the Frankfurt Stock Exchange, Annex to Section 63, Para. 6 (Transparency

requirements for the Prime Standard). In a departure from the stock exchange rules

and regulations but in accordance with IAS 12.70, deferred tax is allocated exclusively

to long-term items. The designations of the items have moreover been brought in line

with IFRS. Items with a total of zero are not shown.

II. Group

a) Reporting entity

In addition to the parent company technotrans AG, Sassenberg, the consolidated

financial statements include eleven fully consolidated subsidiaries in which techno-

trans AG directly or indirectly has a 100 percent interest. The financial year throughout

the reporting entity is the calendar year.

technotrans AG, Sassenberg Parent(and Stadtbergen, production plant) P/S company 46,022 80,097 -9,988 404

technotrans graphics limited, Colchester, Essex/Great Britain S 100% 3,911 9,034 513 40

technotrans scandinavia AB, Stockholm/Sweden S 100% 5,513 1,372 -1,269 3

technotrans france s.a.r.l., Saint-Maximin/France S 100% 1,080 3,796 164 14

technotrans italia s.r.l., Legnano/Italy S 100% 599 1,710 37 9

technotrans america, inc., Chicago, Illinois/USA P/S 100% 2,762 9,547 -11,309 53

technotrans america west, inc., Corona, California/USA P/S 100% -43 11,390 -1,513 42

technotrans japan k.k., Kobe/Japan S 100% 592 3,900 98 5

technotrans china ltd., Hong Kong S 100% 216 1,215 123 4

technotrans printing equipment (beijing) co. Ltd., Beijing/People's Republic of China P/S 100% 431 708 52 6

technotrans technologies pte ltd., Singapur S 100% 1,138 4,482 209 13

globalprint AG, Sassenberg 100% 672 0 1 0

Company Production/ Interest Equity* Revenue* Profit after Employees,

Sales+Service tax* average for

year

€ '000 € '000 € '000

*Equity, revenue and profit after tax have been calculated in accordance with the regulations applicable locally for each subsidiary.

52

The reporting entity was unchanged from the previous year.

b) Consolidation methods

The consolidated financial statements are based on the group companies' annual

financial statements (Commercial Balance Sheet II based on the IFRS) prepared in

accordance with standard principles as at December 31, 2003. These annual financial

statements have each been audited. Only technotrans japan k.k. and globalprint AG

were subjected to a review according to ISA 910.

Capital consolidation for the subsidiaries is performed according to the purchase

method (book-value method). In accordance with IAS 22, the valuations at the time of

acquisition are initially adopted. Interim financial statements were available for this

purpose. The resulting difference is then added to assets and debts up to their fair

value. Any remaining amount is reported under fixed assets as goodwill and amortised

by the straight-line method.

The following table shows the reporting entity:

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 53

Intra-group trade, expenditure and earnings, together with all receivables and liabili-

ties between the consolidated companies, have been eliminated. Netting differences

resulting from exchange rate changes have been booked to the result for the period

where they occurred within the reporting period. Assets from intra-group trade which

appear under fixed assets and inventories have been adjusted to eliminate any inter-

mediate results.

c) Recognition and measurement principles

The application of specific IFRS is indicated in the notes to the individual items of the

financial statements. The following methods of recognition and measurement were

fundamentally applied:

Cash is reported at face value and converted into € at the closing rates.

Receivables are fundamentally reported at amortised cost. Receivables in foreign cur-

rency are translated at the balance sheet date, at the closing rate, in accordance with

IAS 21.9 and 11. Provision is made for credit risks in the form of valuation allowances.

Long-term non-interest-bearing receivables are discounted.

The inventories reported are always shown at cost of acquisition or cost of conversion,

using the weighted average cost method, or net realisable value (Nettoveräußerungs-

wert) if lower. In accordance with IAS 2, cost of conversion includes the prime costs,

as well as all systematically allocable fixed and variable production overheads.

Finance charges are not capitalised.

Individual downward valuation adjustments have been made on all inventories where

their net realisable value is lower than the cost of acquisition or conversion. The net

realisable value is taken to be the prospective sales revenue less the costs incurred

up until their sale. If the reasons which have led to downward valuation cease to

apply, a reversal is made.

Property, plant and equipment are reported at cost of acquisition or cost of conver-

sion, less depreciation and impairment losses. Retrospective acquisition costs are

capitalised. In the case of self-constructed assets, the cost of conversion is calculated

on the basis of prime costs as well as the systematically allocable fixed and variable

production overheads, including depreciation. Borrowing costs are not recognised.

Maintenance costs are recorded as a direct expense.

Property, plant and equipment are depreciated according to the straight-line method,

on the basis of their useful life. The useful lives and depreciation methods applied

are periodically reviewed.

Insofar as necessary, the value of property, plant and equipment is adjusted to

the recoverable amount. If the circumstances which led to this measure subsequently

cease to apply, the valuation allowance is reversed at most by an amount which would

not cause the net carrying amount to be exceeded if no valuation allowance had been

applied.

Intangible assets, namely concessions and industrial and similar rights and values

acquired for consideration are carried at cost. They are amortised by the straight-line

method, according to their useful life.

Self-constructed intangible assets, which in the case of technotrans comprises capi-

talised development expenditure, are recognised at cost. Pursuant to IAS 38.53 ff.,

these comprise the prime costs as well as all directly allocable fixed and variable pro-

duction overheads that arise from the start of the development phase to its conclu-

sion. The conditions for capitalisation laid down in IAS 38.19, 38.20 and 38.45 are

met. Amortisation of capitalised development costs commences as soon as the asset

is available for use. This usually coincides with the start of its commercial use. This

amortisation is calculated by the straight-line method over five years, in accordance

with the anticipated product life-cycle.

The notes on property, plant and equipment apply analogously to any necessary

adjustment in the value of intangible assets to the "recoverable amount".

Goodwill from the consolidation of capital is amortised by the straight-line method

over periods of 5 to 15 years, but predominantly 10 to 15 years, pursuant to IAS 22

in accordance with its useful life. Insofar as necessary, the value is adjusted to the

recoverable amount. Pursuant to IAS 36.109, such an adjustment in value where the

circumstances which led to it subsequently cease to apply is fundamentally not re-

versed. In accordance with IAS 21.33 (a), goodwill recognised for subsidiaries is

translated at the closing rate.

Deferred taxes are created for temporary differences between the amounts in the

consolidated balance sheet and the tax base. In accordance with IAS 12, deferred

taxes are moreover capitalised on tax loss carryforwards where their use is probable.

Liabilities are fundamentally carried at amortised cost. Liabilities in foreign currency

are translated in accordance with IAS 21.9 and 11.

54

Provisions are created to cover obligations to third parties if these obligations are

likely to result in a future outflow of resources and their amount can be estimated.

They are measured at the likely amount at which settlement will take place.

Provisions for pensions are recognised as a liability pursuant to IAS 19.64 using the

benefit/years of service method. Actuarial gains and losses are recognised in the year

in which they occur.

Derivative financial instruments are recognised at market value. At technotrans, deriv-

ative financial instruments are used almost exclusively for hedging interest rate risks

which qualify as cash flow hedges. Changes in the market value are therefore booked

to equity with no effect on income.

Revenues from the sale of goods are recognised in accordance with IAS 18.14 if the

significant risks and rewards have been transferred to the buyer. Revenues from ser-

vices are received according to IAS 18.20 on the basis of the stage of completion.

If a contract from a customer involves both the delivery of goods and the provision

of a service, such as assembly and commissioning, revenue is always realised upon

acceptance by the customer.

Currency translation: the concept of the functional currency has been applied in trans-

lating the financial statements of consolidated companies which have been prepared

in foreign currency. Insofar as the group companies handle their operations largely

independently in financial, commercial and organisational terms, they are treated as

"foreign entities" pursuant to IAS 21. The functional currency then corresponds to the

currency of the country in which the company is based. In the case of the Singapore

subsidiary the euro is considered to be the functional currency, as its revenues and

expenses are recorded predominantly in euros. Assets and liabilities are translated at

the mean rate on the balance sheet date (closing rate), and expenses and income at

the mean rate for the year. The resulting exchange difference is included under equity,

with no effect on net income.

In a departure from this principle, the impairment in accordance with IAS 36 which

became effective at the end of the year has been translated at the mean rate on the

balance sheet date, to reflect IAS 21.30 (b).

The individual financial statements of the consolidated companies prepared in local

currency report monetary items (cash, receivables and liabilities) in foreign currency at

the rate on the date of the transaction. All exchange differences from the translation

of monetary items at the closing rate were charged or credited to income. Non-mone-

tary items were translated at the historical rate.

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 55

USD 1.1311 0.9455 0.8958 1.2610 1.0477 0.8820

JPY 130.9530 118.0754 108.6900 134.8500 124.3600 115.7200

GBP 0.6919 0.6288 0.6220 0.7070 0.6505 0.6088

SEK 9.1227 9.1615 9.2526 9.0710 9.1820 9.3300

CNY 9.2134 7.6602 7.2485 10.2676 8.5460 7.1349

HKD 8.8093 7.3771 - 9.7886 8.1753 -

Mean rates for the year Mean rates at balance sheet date

Financial year Financial year Financial year

2003 2002 2001 31.12.2003 31.12.2002 31.12.2001

The principal differences between these financial statements and those prepared

in accordance with the rules of recognition and measurement under the German

Commercial Code are as follows:

– The individual financial statements of the consolidated companies prepared in local

currency report monetary items in foreign currency at the closing rate pursuant to

IAS 21, whereas the principle of imparity is to be observed under the German Com-

mercial Code.

– Raw materials and consumables used, as well as goods, are depreciated to the

lower replacement cost under the German Commercial Code, whereas depreciation

under IAS is merely based on the sales market. For this reason, according to IAS a

valuation allowance is only reported if the net realisable value is below the carrying

amount.

– According to IAS 12, the concept of timing differences that apply to deferred tax is

broader than in the German Commercial Code. In contrast to the German Commercial

Code, deferred tax from losses which can be carried forward for tax purposes are

always to be capitalised under IAS 12.

– Development costs are to be regarded as an asset and capitalised where certain

criteria are satisfied cumulatively, in accordance with IAS 38. The German Commer-

cial Code does not permit capitalisation.

– IAS 39 specifies that derivative financial instruments be reported as an asset or

liability at their market value.

– Exchange differences from a monetary item that is essentially to be regarded as

part of a net investment in a foreign entity are to be booked to equity with no effect

on income, pursuant to IAS 21, until it is sold. Under the German Commercial Code,

these exchange differences are booked to the result for the period.

56

III. Notes to the Consolidated Balance Sheet

1) Cash

Cash comprises cash on hand and demand deposits, together with short-term, highly

liquid investments that are readily convertible to known amounts of cash and which

are subject to an insignificant risk of changes in value. There were no marketable

securities at the balance sheet date. The development of cash, which constitutes the

financial resources in accordance with IAS 7, is shown in the Cash Flow Statement.

2) Trade receivables

In the Print segment, receivables outstanding are owed mainly by major printing press

manufacturers.

In the year under review, valuation allowances on receivables totalling € 313 thousand

were applied, and included in distribution costs in the Income Statement. There was

no default interest invoiced but still outstanding at the balance sheet date.

The following table provides an overview of valuation allowances on receivables:

– If a customer order includes both the delivery of products and the assembly and

commissioning thereof, in certain circumstances (see Section 19 "Revenue") IAS

18 envisages the invoicing of individual components of a business transaction,

whereas according to the German Commercial Code the complete revenue is

realised upon acceptance by the customer.

31.12.2001

€ '000

31.12.2002

€ '000

31.12.2003

€ '000Valuation allowances on receivables

Opening level 776 696 172

Allocated 313 404 793

Derecognition of receivables -78 -113 -73

Cash receipts for receivables written off -21 -174 -201

Exchange differences -45 -37 5

Closing level 945 776 696

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 57

3) Inventories

Of total inventories, € 5,143 thousand (previous year: € 3,616 thousand) are

valued at the lower net realisable value. The valuation allowances on receivables

totalled € 2,071 thousand at the balance sheet date (previous year: € 1,958

thousand).

4) Prepaid expenses and other short-term receivables

Income tax rebates were reported in the consolidated financial statements at

December 31, 2002 and December 31, 2001, under prepaid expenses and other

short-term receivables. They are now reported separately in the balance sheet.

The prior-year financial statements quoted have been adjusted accordingly.

31.12.2001

€ '000

31.12.2002

€ '000

31.12.2003

€ '000

Raw material and consumables 9,971 9,700 11,499

Work in progress, finished goods and merchandise 8,160 8,208 11,035

Prepayments 69 22 4

18,200 17,930 22,538

31.12.2001

€ '000

31.12.2002

€ '000

31.12.2003

€ '000

Credits outstanding 2 350 415

Creditable input tax from intra-EC deliveries 117 226 324

Prepaid expenses 597 606 432

Other 658 221 303

1,374 1,403 1,474

58

5) Property, plant and equipment

Property, plant

and equipment

€ '000

Prepayments

made and

construction

in progress

€ '000

Other assets,

plant and

other

equipment

€ '000

Land, land

rights and build-

ings, including

buildings on

land owned by

others

€ '000

Costat January 1, 2003 17,368 11,002 155 28,525

Foreign currency translation differences -330 -319 0 -649

Additions 86 1,703 143 1,932

Disposals -1,187 -1,676 0 -2,863

Transfers 0 222 -222 0

Costat December 31, 2003 15,937 10,932 76 26,945

Cumulative depreciation at January 1, 2003 2,767 6,642 0 9,409

Foreign currency translation differences -39 -167 0 -206

Depreciation for the year 588 1,671 0 2,259

Disposals -215 -1,265 0 -1,480

Cumulative depreciation at December 31, 2003 3,101 6,881 0 9,982

Residual carrying amounts at December 31, 2003 12,836 4,051 76 16,963

Self-constructed assets totalling € 12 thousand (previous year: € 21 thousand) were

capitalised in the 2003 financial year.

Depreciation is carried out over the following periods:

Depreciation period, years

Buildings 25 -50

Office furniture 10 -15

Tools and fixtures 3 -10

Hardware 3 -5

Cars 3 -5

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 59

No valuation allowances or reversals were applied in the year under review.

Land charges totalling € 10,750 thousand (previous year: € 10,750 thousand) have

been registered as collateral for long-term borrowings (cf. Section 10 "Borrowings").

6) Intangible assets

In agreement with the recognition criteria of IAS 38.45, development costs totalling

€ 642 thousand (previous year: € 1,129 thousand) were capitalised in the year under

review.

The development costs of € 642 thousand capitalised in the year under review relate

predominantly to the Micro Technologies segment, which continued and completed the

development work commenced in the previous year on large-area electroplating sys-

tems ("microform 100" and "microform 400"). A technology for temperature control

of injection moulding tools ("theta.disc") was also developed.

Intangible

assets

€ '000

Capitalised

development

costs

€ '000

Concessions,

industrial and

similar rights

€ '000

Costat January 1, 2003 4,884 2,616 7,500

Foreign currency translation differences -46 -16 -62

Additions 530 642 1,172

Disposals -2,045 0 -2,045

Costat December 31, 2003 3,323 3,242 6,565

Cumulative amortisationat January 1, 2003 2,780 621 3,401

Foreign currency translation differences -42 -5 -47

Amortisation for the year 919 423 1,342

Impairment loss acc. to IAS 36 850 0 850

Disposals -2,015 0 -2,015

Cumulative amortisation at December 31, 2003 2,492 1,039 3,531

Residual carrying amounts at December 31, 2003 831 2,203 3,034

60

Development costs of € 2,970 thousand (previous year: € 2,321 thousand) have been

recognised as an expense in view of their failure to satisfy the criteria of IAS 38.45.

In the Income Statement, the amortisation has been distributed between the various

functional areas using the function of expense method, according to the principle of

causation.

The useful life taken as the basis for the depreciation of software is three to five

years; the patents and expertise acquired from the Toolex Group in the 2001 finan-

cial year are amortised over 6 years.

A valuation allowance was applied to the residual carrying amounts (€ 850 thousand)

of the patents and expertise for the Electroforming Division acquired from the Toolex

Group in the 2001 financial year, as it was no longer possible to calculate their "real-

isable value" pursuant to IAS 36.5. Discounting of the anticipated cash flow was based

on an interest rate of 15 percent. In the Income Statement, the valuation allowance is

reported as "Impairment loss acc. to IAS 36". It is allocable to the Micro Technologies

segment. The allowance charge of € 850 thousand had not yet been included in the

interim financial statements at September 30, 2003.

7) Goodwill

Goodwill

€ '000

Cost at January 1, 2003 25,876

Foreign currency translation differences -2,922

Disposals 12,326

Cost at December 31, 2003 10,628

Cumulative amortisation at January 1, 2003 6,052

Foreign currency translation differences -647

Amortisation for the year 1,707

Impairment loss acc. to IAS 36 11,372

Disposals 12,326

Cumulative depreciation at December 31, 2003 6,158

Residual carrying amounts at December 31, 2003 4,470

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 61

The subsidiary technotrans america west, inc. was acquired for a provisionally speci-

fied purchase price of USD 4,000 in the 2001 financial year. The final purchase price

depends on the company's profitability over the period 2001 to 2004 and will not ex-

ceed USD 10 million. Current goodwill has been calculated on the basis of the original

purchase price. Its recalculation pursuant to IAS 22.65 is not necessary, as the cur-

rent development in the company's profitability renders it unlikely that the purchase

price will be adjusted.

The disposals related to goodwill which is not expected to yield any future economic

benefit and which was therefore to be derecognised pursuant to IAS 38.103.

Amortisation for the current year is reported in the income statement under

"Amortisation of goodwill" (cf. Section 25).

Falling revenues for the second year in succession prompted technotrans to subject

the assets of the individual cash-generating units to an impairment test pursuant to

IAS 36.

As a result, the goodwill of the Print segment was adjusted in value by € 8,591 thou-

sand. This goodwill constitutes part of the assets that are allocated to the cash-gener-

ating unit "Print segment" created pursuant to IAS 36.64 ff. The value in use of this

segment undercut the carrying amount of the assets directly allocable to the segment

pursuant to IAS 36.74 f. by € 8,591 thousand. Pursuant to IAS 36.88, this impairment

loss was assigned to the goodwill directly allocable to the segment. Discounting of the

anticipated cash flow is based on an interest rate of 15 percent. The valuation

allowance is reported in the income statement under "Impairment loss acc. to IAS

36". The allowance charge of € 8,591 thousand had not yet been included in the

interim financial statements at September 30, 2003.

The goodwill in the Micro Technologies segment results from the acquisition of the

Electroforming Division of Toolex. Its value was adjusted by € 2,781 thousand in

the year under review. This goodwill is allocable to the cash-generating unit "Toolex

Electroforming" which was created pursuant to IAS 36.64 ff. The value in use of this

cash-generating unit undercut the carrying amount of the assets directly allocable to it

pursuant to IAS 36.74 f. by € 2,781 thousand. Pursuant to IAS 36.88, the impairment

loss was assigned primarily to the goodwill directly allocable to the segment. The antici-

pated cash flows were discounted at 15 percent. The valuation allowance is reported

in the income statement under "Impairment loss acc. to IAS 36". The allowance

charge of € 2,781 thousand had not yet been included in the interim financial state-

ments at September 30, 2003.

62

8) Deferred tax assets

Deferrals of income taxes are made according to the "temporary concept" of IAS 12

for temporally limited recognition and measurement differences for the companies

included in the consolidated accounts and for consolidation measures affecting

income.

The value of the deferred taxes capitalised on tax loss carryforwards in previous years

had been adjusted in full at December 31, 2003, as their use is estimated as improb-

able. The associated allowance charge of € 2,314 thousand had not yet been includ-

ed in the interim financial statements at September 30, 2003.

For further notes on deferred tax assets, see Section 28 "Income tax expense".

The following table shows the residual carrying values of technotrans goodwill:

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 63

31.12.2001

€ '000

31.12.2002

€ '000

31.12.2003

€ '000

Print segment

Goodwill from the acquisition of

– BVS Beratung Verkauf Service Grafische Technik GmbH, Stadtbergen (1998), now the Stadtbergen plant of technotrans AG

– Ryco Graphic Manufacturing, Inc., Chicago, USA (2000), now merged with technotrans america, inc.

– Steve Barberi Company, Inc. and Farwest Graphic Technologies LLC, Corona, USA (2001), now combined and renamed technotrans america west, inc. 3,020 15,149 19,415

Micro Technologies segment

Electroforming Division of Toolex (2001) 1,450 4,675 5,116

4,470 19,824 24,531

An interest-free loan in USD to an employee with an original term of three years and

a countervalue of € 259 thousand (previous year: € 300 thousand) was recognised

at fair value pursuant to IAS 39.67. Discounting was based on an interest rate of 5.5

percent. The loan was granted to an employee who was sent on a foreign assignment

for a limited period, and it is collateralised by a land charge.

Liabilities

There were no hedged liabilities at the balance sheet date. Collateral has been pro-

vided only in the case of borrowings (cf. Section 10 "Borrowings").

10) Borrowings

31.12.2001

€ '000

31.12.2002

€ '000

31.12.2003

€ '000

Bank overdrafts 3,026 3,055 2,665

Short-term component of borrowings 3,074 3,111 3,031

Short-term borrowings 6,100 6,166 5,696

Long-term borrowings 12,076 15,390 19,354

Total borrowings 18,176 21,556 25,050

31.12.2001

€ '000

31.12.2002

€ '000

31.12.2003

€ '000

Loans to employees 259 300 323

Trade receivables 301 0 0

Rent deposits 32 45 107

Other 63 60 257

655 405 687

64

9) Other long-term assets

Other long-term assets comprise:

Terms to maturity of bank borrowings

CollateralInterest p.a.Total

€ '000

1-5 years

€ '000

up to 1 year

€ '000

over 5 years

€ '000

CHF fixed rate credit 500 2,001 625 3,126 4.95% Land charge

Variable € credit 2,000 6,000 0 8,000 6-month Land chargeEURIBORcover via

interest rateswap (fixed

rate: 5.73%)

Variable € credit 575 2,300 1,150 4,025 6-month NoneEURIBORcover via

interest rateswap (fixed

rate: 5,43%)

USD bank overdrafts 3,013 0 0 3,013 Variable None

SEK bank overdrafts 11 0 0 11 Variable None

EUR bank overdrafts 1 0 0 1 Variable None

6,100 10,301 1,775 18,176

A substantial portion of borrowings is collateralised by land charges totalling € 10,750

thousand (previous year: € 10,750 thousand) on the company premises in Sassenberg.

One loan with an original countervalue of € 4,000 thousand has been financed in

Swiss francs. This resulted in an exchange-rate gain of € 233 thousand (previous

year: exchange rate loss of € 77 thousand) in the financial year under review. The

interest and repayment dates of the CHF loan are 15.03., 15.06, 15.09. and 15.12 of

each year. The term is 10 years, starting on May 29, 2000. Only bank overdrafts are

exposed to an interest rate risk.

11) Trade payables

All trade payables have a term of up to one year. They relate predominantly to techno-

trans AG, technotrans america, inc. and technotrans america west, inc.

12) Advances received

Advances received originate in the main from project business for technotrans AG,

technotrans america, inc. and technotrans china ltd.

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 65

Provisions for

pensions

€ '000

Total

€ '000

Other provisions

€ '000

Obligations

to personnel

€ '000

Short-term

Provision for

patent

proceedings

€ '000

Opening level at 01.01.2003 1,821 3,322 3,303 8,446 136

Exchange rate movements -64 -216 0 -280 0

Used -1,416 -1,749 -302 -3,467 0

Liquidated -106 -210 0 -316 0

Allocated 1,284 3,362 0 4,646 15

Closing level at 31.12.2003 1,519 4,509 3,001 9,029 151

13) Provisions

The obligations towards personnel include provisions for vacation leave, vacation pay

and time credits, as well as for performance-related pay for management employees.

It is fundamentally uncertain when these obligations will have to be met. The other

provisions are predominantly for payments to be made under warranty, costs for the

preparation of the annual accounts, and commission payments. The factor of uncer-

tainty in this case is principally the amount in question.

A competitor filed patent proceedings in 2000, but these were rejected at the

first instance in March 2001. The oral proceedings in the appeal took place at the

Düsseldorf Higher Regional Court on October 10, 2002. In the latter instance, the

court found in favour of the plaintiff. The ruling of November 14, 2002 paves the way

for a claim for compensation, the level of which may have to be determined in further

legal proceedings. A provision to the value of the matter in dispute of € 2.5 million

was created to cover the potential claim for compensation. Legal expenses are cur-

rently still measured at € 501 thousand. The particulars pursuant to IAS 37.85 are

not disclosed, in accordance with IAS 37.92, in order not to undermine the company's

situation substantially in the ongoing legal dispute.

A direct pension pledge has been made to four employees of the former BVS Beratung

Verkauf Service Grafische Technik GmbH, Stadtbergen. The "defined benefit obliga-

tion" (DBO) for purposes of calculating the provisions for pensions was determined on

the basis of an actuarial report. The calculation was based on an interest rate of 6.00

percent (previous year: 5.75 percent) and a pension trend of 2.0 percent (previous

year: 2.0 percent). The development in pay levels and employee fluctuation were not

taken into account, as those eligible for pensions have since left the company. The

interest costs for the DBO in 2003 amount to € 9 thousand (previous year: € 8

thousand).

Long-term

66

Three of the pension obligations are backed by capital-forming life assurance policies,

which constitute non-qualified insurance policies pursuant to IAS 19.7. Their fair value is

€ 54 thousand and is reported under other long-term assets (Section 9). The anticipated

return on these policies is 4 percent p.a.

14) Income taxes payable

The fall in income taxes payable from € 780 thousand in the 2002 financial year to

€ 290 thousand in the 2003 financial year is primarily attributable to technotrans AG.

The impairment according to IAS 36 on the goodwill from the acquisition of the Toolex

Electroforming Division, which was partly tax-deductible, resulted in an income tax ex-

pense that remained below the advance payments made. technotrans AG was there-

fore entitled to a tax refund at December 31, 2002 in contrast to the previous year.

15) Other short-term debt

See Section 34 "Financial instruments" in respect of short-term liabilities from deriva-

tive financial instruments.

31.12.2001

€ '000

31.12.2002

€ '000

31.12.2003

€ '000

Operating taxes 321 346 346

Liabilities in respect of social insurance 525 525 610

Sales tax 292 529 849

Accounts receivable on the credit side 134 224 328

Deferred income 76 32 22

Short-term liabilities from derivative financial instruments 310 0 0

Other 162 221 407

1,820 1,877 2,562

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 67

16) Deferred tax liabilities

Deferrals of income taxes are made according to the "temporary concept" of IAS 12

for temporally limited recognition and measurement differences for the companies

included in the consolidated accounts and for consolidation measures affecting

income. For further notes on deferred tax assets, see Section 28 "Income tax

expense".

17) Other long-term debt

Other long-term debt principally primarily consists of liabilities from derivative financial

instruments (cf. Section 34 "Financial instruments") totalling € 380 thousand (previ-

ous year: € 953 thousand).

18) Equity

The development in equity is shown in the Statement of Movements in Equity. The

equity of the group totalled € 36,288 thousand at December 31, 2003 (previous year:

€ 51,720 thousand).

Issued capital

A share split at a ratio of 1:3 was approved by the Shareholders' Meeting on May 3,

2002. Since its implementation on May 31, 2002 following the close of trading on the

stock markets, the issued capital (share capital) of technotrans AG has been divided

into 6,600,000 individual share certificates with no par value. Each individual share

certificate represents an arithmetic amount of € 1 (previously: € 3) of the share capi-

tal. All shares carry identical rights. No special rights or preferences are granted to

individual shareholders. The same applies to dividend entitlements.

Approved capital

In April 2001, 420,000 shares (adjusted to reflect the split) were issued from the

approved capital at that time by way of a capital increase for contribution in kind and

for cash. The issued capital consequently rose by € 420 thousand and the premium

of € 16,350 thousand was allocated to the capital reserve. The remaining approved

capital was cancelled by the Shareholders' Meeting dated May 4, 2001. The Share-

holders' Meeting simultaneously authorised the Board of Management to raise the

share capital by the issue of new shares on one or more occasions by April 30, 2006,

against contributions, by up to a total of € 3,300,000, with the approval of the

Supervisory Board.

68

Authorised but unissued capital

The Shareholders' Meeting of May 4, 2001 in addition approved the creation of autho-

rised but unissued capital for the issuing of stock options to members of the Board of

Management, employees of technotrans AG and the management and employees of

subsidiary companies, with a term of 4 years. The resolution envisages an increase in

the share capital of up to € 660,000 through the issue of new shares bearing profit

entitlements from the start of the financial year in which they are issued. The stock

options issued must have been held for at least two years. The exercise period in

each year shall be the sixth banking day and the nineteen subsequent banking days

following an Ordinary Shareholders' Meeting. The options may be exercised for the

last time after a further two years. A stock option may only be exercised if at least one

of the two following performance targets has been reached at the time of exercise:

– The value of technotrans shares has risen in percentage terms by an amount

equivalent to or higher than the NEMAX Allshare Performance Index in the period

between the issuing and exercising of the stock option (external performance

target).

– The consolidated revenue has risen by an average of at least 20 percent per year

between the financial year preceding the year in which the stock options were

issued (the "base year") and the financial year preceding the year in which the

stock options are exercised, and the consolidated net profit in the financial years

following the base year and prior to the year in which the stock options are exer-

cised totals at least 6 percent of the cumulative consolidated revenue (internal

performance target).

As a result of the changes to the Deutsche Börse indices and in accordance with

the stock options agreements, a similar reference index to the NEMAX Allshare

Performance Index will need to be specified at the end of 2004.

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 69

Tranche

2001

Tranche

2002

Tranche

2003

Exercise price for tranche 6.59 € 16.49 € 43.55 €

Options outstanding at January 1, 2001 0

Issued 118,827

Terminated 6,042

Options outstanding at December 31, 2001 0 112,785

Issued 138,753 0

Terminated 24,793 15,400

Options outstanding at December 31, 2002 0 113,960 97,385

Issued 97,156 0 0

Terminated 4,839 15,815 12,065

Options outstanding at December 31, 2003 92,317 98,145 85,320

No stock options were exercised in the period under review. The IFRS do not at pres-

ent specify that stock options are to be reported with an effect on income. No per-

sonnel costs were consequently reported in connection with the issuing of options.

According to SFAS No. 123 of US-GAAP, the personnel costs for the 2003 reporting

year would have amounted to € 158 thousand based on the fair values of a stock

option from the following tranches as derived using the Merton model:

2001: 2.47 €

2002: 0.60 €

2003: 2.48 €

Revenue reserve

Whereas the revenue reserve and the exchange differences were combined into a

single item "Other reserves" in the consolidated financial statements at December

31, 2002 and December 31, 2001, they are reported individually in the balance

sheet at December 31, 2003 for greater ease of reconciliation with the Statement

of Movements in Equity. The prior-year amounts have been adjusted accordingly.

70

An employee's stock options may be terminated by the Board of Management in the

event of the employee leaving the company. The exercise prices and the movements

in the number of stock options held by employees are as follows:

€ '000

Legal reserve following allocation of € 7 thousandto one subsidiary 233

Uncommitted reserves following withdrawal of € 9,689 thousand to cover the net loss for the year of technotrans AG 37

Exchange rate losses (net after income tax benefit) from the financing of technotrans america west, inc. totalling € 380 thousand (from 2003) and € 383 thousand (from 2002) in accordance with IAS 21.17 -763

-493

Hedging reserve

Pursuant to IAS 39, the negative market value of the interest rate swaps implemented

was recognised in the hedging reserve, following deduction of deferred tax assets (cf.

Section 34 "Financial instruments").

Exchange differences

The opening inventory of exchange differences at January 1, 2003 is exclusively the

result of the translation of the issued capital of the group companies at the current

closing rates compared with the historical cost of acquisition. The increase in exchange

differences reflects the effects of exchange rate movements on equity, which result

from the difference between the closing rate at December 31, 2003 and the closing

rate at December 31, 2002, and also from the difference compared with the average

rate for 2003.

Distribution of profit

A dividend of € 0.20 per share was distributed for the 2002 financial year. The

amount distributed totalled € 1,320 thousand (previous year: € 1,540 thousand) for

6,600,000 shares. A dividend of € 0.30 per share from the accumulated profit of

technotrans AG will be proposed to the Shareholders' Meeting for the 2003 financial

year. This corresponds to a distributed amount of € 1,980 thousand for 6,600,000

shares.

The reported revenue reserve comprises:

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 71

IV. Notes to the Consolidated Income Statement

19) Revenue

If a contract from a customer involves both the delivery of goods and the provision

of a service, such as assembly and commissioning, revenue is always realised upon

acceptance by the customer.

In certain circumstances, in a departure from this principle according to IAS 18.13,

individual components of a business transaction may be invoiced separately if this

reflects the economic content of the business transaction more accurately. As the

IAS do not make stipulations on the subdivision of a business transaction into its

component parts, US EITF 00-21 "Accounting for Revenue Arrangements with Multiple

Deliverables" is used for this purpose in conjunction with IAS 1.22. It divides up a

business transaction consisting of several components into goods and services ele-

ments in proportion to their respective fair value, if the latter can be determined

objectively and reliably and if the service could also be procured from third parties

without diminishing the practical utility of the delivered goods or their value for the

customer. If these conditions are met and the significant risks of ownership for the

goods have moreover passed to the buyer (IAS 18.16), the revenue from the goods

is realised according to IAS 18.14 and the revenue from the services according to

IAS 18.20. According to this accounting method, at December 31, 2003 revenue

totalling € 2,203 thousand (previous year: € 1,578 thousand) had been realised

from the supply of materials where their assembly or commissioning was outstand-

ing at the balance sheet date.

Revenue is shown broken down by division and region in the segment information.

72

2001

€ '000

2002

€ '000

2003

€ '000

Cost of materials 47,407 53,524 62,749

Cost of labour 15,702 17,386 17,847

Travel expenses 1,877 2,224 2,310

Subcontractors, personnel leasing 2,060 2,771 3,066

Depreciation 1,468 1,046 1,298

Other 2,294 2,366 2,097

70,808 79,317 89,367

2001

€ '000

2002

€ '000

2003

€ '000

Cost of labour 6,717 7,022 8,382

Logistics costs 2,301 2,144 2,430

Travel expenses 867 1,002 1,228

Promotional and exhibition costs 959 791 1,105

Valuation allowances on receivables 313 404 793

Depreciation 203 241 310

Other 1,028 899 990

12,388 12,503 15,238

21) Distribution costs

The distribution costs include costs for the Sales Department and for office-based

service personnel, and also the costs of advertising and logistics. This item also

includes sales-related expenditure for commissions and valuation allowances on

receivables.

20) Cost of conversion

The cost of conversion comprises the cost of traded products and the cost price of

merchandise sold. In accordance with IAS 2, it includes both costs which can be

directly allocated, such as cost of materials and cost of labour, and also overheads,

including pro rata depreciation and amortisation on property, plant and equipment

used for production and on intangible assets. The costs of the field service are like-

wise reported under cost of conversion.

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 73

22) Administrative costs

The administrative costs comprise personnel and material costs for management and

administration, insofar as not charged to other cost centres as internal services.

The rise in consultancy expenses is attributable to the planned takeover of the

Baldwin Technology Company, Inc. (cf. also Section 40 "Events occurring after the

balance sheet date").

23) Research and development costs

All research costs are charged to the result for the period. Development costs are

charged as ongoing expenses until the criteria of IAS 38.45 are satisfied cumulatively.

From that point on, development costs are capitalised (cf. Section 6 "Intangible

assets").

24) Other operating income and expenses

2001

€ '000

2002

€ '000

2003

€ '000

Cost of labour 5,383 6,053 5,780

Depreciation 1,801 1,652 1,402

Consultancy, audits 2,969 1,256 1,571

Other 2,311 3,122 3,217

12,464 12,083 11,970

2001

€ '000

2002

€ '000

2003

€ '000Other operating income

Insurance payments 41 39 67

Liquidation of provisions 352 188 332

Book profits from the disposal of assets 603 34 35

Income from tenancy agreements 29 18 33

Personnel-related revenue 68 65 135

Income unrelated to the accounting period 10 136 2

Other 451 609 74

1,554 1,089 678

The item "Other" included consolidation differences totalling € 160 thousand (previ-

ous year: € 369 thousand) in the 2003 financial year.

74

2001

€ '000

2002

€ '000

2003

€ '000Other operating expenses

Allocation to provision for Baldwin patent dispute 0 3,303 16

Book losses from the disposal of assets 9 53 6

Other operating taxes 164 389 254

Expenses unrelated to the accounting period 151 86 92

Other 108 198 127

432 4,029 495

2001

€ '000

2002

€ '000

2003

€ '000

Print segment 1,233 1,479 1,596

Micro Technologies segment 474 482 484

1,707 1,961 2,080

Allocations to and reversals of provisions were only reported under other operating

income and expenses where they were not directly allocable to the functional areas

under the cost of sales classification method.

25) Amortisation of goodwill

The amortisation of goodwill is shown in the following table:

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 75

26) Interest revenue/expense

Borrowing costs are recognised as an expense in the reporting period in which they

are incurred. No borrowing costs were capitalised in the reporting period.

27) Foreign currency gains/losses

Income tax expense includes corporation income tax and trade earnings tax for

technotrans AG, and also comparable taxes on income for the foreign companies.

Taxes unrelated to the 2003 accounting period result from the tax office investigation

at technotrans AG in 2002. Other operating taxes are included in other operating

expenses.

2001

€ '000

2002

€ '000

2003

€ '000

Interest revenue 140 138 153

Interest expense -1,167 -1,525 -1,801

-1,027 -1,387 -1,648

2001

€ '000

2002

€ '000

2003

€ '000

Foreign currency gains 844 311 604

Foreign currency losses -989 -572 -1,088

-145 -261 -484

28) Income tax expense

2001

€ '000

2002

€ '000

2003

€ '000

Tax expense for the period -1,547 -3,205 -3,418

Tax expenses/refunds unrelated to the accounting period -205 139 11

-1,752 -3,066 -3,407

Actual income tax expense

76

2001

€ '000

2002

€ '000

2003

€ '000

Deferred tax expense -3,853 -1,482 -1,194

Deferred tax income 439 2,929 2,145

Changes to deferred tax resulting from tax rate changes 78 0 0

-3,336 1,447 951

Deferred tax expense

The deferred tax is attributable to temporally divergent valuations in the companies' tax

balance sheets and the Consolidated Balance Sheet in accordance with the "liability

method".

The deferred tax assets reported in previous years also included tax relief claims based

on the anticipated use of existing tax loss carryforwards in subsequent years. As the

likelihood of these tax loss carryforwards being used in the future fell in the year under

review, the previously recognised deferred tax assets for tax loss carryforwards were

fully value-adjusted in the year under review. The resulting expense of € 2,314 thou-

sand is included in the reported tax expense of € 3,853 thousand.

The deferred tax is calculated on the basis of the tax rates applicable or expected at

the time of realisation in the individual countries concerned. The calculation of deferred

tax on eliminated intercompany profits is an exception; this has been calculated at a

composite tax rate for the entire group of 34.6 percent (previous year: 38 percent),

determined on the basis of the various different national tax rates. Deferred tax assets

and liabilities were not offset against each other.

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 77

Liabilities

€ '000

Assets

€ '000

Liabilities

€ '000

Assets

€ '000

Liabilities

€ '000

Assets

€ '000

2003 2002 2001

Receivables 14 111 110 354 340 368

Inventories 522 130 1,263 92 831 83

Fixed assets 55 875 49 847 107 775

Provisions 215 12 338 11 60 547

Liabilities 41 0 0 0 0 0

Loss carryforwards 0 0 2,252 0 1,516 0

Exchange rate losses 0 476 0 234 0 0

Cash flow hedging 265 0 362 0 237 0

1,112 1,604 4,374 1,538 3,091 1,773

The following table shows a reconciliation of the deferred tax assets and liabilities in

the Balance Sheet and the deferred taxes in the Income Statement:

The following capitalised deferred tax assets and liabilities relate to recognition and

measurement differences for the individual items on the Balance Sheet and to loss

carryforwards which can be used in future:

2001

€ '000

2002

€ '000

2003

€ '000

Change in deferred tax assets from loss carryforwards -2,252 736 1,233

Change in other deferred tax assets -1,010 547 369

Change in deferred tax liabilities -66 236 -365

Change in deferred tax netted within equity 97 -125 -359

Change in reporting entity 0 0 73

Exchange rate movements -105 53 0

Deferred tax acc. to Income Statement -3,336 1,447 951

78

There exist tax loss carryforwards at technotrans america west, inc. (USD 2,547 thou-

sand), technotrans america, inc. (USD 2,295 thousand), technotrans scandinavia AB

(SEK 40,207 thousand) and globalprint AG (€ 327 thousand). Based on the individual

national rates of tax (40 percent or 38 percent USA, 28 percent Sweden, 38.7 per-

cent Germany), the deferred tax assets amount to € 3,376 thousand. These deferred

tax assets have not been recognised, as is consistent with IAS 12.34. The loss carry-

forwards may be carried forward for 20 years in the USA and for an unlimited period in

other cases.

The following table shows a reconciliation of the theoretical tax expense and the actu-

al income tax expense. The applicable tax rate of 39.76 percent (previous year: 37.95

percent) calculated for the year under review is based on a corporation tax rate of

26.5 percent (previous year: 25.0 percent), a solidarity surcharge of 5.5 percent and

an effective trade earnings tax rate of 16.38 percent (previous year: 15.72 percent).

The change compared with the applicable tax rate in 2002 results from a change in

the assessment rate for trade earnings tax and a temporary increase in the corpora-

tion tax rate for 2003 of 1.5 percentage points in the context of the Flood Relief Act.

2001

€ '000

2002

€ '000

2003

€ '000

Applicable tax rate 39.76% 37.95% 38.13%

Consolidated earnings before taxes on income -5,872 4,239 5,877

Theoretical tax income/expense 2,335 -1,609 -2,241

Valuation allowance on deferred tax assets on tax loss carryforwards (at average rates) -2,314 0 0

Expense from the nonrecognition of deferred tax assets on tax losses occurring in 2003 -876 0 0

Tax effect of non-deductibility of amortisation of goodwill -67 -78 -212

Tax effect of non-deductibility of impairment pursuant to IAS 36 -3,809 0 0

Tax effect of non-deductibility of business expenses and tax-exempt income -27 -130 -91

Differences from foreign and deferred tax -125 59 -180

Taxes not related to the period -205 139 11

Reduction in corporation tax on distributed amounts 0 0 257

Actual income tax expense -5,088 -1,619 -2,456

Actual income tax rate in % -86.6% 38.2% 41.8%

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 79

The entitlement to a reduction in corporation tax included in the tax-paid reserves of

technotrans AG and to be claimed in the year of distribution amounts to € 685 thou-

sand (previous year: € 685 thousand) in total at December 31, 2003 according to

current corporation tax legislation. According to the specifications of the German Tax

Amendments Act passed by the German parliament on November 21, 2003, the enti-

tlement to a reduction in corporation tax cannot be claimed for dividends which are

paid after April 12, 2003 and before December 31, 2005.

29) Earnings per share

Earnings per share are calculated in accordance with IAS 33. The number of shares at

the balance sheet date of December 31, 2003 corresponds to the average weighted

number of ordinary shares, as no further shares were issued in the 2002 and 2003

financial years. In accordance with IAS 33.43, the average number of shares in previ-

ous years has been adjusted due to the share split.

The basic earnings per share figure is therefore calculated by dividing the annual

result by the average number of ordinary shares outstanding for the year:

The subscription rights issued on the basis of the existing stock options plan (cf.

Section 18 "Equity") have only a partially dilutive effect pursuant to IAS 33.35. As the

exercise price for the options issued in 2001 and 2002 of € 43.55 and € 16.49 is

above the average share price for the year under review of € 7.47, hypothetically no

ordinary shares have been issued for no consideration. On the other hand, the exercise

price of € 6,59 for the options issued in 2003 is below the average share price for the

year under review; on this basis there are 10,875 potentially dilutive ordinary shares as

a result of the following calculation:

Potentially dilutive ordinary shares (units)

stock options issued (units)

= xExercise price

ave. share price

200120022003

Annual result (€ thousand) -10,960 2,620 3,421

Ordinary shares outstanding, average for year 6,600,000 6,600,000 6,507,750

Basic earnings per share (€) -1.66 0.40 0.53

80

( 1 – )10,875 92,317= x

6.59 €

7.47 €( 1 – )

200120022003

Annual result (€ thousand) -10,960 2,620 3,421

Average number of outstanding and potentially dilutive ordinary shares in the year 6,607,250 6,600,000 6,507,750

Diluted earnings per share (€) -1.66 0.40 0.53

As the options from the 2003 tranche were issued in May 2003, 8/12 of the poten-

tially dilutive ordinary shares (= 7,250) were included in the calculation pro rata tem-

poris.

On this basis, the diluted earnings are the annual result divided by the average num-

ber of ordinary shares outstanding in the year plus the average number of potentially

dilutive ordinary shares in the year:

V. Notes to the Segment Report

Segment information is presented according to both division and geographical region.

Segmentation according to the Print, Micro Technologies and Services Divisions is the

primary reporting format and is performed in agreement with the internal reporting

structure of the technotrans Group.

The Segment Report itself is presented in the tables after the Income Statement.

The delivery prices for transactions between the segments are generally agreed on

the same basis as transactions between a group company and a third party.

The Segment Report provides an analysis of operational figures, assets and debts

and of other key values. The segment information comprises both directly allocable

amounts and amounts that can reasonably be split. The assets and liabilities are dis-

tributed among those segments, the corresponding expenses and income for which

likewise influence the segment result. The assets of € 10,723 thousand not allocated

to the individual areas therefore refer to cash, income tax rebate claims and deferred

tax assets. The unallocated liabilities totalling € 20,760 thousand refer to amounts

owed to credit institutions, liabilities from derivative financial instruments, income

taxes payable and deferred tax liabilities.

The impairment loss acc. to IAS 36 is not included in the result for the segments.

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 81

In the Segment Report by regions, the external revenue per segment is based on the

location of the customer, and the distribution of operating assets and investment is

based on the location of the asset.

No reconciliation between the segment and consolidated data is required, as the fig-

ures in the segment information coincide with those in the Income Statement, Balance

Sheet and Cash Flow Statement. The result for the segments corresponds to the oper-

ating profit in the Income Statement.

VI. Notes to the Cash Flow Statement

The Cash Flow Statement is structured according to streams of payments from operat-

ing activities, investing activities and financing activities. The effects of changes in the

reporting entity are eliminated here; the influence of such changes on funds is indicat-

ed separately.

30) Cash flow from operating activities

The cash flow from operating activities amounted to € 6,491 thousand (previous year:

€ 10,077 thousand) in the past financial year. The significantly higher cash flow from

operating activities of € 9,457 (previous year: € 5,679) before working capital

changes contrasts with offsetting effects for current assets: the inventories and the

level of trade receivables were up at year-end after adjustment for exchange rate

movements. This reflects the expansion of business at the end of the financial year.

The reduction in liabilities diminished cash flow by € 1,296 thousand (previous year:

€ 3,307 thousand). This affects in particular the decrease in advances received, the

reduced liabilities from income taxes payable and the decrease in liabilities from deriv-

ative financial instruments (cf. Sections 15 "Other short-term debt", 17 "Other long-

term debt" and 34 "Financial instruments").

82

The cash flow from operating activities includes payments for income tax totalling

€ 1,631 thousand (previous year: € 3,155 thousand), together with interest payments

of € 1,117 thousand (previous year: € 1,407 thousand) and interest receipts of € 122

thousand (previous year: € 110 thousand).

31) Cash flow from investing activities

The cash flow from investing activities results from the acquisition of intangible assets

(€ 1,172 thousand, including capitalised development costs of € 642 thousand) and

property, plant and equipment (€ 1,932 thousand). The income from the sale of proper-

ty, plant and equipment relates almost entirely to the sale of the building of techno-

trans graphics Ltd. in Colchester, Great Britain.

32) Cash flow from financing activities

Scheduled repayments totalling € 3,087 thousand on long-term loans were made

during the year. The cash receipts from the raising of loans relate exclusively to the

increase in short-term loans denominated in US dollars in the context of overdraft

facilities within consolidated companies.

33) Cash at end of period

Cash comprises cash on hand and demand deposits with a term of less than three

months.

VII. Other particulars

34) Financial instruments

Primary financial instruments comprise cash and receivables on the assets side. On

the equity and liabilities side, they correspond largely to liabilities. The portfolio of pri-

mary financial instruments is shown in the Balance Sheet; the total financial assets

therefore indicate the maximum credit risk. Insofar as specific credit risks to the finan-

cial assets are discernible, these risks are accounted for by valuation allowances.

Exchange rate fluctuations may affect the value of a primary financial instrument. This

risk is limited within technotrans AG by the fact that the currency of production usually

corresponds to the currency in which the customer is invoiced. Where discrepancies

occur, this exchange risk is usually hedged against by means of derivative financial

instruments. At the balance sheet date, derivatives for hedging foreign currency risks

were only being used to a minimal extent (nominal volume JPY 17.4 million, approx.

€ 129 thousand).

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 83

In the management of interest-rate risks, technotrans pursues the approach of secur-

ing long-term borrowings at fixed interest rates in order to avoid the risk of interest

rates fluctuating along with the market rate. Long-term variable-rate borrowings are

hedged by means of interest rate swaps.

At the balance sheet date, there existed the following derivative financial instruments

for hedging against the interest rate risk for variable interest-bearing loans (cf. Section

10):

The market values are the result of the valuation of the outstanding items at market

prices, disregarding any anticyclical trends in value from the positions. The market val-

ues were calculated by a major German bank on the basis of discounted cash flows.

After deduction of the interest differences already deferred in the current interest period,

there remains a market value of € -690 thousand (previous year: € -953 thousand).

The nominal amount or principal amount, term, interest payment dates, interest rate

adjustment dates, due dates and currency of the hedged item and hedging instrument

are the same. The efficiency of the hedge pursuant to IAS 39.142 (b) is high, reaching

almost 100 percent. The requirements of IAS 39.142 are moreover satisfied.

The hedging instruments are recognised as cash flow hedges at market value; valuation

gains and losses from changes in market value are recognised in the hedging reserve,

under equity, with no effect on income. The fair value of the hedging instruments at the

balance sheet date is recognised at € 310 thousand under "Other short-term debt"

(Section 15) and at € 380 thousand under "Other long-term debt" (Section 17). The

underlying loan transactions are measured at amortised cost, in accordance with IAS

39.93.

The deferred tax on the negative market values of € 265 thousand was netted against

the hedging reserve with no effect on income, with the result that the amount remaining

in the hedging reserve was reduced to € 425 thousand. This means that the reporting

of derivative financial instruments in the year under review produces no change to

earnings.

Interest rate swap 14,000 6,000 8,000 5.73 6-month EURIBOR 4 years -429

Interest rate swap 5,750 1,725 4,025 5.43 6-month EURIBOR 7 years -261

€ '000 € '000 € '000 % p.a. € '000

Nominal volume Repaid Balance Fixed rate Variable interest Maturity Market value

84

Interest rate swaps 2,575 8,300 1,150 12,025

€ '000 € '000 € '000 € '000

Maturity Maturity Maturity

up to 1 year 1 to 5 years over 5 years Total amount

The interest rate swaps are concluded only with banks with the highest credit rating.

There exist binding rules on the use of such derivative financial instruments, in the

form of scopes of action, spheres of responsibility and internal guidelines. There is a

theoretical credit risk only in the event of the market value being positive. As interest

rate swaps are concluded exclusively with banks with a top-class credit rating, no actu-

al credit risk exists for these financial instruments.

Interest expense of € 410 thousand (previous year: € 343 thousand) from current

swap transactions was booked to results in the past financial year.

35) Contingencies and other financial commitments

The times to maturity at the balance sheet date are as follows:

31.12.200131.12.200231.12.2003

up to 1 year

€ '000Type

1-5 years

€ '000

Total

€ '000

Total

€ '000

Total

€ '000

Purchase price agreement technotrans america west, inc. 0 4,758 4,758 5,727 6,803

Other purchase obligations 0 0 0 259 444

Tenancy and operating lease agreements 362 332 694 52 453

Maintenance agreements 253 0 253 409 42

Other 0 0 0 0 45

615 5,090 5,705 6,447 7,787

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 85

The other financial commitments are measured at their nominal amount; amounts in

foreign currency were measured at the closing rate.

The purchase price agreement concluded as part of the acquisition of technotrans

america west, inc. envisages that the final purchase price shall be determined over

the period from 2001 to 2004 on the basis of the company's profitability, but shall

not exceed USD 10,000 thousand. After deduction of USD 4,000 thousand already

paid towards the purchase price, the maximum financial obligation of technotrans

at December 31, 2003 is therefore USD 6,000 thousand (€ 4,758 thousand). No

subsequent reimbursement of the amount already paid has been agreed; this con-

sequently represents the lower price limit.

The maintenance agreements relate in the main to the ERP system and the document

management system.

The future obligations from tenancy and lease agreements relate primarily to tenancy

obligations for the business premises of subsidiaries. Payments made on the basis

of tenancy and lease agreements amount to € 800 thousand (previous year: € 674

thousand). technotrans has not concluded any lease agreements that constitute

finance leases pursuant to IAS 17.

36) Personnel costs

14,368 ordinary shares in technotrans AG were distributed to employees during the

reporting period, by way of a Christmas bonus; these shares had previously been

acquired on the market. At the time of their issue, the fair value of these shares was

€ 168 thousand.

37) Total employees, yearly average

2001€ '000

2002€ '000

2003€ '000

Wages and salaries 24,345 27,027 28,976

Social insurance 3,882 3,996 4,142

Expenses for retirement benefits and maintenance payments 1,048 897 516

Personnel costs, total 29,275 31,920 33,634

200120022003

Average number of employees 593 639 687

86

38) Related parties

"Related parties" include the members of the Board of Management and Supervisory

Board of technotrans AG, as well as their close family members.

In accordance with the articles of incorporation of technotrans AG, the Supervisory

Board members receive remuneration comprising a fixed and a variable component,

in addition to reimbursement of their expenses. The level of the variable remuneration

depends on the dividend distributed. Both the fixed and the variable remuneration

component are higher for the Chairman and Vice Chairman of the Supervisory Board

than for the remaining members. The total remuneration of the Supervisory Board,

including reimbursed expenses, came to € 79 thousand (previous year: € 75 thou-

sand). The members of the Supervisory Board do not receive any stock options for

their activities as non-executive directors. Where members of the Supervisory Board

of technotrans AG have received stock options, these result from their position as

employees of technotrans AG and are independent of their duties as non-executive

directors.

In addition to the total remuneration stated for the Supervisory Board, two members

of the Supervisory Board received remuneration in their capacity as employees, on

the basis of contracts of employment.

The members of the Board of Management receive cash remuneration, stock options

under the technotrans AG stock options plan and certain non-cash benefits for their

activities. The overall structure and the level of the cash remuneration are laid down

by the Supervisory Board's Personnel Committee. The cash remuneration comprises

a fixed basic salary and a variable remuneration component. The level of the variable

remuneration is dependent on the attainment of the overall company target of "consol-

idated net profit according to IFRS". For the year under review, the total remuneration

of the Board of Management (sum of cash remuneration, non-cash benefits and insur-

ance premiums) amounted to € 613 thousand (previous year € 1,117 thousand). This

sum consists of fixed remuneration totalling € 613 thousand (previous year: € 676

thousand) and variable remuneration of € 0 thousand (previous year: € 441 thou-

sand). Differences between the remuneration totals for 2003 and 2002 result from

the omission of the variable remuneration and the resignation of one member of the

Board of Management with effect from November 30, 2002.

The members of the Board of Management and Supervisory Board are listed separate-

ly in the section "Corporate Bodies".

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 87

Directors' holdings (Board of Management and Supervisory Board members):

31.12.200231.12.200331.12.2002 31.12.2001 31.12.200131.12.2003Shares Options

Board of Management

Heinz Harling 61,704 61,704 61,704 3,150 2,100 1,050

Wolfgang Breme 300 300 – 2,100 1,050 –

John A. Stacey 30,300 30,300 30,300 3,150 2,100 1,050

Ralph Teunissen 15,000 15,000 15,000 2,700 1,650 600

Supervisory Board

Joachim Simmroß 10,000 5,000 1,200 0 0 0

Joachim Voss 0 0 0 0 0 0

Konrad Ellegast 0 0 0 0 0 0

Dr. Bertold Gaede 1,791 1,791 1,791 0 0 0

Andreas Harig 61,704 61,704 61,704 1,800 1,200 600

Hubert Oberscheidt 61,704 61,704 61,704 1,800 1,200 600

Close family members held a total of 8,000 shares at December 31, 2003 (previous

year: 9,360).

39) Corporate governance

The Declaration of Compliance by the Board of Management and Supervisory Board is

published on the company's website (www.technotrans.de).

40) Events occurring after the balance sheet date

The date for release of the annual financial statements by the Board of Management

pursuant to IAS 10.16 is February 24, 2004.

As mentioned in the Management Report, there were plans to take over the American

Company Baldwin Technology Company, Inc. Both companies had signed a declaration

to this effect on December 12, 2003, the letter of intent in question was not binding.

Baldwin Technology Company, Inc., however, terminated negotiations in January 2004.

This occurrence has no financial impact on these annual financial statements.

88

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 89

Independent Auditors' Report

We have audited the consolidated financial statements, comprising the balance sheet,

the income statement and the statements of changes in shareholders' equity and

cash flows as well as the notes to the financial statements prepared by technotrans

AG for the business year from 1 January to 31 December 2003. The preparation and

the content of the consolidated financial statements in accordance with International

Financial Reporting Standards (IFRS) are the responsibility of the Company's manage-

ment. Our responsibility is to express an opinion on these consolidated financial

statements based on our audit.

We conducted our audit of the consolidated financial statements in accordance with

German auditing regulations and German generally accepted standards for the audit

of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW) and in

supplementary compliance with International Standards on Auditing (ISA). Those stan-

dards require that we plan and perform the audit such that it can be assessed with

reasonable assurance whether the consolidated financial statements are free of mate-

rial misstatements. Knowledge of the business activities and the economic and legal

environment of the Group and evaluations of possible misstatements are taken into

account in the determination of audit procedures. The evidence supporting the amounts

and disclosures in the consolidated financial statements are examined on a test basis

within the framework of the audit. The audit includes assessing the accounting princi-

ples used and significant estimates made by management, as well as evaluating the

overall presentation of the consolidated financial statements. We believe that our

audit provides a reasonable basis for our opinion.

90

In our opinion, the consolidated financial statements give a true and fair view of the

net assets, financial position, results of operations and cash flows of the Group for

the business year in accordance with International Financial Reporting Standards.

Our audit, which also extends to the group management report prepared by the

Company's management for the business year from 1 January to 31 December 2003

has not led to any reservations. In our opinion on the whole the group management

report provides a suitable understanding of the Group's position and suitably presents

the risks of future development. In addition, we confirm that the consolidated financial

statements and the group management report for the business year from 1 January to

31 December 2003 satisfy the conditions required for the Company's exemption from

its duty to prepare consolidated financial statements and the group management

report in accordance with German law.

Bielefeld, 5 March 2004

KPMG Deutsche Treuhand-Gesellschaft

Aktiengesellschaft

Wirtschaftsprüfungsgesellschaft

Rehnen Rottmann

German Public Auditor German Public Auditor

I N D E P E N D E N T A U D I T O R S ' R E P O R T 91

Proposal for the Distributionof Accumulated Profit

The Board of Management proposes that the accumulated profit of € 2,641,617.86

as stated in the financial statements of technotrans AG be distributed as follows:

A dividend payment of € 0.30 for each individual

share on share capital of € 6,600,000.00 bearing

dividend entitlements € 1,980,000.00

Transfer to new account € 661,617.86

Accumulated profit € 2,641,617.86

The dividend is payable on June 1, 2004.

Sassenberg, February 24, 2004

Heinz Harling Wolfgang Breme John A.Stacey Ralph Teunissen

92

P R O P O S A L F O R T H E D I S T R I B U T I O NO F A C C U M U L A T E D P R O F I T

93

Corporate Bodies

Board of Management

Dipl.-Ing. Heinz Harling

Chairman of the Board

Joined the company in 1980 as Sales Manager, becoming Managing Director of

technotrans gmbh in 1988; Chairman of the Board since December 1997, with

responsibility for the functional areas Development, Design and Quality Management,

as well as for the product areas. Mr. Harling holds a mandate in "Gerhard und Renate

Metz Stiftung", Nuremberg.

Dipl.-Kfm. Wolfgang Breme

Member of the Board

Joined the company in May 2002, with responsibility for the functional areas

Accounts/Controlling, IT Management, Personnel, Materials Management and

Production

John Andrew Stacey

Member of the Board

Managing Director of technotrans graphics ltd., Colchester, Great Britain,since 1990;

in addition Member of the Board since January 2000 with responsibility for the inter-

national sales and service companies

Ralph Teunissen

Member of the Board

Joined the company as Sales Director in 2000, Member of the Board since October

2001, responsible for Sales and Service throughout the group, and also for Investor

Relations

94

Supervisory Board

Dipl.-Kfm. Joachim Simmroß

Chairman of the Supervisory Board

Chairman of the Supervisory Board of Willy Vogel AG

Member of the Supervisory Board of AIXTRON AG

Member of the Supervisory Board of WeHaCo Unternehmensbeteiligungs-Aktiengesellschaft

Member of the Supervisory Board of Commerz Unternehmensbeteiligungs-Aktiengesellschaft

Member of the Supervisory Board of GBK Beteiligungen AG

Member of the Advisory Board of HANNOVER Finanz GmbH

Member of the Advisory Board of BAG-BiologischeAnalysensysteme GmbH

Member of the Advisory Board of KAPPA opto-electronics GmbH

Member of the Advisory Board of MTS Mikrowellen Technologie und Sensoren GmbH

Dipl.-Kfm. Joachim Voss

Deputy Chairman of the Supervisory Board

Divisional Head Equity Investments of WestLB AG

Chairman of the Supervisory Board of Comma Soft AG

Member of the Supervisory Board of West STEAG Partners GmbH

Member of the Supervisory Board of WestUBG – Westdeutsche Unternehmens-Beteiligungs AG

Dipl.-Kfm. Konrad Ellegast

Chairman of the Board of Phoenix AG, Hamburg (until Dec. 2003)

Member of the Supervisory Boards of Hamburger Feuerkasse Vers.-AG and

of Northern Institute of Technology Hamburg-Harburg GmbH

Member of the Advisory Boards of Richard Bergner Holding GmbH & Co. KG,

of Brose Fahrzeugteile GmbH & Co. KG and of C. Mackprang JR. GmbH & Co. KG

Advisory Board Hamburg of Dresdner Bank AG

Regional Board of Deutsche Bank AG

Member of the Stock Exchange Council of the Trade Chamber, Hamburg

Dr. jur. Bertold Gaede

Partner in Nörr Stiefenhofer Lutz, Munich,

Chairman of the Supervisory Board of HANNOVER Finanz Immobilien AG

Deputy Chairman of the Supervisory Board of Maschinenfabrik Esterer AG

Member of the Supervisory Board of Kaufland Stiftung & Co. KG

Member of the Supervisory Board of Lidl Stiftung & Co. KG

Dipl.-Ing. Andreas Harig

Head of the Product Division of technotrans AG

Hubert Oberscheidt

Service Manager of technotrans AG

C O R P O R A T E B O D I E S 95

Report of the Supervisory Board

The Supervisory Board once again regularly advised the Board of Management on

the running of the company and monitored its activities in the 2003 financial year, in

accordance with legal requirements and the articles of incorporation. It was involved

in key decisions of particular significance for the company.

At its four meetings on March 10, May 8, September 23 and December 16, 2003 the

Supervisory Board was presented with detailed written and oral reports by the Board

of Management on strategies and their implementation status, business progress, the

situation of the company and significant business occurrences. The economic develop-

ment of the company and of its subsidiaries was discussed in depth. Three members

of the Supervisory Board each missed one meeting, for which apologies had been

received. The entire Board of Management was in each case present.

The Chairman of the Supervisory Board moreover maintained regular contact with the

Board of Management and in particular the Chairman of the latter, to discuss the com-

pany's strategy, business developments and risk management. He was moreover

informed promptly by the Chairman of the Board of Management of important occur-

rences that are of key significance in evaluating the situation, progress and manage-

ment of the company.

The Supervisory Board approved those transactions which require its approval in

accordance with legal requirements and the articles of incorporation. These include

decisions and measures which are of fundamental significance to the financial posi-

tion and performance of the company.

Important topics in 2003 were:

– The financial statements for 2002 and the special effect of the patent

dispute on them

– The plans to acquire the competitor Baldwin

– Preparations for the financial statements for 2003 together

with questions of valuation

– The budgets and the degree to which targets had been attained in view of

cyclical factors and corresponding measures to safeguard profitability

– The closing of the production plant at Colchester, UK

– Corporate governance on the basis of the revised Commission's proposal

96

The members of the Supervisory Board possess the necessary knowledge, skills and

personal experience for performing their tasks in an orderly manner, are sufficiently

independent and have sufficient time to act as non-executive directors. No conflicts of

interest arose during the period under review.

Two committees were formed: the Audit Committee and the Committee for Board of

Management Affairs. The Audit Committee met three times and dealt with the presen-

tation of the accounts and risk management, and also with assuring the independence

of the auditors, commissioning the auditors with the audit, identifying the priority

areas for the audit – in particular the valuations of goodwill – and agreeing the fee.

The Committee for Board of Management Affairs met twice and dealt in particular with

drawing up the contracts and agreeing the remuneration of the members of the Board

of Management.

The annual financial statements of technotrans AG and the consolidated financial

statements at December 31, 2003, together with the combined management report

for the company and the group, were presented to the Supervisory Board for examina-

tion before the meeting on March 2, 2004, together with the Board of Management's

proposal on the distribution of the accumulated profit for the 2003 financial year.

The Supervisory Board meeting on March 2, 2004 was also attended by the auditors

elected by the Shareholders' Meeting and appointed by the Supervisory Board, KPMG

Deutsche Treuhand Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft,

Bielefeld branch, represented by the two designated independent auditors.

The financial statements of the company and group for the 2003 financial year have

been granted an unqualified audit certificate on March 5, 2004.

R E P O R T O F T H E S U P E R V I S O R Y B O A R D 97

v.l.n.r. Joachim Voss, Andreas Harig, Konrad Ellegast, Joachim Simmroß, Dr. Bertold Gaede, Hubert Oberscheidt

The Supervisory Board has

– following its own examination, raised no objections to the annual financial

statements of technotrans AG, the consolidated financial statements and the

management reports for the 2003 financial year, and has endorsed the findings

of the auditors

– ratified the financial statements and management reports; the financial statement

of technotrans AG is hereby established

– approved the proposal by the Board of Management on the distribution of

accumulated profit.

The Supervisory Board takes this opportunity to thank the Board of Management and

all employees of the group for the dedication which ultimately enabled the company to

make positive progress in the 2003 financial year, despite the difficult economic con-

text. Our thanks are also due to the employees' representatives for their constructive

and open-handed cooperation with the company's executive bodies.

On behalf of the Supervisory Board

Joachim Simmroß

Chairman of the Supervisory Board

98

1970 ■ ■ Founding of the company

1973 ■ ■ Initial contacts with the audio media and printing industry

1977 ■ ■ Production of the first dampening solution equipment

1981 ■ ■ Development of a separate product line

for dampening solution preparation systems

1987 ■ ■ Launch of the first ink temperature control systems

1990 ■ ■ Management-Buy-Out

technotrans graphics ltd. is founded in Colchester, Great Britain

Launch of the new system components concept

for ancillary equipment on printing presses

technotrans is one of the world's three largest suppliers

of dampening solution preparation systems

1992 ■ ■ technotrans becomes original equipment supplier for

the Heidelberg Speedmaster and MAN-Roland 700 presses

1993 ■ ■ technotrans france is founded

1995 ■ ■ technotrans america, inc. is established in Atlanta, Georgia

1997 ■ ■ Transformation into a stock corporation

Founding of technotrans china

1998 ■ ■ Takeover of BVS Grafische Technik GmbH,

which is renamed technotrans systems

Initial public offering on the Frankfurt Neuer Markt

H I S T O R Y 99

The success story

100

1999 ■ ■ Opening of technotrans technologies in Singapore

Founding of the subsidiary technotrans italia in Milan

Merger with the subsidiary technotrans systems

to form technotrans AG

2000 ■ ■ Takeover of the American company Ryco Graphic Manufacturing, Inc.

(Chicago) and merger with technotrans america, inc.

2001 ■ ■ Takeover of the American Steve Barberi Company Inc. and

its subsidiary, Farwest Graphic Technologies LLC, of Corona,

near Los Angeles,

California, USA; renamed technotrans america west, inc.

Takeover of the Electroforming Division of Toolex International N.V.,

which now operates as technotrans scandinavia AB, Täby, Sweden

Establishment of technotrans japan k.k., Kobe, Japan,

as a sales and service company

Establishment of technotrans Hong Kong

as a sales and service company

2002 ■ ■ Transfer of activities from Atlanta to the principal

American location in Chicago

2003 ■ ■ Consolidation of international production capacities and relocation

of assembly from Colchester/Great Britain to Sassenberg

TECHNOTRANS FINANCIAL CALENDAR

Publications and dates

2004

Annual Press Conference 09.03.2004

Analyst Meeting 09.03.2004

3-Month Report 2004 04.05.2004

Annual Shareholders Meeting 2004 28.05.2004

6-Month Report 2004 10.08.2004

9-Month Report 2004 09.11.2004

2005

Annual Press Conference 08.03.2005

Analyst Meeting 08.03.2005

3-Month Report 2005 03.05.2005

Annual Shareholders Meeting 2005 13.05.2005

Imprint

Concept & Design

Impacct Communication GmbH, Hamburg

Photography

Dirk Uhlenbrock, Hamburg

Andreas Werntges, Gladbeck

Print

Rasch Druckerei und Verlag GmbH & Co. KG, Bramsche

on Heidelberg Speedmaster SM 102-10P

with dampening solution circulation and temperature

control systems FKT-C 40.000 by technotrans

technotrans AG

Robert-Linnemann-Strasse 17

48336 Sassenberg

Germany

Phone +49 25 83/301–0

Fax +49 25 83/301–30

email info@technotrans.de

internet www.technotrans.de