Annual Report 2006 - CENTROTEC SE - Unternehmen · CENTROTEC Group into a leading compre-hensive...

[ ]Annual Report 2006 Systems for Sustainability

Following the successful development andexpansion of our own business for ventila-tion and heating systems, the acquisition ofa complementary systems supplier represen-ted the next logical step in our expansionstrategy.

The purchase of Wolf has transformed theCENTROTEC Group into a leading compre-hensive supplier in the growth market forbuilding energy-saving systems, with a annual revenue of around EUR 400 million.Wolf has been integrated into the ClimateSystems segment, but will be preserved asindependent entity and brand.

In taking over Wolf GmbH, Mainburg, and itssubsidiaries, CENTROTEC has succeeded inacquiring a group of companies with analmost entirely complementary range ofproducts. In its new line-up the group isworking intensively on numerous aspects ofthe low-energy house, as a fully integratedsystems supplier. The company will nowembark on a concerted drive to integrate allenergy-saving technologies.

WOLF

1 Solar thermal technology

2 Climate systems

3 Heat pumps

4 Buffer accumulators

5 Biomass heating technology

6 Condensing boiler technology

CENTROTEC

Gas flue systems 7

Roofing products 8

Photovoltaic solar systems 9

Solar glass 10

Non-central ventilation systems 11

Gas flue heat recoverysystems 12

Air heating 13

2.00

1.50

1.00

0.50

0

60

45

30

15

0

* after elimination of gains from transactions with minorities and one-off expenses from the Wolf/Innosource acquisitions

** Earnings per share, basicCAGR = Compound Annual Growth Rate (1999 – 2006)

Revenue [in EUR million]

CAGR +56 % p.a.

EBIT[in EUR million]

CAGR +30 % p.a.

1999 2000 2001 2002 2003 2004 2005 2006 2007(e)

1999 2000 2001 2002 2003 2004 2005 2006 2007(e)

EBITDA[in EUR million]

CAGR +42 % p.a.

1999 2000 2001 2002 2003 2004 2005 2006 2007(e)

1999 2000 2001 2002 2003 2004 2005 2006 2007(e)

2.6 11.4 13.415.6

19.423.0

Gearing[Net interest bearing debt/equity]

Overview | Key figures at a Glance

500

375

250

1125

0

65

18

7498 116

135

390 – 400

40

30

20

10

0

17.718.313.2

9.79.37.5

2.0

29 – 31

44 – 46

0.6

1.7

1.3 1.4

1.11.2 – 1.5

2.00

1.00

0

EPS**[in EUR]

CAGR +42 % p.a.

0.15

0.480.72 0.54

0.82

2.26

1.76

1999 2000 2001 2002 2003 2004 2005 2006 2007(e)

1.31

23.2

2.00 – 2.10

1.40*

[ ]Key figures at a Glance

153

396

30.3

1999 2000 2001 2002 2003 2004 2005 2006 2007

Share price[in EUR]

IPO price 6.48

30

20

10

5

1.60*

12.5

1.2

0.9

0.5

Overview | Five year comparison

Changes31/12/2002 31/12/2003 31/12/2004 31/12/2005 31/12/2006 2006 to 2005

[EUR ‘000] [EUR ‘000] [EUR ‘000] [EUR ‘000] [EUR ‘000] [Percent]

Total revenue 98,373 115,671 134,760 152,912 396,311 159.2 %

Medical Technology & Engineering Plastics 20,152 28,405 26,454 33,793 27.7 %

Climate Systems 32,457 36,599 39,594 110,024 177.9 %

Gas Flue Systems 63,062 69,703 70,202 80,310 14.4 %

Solar Systems 53 16,662 172,184 933.4 %

Earnings

EBITDA 15,559 19,356 23,208 22,963 30,325 32.1 %

EBIT 9,677 13,222 18,261 17,698 12,525 (29.2 %)

EBIT Yield (in %) 11.6 13.1 13.6 11.6 3.2

EBT 8,677 12,632 15,787 22,477 16,851 (25.0 %)

EAT 5,836 8,226 10,128 17,953 15,298 (14.8 %)

EPS (in EUR; basic) 0.54 0.82 1.31 2.26 1.76 22.1 %

Capital Structure

Balance sheet total 87,859 115,025 119,625 215,572 483,078 124.0 %

Shareholders’ equity 27,703 33,799 46,966 102,673 146,313 42.3 %

Equity ratio (in %) 31.5 29.4 39.3 47.6 30.3

Property, plant and equipment 27,163 35,154 34,813 41,766 102,979 146.6 %

Intangible assets 451 814 1,697 24,977 58,827 135.5 %

Goodwill 26,091 35,416 38,443 55,310 118,867 114.9 %

Net financial liabilities 37,082 46,549 39,749 46,328 159,316 243.9 %

Net Working Capital 12,926 10,588 14,627 31,793 86,216 171.2 %

Cash flow Statement

Cash flow I (EAT & depreciation/amortisation) 10,030 12,397 15,075 23,218 33,097 33.9 %

Cash flow from operating activities 6,709 12,995 14,362 6,716 5,633 (14.4 %)

Cash flow from investing activities (3,378) (7,422) (9,129) (1,334) (96,293) 7,118.4 %

Employees

Total (in FTE) 600 852 926 1,124 2,745 144.3 %

Shares*

Number of shares** 7,661 7,662 7,731 7,955 8,134 2.2 %

Share price 01.01. 10.20 5.60 9.70 21.90 25.15

Year-high 13.42 10.58 21.80 30.58 35.36

Year-low 4.62 3.90 9.30 19.85 22.44

Share price 31.12. 5.45 9.85 21.50 25.06 24.00

* Quotation in EUR** Weighted average shares outstanding (basic; in thousand)

Change inSegment structure

[ ]Table of Contents

Gas Flue Systems

8

Climate Systems

10Medical Technology& Engineering Plastics

16

Solar Systems

18

02 Report of the Supervisory Board04 Letter to Shareholders

Segments & Products08 Gas Flue Systems10 Climate Systems16 Medical Technology &

Engineering Plastics18 Solar Systems

Company & Management22 CENTROTEC internationally24 Strategic synergies of the

Wolf acquisition26 Shares 28 Corporate Governance Report 32 Remuneration report

Group Management Report36 Systems supplier for integrated

energy-saving concepts 38 Group structure, business areas,

principal locations 38 Corporate strategy, objectives

and control 40 Economic conditions 41 Business Progress and

Revenue Trend 44 Gas Flue Systems46 Climate Systems50 Medical Technology & Engineer-

ing Plastics 53 Solar Systems55 Net worth, financial position and

financial performance 60 Personnel61 Research and development61 Environment62 Risk report 68 Further particulars71 Outlook

Financial Statements80 Consolidated balance sheet82 Consolidated Income Statement83 Cash Flow Statement84 Statement of Movements

in Equity85 Segment Report86 Notes to the Consolidated

Financial Statements for the financial year 2006

136 Auditor’s Report

137 Imprint

2

CENTROTEC | Report of the Supervisory Board

[ ]Report of the Supervisory Board

The Supervisory Board of CENTROTEC SustainableAG oversaw and supported the Management Boardin an advisory capacity throughout the 2006 finan-cial year, in accordance with the law and the com-pany’s articles of incorporation.

The Supervisory Board regards the company’scontinuing business success as an endorsement ofits strategy. It supports the ongoing focusing onmarkets for energy-saving products that contributein particular measure to a sustainable approach toour environment. In addition to consolidating andbuilding on existing market positions and productlines, attention is always focused on identifying andseizing new opportunities. The acquisition of theWolf Group thus represents a forward-looking, stra-tegically important move that significantly enlargesthe CENTROTEC product portfolio and substantiallyincreases the company's international spread.Successfully responding to rapidly changing marketsfor sustainability products also calls for a culture ofsustainability within the company itself. The Super-

visory Board therefore considers that its task alsoentails promoting the idea of sustainability internally.

The structure of the CENTROTEC Group to date,with the four divisions Climate Systems, Gas FlueSystems, Solar Systems and Medical Technology &Engineering Plastics, continues to evolve. Even ifthe Solar Systems division will no longer be fullyintegrated in the future in organisational andaccounting terms, there will nevertheless still beintensive collaboration between this and the othersegments.

The Supervisory Board held a total of five meet-ings in the 2006 financial year and was informedcomprehensively by the Management Board of thecompany's business progress, and in particular ofthe development in its revenue, orders, financialperformance and financial position and of thecompany’s discernible opportunities and risks offuture development. Supervisory Board meetingsduring 2006 were held on March 22, May 23,September 27, November 16 and December 14.

CENTROTEC | Report of the Supervisory Board

3

All Supervisory Board members attended all mee-tings in person. The members of the SupervisoryBoard in addition discussed forthcoming projectsand strategic decisions with the Management Boardand with other management employees of the com-pany by meeting in person and by means of tele-phone conferences. Written reports were further-more submitted. The Management Board satisfiedthe information and reporting requirements laiddown by the Supervisory Board in every respect.

The topics discussed at the Supervisory Boardmeetings were the fundamental aspects of busi-ness policy concerning the parent company and itssubsidiaries, together with individual matters ofsufficient significance. The individual matters dis-cussed comprised:n Strategic directions n Acquisitions in progress and in preparationn The response to the Corporate Governance

Coden The progress of important transactions n Changes to negotiable instruments lawn Major investment decisions n Remuneration structures of the Management

Board and management employees n The efficiency of the Supervisory Board’s own

activities n The selection and monitoring of the independ-

ent auditor n The corporate culture and social issues n Various topics concerning the operative

companies.Management Board decisions which required ratifi-cation by the Supervisory Board were studied andapproved. As the Supervisory Board has only threemembers, there are no committees. All matterswere discussed by the full board.

The Supervisory Board considered the disclo-sures made in the management report and groupmanagement report also pursuant to Sections 289(4) and 315 (4) of German Commercial Code. Re-ference is made to the corresponding comments inthe management report and group managementreport, which the Supervisory Board has examinedand accepted.

The accounts, annual financial statements, mana-gement report, consolidated financial statementsand group management report at December 31,2006 have been examined by the auditorsPricewaterhouseCoopers AG Wirtschaftsprüfungs-gesellschaft, Kassel, who have given their unquali-fied certification thereof. A copy of the auditors’report was sent to each member of the SupervisoryBoard it and was discussed with the auditors at themeeting of the Supervisory Board.

The Supervisory Board has examined the annu-al financial statements, management report andconsolidated financial statements, including groupmanagement report, as drawn up by the Manage-ment Board, as well as the dependence report drawnup by the Management Board as a precautionarymeasure. The examination by the Supervisory Boardrevealed no cause for objection. The annual finan-cial statements of the group parent and the con-solidated financial statements at December 31, 2006were approved by the Supervisory Board. The annu-al financial statements issued by the ManagementBoard were granted the unqualified approval of theSupervisory Board, and are thus established pursuantto Section 172 (1) of German Stock CorporationLaw.

The Supervisory Board expects that the com-pany will further enhance its performance in highlypromising areas of activity, and that it will generatea good return on investment in the interests of itsshareholders.

Particular thanks are due to the employees,who have made a major contribution to the suc-cess of the group through their considerable dedi-cation, expertise and creativity.

Brilon, March 2007

The Supervisory Board

Guido A. Krass[Chairman]

4

CENTROTEC | Letter to Shareholders

[ ]Letter to Shareholders

Dear Shareholders,

CENTROTEC again made significant progress in thepast financial year and succeeded in substantiallystrengthening its position in the European marketfor energy-saving products. The takeover of theWolf Group in October 2006 resulted in the cre-ation of the first listed company that focuses sys-tematically on energy-saving products in the areasof heating, ventilation and renewable energies.There are moreover various individual issues thatthe capital market will find appealing. For example,there are very few companies listed on Europeanstock exchanges with a similarly strong position inthe domain of solar thermal technology. The pro-duct portfolio on the one hand and the sales net-work on the other have been significantly expand-ed. At the same time, this progress has paved theway for future sustained growth in revenue andearnings.

In 2006 we were able to maintain our leading po-sition in Europe in both the Gas Flue Systems andClimate Systems segments. The Solar Systems seg-ment was successfully expanded and the structuresfor vigorous international growth in integrated PVsystems and solar components put in place. Withinour philosophy of sustainability, it remains our de-clared aim to step up our activities in the use ofrenewable energies, over and above saving energy.Even if CENTROSOLAR AG will no longer be fullconsolidated in the current 2007 financial year, col-laboration between CENTROTEC and CENTROSOLARwill if anything become more intensive, becausethe Wolf Group likewise possesses extensive ex-pertise and a broad range of products in the fieldof solar technology. Both entities will complementeach other and prove mutually beneficial. The veryhealthy development in revenue for the MedicalTechnology & Engineering Plastics segment encour-ages us to continue adjusting the structures in this

CENTROTEC | Letter to Shareholders

5

segment with a view to preparing the alreadyexisting company medimondi AG (until March2007 Centromedical AG) for flotation in the nearfuture, as an independent group of companiesactive in the field of medical technology.

We posted a major leap in revenue from EUR153 million to EUR 396 million in 2006. This figureincludes the revenue of the Wolf Group for the finalquarter. Taking account of the numerous one-offitems of expenditure necessitated by the restructur-ing of the Climate Systems segment at Staphorst,the cost of acquiring and integrating the Wolf Groupand increased international expansion, earningswere all in all satisfactory. What matters, we believe,is that we have established the structural basis forthe successful development of our divisions, in pre-paration for profitable growth over the next fewyears.

CENTROTEC entered a new dimension in 2006not simply by virtue of its revenue growth, but alsoby preparing the ground for further organic growthin a market of the future. It moreover remainsCENTROTEC’s objective to boost revenue andaccelerate growth through targeted corporate ac-quisitions. This will apply in particular to the MedicalTechnology area over the next few months. As inthe past, however, we will only enter into transac-tions that fit in with the strategy and carry limitedrisks. One of the focuses for the next two yearswill in addition be to improve earnings, which hadto absorb significant one-off expenses in the pastfinancial year. Numerous measures have been de-vised to this end and are currently being imple-mented. Some of the integration projects that arecurrently being tackled together with the WolfGroup have the same objective.

Our targets for 2007 and beyond are againambitious. On the back of the expansion that the

Wolf Group has brought and the hiving-off of theSolar Systems segment as a separate group, weaim to strengthen our strategic positioning in themarket for energy-saving products by focusing onour two core segments Gas Flue Systems andClimate Systems. A cornerstone of this strategyinvolves building on the system supplier principle.Through its acquisition of the Wolf Group, CENTROTEC is now in a position to supply all-insystems for heating, ventilation and air condition-ing with integrated control and a uniform userinterface, which can in addition be supplementedby system components for renewable energies, suchas solar thermal technology and ground-sourceheat pumps. As a result we can now benefit evenmore from a readiness to make a higher initialinvestment in technical installations in new build-ings, in order to cut energy bills. In keeping withour sustainability philosophy we will systematicallyexploit the market opportunities arising from syn-ergy within the group, in particular in the field ofrenewable energies, to pave the way for continu-ing, steady growth for the CENTROTEC Group. Webelieve that the medium and long-term frameworkconditions for this remain excellent: the higherstandards of comfort and health expected, andincreased pressure to act in response to climatechange and high energy prices.

With best wishes,

Dr. Gert-Jan Huisman [Chairman of the Management Board]

6

CENTROTEC | Segments & Products

Segments & Products08 Gas Flue Systems10 Climate Systems

16 Medical Technology & Engineering Plastics

18 Solar Systems


7

[ ]Element_Fire

Heating is now even more efficient, because our modern condens-ing boilers have a standard utilisation ratio of as high as 140 %.Another of our specialities: sustainable systems for heat genera-tion, such as heating with biomass and/or solar collectors. They aregood for the environment and also make us less dependent on rising prices for fossil fuels.

Fire Air Earth Water

8


[ ]Segment_Gas Flue Systems

Core business area expanded

CENTROTEC Sustainable AG's successful involvementin the area of plastic gas flue systems extends backto the mid-1990s; these activities have decisivelypromoted the spread of energy-efficient technolo-gies such as condensing boiler technology. Gas-firedcondensing boiler systems reduce energy consump-tion by up to 30 % compared with conventionalgas-fired heating systems by recovering heat fromthe flue gas through a process of condensation.Plastic gas flue systems have long been the standardfor gas and oil-fired condensing boiler systems. Theproduct range of gas flue systems has been ex-tended beyond this core business area by the twoCENTROTEC subsidiaries Centrotherm and Ubbinkto include other plastic and metallic systems for alltypes of heating and all connection variants.

Product developments

A new flexible gas flue system for condensing boil-ers with pipes 50 mm and 160 mm in diameterwas unveiled. These flexible plastic pipes can alsobe drawn into curved gas flue ducts. The 50 mmversion is particularly suited to single-boiler gasflue systems, whereas the 160 mm version wasdeveloped for cascade systems (several condensingboilers connected up to a single gas flue). “Ubiflex”,the environment-friendly lead substitute for sealingroof ducts, was also successfully brought onto themarket.

Further international spread

Rising oil prices, global warming and tougher emis-sion regulations have promoted the trend towardsenergy-saving condensing boilers in Europe. CENTROTEC has intensified its sales activities inWestern and Eastern Europe and obtained furthernational permits. The entire product range has more-over become the first on the market to secureEurope-wide certification. Both in Germany andinternationally, CENTROTEC’s systems are suppliedas OEM products to international boiler manufac-turers. In some countries, including France andBelgium, sales were also developed and expandedvery successfully via specialist wholesalers. OEMmarketing was separated in organisational termsfrom the other areas to some extent, in particularby the companies in the Climate Systems segment,as we want to leave our customers in no doubt asto where our interests lie following the takeover ofWolf. All in all, CENTROTEC will maintain its strate-gy of increased international spread and will speci-fically look to expand in Eastern Europe.

100

80

60

40

20

0

Revenue performance Gas Flue Systems[in EUR million]

63.169.7

2003 2004 2005 2006

80.370.2

9Gas Flue Systems

8

Climate Systems


16

Solar Systems

18

1

Products_Gas Flue Systems

n Plastic gas flue systems for condensing boiler technology

n Metallic and plastic gas flue systems for oil,conventional gas and solid-fuel heating systems

n Various technical products for the roof

1_Environmentally acceptable sealing

Ubiflex replaces theconventional, pollutingsealing strips madefrom lead.

2 3

2_More comprehensive range

The range of productsnow also includesstainless steel systemsfor the higher flue gastemperatures of con-ventional boilers.

3_Flexible installation

Flexible plastic systemsare very easy to installeven in curved gas flues.

10


[ ]Segment_Climate Systems

150

120

90

60

30

0

Revenue performance Climate Systems[in EUR million]

2003 2004 2005 2006

32.5 36.6

110.0

39.6

Ventilation systems with energy-saving heat

recovery

Ventilation systems increase residential comfort,maintain a healthy interior climate and prevent theformation of mould in highly insulated buildings byexpelling moist air. In this segment, CENTROTECoffers a comprehensive portfolio of efficient, energy-saving solutions for every space situation.

Heat recovery now also for smaller residences

Specially developed for low-energy and passivehouses: controlled living-space ventilation deviceswith a heat recovery rate of approx. 95 %. Suchdevices are already the standard for detachedhouses in countries such as the Netherlands. Theventilation specialist at CENTROTEC, Brink ClimateSystems, has now extended its target market toinclude residential units in multi-storey apartmentblocks. ”Renovent Small”, a new ventilation sys-tem with a heat recovery rate of more than 90 %was developed – especially for smaller residentialunits – in the 2006 financial year.

Integrated heating/ventilation systems for

passive houses

Brink Climate Systems has teamed up with otherpartners to develop a new, low-priced compactdevice of a very energy-conscious design for heat-ing, ventilation and hot water. The new unit will bebased on gas as its energy source, also incorporat-ing solar thermal as a renewable energy source.

The incoming air from the ventilation system car-ries the heat to each room. The integrated ventila-tion system with heat recovery unit likewise sup-plies fresh air and maintains a comfortable andhealthy interior climate.

Integrated heating and ventilation systems for

"closed greenhouses"

There are also real “energy guzzlers” in the com-mercial sector, for instance greenhouses: to boostthe supply of oxygen to the plants, it is commonpractice to heat the interiors vigorously from below,with the ventilation flaps in the roof open. Ned Airhas now joined forces with the Econcern companyInnogrow to develop a closed greenhouse that actsas its own energy source. In the cooling mode,excess heat is fed into the ground with the aid of aheat pump, stored there and used in the heatingmode. This saves up to 35 % heating energy.

11Gas Flue Systems

8

Climate Systems


16

Solar Systems

18

1

Products_Climate Systems

n Ventilation systems with energy-saving heat recovery

n Living-space air heaters and combined ventilation, heating and cooling systems

n Heating systems with gas or oil for wall or floor installation

n Heating systems based on renewable energies (solar and biomass)

n Climate systems with capacities of up to 100,000 m3/h for commercial properties

1_Ventilation units with heat recovery

Controlled ventilationunits with heat recoveryfor homes, offices,schools and industrialbuildings (including incombination with climatetechnology products), tosupply heating and cool-ing from a single system.

2 3

2_Heating systems with renewable energies

We supply heating sys-tems that use biomassor the sun’s heat asrenewable energysources. Ground-sourceheat pumps, whichexploit geothermalenergy, are a new addi-tion to the range.

3_Heating and climate control systems

Climate control sys-tems, boilers and hot-air generators basedon gas as the fuel,including condensing-boiler and low-temper-ature technology, com-pact units that inte-grate the heating, ven-tilation and hot waterfunctions.

12


The Wolf Group: figures and products

The Wolf Group has made very good progress overthe past two years. Revenue for 2006 rose by 13 %to EUR 223 million. Gas and oil-fired heating sys-tems accounted for around a 45 % share of rev-enue. Over 15 % of revenue was achieved withmodern heating systems based on renewable ener-gies such as solar thermal and biomass. Ventilationand climate control systems brought in about 40% of the year’s revenue.

Biomass heating technology: wood pelletboiler with automatic replenishment

Climate control systems for commercial and resi-

dential buildings, including “solar cooling”

Wolf supplies efficient, tailormade climate controltechnology for air volumes ranging from 500 to100,000 m3/h for maximum energy efficiency cou-pled with minimum operating costs. Wolf in addi-tion offers solar and climate control technologyrolled into one, in its “solar cooling” systems.These integrated, innovative products are air condi-tioning systems that run on heat drawn from solarcollectors.

Gas and oil-fired boilers

Wolf heating technology provides heat from high-performance energy-saving heating systems for pri-vate and commercial properties. Individual boilers,for instance, have a standard utilisation ratio ashigh as 140 %. To improve the energy balance fur-

13

ther, Wolf also supplies condensing-boiler and low-temperature technology for oil and gas-fired boil-ers. All boilers can be combined with a tank forthe hot water supply either fitted underneath or asa separate upright tank.

Gas-fired condensing boiler centres and combi-

boilers

Suitable for supplying both heating and hot water:gas condensing-boiler centres and gas condensingcombi-boilers from Wolf. Gas-fired condensing-boiler centres are available as free-standing or wall-mounted appliances, and gas condensing combi-boilers as a heating system with a free-standingtank or as a combined appliance.

Biomass heating technology

Renewable fuels are a highly promising alternativeto conventional heating technology. Not only is thesupply more dependable, at a time when rawmaterials are becoming increasingly scarce; theuser is also not exposed to current price fluctua-tions on the world oil market.

Wolf supplies three solutions for sustainableheating without the use of oil or gas. n Boilers for pellets (compressed from the waste

products wood shavings and sawdust), with microprocessor control for automatic replenish-ment and automatic cleaning function.

n Wood gasification boilers, where wood gasific-tion and wood burning are spatially separate – for a very low-pollution, highly efficient burning process.

n Solid fuel boiler for short-flaming fuels such aswood, coke and coal.

Condensing boiler technology: the ComfortLine CGS-20/160gas-fired condensing-boiler centre – 2006 winner of StiftungWarentest's comparative test

Ground-source heat pump: heat sta-tion with built-in heat accumulator

14


Joint initiative for integration of heating, hot water and ventilation

The “Central Federation for Sanitation, Heatingand Climate Control” is convinced that solar ener-gy, biomass and geothermal energy can cover overhalf of today's heating energy requirements in 10 to 15 years.

Integrated systems

Combining of devices into integrated systems is anew departure. Forthcoming combined appliancesfrom CENTROTEC will integrate different systemssuch as ventilation systems with heat recovery,boilers, ground-source heat pumps and solar tech-nology and can be used for heating, cooling, climate control and hot water preparation.

Comprehensive standardised control technolo-gy for all subsystems is the nerve centre of theseintegrated systems. Wolf has developed a controlsystem that interlinks all the modules of an inte-grated system, from solar module and ground-source heat pump to boiler and controlled ventila-tion with heat recovery. Brink is to develop a mod-

ular system based on all the modules availablewithin the CENTROTEC Group, where all the indi-vidually specified elements can communicate via acentral control system to maximise the energy-sav-ing effect.

Solar thermal

Wolf now supplies CENTROTEC with all the neces-sary components for utilising the renewable energysource of the sun. These include solar absorbers inthe form of flat collectors, vacuum tube collectorsand, specifically for the leisure sector, swimmingpool absorbers as the low-cost option for heatingswimming pools. The range of heat accumulatorsystems is exceptionally wide, and comprises strati-fied accumulators, upright accumulators, doubleaccumulators and buffer accumulators with capaci-ties ranging from 300 to 1500 litres.

Heat pumps

Demand for heat pumps among owners of de-tached and semi-detached houses is higher thanever before. In 2006, 55,000 heat pumps weresold and installed in Germany alone. In response

15

The vision of the future: integratedheating, climate control and cooling,with the assistance of renewableenergies

to many consumers’ quest for alternatives to oiland gas, air/water and brine/water heat pumpshave been added to the range of heating systems.With a total of 13 different types for indoor andoutdoor installation, including standard and com-pact versions, as well as a heat station with built-inheat accumulator, the range of CENTROTEC’s sub-sidiary Wolf covers all the main configurations.

Ventilation

Increasingly effective insulation also increases theneed for controlled ventilation, as the energy thathas been saved is rapidly squandered if the win-dows are simply opened for ventilating. In the winter, central heat recovery devices from the CENTROTEC subsidiary Brink recover up to 95 %of the heat present in the outgoing air, thus drasti-cally cutting the consumption of heating energy.

16


[ ]Segment_Medical Technology & Engineering Plastics

Medical technology is one of the most attractivegrowth sectors in the world. Thanks to its ongoingproduct and innovations drive and its sophisticatedproduction expertise, Möller Medical has enjoyedincreasing success since it became part of the CENTROTEC Group. The numerous new and im-proved equipment systems and sterile goods areincreasingly spreading awareness of the MöllerMedical brand, as reflected in the rising sales figuresfor end users of medical products such as hospitals,laboratories and medical practices. In the mediumterm, there are plans to spin off the MedicalTechnology & Engineering Plastics segment as aseparate listed company.

High temperature plastics

The original nucleus of CENTROTEC Sustainable AG,this business area extrudes high-performance semi-finished plastic products and processes them intoprefabricated parts for a wide variety of special ap-plications, for instance in the field of medical tech-nology.

Advanced composites

Extremely lightweight, hot-shaped composite ma-terials with diverse static properties (flexible, high-strength, tear-resistant, puncture-proof) help toreduce weight predominantly in the mobility sector,thus cutting energy consumption.

Specific nanocoatings

Nanotechnology is becoming increasingly importantas an innovative technology of the future. Resist-ance to high temperatures and corrosive chemicalsis indispensable e.g. in liquid handling for diagnos-

tics, where hollow needles and pumps need to becleaned carefully and swiftly in order not to allowany deterioration in quality or loss of time.

New developments

The new LiquoGuard® system, which has beenspecially developed for use in neurosurgery, for thefirst time makes it possible to measure and regu-late the cerebrospinal fluid of brain trauma patientssimultaneously. Coordinated software moreoverpermits time-based evaluation of the readings. Thisinnovative device with integral hose pump and twopressure sensors enables the doctor to set the de-sired liquor pressure and liquor pumping rate ac-cording to the patient, and allows the patient toremain mobile while monitoring this vital function.

Our special semi-finished plastic productsbased on the material POM (polyoxymethylene)have been certified by the German Institute forHygiene. In conjunction with raw material manu-facturers, experiments with biodegradable materi-als are currently being conducted.

50

40

30

20

10

0

Revenue performance Medical Technology &Engineering Plastics[in EUR million]

2003 2004 2005 2006

20.2

28.433.8

26.5

17Gas Flue Systems

8

Climate Systems


16

Solar Systems

18

1

Products_Medical Technology &Engineering Plastics

n OEM and own products, as well as OEM components, for diagnostics and medical technology

n High-quality semi-finished plastic products, prefabricated parts and assemblies e.g. for medical technology and plant engineering

n Super-lightweight, high-strength advanced composites in the form of semi-finished products and prefabricated components for the automotive industry and hi-fi

1_Neurosurgery

The vertebroplasty hol-low needle is used inthe introduction ofbone cement into ver-tebral bodies, a thera-py used e.g. for age-related osteoporosis.

2 3

2_In-vitro diagnosics

The sterilisation pumpwith integral documen-tation software is thecentral device used fortesting sterilised med-ical products.

3_Aesthetic medicine

The tumescence infiltra-tion pump Liposat basicadds a low-priced buthigh-performance ver-sion to Möller Medical’srange of liposuctionproducts.

3

53TEUR

5TEUR

18


[ ]Segment_Solar Systems

Photovoltaic systems for private houses and the

roofs of commercial buildings

The market for photovoltaic solar energy systemscontinues to advance in leaps and bounds.Numerous countries are following the lead givenby Germany and Japan in promoting this energygeneration technology. CENTROSOLAR AG, whichwas created from scratch in 2005, has specialisedsmall to medium-sized photovoltaic solar systemsthat are used predominantly on private houses.One particular focal area are its building-integratedsolutions, which include thin-film solar cells as wellas stand-alone systems that are used independent-ly of the grid, for powering weekend homes, boatsand buoys, and radio and traffic signal systems. Inaddition to manufacturing and selling solar inte-grated systems, it supplies important componentssuch as mounting systems and specially coatedglasses for solar modules. CENTROSOLAR is eventhe world market leader for solar glasses with anti-reflective coatings and mounting systems for flatroofs.

The easy-to-install CENTROSOLAR completesystems are sold predominantly to specialist fittersvia technical wholesalers, for installation in privatehouses. They have discovered solar technology tobe a lucrative source of extra business.

Growth strategy and international expansion

CENTROSOLAR pursues a specific growth strategy.Alongside the high organic growth of the group,which aggregated almost 50 % in 2006, CENTROSOLAR practises an active acquisitions policy. This “buy and build” strategy, which hasalready proved highly effective for CENTROTEC,will continue to accelerate the group’s growth inthe future. The partnership with the Wolf Group inaddition opens up fresh potential for expandingthe sales network and enlarging the product rangeto include solar thermal. Further internationalexpansion will be a core aim of future businessdevelopment. Although Germany will remain anattractive growth area by virtue of being the largestsolar market in the world, subsidies for solar ener-gy in other countries (especially in Europe) will pro-pel other rapidly-growing markets to prominence.CENTROSOLAR has therefore also set up subsi-diaries and agencies in the USA, Spain, France,Italy and Greece.

200

150

100

50

0

Revenue performance Solar Systems[in EUR million]

2003 2004 2005 2006

172.2(As-if figures)

(Time proportionally)

91.6

16.7

19Gas Flue Systems

8

Climate Systems


16

Solar Systems

18

1

Products_Solar Systems

n Integrated photovoltaic systemsn Solar modules for photovoltaics and

solar thermaln Solar glass for photovoltaic and solar

thermal applicationsn PV mounting systems

1_Integrated solar systems

CENTROSOLAR hasspecialised in smallerintegrated systems forthe roofs of privatehouses and larger sys-tems for industrialroofs.

2 3

2_Thin-film modules

CENTROSOLAR sellscrystalline and thin-filmmodules. Thin-filmmodules are also suit-able for all roofs builtusing lightweight con-struction methods.

3_Building-integrated photovoltaics

CENTROSOLAR sys-tems are matched tothe exteriors and roofsof buildings in order tosatisfy homeowners’exacting requirements.

20

CENTROTEC | Company & Management

Company & Management22 CENTROTEC internationally24 Strategic synergies of the

Wolf acquisition

26 Shares 28 Corporate Governance Report 32 Remuneration report


21

[ ]Element_Air

Comfort, energy, health. Our ventilation systems with integratedfilters reduce the levels of air pollution from fine dust, particulatematter and pollen by up to 90 % and keep the air in enclosedrooms healthy and fresh. And they save energy, because the heatfrom the outgoing air is recovered almost in entirety.


22


[ ]CENTROTEC internationally

The CENTROTEC Group’s drive to expand interna-tionally will gain considerable momentum throughthe Wolf Group's international subsidiaries. TheWolf Group employs some 350 (including repre-sentatives) of its total workforce of 1,500 outsideGermany. Just how well Wolf complements CENTROTEC as it was prior to the takeover is high-lighted in particular by the focal areas of its salesboth regionally and among specific target groups:in regional terms, Wolf enjoys a particularly strongpresence in Germany and the growing markets ofEastern Europe, as well as Spain and Asia, whereasCENTROTEC enjoys a very strong position inBenelux, France, Italy and the UK. The CENTROTECGroup now has a presence in 45 countries world-wide.

In strategic terms, the CENTROTEC subsidiary Brinkfocuses on energy-saving climate control technolo-gy for private houses. Wolf's focus is on large-scalesystems for industrial and commercial buildings(see reference projects), in addition to privatehouses. Both companies are considered among themarket leaders in Europe in the complementarysegments of private and project business.

Marie-Elisabeth-Lüders-Haus, Berlin

Banca d’Italia,Rome

Allianz Arena,Munich

Homes,worldwide

European SouthernObservatory (ESO), Chile


23

AustriaBahrainBelgiumChinaCroatiaCzech RepublicDenmarkEstoniaFinland

FranceFYR MacedoniaGreeceHungaryIcelandIndonesiaIrlandItalyJordan

KazakhstanLatviaLebanonLithuaniaLuxembourgNetherlandsNorwayPolandPortugal

RomaniaRussiaSingaporeSerbia & MontenegroSlovak RepublicSloveniaSpainSwedenSwitzerland

TunisiaTurkeyUnited Arab Emirates/Saudi Arabia/KuwaitUnited Kingdom

Subsidiaries / agencies / sales companies in:

1

6

24


[ ]Strategic synergies of the Wolf acquisition

Synergy on many levelsCENTROTEC is the only European listed companyin the heating and climate technology sector thatfocuses on energy-saving products. The inclusionof the Wolf Group further reinforces this emphasis.In particular, it will lead to an exchange of techno-logical expertise. Brink, for example, will exploitexpertise available throughout the entire group indeveloping a new platform for the integration ofthe functions heating, cooling and ventilation.Projects for two-way supplies of OEM productshave already been launched in the sales area. Wolfwill source equipment for controlled living-spaceventilation from the CENTROTEC group, and addlarger compact items of equipment with heatrecovery rates of over 90 % to its commercial cli-mate control range. A photovoltaics range is alsobeing specially developed for Wolf. Conversely, theCENTROTEC participating interest CENTROSOLARwill be incorporating its own solar collectors basedon Wolf’s design into its range.

The synergy teamA steering committee comprising Management Boardmembers from CENTROTEC and CENTROSOLAR aswell as the management of Wolf GmbH is coordinat-ing the Synergy Team’s work. Employees from all keypositions of all relevant development and productioncompanies are represented in the team itself.

In view of the company’s strong market growth,the team’s work focuses on expansion rather thanrestructuring. Its core tasks are:n two-way exchanges of products and expertise,n coordinating development activities,n creating competence centres,n assembling all-in packages for specific

target groups,n sales cooperation within the national subsidiaries,n the merger of individual sales subsidiaries andn coordination of Finance Departments

4

2

5

7

5

8

3


25

Some of the members of the Synergy Team

6_Wim Hijmissen[Sales Director – Brink]

Wolf’s expertise in climate control andheating technology will be allied withBrink's experience in ventilation tech-nology.

9_Donald Groels[Managing Director – Ned Air]

The development and marketing of ven-tilation units at Ned Air and Wolf will bejointly restructured. (without picture)

7_Johan van Renselaar[Managing Director – Brink]

A new combined system integrating allenergy sources for heating, cooling, ven-tilation and hot water will be developed.

8_Norbert Wülbeck[Managing Director – Centrotherm &Composites]

New gas flue systems and innovativecomponents made up of fibre reinforcedmaterials open up new perspectives.

1_Dr. Fritz Hille[Managing Director Technology – Wolf]

Responsible in the steering committeefor joint use development-, procure-ment- and production-know-how.

4_Norbert Gruber[Head of Climate/Ventilation Sales – Wolf]

Wolf’s flat appliances will in future alsobe available via Ned Air, and Ned Aircompact appliances via Wolf.

5_Torsten Müchler[Head of Domestic Ventilation – Wolf]

Wolf’s new Domestic Ventilation seg-ment will be supplies with Brink andUbbink products.

2_Rudolf Meindl[Head of Finance – Wolf]

Controlling and also the cost structure at Wolf will be further optimised withCENTROTEC’s experience.

3_Bernhard Steppe[Heating Technology Sales Manager – Wolf]

Wolf and CENTROSOLAR will forge apartnership for solar thermal and pho-tovoltaics in the purchasing and salesareas.

EUR 1.04 per share in 2006, with the result thatthe “operating” EPS would be EUR 1.59. The one-off expenditure from the acquisition of the WolfGroup alone had an EPS effect of EUR 0.65; ontop of this the effect of repositioning Innosourceamounted to around EUR 0.27 and internationalexpansion to approx. EUR 0.13. The multi-yearview highlights the steadily positive share pricedevelopment over the longer term.

Current information on the company’sdevelopment

Thanks the continuing positive development ofCENTROTEC Sustainable AG, coupled with its verybright prospects, many international investors con-tinue to show considerable interest in its shares.Interest in it increased appreciably along with thetakeover of the Wolf Group, especially as CENTROTEC is one of the few securities on Germanstock markets that has placed its strategic focus onenergy-saving products and intends to maintain itsemphasis on that area. CENTROTEC is pursuing theobjective of meeting the demanding transparencyrequirements to the best of its ability. The regularreporting activities provide an insight into the com-pany’s ongoing development and the management’sassessments. Through ad hoc announcements andsupplementary information on the homepage, thecompany endeavours to make all important infor-

26

CENTROTEC | Shares

SharesThe market context

Stock markets continued to develop positively in2006. A great many indices showed a substantialimprovement. German stock markets likewise ex-perienced a marked upswing, as reflected bysteadily rising share prices. In the course of theyear the DAX rose by around 22 %, from 5,408points to 6,597 points at the end of the year. TheSDAX, on which CENTROTEC was listed untilDecember 17, 2006, performed even better. Thisindex rose by 31 %, from 4,249 points at the startof the year, closing 2006 on 5,567 points.

Share price development

Despite the positive mood on the stock markets andthe sustained growth achieved by CENTROTEC, theCENTROTEC share price at the end of the year wasactually down slightly on its level at the start of2006, at EUR 24.00. The company's shares hadpreviously touched an all-time high of more thanEUR 35.36 on May 11, before dipping to the year-low of EUR 22.44 on November 2, 2006. The priceonly regained a level above EUR 30 after the endof the year under review.

Renowned banks such as Citigroup, BerenbergBank, MM Warburg, Sal. Oppenheim and ABNAmro almost without exception assessed the “fair” price at more than EUR 30, Bankhaus HSBCTrinkaus likewise commenced coverage of theshares and formulated a price target of EUR 33 atthe start of this January. The greater potential ex-pressed in this assessment was followed by anupward trend in the share price in the first threeweeks of the current 2007 financial year. Earningsper share (EPS) were EUR 1.76 in 2006 as a resultof various one-off effects, compared with EUR 2.26in 2005 (in each case including one-off gains fromtransactions with minorities), yielding a price-to-earnings ratio of 13.6 at the end of 2006. Ex-cluding one-off gains from transactions withminorities, EPS would have been EUR 0.55 net ofall one-off effects. These cumulatively amounted to

30

25

20

Feb. Apr. Jun. Aug. Oct. Dec. Feb.

2006 2007

Share price 2006/2007[in EUR]

IPO price 6.48

CENTROTEC | Shares

27

mation accessible simultaneously and promptly toall investors. The value of CENTROTEC shares wasfurther highlighted at numerous road shows inLondon, Paris, Amsterdam, Frankfurt, Munich,Zurich and Copenhagen, by taking part in theAnalyst Meeting in November and by organisingour own DVFA event. The company and its devel-opment were again covered last year by interna-tional banks with investment funds.

CENTROTEC’s shares attracted considerableattention and interest as a result of the takeover ofthe Wolf Group, as a result of which CENTROTECwill not only secure a marked jump in revenue butalso strengthen its strategic emphasis on the mar-ket for energy-saving products. The merger of thetwo groups, whose product ranges and sales struc-tures are very well matched, has resulted in one ofthe first fully integrated systems suppliers for build-ing energy-saving technology. Most analysts per-ceived very positive prospects for development init. There were, however, also critical voices claim-ing that the financial burdens imposed by the ac-quisition were too high. As the financing of theacquisition was accomplished without a capitalincrease and with a limited level of capital resources,the group’s level of debt naturally showed a signifi-cant increase at year-end. On the other hand, avery high level of assets was acquired. The overallfinancing structure is designed to reduce debtswiftly and incorporates both ample leeway for theexpansion of Wolf’s business and scope for theacquisition of further small or midsize companies.

Medium-term prospects of furthergrowth

High organic revenue growth and significantly im-proved earnings are expected for the current 2007financial year, now that the restructuring measures– specifically of CENTROSOLAR, which is now consolidated using the equity method, and of theClimate Systems segment – have been completed.The rate of return in particular is to be improved,producing EBIT of EUR 29.0 to 30.5 million andEPS of between EUR 2.00 and 2.10 from anticipat-ed revenue of EUR 390 to 400 million. Double-digit

organic growth in revenue and corresponding risesin earnings are therefore again expected.

Higher revenue and improved earnings areplanned in all segments. The target revenue in-creases in the Gas Flue Systems and Medical Tech-nology & Engineering Plastics segments are around15 %. High growth rates of between 12 and 15 %are likewise expected in the Climate Systems seg-ment, for the ventilation product area. The alreadyvery good revenue performance of the Wolf Groupin 2006 is to be boosted by approx. 7 %, with theresult that growth in this segment will rise overallby around 8 %. These target values are based onthe structure of the company as it stands.

Share statistics

There were 8,203,894 shares issued at December31, 2006. At a price of EUR 24, the company’smarket capitalisation is therefore about EUR 197million. The shares are listed in the Prime All Shareand GEX. Until December 17, 2006 CENTROTECwas also listed in the SDAX, but ceased to meet itscriteria in particular as a result of the relatively lowfree float (shareholding of the Krass family over 50 %) and the relatively weak share price develop-ment. All shares outstanding are in free float. Anaverage of more than 19,000 CENTROTEC shareswere traded daily in XETRA in 2006.

2002 2003 2004 2005 2006

Total shares at Dec. 31 ('000) 7,667 7,668 7,889 8,032 8,204

Share capital(EUR) 7,667 7,668 7,889 8,032 8,204

Market capitali-sation (EUR mill.) 41.8 75.5 169.6 201.3 196.9

Year-end price (EUR) 5.45 9.85 21.50 25.06 24.00

Year-low (EUR) 4.62 3.90 9.30 19.85 22.44

Year-high (EUR) 13.42 10.58 21.80 30.58 35.36

Trading vol., XETRA (avg., '000) 6.5 7.1 8.7 22.8 19.1

Earnings per share, (EUR) 0.76 1.07 1.31 2.26 1.76

28

CENTROTEC | Corporate Governance

Corporate GovernanceReportThe “Government Commission on the GermanCorporate Governance Code” included a “Corpo-rate Governance Report” as an instrument of re-porting on the Corporate Governance Code in the version last updated on June 12, 2006. TheSupervisory Board and Management Board of CENTROTEC Sustainable AG have considered thecurrent version of the Code at length and set forththe departures from it and made clarifications in aDeclaration of Conformity. One departure concernsthe recommendation of the formation of Super-visory Board committees. As the Supervisory Boardcomprises only three members, all topics weredealt with jointly and there was no need for theformation of committees.

Management and governance structure

In keeping with German Stock Corporation Law,CENTROTEC Sustainable AG has a two-tier man-agement and controlling structure that comprises asix-member Management Board (at reporting dateof December 31, 2006; 5 Management Boardmembers from the start of January) and a three-member Supervisory Board. The ManagementBoard and Supervisory Board work together closelyin the interests of the company. The ManagementBoard coordinates both the strategic direction andprincipal transactions with the Supervisory Board.

In accordance with the rules of internal proce-dure of CENTROTEC Sustainable AG, the Manage-ment Board is independently responsible for therunning of the company and conducts its business.In doing so, it focuses on achieving a lasting im-provement in the value of the company. It is boundby the law, the provisions of the articles of incor-poration and the rules of internal procedure forthe Management Board and Supervisory Board, aswell as by the resolutions of the Shareholders’Meeting. The Management Board informs theSupervisory Board regularly and promptly of all rel-evant topics concerning the strategy and its imple-mentation, the targets, the company’s currentprogress and the risks facing it.

The Supervisory Board monitors and advises theManagement Board. It specifies the duties of theManagement Board to report and inform. TheSupervisory Board issues and amends the rules ofinternal procedure for the Management Board. The Supervisory Board appoints and dismisses themembers of the Management Board. It mayappoint a Chair of the Management Board. Inaccordance with the rules of internal procedure forthe Supervisory Board, at least two meetings of theSupervisory Board are held each year. In the 2006financial year, five meetings of the SupervisoryBoard took place. The members of the SupervisoryBoard are appointed until the Shareholder’sMeeting that gives discharge for the financial year.

Shareholders and Shareholders’ Meeting

The shareholders exercise their rights through theShareholders’ Meeting and make use of their vot-ing rights there. Each share carries one vote. Everyshareholder is entitled to take part in the Share-holders’ Meeting. The Shareholders’ meeting takesdecisions concerning in essence the appropriationof profits, discharge of the Management Boardand Supervisory Board, the articles of incorporationand amendments thereto, key entrepreneurialmeasures, and measures that change the capitalsuch as the issue of new shares, the acquisition oftreasury stock and conditional capital. The partici-pants of the Shareholders’ Meeting elect theSupervisory Board members and determine theirremuneration.

Remuneration system of the Management Board

and Supervisory Board

The Supervisory Board is responsible for determin-ing the remuneration of the Management Board.The remuneration system of the Management Boardand Supervisory Board is set forth in the remunera-tion report.

Third-party financial loss insurance (D&O cover)has been taken out for the company’s Manage-ment Board and Supervisory Board members,incorporating an appropriate excess. The managingdirectors and administrative board members ofsubsidiaries are included in this cover.


29

Transparency

CENTROTEC has acted openly and responsibly eversince its establishment, and therefore did so beforethe company pledged to observe the key tenets ofthe Corporate Governance Code. The overridingobjective of CENTROTEC’s corporate communicationis to provide prompt, continuous, comprehensiveand consistent information to all target groups andto maintain a relationship with its shareholdersthat is characterised by transparency. In addition tofinancial data, the financial calendar listing all keydates for CENTROTEC, press releases and ad hocinformation, the latest developments regarding theCorporate Governance Code and notifiable securi-ties transactions pursuant to Section 15a of GermanSecurities Trading Law (WpHG) are published onthe CENTROTEC homepage, following disclosureto the Federal Financial Supervisory Authority andthe stock market.

Section 6.6 of the Corporate Governance Codestipulates the obligation to report immediately ac-quisition and sale transactions (in excess of EUR 5thousand p.a.) by Management Board and Super-visory Board members or by other persons per-forming management tasks who regularly haveaccess to inside information about the company.Those persons are held on a list of insiders at CENTROTEC and are obliged to report the transac-tions described in that section. CENTROTEC hasreported all such transactions to the Federal Finan-cial Supervisory Authority without delay and pub-lished them on its homepage. The current holdingsof shares and options by the members of corporatebodies are likewise documented there.

Legal transactions with companies in whichmembers of the Supervisory Board and manage-ment hold or might hold an interest were also con-ducted in the financial year. As presented in detailin the Declaration of Conformity, these did not giverise to any conflict of interests.

As in previous years, a dependence report wasissued by the Management Board. The concludingremark from the dependence report reads:“Pursuant to Section 312 (3) of German StockCorporation Law, we declare that, on the basis ofthe circumstances known to us at the time whenlegal transactions with affiliated companies were

conducted or measures taken or forborne, ourcompany received adequate consideration for eachlegal transaction and was not placed at a disad-vantage by the implementation or forbearance ofthe measure.”

Financial reporting and auditing of financial

statements

The Consolidated Financial Statements are pre-pared by the Management Board and audited byboth the independent auditors and the SupervisoryBoard. The Consolidated Financial Statements andinterim reports are prepared in accordance withthe International Financial Reporting Standards(IFRS).

Declaration of ConformityPursuant to Section 161 of German Stock Corpo-ration Law, the Management Board and Super-visory Board of a company listed on the stock ex-change are obliged to declare once a year whetherand to what extent the code has been and is com-plied with.

30


Declaration by the Management Board and

Supervisory Board of CENTROTEC Sustainable

AG:

CENTROTEC Sustainable AG has complied with therecommendations of the “Government Commis-sion on the German Corporate Governance Code”since the last Declaration of Conformity datedFebruary 27, 2006, based on the version current atany given time, with the following exception:

This concerns Section 5.3 of the Code, in whichthe formation of committees on the SupervisoryBoard is recommended. These are, however, to beformed subject to the specific circumstances of thecompany and the number of members of theSupervisory Board. Our Supervisory Board compris-es three members, who consider all matters con-cerning the company jointly. Consequently, we donot regard the creation of committees to be appro-priate in our case. We believe that our view iscompatible with the Code, but supply this informa-tion as a precautionary measure by way of clarifi-cation.

Along with the annual financial statements, aremuneration report on the remuneration of theSupervisory Board and Management Board mem-bers is prepared in accordance with the structurerecommended in Section 4.2 of the Code. Inagreement with Section 4.2.3, the report containsthe overall remuneration of the Management Boardmembers and covers all monetary remunerationcomponents, retirement benefits and otherpledges, fringe benefits and third-party benefitsagreed in connection with service on the Manage-ment Board or granted in the financial year.

The Management Board and SupervisoryBoard of CENTROTEC Sustainable AG would fur-thermore like to make the following clarificationsand comments on two sections of the Code:

1) Section 4.2.3 of the Code recommends that theremuneration of the Management Board shouldcomprise a variable as well as a fixed component.The variable component is, among other things,intended to be performance-related, have a long-term incentivising effect and possess a risk charac-ter. The Code quotes stock options schemes as anexample. CENTROTEC has been operating a stockoptions scheme, applicable not only to Manage-ment Board members but also to executive staffand other employees, since 1999. We believe thatthe scheme reflects the spirit of the Code, but wedraw attention to two aspects which could beinterpreted as a departure from it.

The Code recommends reference to compara-tive parameters. The stock options scheme envis-ages a performance target based on the absoluterise in the share price. This form was chosen inorder to provide an incentive for success inabsolute rather than relative terms. The Code inaddition recommends that the variable remunera-tion be capped. In the case of the options, thiswas realised through allowing their exercise onlywithin a limited time frame (for the first time twoyears after issue, for the last time seven years afterissue). Options received as a result of the attain-ment of targets are not retrospectively withdrawnby the company, nor the parameters governingthem altered. In addition to the afore mentionedshare price target, the exercising of the options ismoreover linked to further internal performancetargets in order to preserve a demanding but equi-table form of variable remuneration.2) Section 5.4.2 of the Code recommends that theSupervisory Board should include an adequatenumber of members who – in the board’s ownopinion – are deemed to be independent. A mem-ber is to be regarded as independent if they have


31

no business or personal relations with the compa-ny or with its Management Board that could con-stitute a conflict of interests. In its own opinion,our Supervisory Board includes an adequate num-ber of independent members. Although Super-visory Board members do have business relationswith the company, this does not constitute a con-flict of interests.

CENTROTEC Sustainable AG otherwise observesall target requirements of the Code.

CENTROTEC will continue to satisfy the recom-mendations of the “Government Commission onthe German Corporate Governance Code” in theversion current at any given time, with the excep-tion mentioned in the declaration.

Brilon, February 28, 2007

On behalf of the Management board

Dr. Gert-Jan Huisman [Chairman]

On behalf of the Supervisory board

Guido Alexander Krass [Chairman]

32

CENTROTEC | Remuneration report of the Management Board and Supervisory Board

Remuneration report of theManagement Board andSupervisory BoardRemuneration of the Management Board

The monetary remuneration of the members of theManagement Board comprises an annual, non-per-formance-related fixed salary and a performance-related remuneration component. In addition to thisthere are retirement benefits, other pledges andfringe benefits. The Supervisory Board is responsi-ble for determining the remuneration of the Man-agement Board. The Supervisory Board advises onand examines the remuneration structure of theManagement Board on a regular basis. The level ofthe remuneration of the Management Board mem-bers reflects the size as well as the economic andfinancial position of the company. The task areas,experience and contribution of the ManagementBoard members are moreover taken into accountin determining their remuneration.

At the end of the 2006 financial year, the Man-agement Board of CENTROTEC Sustainable AGcomprised six members. On April 1, Norbert Vroegewas appointed as successor to Rob Slemmer as themember responsible for the Climate SystemsDivision. Norbert Vroege surrendered office onOctober 20, 2006 (both entries on the CommercialRegister on August 15, 2006). The appointmentsof Alfred Gaffal and Pieter van der Poel to theManagement Board took place on November 16and December 18, 2006 (entered on the Com-mercial Register on February 5, 2007).

The non-performance-related ManagementBoard remuneration is paid in the form of a fixedmonthly salary and amounted to EUR 1,114 thou-sand in 2006. Additional social contributionsamounting to EUR 30 thousand were payable onthis sum.

In a small number of individual cases a mone-tary bonus is granted; its granting and level are de-pendent on attainment of certain targets specifiedat the start of the financial year. This was the casefor only one Management Board member in the2006 financial year, for a sum of EUR 41 thousand.The greater portion of the variable remuneration isgranted in the form of stock options via the stock

option scheme. It is dependent on the attainmentof certain targets based on the specific perform-ance of the company, as well as personal targets.Depending on attainment of the targets, the Man-agement Board members receive a certain numberof stock options, which have a long-term incenti-vising effect in view of their vesting period of atleast two years. The rules on the stock optionsscheme and the number of options that Manage-ment Board members are able to exercise are shownin detail in the Notes to the Consolidated FinancialStatements in this Annual Report. In the year underreview of 2006, the Management Board was grant-ed a total of 52,500 options (maximum number).Each of these options entitles the beneficiary topurchase one CENTROTEC share at an exerciseprice of EUR 21.20, provided certain conditions aremet. The maximum number of exercisable optionswas used as the basis for determining the person-nel expense pursuant to IFRS. The value of the stockoptions received in 2006 has been determined ac-cording to the Black-Scholes method in accordancewith the rules in IFRS 2 “Share-based Payments”and totals EUR 214 thousand. For their services onthe Management Board of CENTROSOLAR AG, in2005 Dr. Huisman and Dr. Kirsch received stockoptions for CENTROSOLAR AG, in each case with avalue of EUR 50 thousand in 2006 under IFRS rules.The time proportional value of the CENTROSOLARstock options issued in mid-December 2006 to Dr. Kirsch is EUR 1 thousand.

The third category of remuneration of Manage-ment Board members comprises miscellaneousremuneration that is paid substantially in the formof contributions towards pension schemes, the useof company cars and insurance premiums, with atotal cost of EUR 177 thousand.

The remuneration of the Management Boardof CENTROTEC fundamentally does not includepension contributions for Management Boardmembers. German management board membersare able to use the company agreement on com-pany pension schemes. Like all other employees,they then make tax-advantaged contributions fromtheir gross salary. In the Netherlands, as for all em-ployees there, payments are made into an industry-specific fund, which guarantees an additional retire-ment pension on top of the state pension. Theemployee contributes 40 % and the employer the

CENTROTEC | Remuneration report of the Management Board and Supervisory Board

33

Remuneration of the Supervisory Board

The remuneration of the Supervisory Board is regu-lated by Section 18 of the articles of incorporationof CENTROTEC Sustainable AG. This specifies that,in addition to reimbursement of their out-of-pock-et expenses, the members of the Supervisory Boardreceive a fixed annual remuneration that was de-termined by the Shareholders' Meeting on June 1,2005. It amounts to EUR 12 thousand per memberof the Supervisory Board for each full year of serv-ice. The Chairman receives double and the DeputyChairman one and a half times the amount due toa member of the Supervisory Board. This remuner-

ation of the members of the Supervisory Board ofCENTROTEC Sustainable AG (until 03/2006 J.W.Brink; from 03/2006 Chr. C. Pochtler) amounted toEUR 55 thousand. There were in addition expens-es amounting to EUR 7 thousand. The statutorylevel of sales tax due on this remuneration is in ad-dition paid by the company if and insofar as it isbilled by a Supervisory Board member. The compa-ny furthermore bore Supervisory Board taxamounting to EUR 24 thousand for the SupervisoryBoard members, who are subject to tax to a re-stricted degree. No separate remuneration is paidfor service on committees. In accordance with thearticles of incorporation, a member of the Super-visory Board receives remuneration amounting to0.1 % of the dividend payable for a given financialyear; as in previous years, however, no dividendswere distributed in the 2006 financial year.

remaining 60 %. The pension entitlement for oneManagement Board member was topped up overand above the specified ceiling. This, too, is cus-tomary for all employees. These pension expensesamounted to EUR 98 thousand in 2006. An expenseof EUR 73 thousand was incurred for the use ofcompany vehicles by Management Board members.

The overall remuneration of active and nolonger active members of the Management Boardof CENTROTEC Sustainable AG in the 2006 financialyear, including all components, amounted to EUR1,678 thousand (previous year EUR 1,346 thousand).The remuneration of the individual ManagementBoard members, broken down into non-perform-ance-related and performance-related components,components with a long-term incentivising effectand miscellaneous remuneration, is shown in thefollowing table (in EUR '000):

Non-per- Componentsformance- Performance- with a long-

dependent related term incenti- Other re- Total re-Management Board member component1 componenet vising effect2 muneration3 muneration

Dr. G.J. Huisman 311 0 99 32 442

M. Beijer 155 41 49 99 344

A. Gaffal (from 11/06) 35 0 0 1 36

Dr. A. Kirsch (until 01/07) 296 0 100 0 396

P. van der Poel (from 12/06) 8 0 0 1 9

Dr. C. Traxler 232 0 49 1 282

R. Slemmer (until 03/06) 39 0 18 14 71

N. Vroege (04.- 11.06) 68 0 0 30 98

Total 1,144 41 315 177 1,678

1 Incl. employer's social contributions2 Valued options3 Pensions, company cars and other expenses

34

CENTROTEC | Group Management Report

Group Management Report36 Systems supplier for integrated

energy-saving concepts 38 Group structure, business areas,

principal locations 38 Corporate strategy, objectives

and control

40 Economic conditions 41 Business Progress and Revenue

Trend 44 Gas Flue Systems46 Climate Systems

50 Medical Technology & Engineering Plastics

53 Solar Systems55 Net worth, financial position and

financial performance


35

[ ]Element_Earth

Our photovoltaic systems help to reduce worldwide CO2 emissions,the prime suspect behind climate change. We boost efficiency evenfurther with combination units such as air conditioning systems thatrun entirely on solar power. An intelligent solution, because cool-ing output is usually needed when sunlight levels are high – pro-ducing a form of comfort that does not burden the environment.


60 Personnel61 Research and development61 Environment62 Risk report

68 Further particulars 71 Outlook

36


Group Management Report2006 was another landmark year in the evolutionof CENTROTEC into an integrated group for ener-gy-saving systems. As a result of the takeover of the Wolf Group at the start of October,CENTROTEC is now the first listed company to focusentirely on energy-saving technologies for buildings,which it comprehensively covers. The Wolf Grouphas been integrated into the Climate Systems seg-ment. Significant progress was also made in theother business segments. Double-digit organicgrowth was maintained in the Gas Flue Systemssegment and the basis for its future developmentbroadened through the establishment of a Euro-pean organisational structure and investing in loca-tions and processes. In the Medical Technology &Engineering Plastics segment, bringing the firstentirely self-developed and marketed productLiquoGuard® to market maturity as well as othernew products further strengthened our position asa leading manufacturer of medical technology andthus paved the way for it to be spun off as an in-dependent entity in the future. In the Solar Systemssegment CENTROSOLAR AG, which switched tothe Prime Standard in October 2006, successfullycontinued to integrate its subsidiaries and realisedorganic revenue growth of almost 50 % (as-if cal-culation under the assumption that at December,31, 2006 full consolidated entities would havebeen full consolidated since January, 1, 2005).

Systems supplier for integrated energy-saving concepts

As a result of the takeover of Wolf, the core seg-ment of Climate Systems now brings together vari-

ous different areas of expertise, with Wolf coveringclimate control and heating technology as well assolar thermal, and Brink and Ned Air the expertsfor ventilation technology and heat recovery. Thisgives CENTROTEC a unique position in the emerg-ing process of integration between these two areasof technology, on which CENTROTEC is workingintensively. What this means in specific is, thatCENTROTEC’s products and ideas are placing evengreater emphasis on the system principle and thatit is further intensifying its development of inte-grated systems that cover all heating, ventilationand climate control requirements in a building,with scope for regulating them via a single, inte-grated control system with a uniform user inter-face. Reflecting the drive to save energy, the over-all system can of course be combined with allheating and heat sources that tap into renewableenergies, such as heat pumps, solar thermal sys-tems and biomass heating technology. Heating sys-tems combined with controlled domestic ventilationhave thus already matured into a marketable prod-uct. CENTROTEC is furthermore already workingon a product line of passive-house compact sys-tems that combines all available heat sources withways of distributing heat – in this specific instance,domestic ventilation with heat recovery. Prototypesare already undergoing extensive testing.

CENTROTEC will benefit from the trend towardsinvesting more in technical installations in newbuildings in order to cut future energy bills. CENTROTEC will exploit its very strong position,which results from the combining of various areasof expertise in heating, climate control and ventila-tion technologies, to promote the development ofall-encompassing integrated systems that pave theway for the zero-energy house.


37

The Scope for synergy between the new groupsubsidiary of the Wolf Group and the longer-estab-lished companies is moreover not limited to thedevelopment of pioneering energy-saving conceptsand systems. As part of a cross-company integra-tion programme, interdisciplinary teams were setup to dovetail purchasing, sales, production, logis-tics and finance activities in the various parts of thegroup more closely. Providing mutual access tochannels of distribution is one central project thatcan be rapidly implemented and offers consider-able synergy potential. Examples of the diversecross-selling potential in the various product port-folios include sales of Brink domestic ventilationsystems and CENTROSOLAR photovoltaic systemsby the Wolf Group, and sales of Wolf solar thermalsystems by CENTROSOLAR and of Wolf gas con-

densing combi-boilers by Brink in the Dutch mar-ket. There are in addition synergies in industrial climate technology, with Wolf’s range of climatetechnology products perfectly complementing NedAir’s ultra-efficient heat recovery systems withcounterflow heat exchangers. There also exist salessynergies from the extensively complementary geo-graphical coverage of the sales organisations ofCENTROTEC and the Wolf Group, which has salesoffices in 45 countries.

Thanks to the outstanding match between thecorporate cultures of Wolf and CENTROTEC, theintegration projects are progressing very well andare thus establishing the basis for further integra-tion, utilisation of synergies and improved earningsin the 2007 financial year.

38


Jumao Photonics Co. Ltd. in China; switch byCENTROSOLAR AG to the Prime Standard onOctober 16, 2006.

The CENTROTEC Group now has a much moreextensive international presence and operates inover 45 countries. As well as the core marketsGermany and the Netherlands, these include theother Benelux countries, France, Italy, the UK,Spain and Eastern Europe. However, the principalproduction and administrative locations are con-centrated in Central Europe, with the headquartersof the parent company in Brilon, Wolf’s main plantin Mainburg, as well as Doesburg (Gas Flue) andStaphorst (Climate Systems) in the Netherlands.The Medical Technology & Engineering Plastics seg-ment has production plants in Fulda, Marsberg andKolding (Denmark); like CENTROSOLAR, it will infuture be run from Munich.

Corporate strategy, objectives and control

In coordination with the Management BoardChairman and the Management Board as a whole,responsibility for running the individual businesssegments rests with the board member for eachrespective segment. In the management of theindividual companies, CENTROTEC pursues theprinciple of granting the management the widestpossible entrepreneurial liberty, in particular in viewof the entrepreneurial background of many sub-sidiaries and their heterogeneity as dictated bytheir operations. At the same time, the necessarydegree of management and control of the entity isexercised through their tight integration into thegroup’s supervisory and control systems.

One of CENTROTEC’s main objectives is toachieve profitable growth. From the group per-spective, this explains the use of revenue and earn-

Group structure, business areas,principal locations

In keeping with CENTROTEC’s strategy, the WolfGroup complete with its brands will be preservedas a separate business unit within the CENTROTECGroup. In organisational terms, the Wolf Grouphas been allocated to the Climate Systems segment.As-if figures for 2006 thus show the Climate Sys-tems segment as the largest of the CENTROTECGroup, accounting as it does for over 50 % of rev-enue. Regionally speaking, living-space businesswill be concentrated at two locations in the future:at Brink’s Staphorst location (focusing on air-basedsystems) at Wolf’s Mainburg location (focusing onwater-based systems). To highlight the significanceof the Wolf Group within the CENTROTEC Group,Wolf’s Managing Director Alfred Gaffal was ap-pointed as CENTROTEC Management Board mem-ber with responsibility for the Climate Systems segment in November 2006.

There were in addition the following notablechanges in the structure of the CENTROTEC Groupin the 2006 financial year:n Climate Systems segment: establishment of two

new subsidiaries by Ned Air to handle sales inthe UK and Austria.

n Medical Technology & Engineering Plastics seg-ment: renaming of Centrotec MedizintechnikGmbH as Centromedical AG and transfer of itsregistered offices to Munich; transfer ofCentroplast Engineering Plastics GmbH and itsinvestments to the new stock corporation; InMarch 2007 Centromedical AG was renamedmedimondi AG with the result it will be referredto in the future and below as medimondi AG.

n Solar Systems segment: acquisition in full ofSolara, Solarstocc and Biohaus PV HandelsGmbH and involvement in a joint venture with

ings of the operating units as the overarchingparameters of control and steering. Both parame-ters are promptly recorded, analysed and steered ina uniform process. The entities at the level of theindividual companies or operating units are fur-thermore managed by means of company-specificcontrol and steering systems. Both levels of controland steering are coordinated, examined as part ofthe regular budgeting and planning process andadjusted as necessary. Targets for the individualunits are defined as part of the annual budgetprocess at individual company or segment level;these targets also serve as the basis for the variableremuneration components of Management Boardmembers and management employees in the formof an options scheme (see Corporate GovernanceReport).

In addition to the operating units’ businessobjectives, CENTROTEC Sustainable AG strives formaximum financial leeway in its financial targetssystem, to enable it to seize opportunities forgrowth that offer themselves at short notice, forinstance through acquisitions. At the same time,the overall interest rate risk for the group is to bekept as low as possible by means of derivatives.The financing of acquisitions is therefore generallyhandled within a collateralised financing structurethat focuses in essence on the acquired entities. A strict set of criteria is applied even during theselection and acquisition of companies, and rapidintegration into the group-wide control and steer-ing system is carried out.

In order to attain both financial and opera-tional targets, the company’s portfolio is regularlyinvestigated for potential for enhancing its value.For example, the spin-off of the Medical Tech-nology & Engineering Plastics segment is currentlybeing pursued with the objective of listing the newcompany on the stock exchange. The CENTROTEC


39

40


Group is thus pursuing the possibility of spinningoff and selling a division that no longer fits into itsfuture core area of “energy-saving systems”, in amanner that reflects the intrinsic value of this busi-ness. The anticipated proceeds are then to be in-vested in the further development of core business.

As well the operating and financial targets,high quality in products and processes and a highlevel of customer satisfaction are major prioritieswithin CENTROTEC’s internal system of targets.These two interdependent objectives are the basisfor organic growth and for further increasing ourmarket shares. At CENTROTEC, these parametersare controlled at the level of the individual operat-ing units, within the context of local factors andframework conditions.

Economic conditions

The crude oil price reached new record levels in2006. After touching a high of USD 78 per barrelin August, however, the price returned to the levelof the end of the previous year, with the result thatits price was on average 19 % up on the previousyear. The trend towards higher energy prices thuscontinued unabated. Coupled with growingawareness of the consequences of global climatechange, the issue of energy consumption willremain in the spotlight in years to come, and thushas a positive impact on demand for energy-savingproducts.

Although the rise in energy prices had in turndamped economic activity, its effect on global eco-nomic growth was less pronounced than in theprevious year, with the result that gross domesticproduct in the eurozone rose by 2.7 % comparedwith 2005. In the core market of Germany, whichaccounts for over 50 % of consolidated revenue in2006, the rise in real gross domestic product recov-

ered to 2.4 % after a string of very weak years.Building investment contributed to this growth forthe first time in a long while, with the segmentexpanding by 2.5 %. This development was, how-ever, influenced by one-off factors such as theabolition of the owner-occupied housing subsidy atthe start of 2006 and the bringing forward of pri-vate investments as a result of the increase in theVAT rate in 2007. Residential properties accountedfor over one-quarter of building investment, whichincreasingly included investment in thermal insula-tion and the modernisation of heating systems forwhich the KfW banking group provides specialsubsidies. In the second core market of the Nether-lands, which accounts for around 15 % of CENTROTEC consolidated revenue, growth exceed-ed the European average in reaching 3.2 %. Thebuilding industry again contributed towards growthby expanding by more than 3 %. Further growth islikewise expected in the Netherlands in 2007, par-ticularly in the building industry, where new hous-ing and commercial building projects are expectedto stimulate the market further.

Under the EPBD (EU Directive on the EnergyPerformance of Buildings) statutory controls on theenergy consumption of private houses, specified asbinding by the EU for all member states, have ap-plied since 2006. Most EU states have adapted theEU stipulation to their national circumstances andrequirements in their legislative processes andtranslated it into national law or will be doing soshortly. There are consequently now binding re-quirements with regard to overall energy efficiencyfor major building projects involving both newbuilding projects and existing buildings. In newbuilding projects, low-energy houses with conden-sing-boiler technology and a solar energy systemhave now become the norm, and passive houseswith domestic ventilation and heat recovery ins-


41

tead of conventional heating represent the currentstate of the art. But older buildings, too, exhibitsignificant potential for reducing heat requirements.Here again improvements, which may in individualinstances be well over 50 %, will promote thespread of energy-saving concepts.

Thanks to its broad-based product portfoliofor energy-saving concepts, CENTROTEC stands tobenefit both from the tougher legal requirementson energy saving for new buildings, and from thepotential for saving energy when existing buildingsare being renovated. All in all, the market forbuilding technology enjoys bright prospects of sus-tained medium to long-term growth.

Business Progress and Revenue Trend Key figures at a glance

The business figures for 2006 are dominated bythe acquisition of the Wolf Group and its first-timeconsolidation in the fourth quarter, together withthe sharp rise in revenue in the Solar Systems seg-ment. In the year under review, consolidated rev-enue climbed from EUR 152.9 million in the previ-ous year to a total of EUR 396.3 million. This figureincludes revenue of EUR 64.1 million for the WolfGroup and EUR 172.2 million for CENTROSOLAR,of which around EUR 101 million in the SolarSystems segment is attributable to acquisitions.Revenue for the divisions as they already stood atthe start of the year grew organically by aroundEUR 78 million or approx. 50 % (of which someEUR 57 million was contributed by the Solar divi-

33,8

110,0 Climate Systems

400

300

200

100

0

Revenue by segment[in EUR million]

32,420,2

115,7134,8

28,4

2003 2004 2005 2006

36,6

Medical Technology & Engineering Plastics

63,169,7

Gas Flue Systems

Solar Systems172,2

396,3

0,126,539,6

70,2

16,7

152,9

80,3

42


sion). The organic growth of the remaining groupcompanies (excluding Wolf and CENTROSOLAR)therefore amounts to 15.7 % compared with theprevious year. The segments were able to contributetowards the organic growth of the CENTROTECGroup as follows: Gas Flue Systems 14 % growth,Climate Systems (excluding Wolf) 11 % and MedicalTechnology & Engineering Plastics 26 %.

The organic growth targets were thus entirelymet in the Gas Flue Systems and Climate Systemssegments, and the Medical Technology & Engineer-ing Plastics segment easily exceeded its target. Inthe Solar Systems segment, trade revenue of thesolar trader Solarsquare AG (Switzerland) amount-ing to EUR 21.8 million was not reported as itsown revenue due to a change in the interpretationof the IFRS standards compared with the positionadopted for the budget, with the result that thesegment revenue reported was slightly below thetarget bandwidth of EUR 175 to 200 million.

EBIT of EUR 12.5 million for the past financialyear was below the prior-year figure (EUR 17.7 mil-lion) due to one-off effects. A substantial portionof this downturn is attributable to one-off effectsamounting to more than EUR 11 million. These in-clude e.g. expenditure for the acquisition and inte-

400

300

200

100

0

Revenue reconciliation 2005 – 2006[Revenue in EUR million]

+50 %153

2005 ACT. Organic Acquisition-driven 2006 ACT.

growth growth

Climate Systems

Gas Flue Systems

40

70

2617

110

80

34

172+108 %

396

Medical Technology &Engineering Plastics

Solar Systems

+78

+165

gration of the Wolf Group amounting to aroundEUR 7 million and expenditure arising in connectionwith the associated repositioning of Innosource’sbusiness (impairment intangible assets, relocation,goodwill amortisation) of around EUR 3 million,which is described in greater detail in the presenta-tion of the Climate Systems segment. The fourthquarter was moreover weaker than expected forthe Solar Systems segment, with the result that itsearnings fell well short of expectations.

Due to the lower EBIT, earnings after taxes (EAT)likewise fell to EUR 15.3 million (previous year EUR18.0 million). EAT includes a positive earnings con-tribution of EUR 9.9 million from dilutive effects inconnection with capital increases by CENTROSOLARAG (the issue of new shares). Earnings per share(EPS) for the 2006 financial year, after deduction ofthe profit attributable to minority interests amoun-ting to EUR 1.0 million, reached EUR 1.76, as againstEUR 2.26 in the previous year. The average numberof shares outstanding (basic) was 8.134 million(previous year 7.955 million).

Despite a reduced net income for the year,cash flow I (EAT plus depreciation and amortisation)has risen to EUR 33.1 million, from EUR 23.2 millionin the previous year, as a result of high depreciation


43

and amortisation. On the other hand the cash flowfrom operating activities declined to EUR 5.6 mil-lion (previous year EUR 6.7 million). In the year-on-year comparison, the EUR 12.1 million rise in inven-tories and the EUR 14.4 million increase in tradeaccounts receivable, as well as higher income taxesand interest payments (increase of EUR 4.3 million),were the main reason for the development in cashflow.

With an investment volume totalling EUR183.6 million for property, plant and equipment(EUR 69.4 million) and other non-current assets(EUR 114.2 million; of which goodwill EUR 109.3

20

15

10

5

0


18.3

13.2

12.5

2003 2004 2005 2006

17.7

40

30

20

10

0


23.019.4

30.3

2003 2004 2005 2006

23.2

Development in shareholders’ equity[in EUR million]

47.033.8

146.3

2003 2004 2005 2006Equity ratio 29 % 39 % 48 % 30,3 %

150

100

50

0

102.7

20

15

10

5

0

Net income[in EUR million]

10.18.2

15.3

2003 2004 2005 2006

18.0

million), the net financial liabilities (loans less cashand cash equivalents) have risen by just under EUR113 million to EUR 159.3 million. The acquisitionof the Wolf Group accounts for EUR 78.5 millionof this total. These high figures for acquisitions arealso the reason for the significant rise in the cashflow from investing activities from EUR 1.3 millionin the previous year to a present EUR 96.3 million.

Equity (including minority interest) rose by42.3 % to EUR 146.3 million, with the balance sheettotal increasing from EUR 215.6 to 483.1 million.This produced an equity ratio of 30.3 % in the pastfinancial year (previous year 47.6 %).

44


2. Gas Flue Systems: internationalexpansion

Market context and business development

The Gas Flue Systems business area, of key impor-tance to the performance of the group, achieveddouble-digit growth of an exclusively organic naturein the past financial year, with revenue reachingEUR 80.3 million (previous year EUR 70.2 million).The revenue target of EUR 79 to 81 million wasthus achieved in full. Despite a renewed decline insales figures for the German heating boiler market(-4 % on the previous year according to BDH esti-mates; German Industry Association for Building,Energy and Environmental Technology), the GasFlue Systems segment was again able to benefitfrom the spread of condensing-boiler technology(5 % for gas-fired appliances and 65 % for oil-fired appliances) and its strong market position forgas flue systems in the past financial year. The seg-ment furthermore participated in the increasingmarket penetration of condensing-boiler technolo-gy through its broader international spread, espe-cially in France, Belgium and Italy. The UK market isan exception. Although condensing-boiler technol-ogy has been required by law since 2004, the pre-valent configuration with short gas flue pathsmeans that the boiler manufactures have carvedup the market’s growth among themselves. Infuture, however, it is expected that the growingtechnical complexity of the gas flue system and thegrowing trend towards roof ducts will cause thegas flue system likewise to evolve into an installa-tion product that is distributed by the wholesalertrade.

Despite higher revenues, the segment experi-enced a downturn in EBIT to EUR 8.3 million, asagainst EUR 8.8 million in the previous year. TheEBIT margin is 10.4 %. One of the main factorsbehind the lower earnings is the higher direct costof materials and running costs, which could not bepassed on in full to customers. The direct costs of

materials alone rose on average by 4 %, diminish-ing earnings by some EUR 1.5 million (equivalentto 1.8 % of EBIT margin). Gross profit (net revenueplus change in inventories, less cost of purchasedmaterials) fell correspondingly to 52.1 % (previousyear 54.8 %).

The Gas Flue Systems segment employed anaverage of 359 full-time equivalents (FTE) in thepast financial year, representing a rise of 8 % onthe previous year (333 FTE). The personnel expens-es ratio was kept almost unchanged from the pre-vious year at 21.5 %.

Principal developments in the past financial year

A number of projects made progress as part of theongoing drive for international expansion. Positivedevelopments in Belgium rendered it necessary to extend the infrastructure. A sum of around EUR2.5 million was accordingly invested in new com-pany premises for Ubbink Belgium in Gentbrugge.In addition to a new central store housing 4,400 m2

of floor space, all heating, climate control and ven-tilation products of the CENTROTEC Group are ondisplay in a representative showroom. These are of key importance for informing and training thewholesalers supplied from there. Centrotherm ex-tended its own production and store capacity at itsBrilon base in response to the appreciable rise indemand for plastic gas flue systems, which prompt-ed an overall rise in revenue of around EUR 3.3million compared with the previous year. In additionto adding a further approx. 3,300 m2 in produc-tion and store area, it erected its own vacuum tank calibrating system for the production of low-stress gas flues and took over a second extrusionline, complete with the experienced operating personnel, from its sister company CentroplastEngineering Plastics. The new facility extends pro-duction capacities to 1,000 tons or 1.4 millionmetres of gas flues per year. This further improvesthe reliability of supplies and enables the highstandards of product quality to be met directly.


45

intends to step up distribution via wholesalers incertain regions (such as France). Activities in theGas Flue Systems segment will consequently havean increasingly international slant, in order toimprove service for customers with internationaloperations and realise further synergy benefits inoperational functional areas especially at the twoimportant locations Brilon (Centrotherm System-technik GmbH) and Doesburg (Ubbink B.V.). Themarket requirements of the individual target coun-tries in addition continue to be served via corre-sponding product solutions and sales concepts.OEM marketing nevertheless remains organisation-ally distinct from the other areas. This distinctionapplies in particular to the companies in the ClimateSystems segment, into which the Wolf Group isalso integrated, to allay any potential concernsamong our customers that we might have a con-flict of interests following the takeover of Wolf.

To boost the segment’s innovativeness, extrapersonnel have been recruited for the research anddevelopment area, which will be coordinated acrosslocations to a greater degree in future. Forth-

In conjunction with the Climate Systems segmentand boiler manufacturers, we have developed agas flue system that combines an innovative boilergas flue system with the outgoing-air system of aventilation system based on the principles of pres-sure and flow monitoring with electronic control.This product development aims in particular tomeet the requirements of a compact design, suchas is required for example in apartments wherespace is at a premium. Development work on thenew system was completed at the start of the cur-rent financial year and deliveries will commence inthe second quarter of 2007. The product rangewas in addition further adjusted to reflect nationalrequirements. Development work continued onimproved gas flue systems for new heating boilersystems, in conjunction with OEM customers.

Strategic direction and outlook

In strategic terms the Gas Flue Systems segmentwill continue with the ongoing process of interna-tional expansion. In addition to strengthening itspartnership with OEMs in individual countries, it

46


coming innovations, such as the afore mentionedcombination of gas flue and outgoing-air systems,as well as the very close development partnershipwith OEM customers, will thus be promoted with aview to assuring customers a higher value contri-bution from products through the continuingdevelopment of the product portfolio.

International sourcing is in addition beingstepped up in order to improve the cost items ofmaterials in the face of rising raw material prices.The higher prices for materials have already beencushioned to some degree through improved pro-ductivity. The further optimisation of materialsmanagement and logistics is another related area.

Sales activities, too, will be coordinated moreclosely from above and reorganised in some coun-tries. Examples are: In the UK, activities under a newsales director will focus on intensifying relationswith the wholesale trade and on an OEM strategy;in the Netherlands, relations with selected whole-salers are to be nurtured, and links with housingassociations also improved. Special gas combi-boil-ers are being developed, manufactured and sold inthe Italian market. The two-pronged strategy thathas hitherto been a success in France will bestepped up by expanding the OEM area and pro-moting the switch from trade representatives toour own sales force.

The continuing trend towards condensing-boil-er technology is again expected to yield double-digit organic growth for the Gas Flue Systems seg-ment in 2007. Revenue is anticipated to reachabout EUR 90 million in 2007. According to cur-rent estimates, the EBIT margin will be in excess of10 %. The investment plans, which focus predomi-nantly on technical equipment, will yield opera-tional improvements. In the medium term, revenuegrowth is to be maintained broadly in double fig-ures at between 8 % and 13 %, with earningsmargins (EBIT) remaining high.

3. Climate Systems: restructuring in theventilation area

Market context and business development

The Climate Systems segment has acquired pre-eminent status within the CENTROTEC Group as aresult of the takeover and incorporation of theWolf Group. This change is already evident fromthe fact that it will bring in around 70 % of con-solidated revenue in future, compared with some28 % in the past financial year. Excluding the WolfGroup, which was consolidated in the fourth quar-ter, revenue rose by 16 % in the year under re-view, from EUR 39.6 million to around EUR 45.9million. This includes a pro rata rise in revenue ofsome EUR 2.5 million attributable to acquisitions inthe 2005 financial year (Innosource and EnEV-Air).The Climate Systems segment thus achieved or-ganic growth of 11 %. The Dutch market contri-buted the largest portion (approx. 80 %) of revenue (excluding Wolf) in 2006, thanks to a posi-tive development in the building sector. Sales inthe German market profited from the intensifiedsales activities and were boosted to more than EUR5 million (+ 45 %) in the past financial year.Together with the revenue of the Wolf Group ofEUR 64.1 million in the fourth quarter, the totalrevenue for the segment was EUR 110.0 million.The net revenue for the year of the Wolf Group in2006 was EUR 222.7 million.

The segment’s EBIT was to EUR 0.2 million(previous year EUR 8.2 million). The earnings hadto absorb around EUR 7 million in one-off directand indirect expenses for the acquisition of Wolf.These comprised the purchase price allocation pur-suant to IFRS 3, non-recurring charges for theacquisition, and changeover and adjustment costs,as well as expenses of around EUR 3 million for therepositioning of Innosource.


47

The Wolf takeover in addition entails the realign-ment of existing business activities in the domesticventilation area. Innosource’s sales strategy, whichfocuses particularly on the German market, wasconsequently integrated into Wolf’s strategy forcontrolled domestic ventilation. The goodwill creat-ed for Innosource was therefore examined andadjusted by approx. EUR 2 million. The process offocusing Innosource on its core business, whichbegan at the start of 2006, and the relocation ofits operations resulted in further one-off effects.These expenses for the relocation of its operationsfrom Lisse to Staphorst, together with all ancillarycosts, have been recognised at approx. EUR 1.8million. Special depreciation of capitalised patentsand development costs of EUR 1.2 million was fur-thermore performed, as the assumptions made atthe time of capitalisation of the Innosource take-

over proved to be no longer accurate. Price increases for purchased materials that couldnot be passed on to customers and changes to theproduct range moreover resulted in a reduction ingross profit and therefore in a negative earningseffect of approx. EUR 0.9 million, or 2.0 percent-age points. Overall, the gross margin for the seg-ment, including time proportional consolidation ofWolf, amounts to 50.2 % (previous year 58.8 %).

The Wolf Group’s business operations yieldedEBIT of approx. EUR 4.1 million in the notablystrong fourth quarter, representing an earningsmargin of over 6 %. However, the effects of thepurchase price allocation and transaction costs leftconsolidated EBIT of EUR -0.9 million for the WolfGroup, including the management holding.

As a result of the acquisition of the WolfGroup, the number of employees in the Climate

48


Systems segment rose by 1,310 full-time equiva-lents (FTE) to a total of 1,614 at year-end. An aver-age of 290 full-time equivalents (FTE) were em-ployed outside the Wolf Group in the past financialyear, representing a rise of 4 % on the previousyear (278 FTE). The personnel expenses ratio forthe “old CENTROTEC companies” rose only slightlyfrom 26.3 % in the previous year to 26.8 % in2006. As a result of the consolidation of the WolfGroup in the fourth quarter, with its personnelexpenses ratio of 29.0 %, the overall personnelexpenses ratio for the entire segment rose to 28.1 % in 2006.


As well as the acquisition and integration of theWolf Group described at length in the overview,other developments of note in the Climate Systemssegment included the restructuring of Innosource’sbusiness in non-central domestic ventilation sys-tems for the retrofit market, which contributedrevenue of EUR 2.9 million in the past financialyear. Demand in the retrofit market has developedmore slowly than expected. The operational diffi-culties for this business were solved by integratingthe central functional areas into the Brink Group atStaphorst. At the market end, sales operations inthe German market were repositioned throughtheir closer ties with the Wolf Group. Controlleddomestic ventilation in the German market willconsequently be sold by the Wolf Group in future,rather than by Innosource. The rapid, systematicimplementation of these measures means thisrestructured business area can now respond moreeffectively to the increasingly significant retrofitmarket for ventilation and energy-saving systems.As matters stand, some of the Innosource productsfor which patents and development expenditure

had been capitalised, are unfortunately rated asless promising than was expected at the time ofacquisition. The afore mentioned impairmentswere therefore booked in the fourth quarter.

Investment during the past financial year wasearmarked largely for the production infrastruc-ture, and in particular for improvements to theinfrastructure at Staphorst. The new facilities meanthat the production times and costs for manufac-turing housings will be significantly lower in thefuture. CENTROTEC is moreover benefiting fromlast year’s investment by the Wolf Group inmachinery, tools and development work to cutproduction costs in the area of climate controlunits.


The Climate Systems segment will focus further onintegrated energy-saving system solutions in thedomains of heating, ventilation and climate controltechnology. It has access to all the necessary exper-tise and system solutions through the alliance withthe Wolf Group. By focusing in this way on ener-gy-saving concepts, it is now also increasingly pur-suing technologies for renewable energies, such assolar thermal systems, heat pumps, biomass heat-ing concepts and heat recovery systems. The aimhere is on the one hand to increase the marketpenetration in existing markets through new, inno-vative products, and on the other hand to broadenthe sales market programmatically by exploitingcross-selling opportunities between the groupcompanies and developing new areas of growth.The further development of system componentsthat are integrated predominantly into the productportfolios and systems of the major OEMs will alsobe pursued over the next few years. One area thatwill be promoted in particular is the development


49

of our own integrated systems and energy-savingconcepts that can be marketed via the group’sown brands. These innovations are mainly in thefield of controlled domestic ventilation. Severalcompact passive-house systems based on con-trolled ventilation with a solar collector and on-demand condensing boiler are currently beingpiloted. Brink Climate Systems is working closelywith the University of Cologne and a leading inter-national engineer’s office for renewable energieson evaluating the test series for refining the sys-tem. With the pilot applications so far having pro-gressed without hitches, the market launch isscheduled for the second half of 2007.

A further important development concept iszonal demand control of the ventilation output ofdomestic ventilation systems. The varying amountsof fresh air and ventilation required at differenttimes of day in specific areas such as living roomsand bedrooms can thus be adjusted and controlled.In the field of pipe systems for controlled domesticventilation, distributor-box and ceiling-mountedsystems have in addition been further developedand will now be sold via our two own brands Wolfand EnEv-Air. CENTROTEC will moreover be invest-ing in the development of heat pumps in the nextfew years. The group already has a presence in theGerman market with two system families via theWolf Group and EnEv-Air. The CENTROTEC prod-uct range will be broadened through develop-ments of its own particularly in the higher per-formance categories of this growth segment,which grew by more than 100 % in Germany lastyear according to BDH figures. The target seg-ments for these systems include above all newcommercial properties and collective systems forhousing estates and apartment blocks, because thedeveloper can make considerable savings com-

pared with installing individual systems in each res-idential unit since only one central bore in theground is needed. Other innovations and advanceddevelopments include a new generation of oil-firedcondensing boiler from the Wolf Group, which re-presents an advance for the existing product rangein terms of both efficiency and space requirements.The new, integrated oil-fired condensing boilertechnology will further strengthen Wolf’s existingmarket position.

The priorities in addressing potential for savingenergy in buildings will shift further towards opti-mising housing, in particular as a result of the poli-tical framework. In the Netherlands, for instance,the 80,000 new residential buildings being builteach year need to be seen in the context of a totalstock of six million existing homes. Measures toinsulate older buildings usually involve fitting ener-gy-saving domestic ventilation to prevent the ener-gy saved by improved insulation from being wast-ed through the exchanging of air, but also to regu-late the interior climate so as to avoid the forma-tion of mould. The still-growing retrofit market fornon-central ventilation and heat recovery systemscan now be targeted and served even more effec-tively following the reorientation of Innosource’sbusiness during the past financial year, though thedynamism in the retrofit segment is still relativelymodest. On the other hand, this market is lessdependent on cyclical fluctuations. The introduc-tion of the energy pass for existing houses in vari-ous European countries is, however, expected toprovide a more substantial boost. One example oftargeting the retrofit market in a specific segmentis ventilation systems for schools in the Nether-lands. A recent study established that the qualityof air in Dutch schools is much poorer than inother buildings. To tackle the task of improving the

50


completely revamped product range for traditionalheating and climate control technology. Anothercontributory factor towards growth will be rapidgrowth in the solar thermal, biomass heating, solidfuel boiler and heat pump product areas, in con-junction with group synergy with Brink’s productsfor heat recovery and domestic ventilation. Thecost-cutting programme launched in 2006 isexpected to lead to an improvement in earningsfor commercial ventilation appliances.

3. Medical Technology & EngineeringPlastics: expansion of medical technologyMarket context and business development

The Medical Technology & Engineering Plastics seg-ment saw its revenue rise by 28 %, from EUR 26.5 million in the previous year to EUR 33.8 million.This figure includes an increase of EUR 0.4 millionthat is attributable to an acquisition, with the re-sult that the segment’s organic growth was 26 %.This easily exceeded the segment’s revenue expec-tations of EUR 30 to 31 million. Growth was gen-erated both by the strong revenue performance inMedical Technology and by the special area of fibrecomposites.

Earnings leaped significantly, from EBIT of EUR0.6 million in the previous year to EUR 1.9 millionin the year under review (5.6 % EBIT margin; previ-ous year 2.3 %). This development is attributableon the one hand to the measures introduced inthe previous year to sell medical technology prod-ucts under our own name. On the other hand,profitable new orders for fibre composites and thegenerally high capacity utilisation of all plants con-

quality of the air while at the same time usingenergy efficiently or cutting consumption, there isnow a range of products that provide on-demandventilation controlled by the CO2 concentration,for mounting on ceilings or behind radiators, or asfree-standing elements. The sales activities in thismarket segment were stepped up in the pastfinancial year.

The driving forces behind the segment’s orga-nic growth are therefore indisputably associatedwith renewable energies. This is substantiated forinstance by the development in sales of solar ther-mal collectors by the Wolf Group. Sales rose fromaround 18,000 units in 2004 to over 41,000 unitsin 2006, with growth averaging around 50 % peryear. Unit sales are forecast to continue rising, witha growth rate of more than 30 % for 2007.Investment in the production capacity will rise inresponse to this development, and improveddesigns will bring down the production costs.

Organic growth of around 8 % is forecast forthe overall Climate Systems segment for the cur-rent financial year, taking revenue up to betweenEUR 270 and 275 million, including an expectedEUR 225 million for the Wolf Group. Businessbrought forward from 2007 to 2006 to pre-emptthe VAT increase in Germany resulted in a degreeof rescheduling. A double-digit growth rate wouldotherwise be expected in 2007. As the largest sub-group within CENTROTEC, the Wolf Group has thetargets of 8 to 9 % organic growth p.a. in themedium term, coupled with an improved EBIT mar-gin. This growth will be driven on the one hand byincreased exports as well as anticipated marketgrowth in Germany, and on the other hand by alarger share of the market for Wolf thanks to its


51


The highly promising market launch of the self-developed product LiquoGuard® in the second halfof 2006 demonstrates Möller Medical’s breadth ofexpertise in the field of medical technology. A sys-tem for the high-precision, automatic monitoringand drainage of nerve fluid in the human centralnervous system after operations or accidents wasdeveloped within the space of just one year in con-junction with the Neurosurgery Department ofFulda Hospital. It is now being manufactured inter-nally, with the software, mechanical stage andelectronics all contributing towards value added.Considerable interest in the new concept was de-tected during initial presentations at neurosurgicaland intensive-care congresses and in-depth discus-sions with users, as it not only permits a significantimprovement in the quality of post-operative andintensive care and monitoring, but also offers theprospect of reducing care costs quite considerably.In addition to commanding a healthy margin bycovering the entire value added chain spanningdevelopment, production and marketing,LiquoGuard® provides the Medical Technology areawith a foothold in the end user market. MöllerMedical in addition successfully bid against a lead-ing competitor for a contract worth over EUR 1 mil-lion in the area of transfusion, and brought threeother new products in the field of laboratory tech-nology and hollow needles onto the market.

The impact of the earnings-enhancing meas-ures taken in the previous year and of the compre-hensive innovation and product initiative began toshow through in the segment’s earnings. TheAdvanced Composites area is also showing signifi-cant improvements. The drive to develop the divi-

tributed towards the positive overall development.Ongoing streamlining of the high-performanceplastics product range, too, yielded positive results.The relative value added (gross margin) for thesegment has fallen from 67.3 % in the previousyear to a present 62.2 %.

The Medical Technology & Engineering Plasticssegment employed an average of 355 full-timeequivalents (FTE) in the past financial year, repre-senting a rise of 1 % on the previous year (350 FTE).The personnel expenses ratio improved from 44.2 %in the previous year to 38.9 % in the past financialyear above all as a result of the generally improvedcapacity utilisation and adjustments to businessoperations.

52


sion moreover continued throughout the pastfinancial year. To this end, the company invested inboth the production infrastructure and in the de-velopment and marketing of new products. AtCentroplast Engineering Plastics, expertise in themachining of complex parts for the automotivesupply industry and for medical technology wasextended through the investment in a new turningand milling centre. The production infrastructure atRolf Schmidt was furthermore improved with capi-tal investments totalling more than EUR 1 millionon processing machines and plants. CentroplastEngineering Plastics GmbH received approval forthe use of a polyoxymethylene copolymer materialwith foodstuffs and can thus broaden its range ofapplications in the field of medical technology andthe food industry. Centrotec Composites GmbH,Brilon, which is active in the field of advancedcomposites, was able to secure a new contract inthe automotive sector for lightweight but ultra-strong, heat-shaped composite materials from amajor car manufacturer.


The extensive plastics technology expertise ofCentroplast Engineering Plastics in the MedicalTechnology & Engineering Plastics division serves asthe foundation stone for the CENTROTEC Groupand its successful development. From its origins inplastic gas flue systems, the group has nowevolved into a multi-faceted enterprise focusing onall aspects of energy-saving in buildings. TheMedical Technology & Engineering Plastics productareas have successfully extended their market posi-

tion, as the business development of the pastfinancial year and the highly promising productdevelopments in the field of medical technologyshow. Its share of consolidated revenue neverthe-less fell from 17.8 % in the previous year to 9 %in the past financial year as a result of the othersegments’ growth. To enable the segment toachieve further focused growth in the expandingmarket for medical technology, it is therefore en-visaged to spin it off as a separate listed companyin the medium term. With this in mind, CentrotecMedizintechnik GmbH was already transformedinto Centromedical AG during the past financialyear and its registered office transferred fromBrilon to Munich. Centromedical AG was renamedmedimondi AG in March 2007. A listing on thestock exchange is furthermore envisaged. Hivingoff the segment in this manner is the most effec-tive way for CENTROTEC to realise the intrinsicvalue of this high-growth area of business, whileoffering the segment the brightest possibleprospects for development as an organisationfocused on the medical technology market. Thesegment will continue to be included in the fullyconsolidated financial statements of CENTROTECSustainable AG for as long as the necessary levelof control exists.

A further rise in organic revenue to over EUR35 million is forecast in 2007, with an EBIT marginof 6 to 8 %. In addition to other new products inthe field of medical technology, the self-developedLiquoGuard® drainage and monitoring system forneurosurgical applications will be one of the maindriving forces behind this growth. Targeted corpo-


53

rate acquisitions to accelerate growth will in addi-tion be considered.

4. Solar Systems: Appreciable growthand international expansion

The business activities of the Solar Systems seg-ment are grouped together under the umbrella ofCENTROSOLAR AG, based in Munich, which is list-ed separately in the Prime Standard. For a detaileddescription of business progress in the past year,please therefore refer to the separate AnnualReport and consolidated financial statements ofCENTROSOLAR AG.

The Solar Systems segment saw its revenuesurge from EUR 16.7 million to EUR 172.2 million.If all companies in the segment had already beenfull consolidated for the full year in the 2005financial year, revenue would have reached theorder of EUR 127 million (as-if calculation), with theresult that organic growth compared with the pre-vious year was around 50 %. This includes thecompanies Solara and Biohaus, which were fullconsolidated for the first time. Revenue wouldhave been EUR 21.8 million higher if the trade rev-enue of Solarsquare in the fourth quarter, whichwas marketed by a cell supplier on behalf ofSolarsquare had likewise been reported as revenuein accordance with IFRS rules, as initially planned inthe budget. The segment thus contributed thelargest share of consolidated revenue – 43 % – inthe past financial year. The segment’s contributionof EUR 2.1 million (previous year EUR 0.1 million)to the operating result (EBIT) of the CENTROTEC

54


Group is not yet adequate. The result includes inte-gration costs, special items of expenditure for thewrite-down of payments on account totalling EUR1.7 million and one-off expenses for the listing inthe Prime Standard amounting to approx. EUR 0.6million.

In addition to the establishment, developmentand integration of the companies in the Solar group,activities in 2006 focused in particular on the ob-jectives of optimising procurement and expandinginternationally. It has been and remains the pro-curement strategy to conclude only a limited levelof supply agreements with terms of several years.This resulted in bottlenecks and slightly higher pricesfor purchases of modules in the first few monthsof the year under review. However, the strategyalready proved correct from mid-2006, when high-er production capacities came available and pricesfell. The Solar Systems segment now has ampleleeway for procuring high-quality modules fromreputable manufacturers on good terms. The seg-ment has furthermore made substantial progresswith its strategy of international expansion. This isreflected among other things by the fact that inter-national business now accounts for around 30 %of its revenue. New companies have been estab-lished in Southern Europe, in particular as a meansof further intensifying sales activities.

The prospects for the Solar Systems segmentremain very bright. An average annual growth rateof more than 25 % is expected between now and2010. At the procurement end, the recent shortsupply of Silicon and wafers is expected to improvesignificantly in the near future. This is attributableon the one hand to the rapid buildup of produc-tion capacity and on the other hand to technologi-cal progress. Advances in production methods inthe area of silicon technologies will reduce thelevel of waste in the production process and thusboost the supply of material. Along with their in-


55

close cooperation between the two companies.Partnerships in the sales and development areaswill continue. The Wolf Group’s products are alreadybeing sold by CENTROSOLAR and these arrange-ments will be stepped up further. Conversely, theWolf organisation already sells photovoltaic systemssupplied by CENTROSOLAR.

Net worth, financial position and financial performance

The acquisitions of the Wolf Group, Biohaus andSolara result in significant changes to the overallconsolidated financial statements at December 31,2006; these hinder comparability.

1. Net worth: balance sheet total more than

doubled

The total investment in property, plant and equip-ment and intangible assets (including goodwill andacquired assets) amounted to EUR 183.6 million inthe past financial year (previous year EUR 53.5 mil-lion). Of this sum, the Climate Systems segmentaccounted for EUR 113.9 million (previous yearEUR 9.4 million), the Solar Systems segment EUR 49.6 million (previous year EUR 35.9 million),the Gas Flue Systems segment EUR 16.7 million(previous year EUR 5.7 million) and the MedicalTechnology & Engineering Plastics segment EUR3.4 million (previous year EUR 2.5 million).

The acquisition of the Wolf Group was easilythe largest investment – including in the entire his-tory of CENTROTEC – with a total volume of EUR79.9 million. This comprised EUR 60.1 million forthe net assets acquired and EUR 19.8 million forgoodwill. The acquisitions of Solara and Biohausamounted to EUR 6,1 million and EUR 4,8 millionrespectively for the acquired net assets.The operating investments in property, plant andequipment totalled EUR 13.9 million. This figure in-

creasing market maturity, thin-film technologiesfurthermore promise to supplant conventional sili-con technology. Prices at the procurement end aretherefore expected to ease. While the pressure onscarce resources ebbs, however, the prices that canbe achieved in the end user market will at the sametime come under growing pressure. In such a mar-ket situation, customer proximity and the enduser’s perception of the system supplier’s valueadded will prove a decisive competitive advantage.Specifically this part of the photovoltaics industry’svalue chain represents CENTROSOLAR’s core busi-ness, as a result of which the market positionalready achieved in the end user sector provides avery sound basis for business development overthe coming years.

To strengthen CENTROSOLAR’s market position,it has embarked on a drive to expand internation-ally in other European countries, and in SouthernEurope in particular. Separate subsidies have there-fore been established in Greece, Italy, Spain andFrance to address the local market more effectivelyfrom close quarters. A joint venture under thename of Centroplan GmbH has been set up forthe project planning of photovoltaic systems for upto 3 MWp on the roofs of large buildings such assupermarkets, sports centres and industrial halls.

As a result of the continuing expansion ofsolar business, and in particular following furtheracquisitions, the CENTROTEC Group’s share of vot-ing rights in CENTROSOLAR AG had fallen to 33.6 % by the end of the year. As the managementstructure was also modified at the start of the newfinancial year following a reshuffle and the pool ofvotes controlled was reduced, CENTROTEC no longerholds any de facto control over it in 2007. Fromthe current financial year onwards, CENTROSOLARAG will therefore be consolidated using the equitymethod, rather than comprehensively. However,the form of consolidation has no effect on the

56


cluded the completion of the new distribution cen-tre and showroom for Ubbink Belgium in the GasFlue Systems segment, representing a total invest-ment volume of around EUR 2.5 million, and thepurchase of a new extrusion line for the productionof low-stress plastic gas flue pipes together with theaccompanying infrastructure at a cost of EUR 1.0million for Centrotherm in Brilon. In the ClimateSystems segment, capital investments included anew punching and nibbling machine for BrinkClimate Systems in Staphorst, at a cost of EUR 1.0million. In the Medical Technology & EngineeringPlastics segment, approx. EUR 1.1 million was in-vested in machinery and plant at Rolf Schmidt, andthe turning centre at Möller Medical was extendedat a cost of EUR 0.3 million. Overall investment inproperty, plant and equipment thus exceeds depre-ciation of property, plant and equipment amount-ing to EUR 7.4 million quite substantially.

Through the acquisition of new companies andshares in companies, CENTROTEC also acquiredgoodwill amounting to EUR 66.1 million. This in-cluded EUR 19.9 million in goodwill for the WolfGroup, EUR 17.2 million for Biohaus and EUR 13.0million for Solara, plus a further EUR 6.6 million forgoodwill measured using the equity method in2005 and a further EUR 8.7 million from the dilu-tion of shares in CENTROSOLAR AG.

The acquisition activities in the past financialyear pushed up the balance sheet total by a factorof more than 2, from EUR 215.6 million in the pre-vious year to EUR 483.1 million in the year underreview. The acquisition of the Wolf Group contri-buted EUR 175.2 million to this substantial increasein total assets. The first-time consolidation ofSolara and Biohaus in the Solar Systems segmentadded a further EUR 29.5 million to the balancesheet total.

Equity rose by EUR 43.6 million to EUR 146.3million, as a result of which the equity ratio was

30.3 % at the end of 2006. EUR 26.6 million ofthis increase was attributable to acquisitions activi-ty and EUR 14.3 million to the allocation of theconsolidated net income. The issue of new sharesas a result of the exercising of stock optionsbrought the company an overall additional injec-tion of EUR 1.2 million in equity capital. Despitethe 42.3 % year-on-year increase in equity, thegearing ratio (financial liabilities/equity) rose to 1.1as a result of the increase in borrowing.

The significant expansion of the businessstructure and the increase in the volume of busi-ness also prompted a marked rise in net workingcapital from EUR 31.8 million to EUR 86.2 million.This change includes an increase in trade accountsreceivable to EUR 79.4 million (previous year EUR27.2 million), in inventories to EUR 84.2 million(previous year EUR 29.5 million) and in trade ac-counts payable to EUR 38.3 million (previous yearEUR 16.1 million). Through the first-time inclusionof the new companies in the accounts for the pastfinancial year, the average credit period ratio foraccounts payable rose in the previous year.

Non-current assets rose by EUR 154.8 millionto EUR 289.0 million in the past financial year,again predominantly as a result of the takeover ofthe Wolf Group, which added EUR 107.7 million tothis figure. This overall rise in non-current assets inessence stems from a rise in property, plant andequipment of EUR 61.2 million to EUR 103.0 mil-lion, growth in intangible assets of EUR 33.9 millionto EUR 58.8 million, and an increase in goodwill ofEUR 63.6 million to EUR 118.9 million. Goodwill isconsequently the largest single item on the assetsside, accounting for 24.6 % of the total. Theannual impairment test to measure goodwill forimpairment pursuant to IFRS 3 identified a need foramortisation of EUR 2.0 million in view of the newdirection that Innosource is adopting within theClimate Systems segment. Property, plant and


57

equipment is the second-largest item on the assetsside, representing 21.2 % of total assets; this in-cludes a carrying amount of EUR 58.9 million forreal property assets of the production and logisticslocations and a carrying amount of EUR 26.5 millionfor production facilities.

2. Financial position: long-term financing

The net financial liabilities (current and non-currentfinancial liabilities less cash) rose from EUR 46.3million to EUR 159.3 million at the end of 2006.The acquisition of the Wolf Group was financedsubstantially through the raising of loans. Othersignificant increases in net financial liabilities resultfrom the first-time consolidation of Solara andBiohaus in the Solar Systems segment and thefinancing of the capital investments made.

The ratio of current to non-current financialliabilities has likewise shifted considerably as aresult of the acquisitions. The proportion of non-current financial liabilities has risen from EUR 40.3million to more than EUR 129.0 million (equivalentto 72 % of financial liabilities). Although the pro-portion of current financial liabilities has fallen bythe same degree, in absolute terms the figure rosefrom EUR 22.2 million to EUR 50.3 million.

The dynamic gearing ratio (financial liabilities/EBITDA) rose from 2.7 in the past financial year to5.9. The rise in this ratio is in essence due to theacquisitions made and the associated injections ofborrowed capital as well as the special factorsaffecting earnings. The gearing ratio will fall againsharply in 2007 as a result of planned businessprogress and the consolidation of CENTROSOLARusing the equity method.

Overall, the ratio of current assets to currentliabilities fell only slightly from 1.5 in the previousyear to 1.4 in the past financial year, above all as aresult of the EUR 106.8 million increase in receiv-ables and inventories, contrasting with an only

Trade accounts receivable

500

375

250

125

0

Assets[in EUR million]

2005 2006

77.6

20.0

483.1

103.0

Inventories

Property, plant and equipment

Goodwill

Other

118.9

79.4

84.2

Cash and cash equivalents

45.616.2

215.6

41.8

55.3

27.229.5

Remainig liabilities

500

375

250

125

0

Equity and liabilities[in EUR million]

2005 2006

483.1

Financial liabilities

Shareholders’ Equity

179.4

157.4

146.3

215.6

57.2

55.7

102.7

58


modest rise in trade liabilities of EUR 22.2 million.The main driving forces behind this rise in tradereceivables and inventories are the Solar Systemssegment (approx. EUR 40 million) and the consoli-dation of the Wolf Group (approx. EUR 56 million).

Within non-current assets, the ratio of non-current liabilities plus equity to non-current assetswas kept steady at 1.2.

Cash and cash equivalents rose from EUR 16.2million to EUR 20.0 million. The development inliquidity in the past financial year was determinedon the one hand by cash inflows from operatingactivities and on the other hand by the raising ofshort-term credit and long-term loans which wereused for operating investments, increasing theworking capital and for acquisitions activity. How-ever, CENTROTEC continues to have adequate creditlines and financing options that enable it to makesmall to moderate acquisitions even at short notice.

3. Financial performance: earnings diminished by

one-off effects

In view of the afore mentioned one-off effects inthe 2006 financial year, there is only limited scopefor comparing the company’s economic develop-ment with previous years. The rise in revenue didnot translate fully into increased earnings. The EBITmargin, including one-off effects, is substantiallydown on the level of previous years at 3.2 %.However, after elimination of the earnings-dimin-ishing one-off effects of more than EUR 11 million,the EBIT margin would be over 6 %. EBITDA (earn-ings before interest, tax, depreciation and amorti-sation) was boosted by 32 % to EUR 30.3 million.The net profit for the period (EAT) fell to EUR 15.3

million. The effective tax rate was down from 20.1 % to 9.2 %. Taking account of the principalone-off effects (transaction with minorities, good-will amortisation and positive tax effect in Switzer-land from a change in the applicable tax rate forSolarsquare), the expected average tax rate wouldbe slightly down on the previous year at around33.0 %, due to a shift in the amounts contributedto earnings by the individual countries.

As a result of the issue of new shares from theexercising of stock options, the number of sharesrose to 8.204 million. Earnings per share (EPS),based on the average total shares outstanding of8.124 million, fell to EUR 1.76 (previous year EUR2.26). Without the positive one-off effects fromtransactions with minority interests, EPS wouldhave been EUR 0.55. The Management Board ofCENTROTEC Sustainable AG proposes, in conjunc-tion with the Supervisory Board, that no dividendbe paid for 2006. The consolidated net incomeearned is to be used to promote organic growth,improve the financial position of the company andthus establish the positive framework conditionsfor continuing with the strategy of growth.

The cash flow from operating activities fell toEUR 5.6 million (previous year EUR 6.7 million).Compared with the previous year, cash flow wasinfluenced positively in the main by the increase inEBITDA and the rise in trade payables. On the otherhand the increased trade receivables and the rise ininventories and in interest and tax payments had anegative impact.

The cash flow from investing activities roseoverall by EUR 95.0 million to EUR 96.3 million atyear-end. Of this total, cash outflows resulting from


59

acquisition activity amounted to EUR 86.3 million(of which the takeover of the Wolf Group account-ed for EUR 74.5 million, Solara for EUR 7.5 millionand Biohaus for EUR 3.2 million). The remainingchanges result from acquisitions of lesser signifi-cance and from the completion of acquisitions madein previous years (for example the payment of pur-chase price liabilities). EUR 17.1 million was invest-ed in property, plant and equipment and in intan-gible assets. Conversely, cash inflows reduced thecash flow from investing activities both by EUR 5.2million from a capital increase for cash of CENTRO-SOLAR AG and by EUR 1.9 million in proceeds fromasset disposals.

20

15

10

5

0

Cash flow from operating activities[in EUR million]

14.413.0

2003 2004 2005 2006

6.7 5.6

Again largely due to the takeovers made in 2006,the cash flow from financing activities rose fromEUR 1.4 million to EUR 83.9 million. The total newfinancial resources raised amounted to EUR 98.6million (previous year EUR 14.3 million); repaymentstotalled EUR 16.0 million (previous year EUR 13.8million). Whereas the new acquisitions in the SolarSystems segment were financed in part by theissue of new shares, takeovers in the remainingsegments of CENTROTEC were completed usingequity and borrowed capital, without capital in-creases.

60


Personnel: Employee total more thandoubles

The success of a sustained process of developmentdepends on the attitudes of the people who arebehind it. CENTROTEC likewise applies this princi-ple to its employees. Promoting entrepreneurialspirit is of particular importance in the CENTROTECGroup with its non-centralised organisation. Themanagement of the operating companies enjoys ahigh degree of autonomy in terms of businessoperations, but is in return judged by the results itachieves and its business targets. Within this frame-work of entrepreneurial freedom and individualresponsibility, the employees and managers devel-op a strong sense of loyalty to the CENTROTECGroup and demonstrate remarkable standards ofdedication, creativity and attention to detail.

The employee total more than doubled in thepast financial year, from 1,208 at the end of 2005to 2,842 employees at December 31, 2006. Thetakeover of the Wolf Group, with 627 office staffand 700 industrial workers, contributed 1,327towards this rise. The employee total withinCENTROSOLAR AG went up by 222, and in theremaining segments by a total of 97. CENTROTECthus had a total of 2,745 full-time equivalents (FTE)at the end of the past financial year, again morethan twice (+144 %) the previous year’s figure(1,124). The proportion of office staff was downfrom 43.5 % in the previous year to a current 42.1 %, with the result that the proportion ofindustrial workers is now 58.0 %. The proportionof employees not based in Germany fell from 56.6 % in the previous year to 27.2 %.

Along with the increase in the total workforce,personnel expenses also rose from EUR 39.1 mil-

lion in 2005 to EUR 71.1 million in the past finan-cial year. As a result of the major shift in value cre-ation within the group as a whole following theintegration of the Wolf Group and the significantrise in revenue for the Solar Systems segment, thepersonnel expenses ratio fell from 25.6 % in the2005 financial year to a present 17.9 %.

Promoting enterprise within the CENTROTECGroup also envisages employees and managementparticipating in the company’s success. To that end,the management of the operating units and other

Abroad

3,200

2,400

1,600

800

0

Employees[in FTE]

573

279

852 926

333

2003 2004 2005 2006

488

593636 Germany1,998

2,745

747

1.124

management employees of the individual compa-nies and group are granted stock options by wayof a variable remuneration component; these aretied to the operating business results and to busi-ness targets that can be directly influenced.Supplementary income for employees was againrealised through the stock options scheme in the2006 financial year. 171,318 stock options in totalwere exercised at an average exercise price of EUR7.13 per option. 91,000 new options were issuedfrom the current options scheme in 2006.


61

Research and development: spotlight onsystem developments

At all production locations of the CENTROTECGroup, research and development activities inter-lock closely with business operations. The empha-sis of development activities in the past financialyear was spread between new and improved prod-ucts in the fields of plastic gas flue components,ventilation systems, solar systems and components,and medical technology devices, as well as soft-ware developments for system components andcontrol systems. R&D spending in the past financialyear reached EUR 4.0 million, up from EUR 2.2million in the previous year. This expenditure as aproportion of revenue was down from 1.4 % to1.0 %, with the fall attributable in the main to thefull consolidation of the Wolf Group in the fourthquarter and the above-average rise in revenue forthe Solar Systems segment.

The main drift of research activities and well ascurrent and future product developments havebeen described in the reports on the individualsegments, and are therefore not repeated here. Asa general principle, the object of such activities isto optimise product details, individual componentsand products, and also improve the efficiency ofenergy-saving systems, link up various individualsystems and integrate their control functions.

Environment: integral aspect of business policy

CENTROTEC has elevated the topic of sustainabilityto an integral component of its business policy.CENTROTEC takes this to mean a form of develop-ment that satisfies the needs of the present gener-

ation while at the same time not restricting thescope of future generations to meet their needs.For CENTROTEC products, this means the perma-nent commitment to research and refine ideas forsaving energy and using it more efficiently. In theguise of heat recovery systems that recover up to95 % of heat present in the air inside buildings,and solar energy systems that obtain thermal orelectrical energy from sunlight, CENTROTEC sup-plies systems that take care of the planet’s naturalresources and treat our environment in a responsi-ble manner.

This striving for sustainability by the CENTROTECgroup companies is manifested in undertakings inrespect ofn environmentally relevant goalsn designing environmentally compatible productsn creating environmentally methods and processesn using environmentally compatible materials and

auxiliariesn providing the workforce with training on envi-

ronmentally relevant topics, andn defining and implementing innovative produc-

tion concepts inspired by environmental con-cerns.

In the 2006 financial year, CENTROTEC for exam-ple introduced a modern environmental manage-ment system (EN 14001) at Centrotec Compositesand at Centrotherm, alongside a quality manage-ment system (ISO/TS 16949 and ISO 9001). Thisreflects both the requirements of our customersand our own standards. The emphasis is on attain-ing environmental objectives by adopting a modi-fied approach to operational procedures, with theresult that ecological targets and economic per-formance are harmonised and, not least, waste isavoided.

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Active environmental protection is integrated intothe decision-making and organisational structureof all business processes and is defined as a keymanagement task. Within this, heads of depart-ments perform a crucially responsible function asrole-models. Last but not least, protecting the envi-ronment dictates that all employees act responsi-bly, something which we promote as our philoso-phy.

The Wolf Group shares the same ambition. Aswell as having a product range that focuses onsaving energy, Wolf integrates the aspects of ener-gy efficiency and environmental protection into allprocesses. For example, the coating materials forappliance housings are recirculated without anylosses, the waste heat generated in individual pro-duction processes is recovered by means of heatexchangers or used for heating purposes, and thewaste gases occurring during boiler manufacturingare drawn off and purified or processed. Overall, asignificant reduction in energy consumption and inthe associated CO2 emissions, as well as in waste,has already been achieved in the past.

Risk report

The CENTROTEC Group has focused on the topicof sustainability in order to contribute towards im-proving the environment. Its market opportunitiesin this connection are based on penetrating themarket with existing or improved products, forexample in the area of condensing-boiler technolo-gy, but also on the other hand on exploiting inno-vative product developments that become avail-able, for example in the solar sector. CENTROTEC’s


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ness may succeed in breaking away from an over-arching industry trend through the focus on ener-gy-saving concepts. As the public is becomingincreasingly aware of the need to save energy,CENTROTEC energy-saving concepts acquire anenduring significance for both new buildings andthe retrofit and renovation market, regardless ofshort-term cyclical fluctuations.

There is, however, a fundamental degree ofdependence on statutory framework conditionsand public subsidies. For instance, the abolition ofsubsidies could fundamentally lead to a downturnin revenue or at least hamper growth. In view ofthe current level of public awareness of climatechange, CENTROTEC nevertheless does not expecttheir abolition. Quite the contrary: the intrinsicmotivation of energy consumers to treat it moreefficiently and therefore cost-consciously, coupledwith the political need to address the issue of cli-mate change, means that the environment is likelyto remain favourable towards CENTROTEC energy-saving concepts.

Corporate strategy risks

Growth through acquisitions is a key aspect ofCENTROTEC’s strategy. The high growth of recentfinancial years in itself harbours risks. One keychallenge is to adapt the internal organisation andprocesses swiftly to the new, larger entity and tointegrate the acquired businesses into the corpo-rate structure. If ties between new entities and theexisting group are too weak, a loss of transparencyand control can ensue. Forcing the corporate cul-ture onto new entities can cause employees to losetheir ability to identify with products and compa-

objective is to exploit the opportunities that pres-ent themselves in this context, both through organicgrowth and through an active acquisitions strategywith a high degree of stability and risk limitation.This means in particular that it rigorously applies astrict set of criteria when selecting and analysingtakeover candidates and financing and integratingacquisitions. For this strategy, CENTROTEC relies onthe one hand on the extensive experience andmarket knowledge of the company managementand local management, and on the other hand onsystematically monitoring and steering the risksthat this business model entails. To monitor andcontrol the various risk areas, CENTROTEC imple-mented a group-wide risk management system.This involves all companies in the group submittingregular reports on the nature, likelihood andpotential impact of possible risks, in accordancewith the existing guidelines. With this as the basis,it is possible to respond early to potential risks andtake prompt measures to avoid or hedge risks.

Risk areas

Risks from the economic context and

the industry

CENTROTEC’s business progress is also fundamen-tally dependent on the wider conditions in its eco-nomic environment and on cyclical developments.CENTROTEC’s industry context is that of buildinginvestment, which rose slightly in the past financialyear and is also expected to be on the whole posi-tive for the current 2007 financial year. Activity inthe sphere of building investment also serves as animportant indicator for CENTROTEC, though busi-

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nies, and thus ultimately lead to a weakening ofthe market position. CENTROTEC therefore strivesto strike a balance between control and entrepre-neurial freedom at its group companies. The dove-tailing of acquired entities with the group is pro-moted by an overarching integration project andcontinually monitored until the entity is finally fullyintegrated into the group-wide mechanisms ofcontrol and steering. The structure of the group asa whole is continually scrutinised for potential forimprovements that are implemented by reorganisa-tion projects in the individual segments in order toestablish a workable basis for the further sustaineddevelopment of the group.

Until now, the focus of business has been oncore European countries. The greater portion ofrevenue is generated in the euro zone. This em-phasis gives rise to a limited exposure to risks fromchanges in foreign exchange rates. Business out-side the euro zone and in other countries outsideEurope will become increasingly important follow-ing the takeover of the Wolf Group. The aim hereis to establish a broader basis for sales and thus toreduce dependence on the German market. Agrowing international spread entails a wide varietyof risks such as changing political and legal circum-stances, transport and processing risks and culturaldifferences. For its further expansion, CENTROTECrelies in particular on strong local partners withextensive market expertise and knowledge of theirlocal context. By aligning the interests of bothpartners and regularly revisiting and examining riskpositions in the context of risk management, themarket opportunities that arise are optimised whilerisks are at the same time monitored and limited.

Risks from operating business

CENTROTEC addresses the potential risks in theoperating sphere with an extensive set of meas-ures.

Reliable deliveries, in particular for supplies pro-cured internationally, are assured on the one handthrough close technical cooperation with impor-tant suppliers and on the other hand by maintain-ing at least two sources of supplies. Rising rawmaterial prices constitutes another potential risk atthe procurement end. Depending on the segmentand product area, this risk is controlled by methodssuch as shoring up long-term supplier relations andprice escalator clauses, and by continually observ-ing the market and optimising procurementsources.

Potential risks in the areas of production orservices are addressed by means of internal guide-lines and certification to international quality stan-dards such as ISO 9001 and ISO TS 16949. To safe-guard product quality and minimise the associatedrisks, quality-critical parts of CENTROTEC productsare subjected to comprehensive quality checks bothduring the entire production process and in theend products. The methods and systems used tothis end are examined and refined at regular inter-vals.

The risk of accidents and plant breakdowns iscountered by suitable accident prevention regula-tions and task instructions. However, there existsthe fundamental risk that the breakdown of a pro-duction plant could lead to lost production corre-spondingly affecting the ability to supply products.Plant itself is insured against the common forms ofloss in line with its value.


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The development of innovative products funda-mentally entails the risk that the desired outcomeis not achieved despite the expending of con-siderable resources. To minimise this fundamentaldevelopment risk, intensive exchanges and peerreviews of product development activities takeplace between the individual group companies.This helps to identify erroneous developments atan early stage and keeps the focus of product de-velopment work on the market. All capital invest-ments and development projects are in additionassessed in the context of group-wide develop-ment activities, looking at the overall portfolio andthe individual opportunities and risks involved.

At the sales end, there is the potential risk ofthe loss of important customer relations, in partic-ular with key accounts. Dependence on individualcustomers is fundamentally reduced by focusingpredominantly on products for end users. The lossof contact for instance with a wholesale or keyaccount can nevertheless have a noticable influ-ence on revenue and profit. This risk of depend-ence is countered by active management of cus-tomer relations and diversification of the saleschannels in the various markets. These tasksinvolve continually monitoring the sales channels inthe individual segments and countries for scope forexpansion in line with the strategy. Revenue’sdependence on individual customers has further-more fallen along with past growth.

A further risk in the sales sphere stems from theincreasing pressure on the prices of CENTROTECproducts, in particular from existing or new com-petitors. CENTROTEC believes, it is in a strong posi-tion in its various segments thanks to its existing

66


technological lead and the market position it hasalready achieved. The product portfolio is more-over regularly scrutinised for potential for innova-tions that will safeguard and extend its competitiveposition. Although there exists an overall risk ofprice pressure on CENTROTEC products, positionshave been achieved and mechanisms set up to keepthis area of risk under control.

The customary insurance cover has been takenout to minimise the general risks from operatingbusiness. These include in essence business inter-ruption, business liability, legal protection, businessand property, electronics, credit sale and loss ofearnings insurance, as well as D&O cover for Man-agement Board members, managing directors andSupervisory Board members. There is in additionspecial property insurance cover (fire and storm)for warehouses.

Personnel risks

There fundamentally exists a potential risk of losingmanagers and employees in key positions, especiallyduring an economic upswing such as that is cur-rently being experienced in Europe. Such an even-tuality could restrict the effectiveness of the CENTROTEC organisation, in particular in respectof customer relations, and there could be negativeconsequences for the future development prospectsof the CENTROTEC Group. CENTROTEC addressesthis potential risk on the one hand by adopting asensitive approach to the integration of newlyacquired entities (see Corporate strategy risks); onthe other hand by diversifying its personnel base aspart of developing the group organisation as a

whole. The further development and regular train-ing of employees in their respective specialist areasare promoted, and the independent initiative ofemployees to develop and implement newapproaches and methods is encouraged. As aresult, CENTROTEC is able to offer its employeeslong-term perspectives for development and thushelps to minimise fluctuation in key positions bygiving its employees a high level of job satisfaction.

Information technology risks

In the domain of information technology, the pos-sibility cannot fundamentally be excluded thatproblems will arise with existing systems or futureextensions to existing systems, such as introduc-tions of new software releases, or that system fail-ures will hamper business operations. The custom-ary precautions and security measures in the IT sec-tor are adopted to limit these risks. The appropri-ateness of the security measures in informationtechnology is regularly checked and the systemsand processes in use adapted to changing require-ments if necessary. A cautious migration approachis furthermore adopted for the integration of newbusiness units, to avoid major risks to businessoperations for instance as a result of incompatibili-ty between systems or inadequate reflection ofspecific business features. However, the operatingunits are increasingly integrated at systems level inline with their business requirements.

Financial risks

Financial risks for CENTROTEC result largely fromthe extensive use of borrowed capital for financing


67

its growth, and in particular its acquisitions. Theopportunities successfully seized in the past togenerate high, steadily rising earnings in this wayare accompanied by the potential risk of difficultiesin servicing the loans in the event of a fall or evenloss of earnings. In the financing of external growth,CENTROTEC limits the risk it assumes locally to theentities in question and subjects the current andfuture profitability of all corporate entities to com-prehensive profit and earnings controlling. Devia-tions are thus rapidly identified and any correctivemeasures needed can be implemented promptlyand thoroughly. For financing, the interest raterisks for the mostly variable-rate loans are hedgedby means of interest rate caps.

Miscellaneous risks

Legal risks, in particular as a result of liability andwarranty entitlements of customers, may arisefrom the delivery and sale of products, systemsand services both for the private customer seg-ment and for the commercial sector. Despite com-prehensive quality management procedures, suchrisks from corresponding claims by customers can-not be excluded. All customer complaints are sys-tematically checked and processed, then investigat-ed with a view to identifying scope for internaloptimisation.

Directors’ assessment of the risk situation

The basis for assessing the risk situation of CENTROTEC constitutes the ongoing risk manage-ment activities, in which the management discuss-es the status of risks and their possible impact, and

68


approves any necessary corrective measures. Thefundamental risks to CENTROTEC’s business in-clude external risks which the company is unableto influence directly, but the impact of which isanalysed regularly. There are in addition potentialrisks attributable to internal factors, for which themanagement has created instruments and meth-ods in order to identify them early on and imple-ment measures to prevent or curb their effect.

The risks mentioned here do, however, gohand in hand with numerous opportunities, whichare described in greater detail in the outlook. Asmatters stand the management regards the oppor-tunities and risks profile as balanced, with the op-portunities for CENTROTEC’s future developmentaccompanied by limited risks, none of which posea substantial threat to its sustained development.

Further particulars

Composition of the issued capital and

restrictions

CENTROTEC Sustainable AG has been listed on theRegulated Market (Prime Standard) of DeutscheBörse since December 8, 1998 as a public liabilitycompany. It is listed in the GEX trading segment(until December 17, 2006 also listed in the SDAX)under the stock exchange code CEV, WKN 540750and ISIN DE 0005407506. The issued share capitalat December 31, 2006 totalled EUR 8,203,894,divided into 8,203,894 bearer ordinary shares withno par value, each representing EUR 1 of capitalstock.

According to the information available to thecompany, the Krass family holds approx. 54 % of


69

The Management Board is authorised to offer allor some of the shares thus acquired to third partiesin (part) payment of the acquisition of companiesor investments in companies, excluding the share-holders’ right of subscription. The ManagementBoard is furthermore authorised to retire the com-pany’s treasury stock without the need for a fur-ther resolution to be adopted by the Shareholders’Meeting. The retirement may be restricted to partof the purchased shares.

The Management Board is authorised, withthe approval of the Supervisory Board, to increasethe company’s capital stock by up to EUR3,833,987.00 (approved capital) by April 30, 2008through the issue of new bearer individual sharecertificates in return for cash or non-cash contribu-tions on one or more occasions. The new sharesare to be accepted by banks, with the obligationto offer them for subscription to the shareholders.The Management Board is, however, authorised toexclude residual amounts from the shareholders’subscription right. The Management Board is alsoauthorised to exclude the right of subscription inorder to issue new shares in return for non-cashcontributions. Moreover, the Management Board isentitled pursuant to Section 186 (3), fourth sen-tence of German Stock Corporation Law to excludethe shareholders’ right of subscription for up toEUR 766,797.00 of the approved capital on one ormore occasions, in return for contribution in cash,if the issuing price of the new shares is not signifi-cantly lower, but in any event no more than 5 %lower, than the market price of the shares alreadylisted at the time when the issuing price is finallyfixed by the Management Board, which should be

the company’s capital stock. No other direct or in-direct interests exceeding 10 % of the votingrights are known.

There exist no restrictions relating to votingrights or the transfer of shares.

Provisions on the appointment and dismissal of

the members of the Management Board and on

changes to the articles of incorporation

The Management Board of the company is appoin-ted and dismissed by the Supervisory Board, whichis also responsible for nominating a member of theManagement Board as Management Board Chair-man. The Shareholders’ Meeting resolves amend-ments to the articles of incorporation. The resolu-tions of the Shareholders’ Meeting require a simplemajority of votes cast and, if a majority of shares isrequired, a simple majority of shares, unless agreater majority or further requirements are statedin law. The same applies to amendments to thearticles of incorporation.

Authorisation of the Management Board to issue

or buy back shares

Pursuant to the resolution of the Shareholders’Meeting of May 23, 2006 the Management Boardis authorised until November 22, 2007 to acquiretreasury stock which, together with existing treas-ury stock, represents up to 10 % of the capitalstock at the time of the authorisation taking effect.The price for the acquisition of these shares maynot be more than 15 % higher or more than 15 %lower than the closing price at the Frankfurt StockExchange of shares of the same class and featureson the ten trading days preceding the acquisition.

70


as close as possible to the placement of the shares.The Management Board is furthermore authorised,with the approval of the Supervisory Board, tospecify the further details of the effecting of capi-tal increases from approved capital.

The capital stock has been increased condi-tionally by EUR 230,878.00 (“conditional capital I”).The conditional capital increase only takes place ifthe bearers of option certificates issued by thecompany pursuant to the authorisation of theShareholders’ Meetings of September 9, 1998,May 17, 2001 and May 28, 2002 exercise theirsubscription right to ordinary bearer shares in thecompany (option right). The new shares qualify forprofits from the start of the financial year in whichthey are issued through the exercising of optionrights. The conditional capital I is divided into up to230,878 individual share certificates.

The capital stock has furthermore been in-creased conditionally by EUR 274,407.00 (“condi-tional capital II”). The conditional capital increase isonly effected insofar as the bearers of the optioncertificates issued by the company pursuant to theauthorisation of the Shareholders’ Meeting of June1, 2005 exercise their subscription right to ordinarybearer shares in the company (option right). Thenew shares qualify for profits from the start of thefinancial year in which they are issued through theexercising of option rights. The conditional capitalII is divided into up to 274,407 individual sharecertificates.

Remuneration report

The basic principles of the system of remunerationas well as particulars of the group remuneration ofindividual Management Board and SupervisoryBoard members are summarised in the remunera-

tion report for the 2006 financial year. It takesaccount of the provisions of German CommercialCode and of the principles of the CorporateGovernance Code. The remuneration report, whichincludes the particulars of the remuneration of thecorporate bodies, is published within the Corpo-rate Governance Report and is to be regarded aspart of this management report, as a result ofwhich it is not presented separately here.

Rendering of accounts

Some of the particulars provided in the manage-ment report, including statements on anticipatedrevenues, earnings and capital expenditures, aswell as potential changes in the framework condi-tions of markets and of the financial position, con-tain forward-looking statements. These have beenformulated on the basis of expectations and esti-mates by the Management Board with regard tofuture occurrences that could affect the group.Such forward-looking statements are intrinsicallyopen to risks, uncertainties, exceptions and otherfactors that could result in the actual revenues andearnings of CENTROTEC, significantly departingfrom or falling short of those explicitly indicated orimplicitly assumed or described in these state-ments.

In the rendering of the accounts, the potentialfor leeway in measurements in the consolidatedfinancial statements was analysed, assessed andhandled in such a as to present values that theManagement Board believes are as fair and reliableas possible. It is moreover CENTROTEC’s philosophyto be open and fair in its communication with thecapital market.


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Outlook: growth through energy-savingproducts

The Management Board of CENTROTEC SustainableAG continues to assess the business developmentof the group at the time of preparation of themanagement report as positive. Overall demandfor the products and services of the group compa-nies is moreover expected to remain high in thefuture. Business developments in the first fewweeks of the 2007 financial year are fully in linewith expectations and confirm the accuracy of thestrategy adopted.

Following the successful acquisition of Wolf,CENTROTEC will continue to concentrate on itsintegration, on organic growth in the existing busi-ness areas and on improving earnings in the 2007financial year. To this end, the group structure wassimplified at the start of 2007 and the ManagementBoard reshuffled. From now on, CENTROSOLAR AGwill thus be consolidated using the equity methodrather than comprehensively. This will establishgreater transparency in CENTROTEC’s incomestatement and balance sheet. The business figuresof CENTROSOLAR AG will continue to be reportedseparately and be included in the EPS and equityof CENTROTEC via the result from investments.The overlaps between the Management Boards ofthe two companies will furthermore be eliminated.The change in consolidation does not affect theextensive operational collaboration with a view tostepping up international expansion, nor the recip-rocal supplier relations and development partner-ships between the two groups of companies.

By thus concentrating on the three segmentsGas Flue Systems, Climate Systems and MedicalTechnology & Engineering Plastics, the CENTROTEC

72


Group will be able to focus even more closely onenergy-saving concepts involving ventilation, heat-ing, climate control and solar thermal technology.There are likewise plans to hive off the MedicalTechnology & Engineering Plastics segment in themedium term to enable the segment to developfurther specifically in the domain of medical tech-nology, and to help the CENTROTEC Group focuseven more sharply on energy-saving concepts.

The acquisition of the Wolf Group has broughtCENTROTEC a significant broadening of both theproduct portfolio and its sales expertise. In the coresegment of Climate Systems various different areasof expertise have now been brought together, withWolf covering climate control and heating technol-ogy as well as solar thermal, and Brink and Ned Airthe experts for ventilation technology and heatrecovery. CENTROTEC will exploit this unique posi-tion to promote the development of all-encom-passing integrated systems that pave the way forthe zero-energy house. Alongside its extendedsales expertise, there is further synergy potentialbetween the Wolf Group and the other groupcompanies in the operational areas of purchasing,production, logistics and finance. To dovetail thesefunctional areas of operations, a cross-companyintegration programme involving interdisciplinaryteams was launched; the teams have since madevery good progress thanks to the outstandingmatch between the corporate cultures of Wolf andCENTROTEC.

The future sales markets of the CENTROTECGroup will be shaped by the combined portfolio ofWolf and CENTROTEC. The sales activities will inaddition be stepped up in specific segments in coreEuropean countries, such as France, Italy, theUnited Kingdom and Spain, in order to participatein the growth anticipated there, for instance fromthe growing market penetration of condensingboilers in Italy and France or the statutory require-

ment to use solar thermal technology in newbuildings in Spain.

Economic research institutes expect a continu-ation in economic growth for 2007, even if growthrates will fall slightly to 2.3 % in the euro zone, 1.8 % in Germany and 2.9 % in the Netherlands.In particular, building investment is expected torise. Despite the periodic disengagement of demandfor energy-saving concepts from the developmentin the economy, the economic growth forecast, inparticular in the sphere of building investment,should stimulate CENTROTEC’s business. In theheating technology sector, the sales figures forboilers in Germany have been declining in recentyears and are well below the level in certain otherEU countries. This implies that the German marketis experiencing an investment backlog for heatingtechnology that is likely to be unlocked in the nextfew years, particularly as a result of the energy cer-tificates that will be required in future under theEnergy Saving Order (German EnEV). This will alsofurther stimulate the market for condensing-boilertechnology in Germany. The German Industry Asso-ciation for Building, Energy and EnvironmentalTechnology forecasts a significant rise in sales espe-cially in the segments for solid fuel boilers, solar ther-mal and domestic ventilation. In the European (EU-16) market, average annual growth of 8 to 10 % is forecast for wall-mounted condensingboilers for 2007-2010, and annual growth ofaround 8 % for solid fuel boilers, albeit from alower starting position. CENTROTEC is competitive-ly placed in both segments through the products ofthe Wolf Group. The options are moreover beingweighed up in other growth segments, such asheat pumps, which will enjoy annual growth prob-ably of around 12 % between now and 2010,and the market opportunities in the areas ofdomestic ventilation and heat recovery will be sys-tematically pursued.


73

CENTROTEC’s targets for 2007 envisage a continu-ation in organic growth, which is to reach doubledigits in the medium term. Based on the expecta-tions for the segments, the CENTROTEC Groupshould therefore post revenue in the order of EUR390 to 400 million for 2007. Taking account of thefuture consolidation of CENTROSOLAR AG usingthe equity method (which would, all other factorsremaining unchanged, represent a reduction in rev-enue of EUR 172 million) and the consolidation ofthe Wolf Group for the full year (all other factorsremaining unchanged, additional revenue ofapprox. EUR 160 million), the CENTROTEC Groupwill enjoy moderate organic growth of around EUR15 to 25 million, equating to about 4 to 7 %, inthe 2007 financial year. This relatively low growthrate for CENTROTEC is attributable to the WolfGroup’s high share of revenue, for which year-on-year growth of 4 to 5 % has been assumed in thefundamentally conservative targets. It is attributa-ble in particular to purchases brought forward topreempt the rise in VAT in Germany. However, ifthe healthy revenue trend of the fourth quarter of2006 and the first months of 2007 continues, it isprobable that this revenue forecast will be raised.A return to higher organic growth rates can beforecast for subsequent years thanks to synergiesand increasing market penetration.

The aims for the 2007 key earnings figuresinclude a significant improvement in the targetEBIT margin to 7 to 8 %. In the absence of thedirect and indirect expenses for the Wolf acquisi-tion, the major positive effect will be the consoli-dation of Wolf for the full year with a plannedreturn of 5 %. The operational improvements tobusiness and additional contributions to earningsfrom the organic growth of the group companieswill likewise contribute towards the target EBIT ofEUR 29 to 31 million in 2007. Taking account offurther reductions in the tax burdens in the core

74


countries, earnings per share (EPS) of EUR 2.00 to2.10 can be expected.

A shift in the cost structure towards higherown value added will contribute towards achievingthe above targets. This means in particular a re-duced materials spending ratio coupled with a risein the personnel expenses share of the cost struc-ture. The development of the individual cost items,especially direct materials and personnel, will befurther optimised for instance by pooling purchas-ing volumes within the group and optimisingworking hours arrangements at each location.

CENTROTEC will furthermore take the oppor-tunity to bring cost structures in line with its recentgrowth during the 2007 financial year. In particularthe individual parts of the group will be furtherdovetailed and the existing organisation and groupstructure, together with its processes, focused onthe new, larger structure. This will further reinforcethe basis for continuing sustained growth.CENTROTEC will consequently use the earnings offuture years to invest further in expanding its busi-ness. Group-wide, investment of more than EUR15 million is planned for the 2007 financial year.The emphasis is on further developing existingproducts and creating new, innovative energy-sav-ing concepts as well as increasing and extendingexisting production capacities, both to meet in-creasing demand and to preserve its technological-ly advanced production infrastructure. On top ofthis, CENTROTEC will continue to invest specificallyin building up existing markets and accessing newones, in line with its strategy of expansion. In thisrespect, the market is continually being scoured forbusinesses that suitably complement CENTROTEC’ssegments. The spotlight in this respect is currentlyon the Medical Technology & Engineering Plasticssegment. Over and above this, no major acquisi-tions are currently planned for the 2007 financial

year, but opportunities that present themselves willbe taken.

The financial position will improve noticeablyin 2007. At group level, various financing meas-ures are being examined to enable CENTROTEC toconsolidate and broaden its financial leeway forcontinuing its course of growth, including throughfurther takeovers in subsequent financial years.Over and above the effects from operating businessas well as investing and financing activities, thecourse to be adopted will influence CENTROTEC’sliquidity.

In summary, the following key data are expect-ed in 2007:

n Revenue: EUR 390 to 400 millionn EBITDA: EUR 44 to 46 millionn EBIT: EUR 29 to 31 millionn EPS: EUR 2.00 to 2.10

The following selected areas in particular indicatewhere the opportunities lie for CENTROTEC infuture financial years:n a fundamentally positive economic trend, in par-

ticular with the stimulus of building investment;n the rapidly growing significance of energy-saving

concepts due to rising energy prices and increas-ing public awareness of the need to respond toclimate change;

n the backlog of investment in the German heat-ing technology market, following several yearsof falling sales;

n Europe-wide legislation leading to tougherrequirements on the energy efficiency of build-ings;

n growth in the in-house installations and heatingmarket in the segments of relevance for CENTROTEC: condensing boiler systems, solarthermal, heat pumps, solid fuel heaters, domes-


75

2,5

2,0

1,5

1,0

0,5

0

* After elimination of gains from transactions with minorities and one-off

expenses from the Wolf/Innosource acquisitions

EPS[in EUR]

1.31

0.82

2.26

2003 2004 2005 2006 2007(e)

50

40

30

20

10

0


23.219.4

23.0

2003 2004 2005 2006 2007(e)

44 – 46

50

40

30

20

10

0


18.313.2

17.7

2003 2004 2005 2006 2007(e)

29 – 31

1.40*

30.3

1.60*

12.5

400

300

200

100

0

Revenue[in EUR million]

135116

153

2003 2004 2005 2006 2007(e)

(As-If)

ACT 396

375*

33.8

110.0

Climate Systems

400

300

200

100

0

Revenue by segment[in EUR million]

32.420.2

115.7131.8

28.4

2003 2004 2005 2006 2007(e)

36.6 Medical Technology &Engineering Plastics

63.169.7

Gas Flue Systems

172.2

396.3

0.126.539.6

70.2

16.7

153.0

80.3

34 – 39

270 –275

390 – 400

88 – 91

Solar Systems

1.76

390 – 400

2.00 – 2.10

* As-if: excluding Solar Systems, with Wolf Group for full year

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tic ventilation and heat recovery;n the positioning of the group and increasing

focus on energy-saving solutions in the domainof building technology;

n comprehensive expertise across the range and acomplete product portfolio as a system supplierfor all major energy-saving technologies in build-ings;

n the revamped, updated range of heating tech-nology products from the Wolf Group, with test-winning products in consumer watchdog tests;

n further potential for new, innovative energy-sav-ing solutions, particularly in low-energy and pas-sive houses, as a result of pooling comprehen-sive expertise in the areas of heating, climatecontrol and solar thermal technology with know-how in ventilation technology and heat recovery;

n increasing market penetration in existing mar-kets through a comprehensive product range aswell as further potential for tapping new mar-kets, using existing expertise in systems for ener-gy-saving concepts;

n synergies within the CENTROTEC Group in oper-ating and functional areas.

General statement on the expecteddevelopment of the group

In 2006 CENTROTEC entered a new dimensionthrough the acquisition of the Wolf Group, both interms of its revenue level and through the fact thatit now covers the entire spectrum of skills in ener-gy-saving concepts for buildings. On this basis,CENTROTEC will achieve profitable growth in thefuture. The underlying situation – meaning boththe general market context and the company’sown position – is likely to remain positive over thenext few years. Challenges will undoubtedly needto be overcome, for example in the integration ofthe Wolf Group, the accessing of new markets andthe further penetration of existing ones. In thelight of CENTROTEC’s track record of successfulbusiness development based on organic growthand reinforced by targeted acquisitions, these chal-lenges are nevertheless readily within our reach,not least thanks to the very positive partnershipforged with the new colleagues at the Wolf Groupand the highly promising start to the current finan-cial year. The prospects for the CENTROTEC Grouptherefore remain positive for the next few years.

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[ ]The Management Board

Dr. Christoph Traxler

Dr. Christoph Traxler(born 1968) has beenresponsible for theMedical Technology &Engineering Plastics seg-ment since 2004. He waspreviously an Engage-ment Manager with theconsultant McKinsey &Company. Dr. Traxler’sbackground is inTheoretical Physics.

Alfred Gaffal

Alfred Gaffal (born 1947)has been member of theManagement Board withresponsibility for theClimate Systems segment(including the WolfGroup) since January2007. Mr Gaffal spentmany years almost unin-terrupted as ManagingDirector of Wolf GmbH,which was acquired inautumn 2006.

Dr. Gert-Jan Huisman

Dr. Gert-Jan Huisman(born 1968) is a Doctor ofBusiness Management andCFO (since 2000) as wellas CEO (since 2002) ofCENTROTEC SustainableAG. His career includesover 13 years’ managementexperience in Germanyand the Netherlands, in-cluding more than fiveyears as Senior Consultantand Engagement Managerat McKinsey & Company.He also sat on the Man-agement Board ofCENTROSOLAR AG in 2006.

Pieter van der Poel

Pieter van der Poel (born1962), Business Manage-ment graduate, has beenjointly responsible for theGas Flue Systems segmentalong with Martin Beijersince January 2007. Hepreviously managed twohigh-tech companieswithin General Electricand Philips Medical Sys-tems. He latterly workedfor Credit Suisse as Headof the “OperationalExcellence” area.

Martin Beijer

Martin Beijer (born 1946)is responsible for the GasFlue Systems segmentwithin the CENTROTECGroup. Following its ac-quisition in 1999, Beijertransformed Ubbink froma traditional plastics com-pany into a high-growthspecialist for gas flue andventilation systems.


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CENTROTEC | Financial Statements

Financial Statements80 Consolidated balance sheet82 Consolidated Income Statement83 Cash Flow Statement

84 Statement of Movements in Equity85 Segment Report

86 Notes to the Consolidates Financial Statements for the financial year 2006


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[ ]Element_Water

Water is essential to humans’ health, which is at the very heart ofour medical technology. CENTROTEC nanocoatings make clinicalconsumables such as hollow needles scratchproof, conductive,insulating, dirt-repellent and resistant to high temperatures andchemicals. To the benefit of patients and the healthcare systemalike.


136 Auditor’s Report

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80


[ ]Consolidated balance sheet at December 31, 2006

Assets in EUR ‘000[Notes] 31/12/2006 31/12/2005

Non current assets

Goodwill 1 118,867 55,310

Intangible assets 2 58,827 24,977

Property, plant and equipment 3 102,979 41,766

Financial investments accounted for using the equity method 4 1,861 9,227

Loans and financial assets available for sale 4 2,698 137

Other assets 5 532 61

Deferred tax 6 3,225 2,652

288,989 134,130

Current assets

Inventories 7 84,209 29,525

Trade account receivables 8 79,352 27,205

Income tax receivable 3,079 1,159

Marketable securities 9 0 1,560

Cash and cash equivalents 9 20,048 16,203

Other current assets 5 7,401 5,790

194,089 81,442

Assets 483,078 215,572


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Equity and liabilities in EUR ‘000[Notes] 31/12/2006 31/12/2005

Shareholders’ equity 10

Share capital 8,204 8,033

Additional paid-in-capital 23,476 21,987

Treasury stock (112) (112)

Stock option reserve 603 533

Deferred tax reserve 478 943

Currency translation differences in shareholders’ equity andfair value adjustment of interest rate derivates 136 (375)

Retained earnings 44,367 26,409

Profit attributable to share capital holders of the CENTROTEC Sustainable AG 14,316 17,958

Minority interest, present within equity 11 54,845 27,297

146,313 102,673

Non current liabilities

Pension accruals 12 22,188 1,225

Other accruals 13 12,661 2,621

Financial liabilities 14 129,018 40,297

Other laibilities 15 8,452 7,814

Deferred tax 16 26,275 5,262

198,594 57,219

Current liabilities

Other accruals 13 1,788 827

Income tax payable 6,793 1,144

Financial liabilities 14 50,346 22,234

Trade accounts payable 38,295 16,091

Other liabilities 15 40,949 15,384

138,171 55,680

Equity and liabilities 483,078 215,572

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[ ]Consolidated Income Statement 2006

01/01/2006 01/01/2005in EUR ‘000 [Notes] 31/12/2006 31/12/2005

Revenues 26 396,311 152,912

Other operating income 17 6,726 3,530

Changes in inventories of finished goods and work in progress 18 10,511 (1,454)

Production for own fixed assets capitalized 2 3 1,404 585

Cost of purchased materials and services 18 (255,833) (68,369)

Personnel expenses 19 (71,112) (39,080)

Depreciation and amortisation 2 3 (15,798) (5,002)

Amortisation (and impairment) of goodwill 1 (2,001) (263)

Other operating expenses 20 (57,683) (25,161)

Operating income (EBIT) 12,525 17,698

Interest income and expenses 21 (5,637) (2,153)

Profit from transactions with minorities 22 9,872 6,819

Result of investments accounted for using the equity method 4 91 113

Result before income tax (EBT) 16,851 22,477

Income tax 23 (1,553) (4,524)

Net income (EAT) 15,298 17,953

Profit or loss attributable to minority interest 24 982 (5)

Profit attributable to share capital holders of CENTROTEC Sustainable AG 14,316 17,958

EPS (Earnings per share in EUR) 31/12/2006 31/12/2005

Earnings per share (basic) 25 1.76 2.26

Earnings per share (deluted) 25 1.71 2.16

Weighted average shares outstanding (in units; basic) 10 25 8,133,874 7,954,745

Weighted average shares outstanding (in units; diluted) 10 25 8,388,765 8,302,225


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[ ]Cash Flow Statement 2006

01/01/2006 01/01/2005in EUR ‘000 [Notes] 31/12/2006 31/12/2005

Net income before taxes and interest (EBIT) 12,525 17,698

Depreciation and amortisation 1 2 3 17,799 5,265

Gain/loss on disposal of non-current assets 472 (72)

Other non-cash items (4,758) 481

Increase/decrease in accruals 795 (2,045)

Increase/decrease in inventories, trade receivables and other assets thatcannot be allocated to investing or financing activities (26,505) (5,869)

Increase/decrease in trade payables and other liabilities that cannot be allocated to investing or financing activities 16,742 (1,541)

Interest paid (3,971) (1,936)

Income taxes paid (7,466) (5,265)

Cash flow from operating activities 27 5,633 6,716

Acquisition of share in participations – net of cash acquired and outstanding earn outs to be paid 0 (86,316) (7,686)

Acquisition of financial investments accounted for using the equity method - cash outflow 4 0 (4,864)

Cash received as a result of Transactions with Minorities 0 5,182 20,048

Change in cash flow as a result of change full consolidation into At Equity 4 0 (89)

Purchase of property, plant and equipment/intangible assets/investments/ financial assets/loans receivable 2 3 4 (17,053) (8,807)

Proceeds from disposal of property, plant and equipment/intangible assets/investments/ financial assets/loans receivable 1,894 64

Cash flow from investing activities 27 (96,293) (1,334)

Proceeds from issuance of shares 10 1,221 830

Proceeds from borrowings; repayment of borrowings 82,634 537

Cash flow from financing activities 27 83,855 1,367

Change in liquid funds 27 (6,805) 6,749

Liquid funds at the beginning of the financial year 5,556 (1,193)

Liquid funds at the end of the financial year 27 (1,249) 5,556

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[ ]Statement of Movements in Equity 2006

Profit attri-Retained butable Minorityearnings to share interest

Addition- Stock Deferred Re- and profit capital presented Consoli-Share al paid-in Treasury option tax valuation carry- holders of within dated

in EUR ‘000 [Note 10 ] capital capital stock reserve reserve reserves forward CENTROTEC equity equity

December 31, 2004 7,889 11,849 (112) 405 861 (359) 16,274 10,135 26 46,968

Transfer to revenue reserves 10,135 (10,135) 0

Change from the exercise of options 144 686 830

Share option plan 615 128 82 825

Changes due to acquisitionactivities 8,837 27,276 36,113

Fair Value adjustment interest rate derivates (21) (21)

Correction IAS 8 (33) (33)

Currency translation differences 5 5

Profit attribuatble to shareholders of CENTROTEC Sustainable AG 17,991 17,991

Profit or loss attributable to minority interest (5) (5)

December 31, 2005 8,033 21,987 (112) 533 943 (375) 26,409 17,958 27,297 102,673

Transfer to revenue reserves 17,958 (17,958) 0

Change from the exercise of options 171 1,050 1.221

Share option plan 439 70 (465) 44

Changes due to acquisitionactivities 26,566 26,566

Fair Value adjustment interestrate derivates 299 229

Currency translation differences 212 212

Profit attribuatble to shareholdersof CENTROTEC Sustainable AG 14,316 14,316

Profit or loss attributable tominority interest 982 982

31. Dezember 2006 8,204 23,476 (112) 603 478 136 44,367 14,316 54,845 146,313


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[ ]Segment Report 2006

Segment structure

in EUR ‘000 [Note 26 ] 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005

Revenue from third parties 80,310 70,202 110,024 39,594 33,793 26,454 172,184 16,662 0 0 396,311 152,912

Revenue from other segments 2,748 455 309 260 1,200 1,076 4 0 (4,261) (1,791) 0 0

Chang. in invent. of finished goodsand work in progress 301 (64) 131 (151) 971 445 9,108 (1,684) 0 0 10,511 (1,454)

Cost of purchased materials (40,997) (32,411) (56,650) (16,661) (13,625) (9,144) (148,822) (11,944) 4,261 1,791 (255,833) (68,369)

Employee benefits costs (16,843) (15,144) (29,391) (10,465) (13,921) (12,169) (10,957) (1,302) 0 0 (71,112) (39,080)

Depreciation and amortisation (2,884) (2,604) (6,385) (728) (1,464) (1,626) (7,066) (308) 0 0 (17,799) (5,266)

Other income and expenses (14,299) (11,638) (17,860) (3,679) (5,071) (4,395) (12,323) (1,333) 0 0 (49,553) (21,045)

Segment result (EBIT) 8,336 8,796 178 8,170 1,883 641 2,128 91 0 0 12,525 17,698

Interest result (5,637) (2,153)

Profit from transactions with minorities 9,872 6,819

Result from investment accounted forusing the equity method 91 113 91 113

EBT 16,851 22,477

Income tax (1,553) (4,524)


Profit or loss attributable to minority interest 982 (5)

Profit attributable to shareholders 14,316 17,958

Balance Sheet Key Figures

Assets 77,527 64,971 221,075 42,952 29,947 23,307 143,666 71,167 0 0 472,215 202,397

Investments accounted for using the equity method 760 669 0 0 0 0 1,101 8,558 0 0 1,861 9,227

Loans and financial assets available for sale 0 0 109 137 0 0 2,589 0 0 0 2,698 137

Entitlement to income tax rebates* 6,304 3,811

Total liabilities 14,024 12,725 63,966 7,647 5,742 5,117 40,601 18,473 0 0 124,333 43,962

Financial liabilities 179,364 62,531

Income tax payable* 33,068 6,406

Investments

Total investments in property, plant,equipment and intangible assets** 16,669 5,734 113,904 9,397 3,400 2,470 49,607 35,871 0 0 183,580 53,472

* Including deferred tax** Including goodwill

European euro European non-euroRegional structure countries countries Rest of world Consolidation Total

in EUR ‘000 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005

Revenue from third parties 342,354 129,113 40,582 18,892 13,375 4,907 0 0 396,311 152,912

Assets 453,342 203,955 22,402 7,100 1,030 706 0 0 476,774 211,761

Total investments in property, plant,equipment and intangible assets 182,182 35,097 1,356 18,372 42 3 0 0 183,580 53,472

Gas Flue Systems& Other

Medical Technology &Engineering PlasticsClimate Systems Solar Systems Consolidation Total

A_

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Basic data for the group

The CENTROTEC Group is an international group withsubsidiaries in twelve European countries and two Asiancountries, annual revenue of EUR 396 million (previousyear EUR 153 million) and 2,745 employees (FTE = fulltime equivalents) (previous year 1,124 FTE). The focus ofactivities of CENTROTEC is the development, productionand sale of the following product areas: n gas flue systems for heating systems, made predomi-

nantly from plastic components, n heating systems and in particular condensing-boiler

technology for gas, oil and biomass as the energysource,

n ventilation systems with heat recovery, heat pumps, n medical technology components and equipment,n plastic semi-finished products and prefabricated

products, andn turnkey photovoltaic systems and solar modules,

mounting systems and components for solar powersystems, as well as solar thermal systems, also compo-nents for solar power systems such as securing andcovering concepts.

As well as the existing businesses, the CENTROTEC Groupdefines its business purpose as creating and acquiringnew business areas and companies in which energy-saving products are developed and sold, and/or theexpertise of which lies in the domain of medical technol-ogy products, innovative plastics or gas flue and ventila-tion systems.

CENTROTEC Sustainable AG (“CENTROTEC”) has beenlisted on the Frankfurt Stock Exchange as a public limitedliability company since December 8, 1998. Many of thecompanies included in the Consolidated Financial State-ments nevertheless go back further. The group parent,CENTROTEC Sustainable AG, Brilon, is listed on the GEXtier (and also on the SDAX until December 17, 2006)under the codes CEV and WKN 540750. CENTROTECSustainable AG is entered on the Commercial Register ofthe Local Court of Arnsberg, Germany, under the num-ber HRB 2161. The group's head office is located at Am Patbergschen Dorn 9, 59929 Brilon, Germany.CENTROTEC Sustainable AG is not part of a superordi-nate group, and is the ultimate parent company of thegroup presented in these Notes and ConsolidatedFinancial Statements. Further financial and corporateinformation on CENTROTEC is available from the aboveaddress, or on the homepage www.centrotec.de.

Standards applied

The Consolidated Financial Statements at December 31,2006 have been prepared in accordance with the “Inter-national Financial Reporting Standards” (IFRS) issued bythe International Accounting Standards Board (IASB), asapplicable within the European Union (EU), and in accor-dance with Section 315a (1) of German Commercial Code.All IFRS and IAS standards as well as IFRIC and SIC inter-pretations, the application of which is mandatory for thefinancial year from January 1, 2006, have been applied.The Consolidated Financial Statements have been pre-pared on the basis of historical cost, with the restrictionthat the financial assets and financial debt have beenrecognised at fair value with an effect on income.

CENTROTEC Sustainable AG, as the parent companyof the CENTROTEC Group, is required to prepare sepa-rate financial statements in accordance with the require-ments of German commercial law.

Accounting standards applied for the first timeAccounting standards have been revised and published bythe IASB. They wholly or partly replace earlier versions ofthese standards or constitute new standards. CENTROTEChas applied the following IFRS in full for the first time orapplied the correspondingly revised standards in agree-ment with the corresponding transitional provisions and –insofar as necessary – adjusted the comparative figuresfor 2005 in agreement with the new accounting stan-dards:n IAS 16 Property, Plant and Equipment, acquired

through exchange transactions,n IAS 19 Employee Benefits,n IAS 21 The Effects of Changes in Foreign Exchange

Rates,n IAS 39 Financial Instruments: Recognition and

Measurement,n IFRS 4 Insurance Contracts,n IFRS 6 Exploration for and evaluation of mineral

resources,n IFRIC 4 Determining Whether an Arrangement

Contains a Lease, n IFRIC 5 Rights to Interests Arising from

Decommissioning, Restoration and EnvironmentalRehabilitation Funds,

n IFRIC 6 Liabilities arising from Participating in a SpecificMarket – Waste Electrical and Electronic Equipment.

Their first-time application has no material impact on therecognition and measurement policies of the group. The

Notes to the Consolidated Financial Statementsfor the financial year 2006

B_


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effects of changes compared with the prior-year consoli-dated financial statements are as follows:n IAS 1 Presentation of Financial Statements – The classi-

fications and their order within the balance sheet wereamended to show the non-current assets and thelong-term source of funds at the top, in line with theapproach proposed in the interpretation RIC 1 of theGerman Accounting Standards Committee (DRSC).

All changes to the recognition and measurement principlesfor the group were performed in agreement with therespective rules on implementation and current transi-tional provisions.

New accounting standardsThe management is currently examining the extent towhich revised IFRS standards, in particular IFRS 7 FinancialInstruments: Disclosures, the application of which ismandatory from January 1, 2007, affect the preparationand presentation of future financial statements of CENTROTEC. The IASB published IFRS 8 OperatingSegments in November 2006. Application of the standardbecomes mandatory for financial years beginning fromJanuary 1, 2009. Both the structure and content of seg-ment reporting will then be brought in line with thereports presented regularly to the internal decision-makers.Its application for the first time is not expected to haveany material impact on the net worth, financial positionand financial performance of the CENTROTEC Group.The management is currently working on the assumptionthat it will not have any substantial, material effect onCENTROTEC’s financial statements, and merely result inmodifications or additions to the disclosures alreadybeing made.

The interpretation IFRIC 7 Applying the RestatementApproach under IAS 29 Reporting in HyperinflationaryEconomies had already been published in November2005. IFRIC 7 is to be applied for financial years begin-ning on or after March 1, 2006.

IFRIC 8 Scope of IFRS 2 in addition appeared in January2006. IFRIC 8 is to be applied to financial years beginningon or after May 1, 2006 and deals with the question ofhow IFRS 2 is to be applied if the fair value of the goodsor services that have been received as consideration forshare-based payments is well under the fair value of theshare-based payment. At the start of March 2006, IFRIC9 Reassessment of Embedded Derivates was published;its application is mandatory for financial years whichbegin on or after June 1, 2006. IFRIC 10 Interim FinancialReporting and Impairment, published in July 2006, clari-fies that reductions for impairment on goodwill in interimfinancial statements can no longer be reversed. The appli-cation of these interpretations is mandatory for financialyears beginning on or after November 1, 2006. IFRIC 11IFRS 2 Group and Treasury Share Transactions was alsopublished in November 2006 and must be applied forfinancial years beginning on or after March 1, 2007.IFRIC 12 Service Concession Arrangements was likewisepublished in November. The application of these interpre-tations is mandatory for financial years beginning on orafter January 1, 2008. IFRIC 7, IFRIC 8, IFRIC 9, IFRIC 10,IFRIC 11 and IFRIC 12 currently have no practical rele-vance for the CENTROTEC Group. IFRIC 10, IFRIC 11 andIFRIC 12 have moreover not yet been formally approved(endorsed) by the EU.

C_

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Consolidation, Recognition and Measurement

Consolidation methodsThe balance sheet date of the companies included in theConsolidated Financial Statements is December 31, 2006.The income statement covers the period from January 1 toDecember 31, 2006 and has been prepared using thenature of expenditure method. The Consolidated FinancialStatements have been prepared in euros; unless other-wise indicated, the amounts quoted refer to thousandeuros (EUR thousand).

The local financial statements of the domestic and for-eign subsidiaries included in consolidation have been pre-pared using uniform recognition and measurement poli-cies corresponding to those of the parent company, ad-justed, i.e. in accordance with IAS 27 and IAS 31, exam-ined, and where requiring auditing as individual compa-nies, granted an unqualified audit certificate.

Where nothing is indicated to the contrary, the consol-idation methods applied in these accounts have remainedunchanged from the previous year. In connection with themore detailed classification of notes on the items otheraccruals/liabilities and other operating income/expenses,the prior-year figures have been adjusted to reflect themethod of allocation for 2006.

a_SubsidiariesSubsidiaries are included in the Consolidated FinancialStatements in accordance with the rules on full consoli-dation, insofar as controlling influence that constitutescontrol over the financial and business policy of the sub-sidiary is exercised by the group. Controlling influence isassumed to apply where a share of more than 50 % ofthe shareholders' equity with voting rights is held, andwhere over half the voting rights are at the company'sdisposal. Potential voting rights that can be exercised orconverted at the reporting date are taken into account.Where the group may determine the financial and busi-ness policy of a company even if it does not have amajority of voting rights, the company in question is like-wise included in consolidation. In such instances wherede facto control is held, we refer to further remarks onthe critical assumptions and estimates made. The date offirst or last inclusion in the Consolidated FinancialStatements within the context of full consolidation isbased on the date on which controlling influence isacquired or lost.

Business combinations are reported according to thepurchase method. For this purpose, all assets and liabili-ties as well as contingent liabilities of the acquired com-

pany in existence at the time of acquisition are measuredat fair value, irrespective of the existence of minorityinterests. The cost of acquisition, including the transac-tion costs directly allocable to the acquisition, is offsetagainst the corresponding acquirer's interest in the ac-quiree’s net equity at the time of initial inclusion in theConsolidated Financial Statements. The difference inamount between the cost of acquisition and the pro ratanet equity is initially allocated to the assets, liabilities andcontingent liabilities where its fair value differs from thecarrying amount at the time of first-time consolidation.The deferred tax effects resulting from a business combi-nation are likewise taken into account. Any remainingbalance in the cost of acquisition over the fair valuemeasurement of the net assets acquired is reported asgoodwill. This is then tested for impairment on an annualbasis and, if necessary, written down to the lower valuedetermined. Shares in the equity of subsidiaries that arenot allocable to the group parent are reported as minori-ty interests.

Where the cost of acquisition falls below the fair valuemeasurement of the net assets acquired, the remainingdifference is recognised in the income statement.

Intra-group transactions, balances, revenues, expensesand earnings, gains, losses as well as accounts receivableand payable between consolidated companies have beeneliminated. For consolidation measures with effect onincome, the effects on income taxes are accounted forand deferred taxes are recognised. Any intercompanyprofits from trade are eliminated on a pro rata basis if thecompanies concerned had not left the group as of thebalance sheet date. In each case the data of the compa-ny managing the inventory has been taken as the basishere.

b_Joint venturesInvestments in joint ventures are reported in the Consoli-dated Financial Statements on the basis of the regula-tions on proportionate consolidation. The ConsolidatedBalance Sheet contains the group’s share of the assetsand liabilities of the joint venture. The Consolidated In-come Statement contains the group’s share of the incomeand expense items of the joint venture. Each of theassets, liabilities, income and expense items of the jointventure is combined with the corresponding items in theConsolidated Financial Statements on a pro rata basis.Unrealised gains from business transactions between thegroup and its joint ventures are eliminated in proportion


89

to the company’s ownership interest; unrealised lossesare likewise eliminated proportionally.

c_Associated companiesInvestments in associated companies are included in theConsolidated Financial Statements by the equity methodif the ownership interest is between 20 % and 50 % orif the group exercises considerable influence, but no con-trol, by another means. Under the equity method, sharesin associated companies are measured initially at cost.The carrying amount is increased or decreased to recog-nise the investor’s profit share of the investee’s earningsfor the period after the date of acquisition. The sharealso includes goodwill arisen at the time of acquisition.This is then tested for impairment and, if impairment isestablished, written down to the lower goodwill deter-mined.

Unrealised gains from business transactions betweenthe group and its associated companies are eliminated inproportion to the company’s ownership interest; unre-alised losses are likewise eliminated proportionally, unlessthe value of the transferred asset has been diminished.Where the group’s share of the loss of an associatedcompany exceeds the carrying amount of its investment,the group does not record any further losses, unless ithas assumed liabilities on behalf of the associated com-pany or made payments for obligations of the associatedcompany.

d_Miscellaneous investments Investments over which the CENTROTEC Group exercisesno control or no significant influence and where its own-ership interest is generally not in excess of 20 % are re-cognised at cost of acquisition, as available-for-sale finan-cial assets. Moreover, economically insignificant investmentsare likewise classified as financial assets available for sale.

e_Transactions under common control A business combination of companies under commoncontrol constitutes a merger in which ultimately all merg-ing companies are controlled by the same party or partiesboth before and after the merger, and where this controlis not merely temporary in nature. Business combinationsof companies under common control are not recordedaccording to the purchase method of IFRS presentedabove. Business combinations of this category are recog-nised by means of a rollover of the carrying amount,whereby – irrespective of the existence of minority inter-

ests – the carrying amounts are rolled over at the time ofinclusion of the companies thus included. No exposure ofundisclosed reserves and encumbrances occurs. This roll-over comprises the fair value of the assets, liabilities andcontingent liabilities included in the Consolidated Finan-cial Statements. A difference between the rolled-over car-rying amounts of the investment and the pro rata equitycapital, as the reported net assets of the subsidiary, isnetted income-neutrally within equity. Instead of anyexisting goodwill being netted against equity componentsat first-time consolidation, it is likewise rolled over withthe carrying amounts.

f_Transactions with minorities Where transactions with minorities take place, the report-ing company fundamentally has the option of recognis-ing such transactions in an entirely income-neutral man-ner – resulting in direct recognition of the effects withinequity – or of recognising the income effects in theincome statement. The CENTROTEC Group exercises thisoption to the extent that the income effects from trans-actions with minorities are treated in the same way astransactions with parties outside the group and reflectedin the income statement. Purchases of minority interestsresult in goodwill amounting to the difference betweenthe cost of acquisition and the pro rata carrying amountof the subsidiary’s net assets already recognised in theconsolidated accounts.

Segment reportingA group of assets and operating activities that manufac-tures products or renders services and differs from otherareas of business in respect of its intrinsic risks andopportunities constitutes a segment. The business activi-ties and assets of CENTROTEC are divided into the fol-lowing four segments, which represent the primary seg-ment format in the Segment Report: 1_”Gas Flue Systems”: here, gas flue systems fordiverse applications are developed, produced and market-ed. The emphasis of these systems is on plastic gas fluesystems for heating systems. In this segment, CENTROTECis one of the leading companies in Europe.2_”Climate Systems”: in this segment, heating andventilation systems for detached and semi-detachedhouses as well as for utility buildings such as public build-ings, schools etc. are developed, produced and sold. Themain focus of the product range is on a high degree ofenergy-saving and on interlinking heating, ventilation

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and climate control systems. In this market segmentCENTROTEC is among the leading companies in Europe.3_”Medical Technology & Engineering Plastics”: thiscomprises the production and sale of semi-finished plasticproducts, prefabricated products and assemblies for smallseries in various sectors but predominantly in medical tech-nology. Products made from fibre reinforced compositesrepresent a new growth area in this segment. By focusingon small series and on the production of prototypes, thisbusiness segment also functions as a powerhouse of ideas.4_”Solar Systems“: this segment produces and sellsphotovoltaic modules, mounting systems and the neces-sary components, as well as accessories for solar energysystems that can be either grid-connected or off-grid.These include mirrors and glass for solar power systems,and thermal collectors. They are used on detached andsemi-detached houses, as well as on smaller photovoltaicsystems used by industry.

The secondary segments use geographical criteria indistinguishing between “European euro countries”,“European non-euro countries” and “Rest of world”, asthe economic context within these zones differs fromthat of other zones on account of their intrinsic risks andopportunities.

The segment report is based on the same accountingpolicies as for the other sections of the ConsolidatedFinancial Statements. Income and expense are directlyattributable to the segments on the basis of source ororigin.

Foreign currency translationThe functional currency is that of the primary economicenvironment in which the company is active. The func-tional currency of the individual group companies is thenational currency, as these companies operate their busi-ness as independent foreign entities in financial, econom-ic and organisational terms. The Consolidated FinancialStatements are prepared in euros (EUR), as this is thefunctional currency of CENTROTEC Sustainable AG.

Transactions conducted are translated into the func-tional currency using the current exchange rate at thedate of the transaction. Exchange differences resultinglocally from the fulfilment of such transactions in foreigncurrency or from the devaluation of assets denominatedin foreign currencies or the upward revaluation of liabili-ties at the balance sheet date are recognised in the in-come statement in the period in question, unless they areto be recognised within equity as qualified cash flowhedges or qualified net investment hedges. The items inthe financial statements of a group company reported inforeign currency are initially remeasured in their function-

al currency at the reporting-date rate. Exchange differ-ences from changes in the fair value of non-monetaryitems in the financial statements reported in foreign cur-rency are recognised directly within equity.

As part of the consolidation process, the financialstatements of foreign group companies are translatedinto euro where they have been prepared in a differentcurrency. Assets and liabilities are translated at closingrates, and expense and income items are translated ataverage exchange rates for the period under review. Anycurrency translation differences from this translation intothe group reporting currency are recognised within equitywith no effect on income. In the event of the disposal ofbusiness operations, translation differences hitherto reco-gnised income-neutrally within equity are recognisedwithin income. Where necessary, shareholders’ equity istranslated at historical rates. Goodwill and fair valueamount having arisen from business combinations isattributed to the respective units, reassessed in their cur-rency and, if necessary, translated at the exchange ratesvalid at the reporting date. None of the companies in-cluded in the Consolidated Financial Statements is basedin a hyperinflationary economy.

The following table shows exchange rates in whichthe financial statements are based:

Foreign curreny Rate attranslation reporting day Average rate

ISO Code 31/12/2006 31/12/2005 2006 2005

GBP 0.6707 0.6857 0.6820 0.6805

DKK 7.4562 7.4604 7.4545 7.4548

CHF 1.6081 1.5545 1.5976 1.5479

PLN 3.8413 - 3.9035 -

USD 1.3170 1.1797 1.3213 1.2441

SGD 2.0334 1.9697 2.0334 2.0702

Financial instrumentsThe balance sheet shows the financial instruments (invest-ments, accounts receivable, securities, liabilities, financialdebt, cash and cash equivalents) held by the company.The recognition and measurement principles are shownbelow in the Notes. The financial instruments may entailcredit risks, currency risks and interest risks. At the bal-ance sheet date, there basically existed risks for the prin-cipal financial instruments only to the extent that is evidentin these Notes. Financial assets are generally recognisedat the settlement date.

Financial assets are divided into the following cate-gories:


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n financial assets measured at fair value through profitand loss,

n loans and receivables,n financial assets held to maturity andn financial assets available for sale. The classification depends on the respective purpose forwhich the financial assets have been acquired. The man-agement determines the classification of financial assetsupon recognition for the first time and re-examines theclassification at each reporting date.

All purchases and sales of financial assets are recog-nised using trade date accounting, in other words the dayon which the group undertakes to buy or sell the asset.Financial assets that do not come under the category of“measured at fair value through profit and loss” are ini-tially recognised at their fair value plus transaction costs.They are derecognised if the rights to payments from theinvestment have expired or been transferred and the grouphas in essence transferred all risks and rewards associatedwith their title.

Financial assets available for sale and assets in the cat-egory “measured at fair value through profit and loss” aremeasured at their fair value following initial recognition.Loans and receivables and investments held to maturityare recognised at amortised cost, using the effective in-terest rate method. Realised and unrealised gains andlosses from the change in the fair value of assets in thecategory“at fair value through profit and loss” are bookedto income in the period in which they arise. Unrealised gainsfrom the change in the fair value of non-monetary securi-ties in the category “financial assets available for sale” arerecognised within equity. If securities in the category“financial assets available for sale” are sold or their carry-ing amount reduced for impairment, the cumulative adjust-ments to the fair value within equity are recognised in theincome statement as a gain or loss from financial assets.

It is assessed at each balance sheet date whether thereis any objective basis for impairment of a financial assetor group of financial assets. In the case of equity instru-ments that are classified as financial assets available forsale, a substantial or permanent fall in the fair value toless than the cost of these equity instruments is takeninto account in determining the extent of impairment onthese equity instruments. If such an indication exists forfinancial assets available for sale, the cumulative loss –measured as the difference between the cost and the fairvalue, less impairment losses previously established for thefinancial asset being considered – is derecognised fromequity and recognised in the income statement. Impair-ment losses of equity instruments are not reversed withan income effect.

At the balance sheet dates December 31, 2006 and 2005,the group had no financial assets which came under thecategory of held to maturity.

Recognition and measurement principlesa_Property, plant and equipment is stated at costless accumulated regular depreciation occasioned by use,pursuant to IAS 16. Subsequent costs are capitalisedwhere these are associated with future economic benefitthat can reliably be measured. Self-created plant includesshares of overheads in addition to the production-relateddirect costs. Depreciation is charged according to thestraight-line method. If necessary, an impairment loss isrecognised for property, plant and equipment down tothe recoverable amount. All expenses arising in conjunc-tion with the maintenance of property, plant and equip-ment are recorded in the income statement for the peri-od in which they are incurred.

b_Intangible assets: acquired brand rights, customerbases, software and licences are capitalised at cost andamortised in accordance with their anticipated usefullives. In the same way, software developments and otherdevelopment work that can be capitalised at cost arecapitalised at cost and likewise amortised in accordancewith their respective anticipated useful lives. Intangibleassets also comprising brand names identified upon theacquisition of a company are amortised in accordancewith the underlying expectations and not amortised on aregular basis in the event of indefinite useful life (∞, butnot infinitely). The customer bases acquired in connectionwith business combinations are amortised on the basis of anticipated use, shrinkage rates and margins, corre-spondingly to their economic benefits. Profitable supplyagreements are amortised on the basis of the underlyingterms of the agreements, corresponding to their econom-ic benefits. According to IAS 38, development costs areto be capitalised as “intangible assets” insofar as certaincriteria stated are met cumulatively. Capitalisation takesplace if it is likely that the development activities will leadto a future economic benefit which will cover the devel-opment costs in addition to the normal costs. Capitaliseddevelopment costs are amortised on a straight-line basisonce a marketable status is achieved. No developmentcosts that represented expense in previous periods arecapitalised in later periods. Research costs are not capi-talised. All expenses arising in conjunction with the main-tenance and upkeep of intangible assets are recorded inthe income statement in the period in which they areincurred.

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Useful lives serving as the basis for depreciation and amortisation by the straight-line method for property, plantand equipment and intangible assets Years

Goodwill, as well as individual brand rights ∞

Brand rights, licences and customer bases 5 – 40

Patents/technologies 5 – 25

Capitalised development costs 5 – 25

Buildings 15 – 40

Technical equipment and machinery 3 – 15

Fixtures and office equipment 3 – 10

Software and software developments 3 – 5

In respect of a) and b) Impairment of non-monetaryassets such as property, plant and equipment andintangible assetsAssets that are subject to depreciation and amortisationare examined for impairment if corresponding occur-rences or changes in circumstances indicate that the car-rying amount may possibly no longer be realisable. Assetsthat have an indefinite useful life are not depreciated oramortised. Instead, they are tested for impairment eachyear, irrespective of whether or not there is evidence ofimpairment. The amount by which the carrying amountexceeds the recoverable amount is recognised as an im-pairment loss. The recoverable amount is the higher ofthe fair value of the asset less the costs of disposal, andthe value in use. For the impairment test, assets are com-bined at the lowest level for which independent cashflows can be identified (cash generating units). For deter-mining the value in use, forecast cash flows are discount-ed at the pre-tax interest rates applied by the market atthat time, to reflect the asset-specific risks that have notbeen taken into account in the forecast cash flows. Non-financial assets (apart from goodwill) where the carryingamount has been reduced for impairment are in subse-quent years examined for a recovery in value to the re-coverable amount, but to no more than the scheduledvalues, i.e. without impairment loss.

The reversal of impairment losses recognised in previ-ous periods is recognised within income immediately.

c_Investment subsidies and grants from the govern-ment for depreciable assets are distinguished on theassets side of the Consolidated Financial Statements.Performance-related grants which either compensate forcorresponding expenses or constitute income at the timethey are claimed, but are not associated with current orfuture expenses are recognised as income.

d_Non-current investments: Investments in non-asso-ciated companies are recognised initially at fair value andsubsequently at amortised cost. They are assigned to the

category “available for sale”. Credit (loans originated bythe enterprise) is assigned to the category “loans andreceivables”. If necessary, an impairment loss down tothe recoverable amount is recognised. Investments com-prise investments in associated companies, non-associat-ed companies and other loans originated by the enter-prise.

e_Goodwill is the excess of the cost of an investmentor of assets over the market value of the acquiree’s assets(on a time proportion basis) less liabilities. Goodwill isrecognised as an asset included in the carrying amountsof the investment at the time of acquisition of an associ-ated company. It is allocated to the cash generating unitor group of cash generating units where it is assumedthat they will benefit from the merger. A cash generatingunit is the smallest identifiable group of assets that gen-erates cash inflows that are largely independent of othergroups of assets. The cash generating unit does not nec-essarily correspond to distinctions made under companylaw. Cash generating units are determined at the lowestpossible level at which monitoring is performed, and arenever greater than a segment. Allocation is made on thebasis of economic features. Gains and losses from thedisposal of a company comprise the carrying amount ofthe goodwill that is allocated to the company being dis-posed of.

Goodwill is assessed for impairment (value in use)once a year by means of an impairment test, irrespectiveof whether or not there is evidence of impairment. Ifnecessary, an impairment loss is applied. Goodwill isrecognised at cost, less accumulated impairment losses.Goodwill still amortised for historical reasons has beenshown net since 2004. If the reasons for an impairmentloss applied to goodwill on the basis of an impairmenttest have wholly or partly ceased to exist in a subsequentperiod, that impairment loss is not reversed accordingly.The useful life of goodwill is uncertain.

f_Inventories are measured at the lower of cost or netrealisable value. Raw materials and supplies are valued atthe average cost. Work in progress, finished goods andmerchandise are measured at average values or on thebasis of cost, using the FIFO method. The cost of conver-sion for work in progress and finished goods consists ofdirect costs of materials, direct labour, other direct costsas well as appropriate shares of production-related indi-rect materials and indirect labour which have arisen as aresult of bringing the inventories to their current locationand current state. It is determined on the basis of normalcapacity utilisation. Appropriate discounts are performedfor sales-related risks. The net realisable value constitutesthe estimated selling price in the ordinary course of busi-


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ness less the estimated costs of completion and sale yetto be incurred.

Customer-specific construction contracts are normallyrecognised applying the percentage of completionmethod. Contract costs are recognised when they arise.Contract revenue is only recognised to the extent thatcosts are recoverable. If the outcome of a constructioncontract can be determined reliably and it is probablethat the contract will be profitable, the contract revenueis recognised over the duration of the contract. If it isprobable that total contract costs will exceed total con-tract revenue, the expected loss is recognised as an ex-pense immediately. The stage of completion correspondsto the percentage of the contract costs incurred by thebalance sheet date, compared with the expected totalcosts of a contract. All ongoing construction contractswith balances due from customers are reported underassets, unpaid partial invoices are shown under tradereceivables, and contracts with balances due to customersare shown under liabilities.

g_Accounts receivable and other assets are recognisedand measured initially at fair value and subsequently atamortised cost, using the effective interest rate method.Appropriate reductions for impairment have been recog-nised for identified risks, as indicated by experience. Thereduction for impairment is determined from the differ-ence between the carrying amount and the anticipatedfuture discounted cash receipts. It is distinguished directlyon the assets side as soon as there is objective evidencethat the principal due is not fully recoverable. Expensesfor reductions for impairment are recognised in the in-come statement. These non-derivative financial assets arenot quoted and are not held with the intention of trad-ing these accounts receivable. They are considered to becurrent assets provided their maturity date is no more thantwelve months from the balance sheet date.

h_Deferred tax relates to tax deferrals resulting fromtemporally diverging measurements between the com-mercial balance sheet prepared in accordance with IFRSand the tax balance sheets of the individual companies,as well as from consolidation processes. The deferred taxassets also include tax rebate claims resulting from theanticipated use of existing loss carryforwards in subse-quent years and which are to be realised with reasonablecertainty. Deferred tax is determined on the basis of thetax rates which are likely to apply in the individual coun-tries at the time of reversal of the departures. It is fur-thermore based on current legislation and ordinances.Deferred tax assets and liabilities are not discounted.

Deferred tax resulting from temporary differences inconnection with acquisitions is reported unless differences

cannot be reversed within a foreseeable time frame orthe timing of the reversal can be controlled by the com-pany. Deferred tax is fundamentally classified as non-cur-rent on the balance sheet.

i_Cash and cash equivalents are recorded at their fairvalue. They comprise cash on hand, demand depositsand deposits with a maturity of one month or less. Bankoverdrafts repayable on demand form an integral part ofthe group’s cash management. Bank overdrafts are there-fore included as a component of cash and cash equiva-lents for the purpose of the cash flow statement. Theseamounts owed to banks and due at any time are shownin the balance sheet as financial debt.

j_Securities held for the purpose of investing in liquidfunds and not intended to be retained on a long-termbasis are measured at fair value through profit and loss.Their anticipated date of realisation is therefore in thenext twelve months. Interest and dividends received fromthese securities are recognised as income. Gains and loss-es from the disposal of these securities are included inthe income statement.

k_Prepaid expenses include expenditures that relate to expense for future periods. They are contained in theitem Other current assets.

l_The pension accrual is created for performance-based pension commitments to management and otheremployees and calculated on the basis of the presentvalue of future commitments pursuant to IAS 19 usingthe projected unit credit method, taking into accountfuture pay and pension increases and the mortality tablescurrently available. A variety of pension plans exist withinthe group. In the case of existing plan assets, the presentvalue determined is reduced by their fair value andadjusted to reflect as yet unrecognised actuarial gainsand unrecognised past service cost. Actuarial gains andlosses are taken into account where they exceed 10 % ofthe extent of the liability or value of the asset. These areindicated by experience adjustments and changes toactuarial assumptions. The amount in excess of this corri-dor is booked to the income statement over the periodof the average remaining working lives of the activeworkforce. Unrecognised past service cost is recognisedimmediately as an expense unless it is to be distributedon a straight-line basis until a benefit becomes vested.

In many countries in which CENTROTEC employeesare engaged, there exists a contribution-based statutorybasic pension scheme that pays out a pension on thebasis of income and contributions made. In the case ofdefined contribution plans, fixed amounts are paid to

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funds outside the group. In paying the contributions topublic pension schemes, CENTROTEC has no further ben-efit obligations. In addition, individual employees in thegroup have taken out policies with private insurance com-panies which are subsidised in certain respects on the basisof company agreements. Apart from the personnel expensesfor subsidies that are included in employee benefit costs,the group has no further benefit obligations herefrom.This applies in particular if a fund outside the group doesnot maintain sufficient assets to settle the claims madeagainst it from current and previous financial years.

m_Other accruals and provisions are created for allpresent obligations at the balance sheet date resultingfrom previous business transactions or past occurrences,where the amount and due date are uncertain. Theseaccruals are stated at the present value of the most likely,reliably estimable amount of settlement and are not net-ted against revenue and gains. The likelihood of the cashoutflow must be more than 50 % (“more likely thannot” criterion). Accruals are created only where a legal orfactual obligation to third parties exists and the level ofthe accrual could be reliably determined. In the event ofa wide range of obligations of a similar nature resultingfor instance from statutory warranty obligations, theyshall be determined on the basis of this group of obliga-tions. Accruals may in certain circumstances be recog-nised as a liability if the likelihood of an isolated obliga-tion materialising within the underlying overall group isslight.

n_Liabilities and debt are recognised at fair value in-cluding discounts or other transaction costs upon initialmeasurement, and subsequently at amortised cost usingthe effective interest rate method. Transaction costs irre-spective of duration are recognised as an expense in theperiod in which they are incurred. Liabilities from loansare classified as current if they are repayable within thenext twelve months.

o_Leases, where all opportunities and risks are allocablein substance to the group, are classified as finance leases.They are measured at the fair value of the asset at thestart of the lease term or at the lower cash value of thefuture leasing instalments. Every lease payment is dividedup into a repayment and an interest portion. Leaseswhere significant portions of the opportunities and risksrests with the lessor are classified as operative lease obli-gations.

p_Deferred income records revenues before the bal-ance sheet date representing income for future periods.

q_Shareholders’ equity: The issued capital (capital stock)comprises all individual share certificates with no par valueissued by CENTROTEC Sustainable AG. These are report-ed as shareholders’ equity. Each individual share repre-sents a pro rata amount of the capital stock of EUR 1.

Transaction costs incurred directly in connection withthe issuing of new shareholders’ equity are recognised asa deduction from equity including all associated incometax benefits. If a group company acquires treasury stock,the costs including ancillary costs and potential incometax effects are deducted from the shareholder’s share ofequity in the treasury stock reserve until the treasurystock has been withdrawn from circulation, reissued orsold. In the event of the reissue or sale of treasury stock,the purchase prices received, including all associatedtransaction costs and income tax benefits, are recognisedin the shareholder’s share of equity.

The reserve for remeasurement and revaluation essen-tially contains the values of changes from currency trans-lation recognised with no income effect, as well aschanges in interest rate hedging instruments.

The minority interests comprise the equity portionsallocable to minority interests, including shares of profitsand losses, as well as possible amounts allocable to thesefrom currency translation.

r_Share-based forms of payment: CENTROTEC usesshare-based forms of payment counterbalanced by equityinstruments. Stock options are granted to employees,members of the management and Management Boardmembers on the basis of a stock option scheme. Theirrecognition and measurement are based on the provi-sions of IFRS 2. Under IFRS 2, share-based forms of pay-ment are to be reported at the fair value of the consider-ation received. As the fair value of the consideration re-ceived cannot be estimated reliably, CENTROTEC calcu-lates the changes to shareholders’ equity indirectly, usingthe fair value of the stock options granted. In the absenceof market prices, this fair value is determined with theaid of an option pricing model based on Black-Scholes.This latter estimates the price that could be achievedbetween knowledgeable, willing parties in an arm’s lengthtransaction for the stock options concerned at the rele-vant measurement date. All factors and assumptions thatmarket players would take into consideration in deter-mining the price and that are specified by IFRS 2 are ob-served. Insofar as applicable, it is assumed when deter-mining the factors and assumptions on which the calcu-lation is based that historical values and developmentswill likewise apply to future developments and can serveas a point of reference or starting point for calculationparameters. Changes to the value of the option as a


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result of subsequent shifts in the parameters have noinfluence on the expense to be recognised, as only theissue value of the option is decisive.

The expense from share-based forms of payment isdistributed over the earning period by the straight-linemethod as a personnel expense and recognised in theadditional paid-in capital for stock options until theoption is exercised or lapses. Changes after the end ofthe earning period have no effect on income and areonly recognised within shareholders’ equity. If there aretax effects from share-based forms of payment, the taxeffects are shown as a proportion of the personnel ex-pense recognised under tax expense. The excess sharesare deferred within equity via deferred tax assets as a sur-plus amount and recognised directly within equity in aseparate reserve for deferred tax.

Income accrued by the company at the time of exer-cise of stock options, less direct expenses, is allocated tothe issued capital and the premium to the additionalpaid-in capital. Option-related reserves created are more-over allocated pro rata to the additional paid-in capitalfor the consideration received and for their tax effects.Cash flows from tax effects for share-based forms of pay-ment are recorded in the cash flow statement as alloca-tions to the additional paid-in capital as soon as the cashflow from the relevant tax return has been settled withthe tax authorities.

s_Revenue recognition: Revenue in particular reflectsthe fair value of the consideration received or still to bereceived for deliveries and services in the normal courseof business. It is realised if it is probable that the eco-nomic benefits associated with the transaction will flowto the group and the amount of the revenue can bemeasured reliably and has proceeded from its payment.Revenue is recognised net of sales taxes and discounts,and after elimination of intra-group transactions, whendelivery has taken place and transfer of risks and rewardshas been completed. Revenue for services is recorded inthe period in which the service was rendered.

t_Financing costs such as interest are recognised asincome or expense time-proportionally and on an accrualbasis that reflects the terms of the asset or liability, usingthe effective interest rate method. Financing costs are notincluded in the cost of property, plant and equipment,intangible assets and inventories.

u_Dividends such as dividend revenue from invest-ments and shareholders’ entitlements to dividend pay-ments are recognised as payments when the right toreceive payment arises.

Critical assumptions and estimates All assumptions, whether classified as critical or not, mayinfluence the reported net worth or financial perform-ance of the CENTROTEC Group as well as the representa-tion of contingent receivables and liabilities. Assumptionsare made continually and are based on past experienceand other factors. These include expectations regardingthe likelihood of events occurring, formed in the prevail-ing circumstances. Estimates relate to affairs that arehighly uncertain at the time of recognition or up until thepreparation of the financial statements They also includealternative assumptions that could have been used in thecurrent period, or the potential changes to assumptionsfrom one period to the next, with a potentially significantimpact on the net worth, financial position and financialperformance of the CENTROTEC Group. Changes to esti-mates, i.e. differences between actual values or more re-cent estimates and past estimates, are taken into accountfrom the time a more accurate insight is gained. The fol-lowing notes expand on the other presentations in theConsolidated Financial Statements, which refer toassumptions, uncertainties and contingencies.

Significant assumptions and estimates which entailuncertainty and are associated with risks were made inthe areas of the consolidated companies, non-currentassets, impairment of inventories and trade receivables,contingent purchase price liabilities and accruals.

With regard to the consolidated companies, assump-tions were made relating to control of the CENTROSOLARGroup. In the course of the 2006 financial year, the pro-portion of voting rights under CENTROTEC’s control fellbelow 50 % as a result of the issue of shares (dilutiveeffect), even taking the existing voting trust agreementinto account. As a result of the presence of members of itscorporate bodies on corporate bodies of CENTROSOLARand the de facto control of the Shareholders’ Meeting ofCENTROSOLAR AG by the CENTROTEC Group, the rebut-table assumption was made that CENTROTEC continuesto control CENTROSOLAR. Within this context, the man-agement perceives de facto control on the basis ofpotential presence at the Shareholders’ Meeting. In addi-tion to available, deductive information on major share-holders and their presence in full, it is assumed for thispurpose that the remaining free float of 50 % couldpotentially be present. The effect of this decision on thenet worth, financial position and financial performance ofthe CENTROTEC Group is considerable, as the CENTRO-SOLAR Group continues to be consolidated full in 2006,rather than using the equity method, on the basis of defacto control. The effects on the net worth and financialperformance concern the amounts reported for the SolarSystems segment in the segment reporting. An invest-

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ment using the equity method could otherwise be recog-nised. The profit attributable to the shareholders of CEN-TROTEC is, however, not influenced, as the profit attrib-utable from the CENTROSOLAR Group in the event ofreporting using the equity method would already havebeen included in the result from investments accountedfor by the equity method.

Non-current assets have either limited or unlimiteduseful lives. Changes in intended uses, technologies,maintenance intervals and changes in the general eco-nomic contexts or sectors in which CENTROTEC is activemay result in the recoverable amounts of these assetschanging. CENTROTEC therefore examines the usefullives on a regular basis to reconcile the carrying amountswith the realisable benefit by way of reductions for im-pairment. In spite of every effort to determine appropri-ate useful lives, certain situations may arise where thevalue of a non-current asset or group of assets is reducedand thus the economic value is below the carryingamount. As impairment occurs only sporadically, rarelyfor individual capital goods and not at all for entire class-es, it is not possible to estimate these costs precisely asearly as the preparation of the financial statements. Suchcosts are therefore reported only when the correspondinginformation is known. No general sensitivity analysis forall useful lives is performed.

For acquisitions, assumptions and estimates have aninfluence on the purchase price allocation process.Assumptions relate in particular to levels of goodwill aswell as intangible assets and liabilities, and also in respectof their useful lives with the result that the residual good-will changes. In the context of business combinations,intangible assets (e.g. patents, customer relationships orsupplier agreements) are identified and are subject toestimates in respect of several criteria (quantities, mar-gins, useful lives, discounting rates).

Other estimates that are of significance are in respectof assessing reductions for impairment of goodwill whenforecasting the availability of future usable cash flowsand discount rates. Particularly for new business opera-tions, the uncertainty of forecasts is greater than whereoperations have been in existence for longer.

Goodwill and brands with an uncertain useful life aresubjected to an annual impairment test. A sensitivityanalysis yielding the following results is moreover per-formed: if the estimates of the gross margins used hadbeen 10 % (not 10 percentage points) lower, CENTROTECwould have had to reduce the carrying amounts of good-will by up to EUR 15 million. Discounting rates ofbetween 7.4 % and 8.4 % are applied. If the pre-tax

interest rate used for discounting of the cash flows hadbeen 100 basis points higher, a reduction in the carryingamounts for goodwill would not have been necessary.Simultaneous changes in these key parameters can haveeither a compensating or an amplifying effect. Changesin the afore mentioned key parameters in the same direc-tion would have produced a need for reductions forimpairment of less than EUR 25 million.

Where contingent purchase price liabilities cannot bedetermined precisely, they are determined on the basis ofthe accounting policies applicable to accruals and meas-ured at their most probable value.

CENTROTEC grants various warranties for products.Basic warranties are recognised at the amount of theestimated expenses. Furthermore, costs for the repair orreplacement of faulty products for an individual customeror for specific customer groups may arise in the course ofnormal business. In the event of substitution campaignsoccurring, even though they are extremely rare, a specialaccrual is formed to cover the anticipated individualcosts. As exchange campaigns occur sporadically andrarely, it is not possible to estimate these costs preciselyas early as the time of sale. Such expenses are thereforerecognised only when the corresponding information isknown. In determining accruals for guarantees, variousassumptions which affect the level of these accruals aremade. Changes in productivity, materials and personnelcosts as well as quality improvement programmes havean influence on these estimates. The appropriateness ofthe accruals recorded is tested on a quarterly basis.

The group is subject to the tax regimes of variouscountries. Estimates that are of significance are requiredin the creation of tax accruals and deferred tax items.Transactions and calculations within the normal course ofbusiness are subject to various uncertainties with regardto fiscal effects and recognition. The corresponding ac-counting policies are applied in the creation of accrualsfor potential liabilities that may arise as a result of futurefield tax investigations of past transactions. In cases wherethe final tax calculations deviate from the assumptionsoriginally reported, the effects are taken into account inthe income statement.

The forward-looking statements made in the Consoli-dated Financial Statements are based on current expecta-tions, assumptions and estimates by the management ofthe CENTROTEC Group. These statements are not to beinterpreted as guarantees that the forecasts made haveproved correct. Rather, future developments and occur-rences are dependent on a wide range of factors that aresubject to risks and uncertainties inter alia in the areas


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described above, the influencing factors of which lie out-side the sphere of influence of the CENTROTEC Group.Actual developments may therefore depart from the for-ward-looking statements, implied or made.

Financial risk management objectives and policiesThe CENTROTEC Group operates internationally. In viewof the variety of its activities, the group is exposed to awide range of risks such as market risks, credit risks andliquidity risks. The group’s risk management system analy-ses various risks and attempts to minimise negativeeffects on the financial position of the group. Risk man-agement is practised in the finance departments on thebasis of existing guidelines. Risk managers identify, meas-ure, assess and support the steering of potential sourcesof risks.

The market risks from currency translation within CENTROTEC are limited, as the transactions take placeprincipally in eurozone countries. A growing portion ofbusiness activities is taking place in European countriesoutside the euro zone, particularly Eastern Europe, butthe markets outside Europe are also coming increasinglyinto focus. This geographical expansion gives rise to limit-ed, manageable exposure to market risks from changesin interest and exchange rates. The group therefore usesonly very few instruments as hedges for foreign currencyrisks.

To minimise the interest rate risks, interest cap certifi-cates to hedge the interest rates of variable-rate loanswere taken out. The measurement of these cash flowhedges follows the principle of IAS 39. Market valuechanges in these cash flow hedges, which are used forhedging future cash flows, are reported under equity andliabilities until the income effect of the underlying trans-action is realised. If the cash flow hedge does not satisfythe documentation requirement or is to be regarded asnot effective, gains or losses are recognised with aneffect on income. Cash flows from these interest ratehedges, like the interest payments, are assigned to thecash flow from operating activities and recognised asincome. The fair value is determined by applying valua-tion models of the relevant partner bank and is based onthe market circumstances at the relevant balance sheetdate.

If parties to a contract are not in a position to meettheir obligations, there exists a credit risk. The maximumcredit risk is the aggregate of the carrying amounts offinancial assets in the balance sheet which are recognisednet of reductions for impairment, plus these same reduc-

tions for impairment. Trade receivables exist in respect ofcustomers mainly in Germany and the Netherlands.Further exist in France, Spain, Belgium, the UK, Switzer-land, Denmark, the USA, Poland, Austria, Italy as well asin respect of customers in other European countries whichare not listed here.

Credit risks regarding accounts receivable are in essencelimited by the application of credit approvals, limits andmonitoring procedures. The level of a credit limit reflectsthe creditworthiness of a counterparty and the typicalsize of the transaction volume with that counterparty.The assessment of creditworthiness is based on the onehand on information from external credit reporting agen-cies and on the other hand on internally acquired valuesindicated by experience in dealing with the counterpartyin question. CENTROTEC has no significant concentrationof credit risk with any single customer. The largest cus-tomer in the group accounts for less than 5 % of revenue(previous year 7 %).

The liquidity risk is controlled by maintaining adequatelevels of cash and unutilised credit lines with banks. Allcontractual loan arrangements are continuously met.

Credit risks on the procurement side are limited inCENTROTEC’S case. There are a great many suppliers formany raw materials and supplies. In critical areas of pro-curement, at least two sources of supply exist in virtuallyevery case. For the procurement of solar cells, the aim isto assure procurement via framework agreements withannually agreed quantities to cover the basic requirementsfor materials. Due to the high growth of the sector andthe associated high demand, delivery bottlenecks mayhamper growth in that segment. However, it is assumedthat there will be no significant procurement risks in themedium term in spite of the limited number of suppliersof silicon wafers, as production capacities are beingincreased worldwide. As a result of concentrations in thepreliminary production stages in the Solar Systems seg-ment and the particular importance of supplier relation-ships, in this instance there is a concentration of suppliersthat is typical for this market but untypical of the remain-ing segments.

Consolidated companiesThe Consolidated Financial Statements of CENTROTECinclude all direct and indirect subsidiaries of the parentcompany as well as the group parent pursuant to IAS 27,and also joint ventures pursuant to IAS 31. The followingcompanies, which simultaneously constitute the CENTROTEC Group (“CENTROTEC”), were consolidatedwithin CENTROTEC Sustainable AG at December 31, 2006:

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Companies, full Place and country Share of Share Currency Founded/consolidated of incorporation capital capital (ISO-Code) acquired

Gas Flue Systems segment

CENTROTEC Sustainable AG Brilon, D - 8,203,894.00 EUR 17/07/1998*

Ubbink B.V. Doesburg, NL 100 % 46,286.00 EUR 21/12/1999

Ubbink N.V./S.A. Gentbrugge, B 100 % 540,059.84 EUR 21/12/1999

Ubbink UK Ltd. Brackley, UK 100 % 35,000.00 GBP 21/12/1999

Ubbink France S.A.S. La Chapelle sur Erdre, F 100 % 310,000.00 EUR 21/12/1999

KORRI*BAT S.A.R.L. La Chapelle sur Erdre, F 100 % 1,000.00 EUR 07/03/2006

Centrotherm Systemtechnik GmbH Brilon, D 100 % 102,258.38 EUR 15/12/1993

Centrotherm Gas Flue Technologies Italy S.R.L. Verona, I 100 % 10,000.00 EUR 19/10/2000

Climate Systems segment

Brink Climate Systems B.V. Staphorst, NL 100 % 20,004.00 EUR 02/01/2002

Deveko B.V. Deventer, NL 100 % 18,152.00 EUR 02/01/2002

Golu B.V. Soest, NL 100 % 18,152.00 EUR 02/01/2002

Kempair B.V. Eindhoven, NL 100 % 18,152.00 EUR 02/01/2002

Ned Air Holding B.V. IJsselmuiden, NL 100 % 54,454.00 EUR 05/06/2003

Ned Air B.V. IJsselmuiden , NL 100 % 54,454.00 EUR 05/06/2003

Ned Air UK Ltd. Manchester, UK 100 % 150,000.00 GBP 02/10/2006

Ned Air Austria GmbH Höchst, A 100 % 35,000.00 EUR 16/10/2006

EnEV-Air GmbH Villingen-Schwenningen, D 74 % 450,000.00 EUR 29/11/2005

Innosource Holding B.V. Sassenheim, NL 100 % 38,500.00 EUR 08/09/2005

Innosource B.V. Sassenheim, NL 100 % 18,000.00 EUR 08/09/2005

Soundscape B.V. Sassenheim, NL 100 % 18,000.00 EUR 08/09/2005

Torque Solutions & Electronics B.V. Sassenheim, NL 100 % 18,000.00 EUR 08/09/2005

Stiller Wonen B.V. Amstelveen, NL 100 % 18,151.00 EUR 08/09/2005

Brink-Innosource GmbH Freudenberg, D 100 % 25,000.00 EUR 08/09/2005

Wolf Holding GmbH Mainburg, D 100 % 25,000.00 EUR 22/09/2006

Wolf GmbH Mainburg, D 100 % 20,000,000.00 EUR 05/10/2006

Wolf France S.A.S. Massy, F 100 % 40,000.00 EUR 05/10/2006

Wolf Iberica S.A. Madrid, E 100 % 781,316.00 EUR 05/10/2006

Wolf Technika Grzewcza Sp.z.o.o. Warszawa, PL 100 % 2,564,000.00 PLN 05/10/2006

Wolf Heating UK Ltd. Northwich, UK 100 % 150,000.00 GBP 05/10/2006

Medical Technology &Engineering Plastics segment

medimondi AG (until March 07 Centromedical AG) Munich, D 100 % 9,700,000.00 EUR 16/10/2006*

Möller GmbH Fulda, D 100 % 60,000.00 EUR 28/08/2003

Möller Medical GmbH & Co. KG Fulda, D 100 % 1,400,000.00 EUR 28/08/2003

Möller Medical AG Zug, CH 100 % 100,000.00 CHF 06/11/2006

Centroplast Engineering Plastics GmbH Marsberg, D 100 % 250,000.00 EUR 01/08/1990

Rolf Schmidt Industriplast A/S Kolding, DK 100 % 3,000,000.00 DKK 16/03/2001

Centroplast UK Ltd. Stafford, UK 100 % 100,000.00 GBP 03/06/2005

Centrotec JI Asia Pte Ltd. Singapur, SG 57.50 % 170,000.00 SGD 23/04/2003

Centrotec JIT Bintan PT Bintan, ID 57.50 % 615,484,000.00 IDR 01/01/2004

Centrotec Composites GmbH Brilon, D 100 % 27,000.00 EUR 01/08/1990

Centrotec International GmbH Brilon, D 100 % 25,000.00 EUR 18/12/2002


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Place and country Share of Share Currency Founded/Company of incorporation capital capital (ISO-Code) acquired

Solar Systems segment

CENTROSOLAR AG Munich, D 33.63 % 13,292,458.00 EUR 12/08/2005

Ubbink Econergy Solar GmbH Köln, D 33.63 % 25,000.00 EUR 06/10/2004

Ubbink Solar Modules B.V. Doesburg, NL 23.54 % 1,500,000.00 EUR 29/08/2005

Centrosolar International B.V. Doesburg, NL 33.63 % 18,152.00 EUR 09/08/2005

Centrosolar Grundstücksverwaltung GmbH Munich, D 33.63 % 25,000.00 EUR 16/11/2005

Centrosolar Glas Holding GmbH Munich, D 33.63 % 25,000.00 EUR 23/08/2005

Centrosolar Glas Verwaltungs- GmbH Munich, D 33.63 % 25,000.00 EUR 23/08/2005

Centrosolar Glas GmbH & Co. KG Fürth, D 33.63 % 900,000.00 EUR 04/10/2005

Solarstocc AG Durach, D 33.63 % 100,296.00 EUR 05/10/2005

Centrosolar Schweiz AG Bern, CH 33.63 % 1,000,000.00 CHF 07/12/2005

Solarsquare AG Meggen, CH 33.63 % 100,000.00 CHF 19/12/2005

Solara Holding GmbH Hamburg, D 33.63 % 25,000.00 EUR 21/10/2005

Solara AG Hamburg, D 33.63 % 63,875.00 EUR 09/11/2005

Solara Sonnenstromfabrik Wismar GmbH Wismar, D 33.63 % 42,000.00 EUR 09/11/2005

Centrosolar Trading GmbH Munich, D 33.63 % 25,000.00 EUR 12/10/2005

Biohaus PV Handels GmbH Paderborn, D 33.63 % 25,000.00 EUR 09/05/2006

Centrosolar Fotovoltaico Hispania S.L. Barcelona, E 33.63 % 50,000.00 EUR 04/07/2006

Companies consolidatedusing the equity method

Bond Laminates GmbH Brilon, D 24.95 % 93,800.00 EUR 21/11/2000

ASS Automotive Solar Systems GmbH Erfurt, D 10.99 % 37,500.00 EUR 09/05/2006

Companies recognised as available-for-sale financial assets (non-consolidated companies)

Sunarc A/S Koge, DK 4.20 % 1,687,500.00 DKK 09/05/2006

WestfalenSolar GmbH** Paderborn, D 15.13 % 25,000.00 EUR 09/05/2006

Müller GmbH** Mainburg, D 100 % 25,565.00 EUR 05/10/2006

Wolf Klimaattechniek B.V. ** Vlaardingen, NL 100 % 45,378.02 EUR 05/10/2006

Wolf Klimatechnik S.a.r.l. ** Junglinster, L 100 % 14,874.00 EUR 05/10/2006

Elco Klöckner Wärmetechnik GmbH** Leobersdorf, AT 100 % 254,355.00 EUR 05/10/2006

* Date of creation by modifying conversion

** Insignificant, and therefore not comprehensively consolidated or accounted for using the equity method

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Further companies in the Solar Systems segment had beenestablished before the end of the year but not yetentered on the Commercial Register by the reportingdate of December 31, 2006. These include the followingthree sales subsidiaries, which are fully owned by CENTROSOLAR AG and are full consolidated: CentrosolarHellas MEPE, Athens (Greece), share capital EUR 50,000,registered on January 24, 2007; Centrosolar FranceS.A.R.L., Mundolsheim (France), share capital EUR 50,000(of which EUR 10,000 paid in), registered on January 11,2007, and Centrosolar Italy S.R.L., Verona (Italy), sharecapital EUR 50,000, registered on January 19, 2007. OnDecember 21, 2006 CENTROSOLAR AG acquired a 50.5% stake in Centroplan GmbH, which has a share capitalof EUR 100,000 and its registered office in Geilenkirchen(Germany). It has not yet been registered. The companyplans and constructs turnkey photovoltaic systems andprovides consultancy services, and is consolidated propor-tionately.

Changes in the group

Comprehensive consolidationIn the Gas Flue Systems segment, a new business entityin France has been established in the guise of KORRI*BATS.A.R.L., in Chapelle sur Erdre. Its first-time consolidationdoes not have any significant effect on the net worth,financial position and financial performance of the group.

In the Climate Systems segment, Ned Air UK Ltd. andNed Air Austria GmbH were established or respectivelyacquired. These companies operate as sales subsidiaries inthe Climate Systems segment. Their first-time consolida-tion does not have any significant effect on the net worth,financial position and financial performance of the group.

The group’s most significant acquisition took place onOctober 5, 2006. First, Wolf Holding GmbH (formerlyBlitz 06-156 GmbH) was acquired. This companyacquired the Wolf Group, which comprises Wolf GmbH,Mainburg, as well as eight further companies. Four com-panies are not included in consolidation in view of themarginal extent of their activities and their insignificant

effect on the net worth, financial position and financialperformance of the group.In the Medical Technology & Engineering Plastics segment,Möller Medical AG, Zug, Switzerland, was established asa fully-owned subsidiary. The company is intended tooperate as a sales subsidiary in the Medical Technologyarea. Their first-time consolidation does not have any sig-nificant effect on the net worth, financial position andfinancial performance of the group. Organisational re-structuring measures were moreover initiated within thegroup; these will give significant sections of the MedicalTechnology & Engineering Plastics segment a strongerindependent direction. As part of these measures, Centro-tec Medizintechnik GmbH was renamed CentromedicalAG and its registered office transferred to Munich. In March2007 Centromedical AG was renamed medimondi AG.This company is now the umbrella and managementholding company of the major portion of the MedicalTechnology & Engineering Plastics segment, to which onlycompanies involved in advanced composites have not beendirectly allocated.

The Solar Systems segment was built up at the end of2005 and already reported as a segment at December31, 2005. In January 2006, CENTROSOLAR AG acquireda further 78.9 % in Solara AG, Hamburg, and in its sub-sidiary Solara Sonnenstromfabrik Wismar GmbH, Wismar.These have consequently been full consolidated withinCENTROSOLAR AG since the start of 2006 (the interestswere initially accounted for using the equity method inthe fourth quarter of 2005). CENTROSOLAR AG more-over acquired Biohaus PV Handels GmbH, Paderborn, infull on May 9, 2006, since which date it has been fullyconsolidated. The group comprises Biohaus PV HandelsGmbH, and also interests in ASS (Automotive Solar Sys-tems) GmbH, Germany (32.67 %), WestfalenSolar GmbH,Germany (45.0 %) and Sunarc A/S, Denmark (12.5 %) (ineach case CENTROTEC interest not yet calculated). ASS isrecognised within the group using the equity method,whereas the other two investments are recognised atamortised cost. Companies which have the business pur-pose of production, sales or project business in the


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domain of renewable energies have in addition beenestablished or are being established. Finally, CENTROSOLARAG acquired the final one-third of the shares in Solar-stocc, which is already included in comprehensive consol-idation, on September 21, 2006. As a result of the 2,063 thousand shares in CENTROSOLARAG issued in the context of acquisitions in the solar sec-tor and a capital increase for cash carried out in January2006 involving 336 thousand shares in CENTROSOLARAG, excluding the right of subscription of the existingshareholders, the interest of the CENTROTEC Group inthe CENTROSOLAR Group fell from 41.0 % at December31, 2005 to 33.6 % at December 31, 2006.

On the basis of a voting trust agreement, theCENTROTEC subsidiary Ubbink B.V. controls more than6.0 million voting rights and therefore over half of thevoting rights in CENTROSOLAR AG since the establish-ment of the latter, with the effect that CENTROTEC wasable to take control of CENTROSOLAR AG. CENTROSOLARAG has therefore been comprehensively consolidatedsince October 11, 2005. As a result of further acquisi-tions by CENTROSOLAR AG, in some cases involving theissue of new shares with the right of subscription of theexisting shareholders excluded, the share of voting rightshas become diluted. This led to a position during thecourse of the 2006 financial year where fewer than halfthe voting rights were controlled. On the basis of a clearmajority at the Shareholders’ Meeting, CENTROSOLARAG remained de facto under CENTROTEC’s control. Werefer to further remarks on the critical assumptions andestimates made, as well as to significant events after thebalance sheet date. CENTROSOLAR AG is included in thePrime Standard under the codes C3O and WKN 514850.

Changes within the groupIn 2006, the company Semiplas Ltd. was renamedCentroplast UK Ltd. and the company Innosource GmbHrenamed Brink – Innosource GmbH. In addition,Centrotec Medizintechnik GmbH was transformed intomedimondi AG (formerly Centromedical AG) as part oforganisational restructuring measures and almost 95 %

of the shares in Centroplast Engineering Plastics GmbH,with its fully owned subsidiaries Rolf Schmidt IndustriplastA/S and Centroplast UK Ltd., transferred from CENTROTECSustainable AG to medimondi AG. At the start ofFebruary 2006, all shares of CENTROSOLAR AG inUbbink Econergy Solar GmbH and Ubbink Solar ModulesB.V. were transferred to Centrosolar International B.V., afully owned subsidiary of CENTROSOLAR AG.

Proportionate consolidationThe company Bond Laminates, which had largely stillbeen consolidated proportionately in 2005, is accountedfor entirely using the equity method in 2006. The estab-lished company Centroplan GmbH, Germany, is consoli-dated proportionately.

Companies consolidated using the equitymethodAlong with the acquisition of Biohaus PV Handels GmbH,the group acquired its 32.67 % interest (CENTROTECinterest not yet calculated) in ASS (Automotive Solar Sys-tems) GmbH on May 9, 2006. By declaring exercise onJanuary 12, 2006 of the option contract dated November9, 2005, 78.9 % (CENTROTEC interest not yet calculated)of the capital stock of Solara AG, and of SolaraSonnenstromfabrik Wismar GmbH, was acquired by CENTROSOLAR AG. These companies were subsequentlyconsolidated comprehensively, rather than using the equi-ty method. The company Bond Laminates, which had stillbeen consolidated proportionately for most of 2005, isaccounted for entirely using the equity method in 2006.

Available-for-sale financial assets In view of the accounting method to be applied, SunarcA/S, Denmark, and, for purposes of simplification and inview of their lesser significance for the net worth, finan-cial position and financial performance of the group,WestfalenSolar GmbH, Wolf Klimaattechniek B.V., WolfKlimatechnik S.a.r.l., Elco Klöckner Wärmetechnik GmbHand Müller GmbH are not consolidated and are recog-nised only at cost as available-for-sale financial assets.

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Notes on Components to the Consolidated Financial Statements

0 Principal business combinations, investmentsand transactions with minorities

The following notes and tables show the principal effectsof acquisitions of assets and goodwill, of agreed pur-chase prices and of the completion of acquisitions on thenet worth, financial position, financial performance andcash flow statement. The establishment or acquisition ofsmaller companies, including when considered collectively,has not had any significant effect on the net worth,financial position and financial performance of the group.For reasons of materiality, no presentation of the effectshas therefore been given below. Changes from individualdisclosures on the investments and business combina-tions could potentially arise in the course of this year,because in individual instances it was only possible toestablish provisional figures and information due to tem-poral restrictions. Any significant changes ascertained willbe taken into account and disclosed in the quarterlyfinancial statements for 2007.

a_Business combinations applying the purchase method

Acquisition of Solara On January 12, 2006, CENTROSOLAR AG acquired theremaining 78.9 % of the shares in Solara AG, Hamburg,and in its subsidiary Solara Sonnenstromfabrik WismarGmbH, Wismar. In view of the scope for exercising thepurchase option from the start of 2006, the opportunityfor controlling the company already existed from thatpoint on, as a result of which it was full consolidated forthe whole of 2006. The company sells systems for auto-nomous solar power supplies, e.g. for sailing boats,mobile homes, weekend houses, as well as grid-connect-ed systems and solar modules for private houses, on aninternational scale. The fixed portion of the purchase pricefor Solara AG and Solara Sonnenstromfabrik WismarGmbH amounts to EUR 19.1 million. This includes EUR7.5 million representing the market value of the sharesissued, and a purchase price liability of EUR 4.0 million.Incidental acquisition costs of EUR 0.3 million are alreadyincluded in the acquisition costs of EUR 8.4 million usingthe equity method from the purchase of the initial 21.1 %stake. The total goodwill for the Solara acquisitionamounts to EUR 19,558 thousand, EUR 6.6 million ofwhich results from the acquisition of the 21.1 % stake inNovember 2005 and EUR 13.0 million from this acquisi-tion of the remaining shares.

The overall contribution to revenues is EUR 38,975thousand, and EUR 3.261 thousand to the net income of the group. As a result of the issue of CENTROSOLAR

shares, the stake held in CENTROSOLAR AG by CENTROTEC Sustainable AG has fallen from 41.0 % atthe end of last year to 39.3 %.

The following tables show the effects of the acquisi-tion of assets, liabilities and the calculation of goodwill,the agreed purchase price and the effect of the acquisi-tion of Solara on the cash flow statement:

Purchase price agreements in EUR ‘000

Purchase price paid 11,516

Market value of the shares issued 7,539

Incidental acquisition costs 94

Total acquisition costs 19,149

Net assets acquired (6,147)

Goodwill 13,002

Furthermore

Goodwill from reclassification of investment using the equity method 6,556

Total goodwill 19,558

The purchase price to be paid for Solara in cash amountsto EUR 11,516 thousand. The purchase price paid inshares of CENTROSOLAR AG is EUR 7,539 thousand; thiscorresponds to 484,223 individual share certificates inCENTROSOLAR AG. The assets and liabilities acquired arecomposed as follows:

Market CarryingBalance sheet items in EUR ‘000 values amounts

Cash and cash equivalents 3,981 3,981

Intangible assets 4,074 25

Property, plant and equipment 872 872

Inventories 4,342 4,342

Receivables 1,814 1,814

Prepaid expenses and other assets 18 18

Net deferred tax (1,913) 0

Accruals (1,175) (1,175)

Trade payables (403) (403)

Other liabilities (3,674) (3,674)

Net assets 7,936 5,800

Less the interest already held (1,789)

Net assets acquired 6,147

New intangible assets were identified from the viewpointof the acquirer. These consist principally of brand values,identifiable customer relationships and, to a lesser extent,supplier relationships and order backlogs. The goodwillarisen is prompted in particular by the following factors:

D_


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the team of employees (human assets) of the Solara Groupconstitutes one portion of the goodwill arisen. The otherportion corresponds the payment made by CENTROTECin expectation of future economic benefit from assets thatcould not be identified individually or stated separately.These include in particular the anticipated, usable synergypotentials or other assets which, like human assets, maynot be capitalised under IFRS rules. They also includemarket opportunities as a result of the company’s entryinto business with off-grid photovoltaic systems, syner-gies from the joint use of products and business relationswith other group companies, and potential for savings.

Total purchase price to be paid in cash and cash equivalents in EUR ‘000 (11,516)

Incidental acquisition costs (94)

Cash and cash equivalents acquired 3,981

Cash outflow from acquisition of Solara (7,629)

Acquisition of BiohausCENTROSOLAR AG acquired Biohaus PV Handels GmbH,Paderborn, in full on May 9, 2006, since which date ithas been fully consolidated. Biohaus is a supplier of pho-tovoltaic systems, placing the emphasis on building-inte-grated systems. In addition to classic integrated photo-voltaic solutions, Biohaus introduces innovative PV thin-film technology into the group. The acquired group com-prises Biohaus PV Handels GmbH, and also what the groupconsiders to be direct interests in ASS (Automotive SolarSystems) GmbH, Germany (32.67 %), WestfalenSolarGmbH, Germany (45.0 %) and Sunarc A/S, Denmark(12.5 %) (in each case CENTROTEC interest not yet calcu-lated). ASS is recognised within the group using the equi-ty method, whereas the other two investments are recog-nised as available-for-sale financial assets. The acquisitionwas paid for partly in the form of a contribution in kindin exchange for the issue of 694,444 new shares in CENTROSOLAR AG. As a result of the issue of CENTROSOLAR shares, the stake held in CENTROSOLARAG by CENTROTEC Sustainable AG fell further from 38.2 % at the end of the first quarter to 36.0 %. Thetotal purchase price was EUR 22.0 million, 67.9 % ofwhich was paid in the form of shares issued, with EUR2.5 million already paid in cash.

New intangible assets, comprising substantially brandvalues, customer relationships and supply agreements,were identified from the viewpoint of the acquirer.Within investments, undisclosed reserves were exposedas investments acquired in the process. The acquiredcompany contributed EUR 31,143 thousand to the rev-enues and EUR 269 thousand to the net income of the

group. If the acquisition had taken place on January 1,2006, the contribution to revenues would have been EUR42,766 thousand, and EUR 151 thousand to the netincome of the group.

The purchase price to be paid for Biohaus in cashamounts to EUR 6,303 thousand. The purchase pricepaid in shares of CENTROSOLAR AG is EUR 14,931 thou-sand; this corresponds to 694,444 of its individual sharecertificates.



Purchase price liability 3,803

Market value of the shares issued 14,931

Incidental acquisition costs 789



Goodwill 17,198

The following tables show the effects of the acquisitionof assets, liabilities and the calculation of goodwill, theagreed purchase price and the effect of the acquisition ofBiohaus on the cash flow statement:


Cash and cash equivalents (736) (736)


Intangible assets 1,800 19

Investments 3,620 2,420


Trade receivables 1,550 1,550

Prepaid expenses and other assets 444 450

Net deferred tax (665) 0

Accruals (580) (580)

Loans (3,947) (3,947)

Trade payables (3,447) (3,447)


Net assets 4,825 2,547

New intangible assets were identified from the viewpointof the acquirer. These consist principally of brand values,identifiable customer relationships and, to a lesser extent,supplier relationships and development costs. The fairvalue measurement of the investment held by Biohaus inASS GmbH and Sunarc A/S in addition led to the expo-sure of further undisclosed reserves. The goodwill arisenis prompted in particular by the following factors: the

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portion corresponds the payment made by CENTROTECin expectation of future economic benefit from assets thatcould not be identified individually or stated separately.These include in particular the anticipated, usable synergypotentials in the solar sector or other assets which, likehuman assets for example, may not be capitalised underIFRS rules. They also include market opportunities as aresult of the company’s entry into business with building-integrated photovoltaic systems, synergies from the jointuse of products and business relations with other groupcompanies, and potential for savings.


Change in purchase price liability (currently non-cash) 3,803

Incidental acquisition costs (789)

Cash and cash equivalents acquired (736)

Cash outflow from acquisition of Biohaus (4,025)

Acquisition of the Wolf GroupCENTROTEC acquired Wolf GmbH, Mainburg, Germany,in full at the start of October 2006. The Wolf Group is asystem supplier that manufactures and sells heating sys-tems based on condensing-boiler technology as well asthose using biomass as an energy source, and also heataccumulators and pumps, together with climate controland solar thermal systems. Large-scale systems for indus-try and commercial buildings account for a significantportion of its worldwide sales. In addition to Wolf GmbH,the Wolf Group comprises eight further fully owned sub-sidiaries, of which four are companies with national salesoperations. All the other companies conduct no operat-ing activities and are therefore of lesser significance forthe group, as a result of which they are recognised asavailable-for-sale financial assets. The group supplies cus-tomers via sales partners in 45 countries.

The acquired group of companies contributed EUR64,056 thousand to the revenues and EUR 7 thousand tothe net income of the group. If the acquisition had takenplace on January 1, 2006, the contribution to revenueswould have been EUR 222,735 thousand, and EUR 861thousand to the net income of the group. These figureswould have resulted from the application of key recogni-tion and measurement principles for the group as well asfrom an assumed distribution of earnings effects fromthe extrapolation of the purchase price distribution overthe whole year.

The following tables show the effects of the acquisitionof assets, liabilities and the calculation of goodwill, theagreed purchase price and the effect of the acquisition ofWolf on the cash flow statement:



Purchase price liability 4,000

Incidental acquisition costs 2,618



Goodwill 19,851

The purchase price for Wolf to be paid in cash amountsto EUR 77,300 thousand. The assets and liabilitiesacquired are composed as follows:



Intangible assets 35,165 4,180

Property, plant and equipment 54,313 40,548

Investments 146 146


Trade receivables 33,147 33,147

Prepaid expenses and other assets 3,702 3,702

Net deferred tax (22,320) (4,881)

Pension accrual (20,563) (20,563)

Accruals (8,850) (8,850)

Loans (17,103) (17,103)

Trade payables (12,332) (12,332)


Net assets acquired 60,067 30,176


Change in purchase price liability (currently non-cash) 4,000

Paid incidental acquisition costs (966)

Cash and cash equivalents acquired 1,461

Cash outflow from acquisition of Wolf (72,805)

New intangible assets which had not previously been re-cognised within the acquired group as originally createdassets were identified from the viewpoint of the acquirer.These consist of basic technologies, technologies, brandnames, customer relationships and development projects,and were measured at fair value. Write-ups on the fairvalues determined were furthermore made on land andbuildings as well as on the entire other fixed assets, theorder backlog and the inventories. The pension accrualwas graduated and adjusted to the actuarial values deter-mined.


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The goodwill arisen is prompted in particular by the fol-lowing factors: the team of employees (human capital) ofthe Wolf Group constitutes approximately one-quarter ofthe goodwill arisen. The remaining portion correspondsthe payment made by CENTROTEC in expectation offuture economic benefit from assets that could not beidentified individually or stated separately. These includein particular the anticipated, usable synergy potentials orother assets which, like human assets, may not be capi-talised under IFRS rules. They also include market oppor-tunities, synergies from the joint use of products and busi-ness relations with other group companies, and potentialfor savings.

b_Transactions with minorities

Acquisition of the remaining shares in SolarstoccIn addition to the original contract, CENTROSOLAR AGacquired the remaining 33,578 individual share certifi-cates in Solarstocc AG on September 21, 2006. CENTROSOLAR consequently now holds 100 % of theshares in this specialist for integrated systems that aresold via traditional heating engineers and electricians; thecompany was already fully consolidated in the previousyear. By way of a capital increase for contribution in kind,the sellers received 883,948 shares in CENTROSOLAR AG.The transaction was recognised in the ConsolidatedFinancial Statements using the modified parent companymodel. Goodwill arose; there were moreover changes inthe recognition of the equity components attributable tominority interests and to the shareholders of CENTROTEC.The interest in CENTROSOLAR was diluted from 36.0 %to 33.6 % as a result of the transaction. The goodwillapplicable to the already fully consolidated company con-sequently rose by EUR 8,729 thousand as a result of thecontribution in kind.

Equity dilution through a capital increase for cashAt the end of January CENTROSOLAR AG issued 336,000shares, excluding the right of subscription of the existingshareholders, as a result of which the interest in the CENTROSOLAR Group was diluted from 39.3 % to 38.2 %.

1 Goodwill

The classification and movements of goodwill are shownin the following schedule:

Goodwillin EUR ‘000 Total

2005

Accumulated cost Jan 1 38,443

Additions for first-time consol. 18,175

Additions 62

Disposals (500)

Deconsolidation (607)

Accumulated cost Dec 31 55,573

Accumulated impairment Jan 1 0

Additions (263)

Other changes 0

Accumulated impairment Dec 31 (263)

Net carrying amount December 31, 2004 38,443


2006

Accumulated cost Jan 1 55,573

Additions for first-time consol. 66,123

Additions 60

Disposals (625)

Deconsolidation 0

Accumulated cost Dec 31 121,131

Accumulated impairment Jan 1 (263)

Additions (2,001)

Other changes 0

Accumulated impairment Dec 31 (2,264)



The goodwill totalling EUR 55,310 thousand reported atDecember 31, 2005 has risen by EUR 63,557 thousand(change in previous year EUR 16,867 thousand). Detailsof its origin are provided in the notes on business combi-nations.

Disposals of EUR 0.6 million and additions of EUR 60thousand to goodwill result substantially from discrepan-cies in the final purchase price liabilities resulting fromthe completion of acquisitions or from better knowledge(amount for comparison for previous year EUR 0.5 million).

The impairment in the financial year related to thearea of residential buildings climate control, as a portionof the synergy effects and human assets included in thegoodwill can no longer be realised due to restructuring

Gas Flue SystemsAverage calculation-specific assumptionsused, segments in % Climate Systems

Medical Technology& EngineeringPlastics Solar Systems

2006 2005 2006 2005 2006 2005 2006 2005

Revenue growth 2.8 – 22.0 4.7 – 22.0 2.0 – 3.0 3.0 – 6.5 4.0 – 5.0 4.0 – 5.0 6.0 – 20.0 3.0 – 15.0

Gross margin 38 – 50 40 – 48 31 – 60 50 – 60 65 – 75 65 – 75 8 – 35 10 – 40

Growth in perpetual pension 1.0 1.0 1.0 1.0 1.0 1.0 1.0 – 2.0 1.0 – 2.0

Discount rate (after taxes) 7.4 – 7.8 5.7 7.4 – 8.4 5.6 7.7 5.7 8.4 8.4

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measures. The level was indicated by the impairmenttests conducted (EUR 2,001 thousand; previous year 0).The impairment of EUR 263 thousand in the previousyear results from a change in the income tax loss carry-forwards from a business combination that was realisedretroactively. The deconsolidation relates to BondLaminates, which is now accounted for using the equitymethod.

In the context of application of IFRS 3, goodwill amor-tisation that had been accumulated by the straight-linemethod up until 2003 was netted against the respectivehistorical cost in 2004 with the result that no scheduledgoodwill amortisation has now been disclosed since thereporting date of December 31, 2004.

The impairment test was performed on the basis ofvalue in use. The calculations are based on a cash floworiented model. The calculations use as their basis valuesindicated by past experience on the individual serviceprovided and the approved budget for 2007, estimates offorward-looking assumptions that are planned over a

period of three years, and also a perpetual pension calcu-lated on the basis of the third year of the planning period.The perpetual pension was assumed to have a growthrate of 1.0 % to 2.0 %, depending on sector and area ofactivity. Calculation-specific assumptions on growth ratesand developments in margins were moreover made forthe cash-generating units. Conservative revenue growthrates were used as the basis of the impairment tests.Assumptions were moreover made with regard to individ-ual gross margins derived from values indicated by pastexperience and currently known price and product mixdevelopments. The discount rates were formed from theweighted costs of borrowed capital and equity capital,with the equity capital costs derived using CAPM by in-corporating the beta factor for CENTROTEC shares andalso an average beta factor for the Solar Systems seg-ment – derived from comparable companies – into thecalculation. Risk supplements based on the company’sassessments were furthermore applied for the individualCGUs.

Allocation of goodwill to cash generating units in EUR ‘000 2006 2005

Wolf climate control 19,851 -

Solara 19,558 -

Brink residential buildings climate control 17,711 20,124

Biohaus 17,198 -

Solarstocc 12,621 3,371

Ned Air 6,867 6,741

Solarsquare CH 5,828 5,723

Ubbink NL 4,643 4,643

Centrosolar Glas 3,790 3,790

Vacuform products 3,420 3,420

Ubbink UK 2,968 2,968

Möller Medical 2,739 2,911

Rolf Schmidt Industriplast 1,553 1,553

Miscellaneous 120 66

Total 118,867 55,310

Allocation of goodwill to segmentsin EUR ‘000 TotalSolar Systems

MedicalTechnology &EngineeringPlastics

ClimateSystems

Gas FlueSystems


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2 Intangible assets

The classification and movements of intangible assets areshown in the following schedule:

2006 2005 2006 2005 2006 2005 2006 2005 2006 2005

Euro countries 8,115 8,105 44,420 26,863 2,765 2,911 53,203 7,172 108,503 45,051

European non-euro countries 2,968 2,968 - - 1,553 1,553 5,843 5,738 10,364 10,259

Other countries - - - - - - - - - -

Total 11,083 11,073 44,420 26,863 4,318 4,464 59,046 12,910 118,867 55,310

Intangible asstes Industrial rights Capitalised Totalin EUR ‘000 and similar rights Software development costs intangible assets

2005

Accumulated cost Jan 1 1,163 2,172 833 4,168

Additions for first-time consolidation 22,084 19 1,024 23,127

Additions 0 295 717 1,012

Disposals (84) (14) (63) (161)

Disposals from deconsolidation (11) 0 0 (11)

Reclasses 1 4 (1) 4

Exchange differences (9) 5 0 (4)

Accumulated cost Dec 31 23,144 2,481 2,510 28,135

Accumulated amortisation Jan 1 (498) (1,733) (240) (2,471)

Additions for first-time consolidation 0 (9) (175) (184)

Additions (289) (296) (84) (669)

Disposals 84 14 63 161

Disposals from deconsolidation 11 0 0 11

Reclasses 0 (4) 0 (4)

Exchange differences 0 (2) 0 (2)

Accumulated amortisation Dec 31 (692) (2,030) (436) (3,158)

Net carrying amount December 31, 2004 665 439 593 1,697

Net carrying amount December 31, 2005 22,452 451 2,074 24,977

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The movements in intangible assets are largely dominat-ed by the additions as a result of the companies consoli-dated for the first time. These have already been com-mented on in greater detail in the notes on businesscombinations. EUR 4,675 thousand of this total (previousyear EUR 3,306 thousand) was serving as security forbank loans at the reporting date.

Expenses for (predominantly) internal research anddevelopment in the fiscal year amounted to EUR 4,011thousand (previous year EUR 2,178 thousand). Develop-ment activities focused mainly on heating systems, plasticgas flue components, ventilation and solar systems, coat-ing techniques and applications, and software develop-ments. The results of these efforts can be used for a vari-ety of customers. Development expenditures amountingto EUR 1,360 thousand (previous year EUR 717 thou-sand) were capitalised in the year under review, as futurebenefit in the form of cash flow and additional profitfrom new products can be predicted with adequate cer-tainty. These include development projects approachingmarket readiness, and in particular medical technologydevelopments as well as components of roof, ventilationand solar systems. In addition, research was carried outto better understand and control the gas and air flow inplastic systems as well as the impact of heat, water andair on plastic materials and components.

In the context of business combinations, brands, tech-nologies, patents and development projects to the value

of EUR 41 million were acquired. These are amortised bythe straight-line method over a useful life of between 5 and 40 years. The strong “Wolf” brand was not amor-tised in view of its indefinite useful life. The intangibleassets acquired were allocated to “Self-created intangibleassets” by the seller, and therefore not recognised on thebalance sheet. A measurement based on market criteriawas performed during first-time consolidation.

One favourable supply agreement in the Solar Systemssegment was capitalised at a carrying amount of EUR12.9 million at the reporting date of December 31, 2006.The agreement runs until into 2009. Of the amortisationtotal, EUR 4,115 thousand applies to this agreement. Reductions for impairment totalling EUR 850 thousandwere moreover applied to these agreements as a result ofdelays in the fulfilment of the agreements and changingmarket price constellations. Losses amounting to EUR805 thousand furthermore arose in connection with thedisposal of identified patents, and from capitalised devel-opment costs amounting to EUR 140 thousand, fromwhich no future benefit is now expected.

The disposal of capitalised development costs resultsfrom projects where development costs which could becapitalised arose, and from which no future benefit isnow expected.

Intangible asstes Industrial rights Capitalised Totalin EUR ‘000 and similar rights Software development costs intangible assets

2006

Accumulated cost Jan 1 23,144 2,481 2,510 28,135

Additions for first-time consolidation 22,233 1,964 16,849 41,046

Additions 104 573 1,360 2,037

Disposals (805) (47) (407) (1,259)

Reclasses 0 52 0 52

Exchange differences (2) 3 0 1


Accumulated amortisation Jan 1 (692) (2,030) (436) (3,158)

Additions for first-time consolidation 0 0 0 0

Additions (5,325) (648) (1,536) (7,509)

Impairment (850) 0 0 (850)

Disposals 0 49 285 334

Reclasses 0 0 0 0

Exchange differences (4) (1) 3 (2)

Accumulated amortisation Dec 31 (6,871) (2,630) (1,684) (11,185)

Net carrying amount December 31, 2005 22,452 451 2,074 24,977

Net carrying amount December 31, 2006 37,803 2,396 18,628 58,827


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Technical Furniture, TotalProperty, plant and equipment Land and equipment fixtures and Assets in course property, plantin EUR ‘000 buildings and machinery office equipment of construction and equipment

2005

Accumulated cost Jan 1 35,474 48,942 13,891 411 98,718

Additions for first-time consolidation 0 2,187 693 1,182 4,062

Additions 1,457 2,035 1,482 2,821 7,795

Disposals 0 (1,722) (362) (29) (2,113)

Disposals from deconsolidation 0 (139) (66) (2) (207)

Reclasses 84 2,754 225 (3,067) (4)

Exchange differences (2) 19 12 0 29

Accumulated cost Dec 31 37,013 54,076 15,875 1,316 108,280

Accumulated depreciation Jan 1 (11,485) (41,113) (11,307) 0 (63,905)

Additions for first-time consolidation 0 (106) (209) 0 (315)

Additions (975) (2,290) (1,069) 0 (4,334)

Disposals 0 1,702 276 0 1,978

Disposals from deconsolidation 0 37 38 0 75

Reclasses 0 0 4 0 4

Exchange differences 0 (6) (11) 0 (17)

Accumulated depreciation Dec 31 (12,460) (41,776) (12,278) 0 (66,514)

Net carrying amount December 31, 2004 23,989 7,829 2,584 411 34,813

Net carrying amount December 31, 2005 24,553 12,300 3,597 1,316 41,766

2006

Accumulated cost Jan 1 37,013 54,076 15,875 1,316 108,280

Additions for first-time consolidation 31,686 10,869 11,226 1,760 55,541

Additions 1,389 4,308 3,927 4,250 13,874

Disposals (1,156) (2,114) (2,335) (21) (5,626)

Reclasses 3,309 2,531 210 (6,102) (52)

Exchange differences 1 7 11 0 19

Accumulated cost Dec 31 72,242 69,677 28,914 1,203 172,036

Accumulated depreciation Jan 1 (12,460) (41,776) (12,278) 0 (66,514)

Additions for first-time consolidation 0 0 0 0 0

Additions (1,547) (3,457) (2,435) 0 (7,439)

Disposals 634 2,003 2,225 0 4,862

Reclasses 0 2 (6) 0 (4)

Exchange differences (1) (7) (7) 0 (15)

Write-ups 18 22 13 0 53

Accumulated depreciation Dec 31 (13,356) (43,213) (12,488) 0 (69,057)



3 Property, plant and equipment

The classification and movements of property, plant andequipment are shown in the following schedule:

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The movements in property, plant and equipment arelargely dominated by the additions as a result of thecompanies consolidated for the first time. These havealready been commented on in greater detail in the noteson business combinations. Land and buildings comprisemainly the production and office buildings in Brilon (Ger-many), Mainburg (Germany), Doesburg (Netherlands),Staphorst (Netherlands), Kampen (Netherlands), Nantes(France), Fulda (Germany), Marsberg (Germany) andKolding (Denmark). In Brilon, one building housing pro-duction, warehouse and office space was completed at acost of EUR 1.7 million and occupied at the end of De-cember 2006. In Belgium, a new building housing pro-duction and warehouse space was built at a cost of EUR2.2 million. The building was occupied in mid-2006. Thisresulted in a disposal of EUR 807 thousand for land andbuildings, but also of plant and machinery as well asother furniture, fixtures and office equipment.

Technical equipment and machinery at the productionplants was extended and technologically upgraded. Otherfurniture, fixtures and office equipment consists of vari-ous items in production, warehouses and administration.Property, plant and equipment includes assets to thevalue of EUR 1,298 thousand (previous year EUR 163

thousand) reported in the context of finance leases. EUR66,240 thousand of property, plant and equipment wasserving as security for bank loans at the reporting date(previous year EUR 36,977 thousand).

The assets in course of construction at the reportingdate consist of technical plant and machinery supplied tothe production plants but not yet technically accepted.

Disposals and reclasses of technical plant and machin-ery as well as other furniture, fixtures and office equip-ment are moreover in connection with the commission-ing of locations or plants or other organisational meas-ures carried out. Substantial effects relating to other peri-ods or affecting income resulted only from the relocationin Belgium (EUR 206 thousand).

4 Investments accounted for using the equity method, available-for-sale financial assets and loans

These financial assets comprise investments accountedfor using the equity method, other investments that areavailable for sale, and credit or loans originated by theenterprise. Their classification and development are shownbelow:

Investmentsaccounted Available- Credit

Investments for using for-sale (loans originated Totalin EUR ‘000 the equity method financial assets by the enterprise) investments

2005

Accumulated cost Jan 1 17 0 0 17

Additions for first-time consolidation 8,507 0 0 8,507

Additions 0 0 137 137

Disposals (17) 0 0 (17)

Reclasses 607 0 0 607

Share of gains 113 0 0 113

Accumulated cost Dec 31 9,227 0 137 9,364

Accumulated depreciation Jan 1 (17) 0 0 (17)


Additions 0 0 0 0

Disposals 17 0 0 17

Other changes 0 0 0 0

Accumulated depreciation Dec 31 0 0 0 0

Net carrying amount December 31, 2004 0 0 0 0

Net carrying amount December 31, 2005 9,227 0 137 9,364


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Investments recognised using the equity method in EUR '000 2006 2005

At Jan 1 9,227 0

First-time consolidation 1,101 8,507

Change in consolidation (8,558) 607

Share of losses 0 0

Share of gains 91 113

Close of Dec 31 1,861 9,227

In 2006, a share of gains amounting to EUR 38 thousandwas netted against the expense from increasing purchaseprice liabilities, because the proceeds are due to the sellerrather than the group due to contractual arrangementsin the purchase agreement. The investments accountedfor using the equity method include goodwill amountingto EUR 1,455 thousand (previous year EUR 7,160 thou-sand).

The additions to the investments accounted for using theequity method concern ASS Automotive Solar SystemsGmbH, Erfurt, in the Solar Systems segment. The disposaland reclass to goodwill relates to Solara, which is nowcomprehensively consolidated. The changes comparedwith the previous year in the investments accounted forusing the equity method relate to the sale of the minorityinterest in Haskotherm B.V. accounted for using the equi-ty method, the acquisition of Solara AG, Hamburg, (anon-listed company) and the fact that Bond LaminatesGmbH is now accounted for using the equity method.

Of the loans originated by the enterprise, a sum ofEUR 1,500 thousand concerns a loan extended to theseller of Biohaus PV Handels GmbH. The loans originatedby the enterprise in 2005 relate to one loan extended inconnection with the sale of Haskotherm B.V. Of the dis-posals, EUR 103 thousand relates to a partially derecog-nised loan originated by the enterprise from the sale ofHaskotherm that could no longer be realised.

Investmentsaccounted Available- Credit

Investments for using for-sale (loans originated Totalin EUR ‘000 the equity method financial assets by the enterprise) investments

2006

Accumulated cost Jan 1 9,227 0 137 9,364

Additions for first-time consolidation 1,101 956 1,721 3,778

Additions 0 59 0 59

Disposals (2,002) 0 (175) (2,177)

Reclasses (6,556) 0 0 (6,556)

Share of gains 91 0 0 91


Accumulated depreciation Jan 1 0 0 0 0


Additions 0 0 0 0

Disposals 0 0 0 0

Exchange differences 0 0 0 0

Accumulated depreciation Dec 31 0 0 0 0

Net carrying amount December 31, 2005 9,227 0 137 9,364

Net carrying amount December 31, 2006 1,861 1,015 1,683 4,559

ASS AutomotiveSolar

2006 2006 2005 2005

Ownership interest in % 32.67** 24.95 24.95 21.1**

Fixed assets 425 1,380 605 2,922

Current assets 1,497 2,304 1,139 10,189

Total liabilities 4,926 3,381 1,680 4,926

Revenues 14,527 1,094* 543* 40,577

Net income (loss) 157 91* (32)* 2,762

* proportionate

** CENTROTEC interest not yet calculated

Investments recognised using theequity method in EUR ‘000 SolaraBond LaminatesBond Laminates

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5 Other assets

The marked rise of the other assets is principally due toacquisition-driven growth in the Climate Systems segment(EUR +2,654 thousand) and in the Solar Systems segment(EUR +677 thousand). Of the other assets, EUR 5.165thousand (previous year EUR 121 thousand) served assecurity for bank loans at the reporting date.

The following table shows a breakdown of other cur-rent assets. The prepaid expenses largely comprise insur-ance premiums and service expenses.

Other assets in EUR ‘000 2006 2005

Other non-current assetsprincipally derivatives 532 61

Total non-current 532 61

Other current assets

Payments on account for inventories 1,168 2,618

Other assets 3,275 1,534

Receivables from sales tax 1,479 645

Prepaid expenses 1,479 993

Total current 7,401 5,790

2006 2005 2006 2005

Reversal expected within 12 months 3,186 364 958 357

Reversal expected after more than 12 months 5,794 3,419 2,267 2,295

Total 8,980 3,783 3,225 2,652

GrossDeferred tax assets in EUR ‘000 Net

Inventories in EUR ‘000 2006 2005

Inventory at historic costs 47,770 24,755

Inventory at net realisable value:Original value at historic costs 40,735 6,984

Provision for obsolescence (4,296) (2,214)

Carrying amount after depreciation 36,439 4,770

Total 84,209 29,525

6 Deferred tax assets

The deferred tax assets are calculated on the differencebetween the valuations of assets and liabilities in the IFRSbalance sheet and the tax balance sheet, and also fromtax loss carryforwards. The amount results substantiallyfrom loss carryforwards and differences in the valuationsof property, plant and equipment.

Tax loss carryforwards

in EUR ‘000 2006 2005

Loss carryforwards 17,580 7,186

Deferred tax on loss carryforwards 5,850 2,442

Reductions for impairment of loss carryforwards (2,788) (251)

Total deferred tax on loss carryforwards (net) 3,062 2,191

Of the deferred tax assets on loss carryforwards, EUR2,079 thousand (previous year EUR 1,605 thousand)relate to companies which also posted a loss in the cur-rent year. The deferred tax in question was subjected toan impairment test based on the budget for 2007 and onlonger-range plans in the event of the loss-making situa-tion continuing. Due to fiscally non-deductible companyexpenses or additions, higher tax results may be neces-sary in order to realise these deferred tax assets. The netvalues represent the total of the anticipated netted valuesof deferred tax assets and liabilities of a group companyin respect of a taxation authority.

7 7Inventories

The first of the following tables provides a breakdown ofthe entire carrying amount of inventories. Where the costprice of inventories is higher than their market or fairvalue, the table shows the carrying amount of theseinventories after reductions for impairment. The markedrise is mainly due to acquisition-driven growth in theClimate Systems (EUR +28,001 thousand) and in theSolar Systems (EUR +14,754 thousand) segments. Thesecond table shows inventories broken down accordingto category.


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Inventories by category in EUR ‘000 2006 2005

Raw materials and supplies 31,808 9,648

Work in progress 9,008 2,966

Finished goods 43,393 16,911

Total 84,209 29,525

Of which serving as security for loans/credit lines 74,883 19,394

8 Trade receivables

Trade receivables in EUR ‘000 2006 2005


Receivable from investments accounted for using the equity method 2 2

Receivables overdue by more than 90 days 7,304 2,635

Reductions for impairment (2,570) (1,126)

Total 79,352 27,205

Term to maturity

Within one year 78,931 27,205

More than one year 421 0

Total 79,352 27,205

Of which billed in

EUR 68,984 23,377

Other currencies 10,368 3,828

Total 79,352 27,205

Of which serving as security for loans/credit lines 48,858 8,624

Adequate provisions for losses on accounts receivablehave been made on a case by case basis to cover identi-fied risks. The rise in accounts receivable is attributable inthe main to acquisition-driven growth particularly in theClimate Systems segment (EUR +29,242 thousand) andthe Solar Systems segment (EUR +4,654 thousand). As aresult of the large number of customers in various cus-tomer groups and their international structure, the creditrisk of accounts receivable is diversified. Accounts receiv-able written off during the year totalled EUR 924 thou-sand in 2006 (previous year EUR 53 thousand). Changestotalling EUR 1,273 thousand (previous year EUR 355thousand) in the reductions for impairment applied wererecognised in the income statement.

9 Cash and cash equivalents and securities

Cash and cash equivalents in EUR ‘000 2006 2005

Cash in hand 35 15

Demand deposits 20,013 16,188

Total 20,048 16,203

Securities in EUR ‘000 2006 2005

Securities 0 1,560

The securities comprised current investments of surplusliquidity in money market securities.

10 Shareholders’ equity

GeneralThe issued capital of CENTROTEC Sustainable AG totalsEUR 8,204 thousand. It is fully paid in. With additionalpaid-in capital of EUR 23,476 thousand, other retainedearnings of EUR 45,472 thousand and net income of EUR14,316 thousand, the group had shareholders’ equityallocable to the shareholders of CENTROTEC SustainableAG of EUR 91,468 thousand at December 31, 2006. Therise in the shareholders’ equity stems from the consoli-dated net income, and from payments received from theexercising of stock options in 2006 resulting in an increasein the issued capital and the additional paid-in capitalfrom the premiums paid in, as well as from changes fromcurrency translation and from interest hedging.

Proposal for the distribution of profitAccording to German commercial and stock corporationrequirements, the separate financial statements of thegroup parent CENTROTEC Sustainable AG constitute thebasis for the appropriation of profits for the 2006 finan-cial year. A distributable dividend therefore depends,among other things, on the retained earnings reportedby that company in the separate financial statements atDecember 31, 2006. It is proposed to carry forward thenet income reported there and the retained earnings ofEUR 6,654 thousand for new account.

Treasury stockA total of 6,040 treasury shares were held in the financialyear. These shares represent 0.074 % of capital stock.These shares were held at the parent as treasury sharesas at the balance sheet date. No treasury stock wasacquired or sold during the financial year. In accordancewith the resolutions adopted by the Shareholders’Meetings on May 11, 1999, which were amended by theresolutions adopted by the Shareholders’ Meeting onMay 18, 2000, May 17, 2001, May 26, 2004 and June 1,2005 and extended for the last time to date on May 23,2006, the company is entitled to buy back treasury stockrepresenting up to 10 % of the capital stock at the timeof the authorisation becoming effective. This authorisationis valid until November 22, 2007. The price for the acqui-sition of these shares may not be more than 15 % higheror more than 15 % lower than the closing price of sharesof the same class and features at the Frankfurt StockExchange on the ten trading days preceding the acquisi-tion. The Management Board is authorised to offer all orsome of the shares thus acquired to third parties in (part)payment of the acquisition of companies or investmentsin companies, excluding the shareholders’ right of sub-scription. The Management Board is furthermore autho-rised to retire the company’s treasury stock without the

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need for a further resolution to be adopted by the Share-holders’ Meeting. The retirement may be restricted to partof the purchased shares.

Approved capitalIn addition there exists approved capital. The Manage-ment Board is authorised, with the approval of theSupervisory Board, to increase the company’s capitalstock by up to EUR 3,833,987 (approved capital) by April30, 2008 through the issue of new individual share cer-tificates in return for cash or non-cash contributions onone or more occasions. The new shares are to be accept-ed by banks, with the obligation to offer them for sub-scription to the shareholders. The Management Board is,however, authorised to exclude residual amounts fromthe shareholders’ subscription right. The ManagementBoard is also authorised to exclude the right of subscrip-tion in order to issue new shares in return for non-cashcontributions. Moreover, the Management Board is enti-tled pursuant to Section 186 (3), fourth sentence ofGerman Stock Corporation Law (AktG) to exclude theshareholders’ right of subscription for up to EUR 766,797of the approved capital on one or more occasions if theissuing price of the new shares is not significantly lower,but in no case more than 5 % lower, than the marketprice of the shares already listed at the time when theissuing price is finally fixed by the Management Board,which should be as close as possible to the placement ofthe shares.

Conditional capital and share-based paymentsThere exists conditional capital I. At the reporting date,this totalled EUR 230,878 pursuant to the resolutionadopted by the Shareholders’ Meeting of May 28, 2002.The Management Board was authorised to issue warrantsfor subscription to new bearer shares in the companyuntil December 31, 2004, on one or more occasions.Employees, managing directors and Management Boardmembers of the company and of its affiliated companiespursuant to Section 17 of German Stock CorporationLaw are entitled to subscribe. New shares are createdwhere the options are exercised. These pay dividendsfrom the beginning of the financial year in which theoptions are exercised. The conditional capital I is dividedinto 230,878 individual share certificates.

There exists conditional capital II. At the reporting date,this totalled EUR 274,407 pursuant to the resolutionadopted by the Shareholders’ Meeting of June 1, 2005.The Management Board is authorised to issue warrantsfor subscription to new bearer shares in the companyuntil December 31, 2011, on one or more occasions.Employees, managing directors and Management Board

members of the company and of its affiliated companiespursuant to Section 17 of German Stock CorporationLaw are entitled to subscribe. New shares are createdwhere the options are exercised. These pay dividendsfrom the beginning of the financial year in which theoptions are exercised. The conditional capital II is dividedinto 274,407 individual share certificates.

CENTROTEC uses share-based payment transactionscounterbalanced by equity instruments. The share-basedpayment agreements are based on corresponding resolu-tions by Shareholders’ Meetings. There accordingly exist-ed conditional capital of EUR 505,285 at the reportingdate of December 31, 2006, divided into 505,285 indi-vidual share certificates. The Management Board isauthorised to issue stock options for subscription to newbearer shares in the company until December 31, 2011(on one or more occasions); the Supervisory Boarddecides on their granting to Management Board mem-bers. Employees, managing directors and ManagementBoard members of the company and of its affiliated com-panies pursuant to Section 17 of German Stock Corpo-ration Law are entitled to subscribe, on the basis of indi-vidual stock option agreements.

Exercise of the options is linked to the fulfilment ofindividual performance targets. Employees, managingdirectors and Management Board members must achieveindividually agreed targets. Attainment of the targetleads to a final, irrevocable option right. The vesting peri-od until the earliest possible time the options may beexercised is two years from the date of issue of theoption. This simultaneously necessitates a two-year peri-od of service, so that the option does not lapse. Themaximum term of the options is seven years from thetime of their granting. Option rights may only bebequeathed to a limited extent; in general, they are how-ever neither inheritable nor transferable. In the event oftermination of employment for reasons other than age,any options that cannot be exercised lapse immediately(without compensation) or those that may be exercisedlapse sooner.

Exercise of options is moreover tied to the fulfilmentof market conditions. They may accordingly only be exer-cised if the market price on the day on which the optionsmay first be exercised or at a later time during the termof the options has risen by 30 % on the strike price.Exercise is moreover permitted only during certain peri-ods of the year. These exercise periods run from the thirdto the eighth stock market trading day following the dayon which annual and quarterly results are announced,and following the day on which it is announced thatannual press conferences have been held. New shares arecreated at the time an option is exercised. The new


115

shares pay dividends from the beginning of the financialyear in which the options are exercised. The strike priceper share (subscription price) to be paid upon exercisingof the options is currently 90 % of the average closingprice on the Frankfurt am Main stock exchange, calculat-ed from the prices on the 30 trading days preceding theday of issue of the option but at least the nominal EUR 1.

The weighted average fair value of the options issuedin 2006 is EUR 4.11 per option for Management Boardmembers and EUR 3.69 for employees (2005: EUR 3.14and EUR 2.76 respectively, per option). The options weremeasured using the Black-Scholes formula, and resultswere adjusted to reflect the discrepancies between theabove option schemes and the assumptions in the Black-Scholes model. The measurement model took particularaccount of factors and assumptions regarding exerciseprices, terms, prices, volatilities, dividends and risk-freeinterest rates, exercise deadlines and features.

The following adjustments were moreover made: adiscount of 15 % (2005: 15 %) was applied to reflectthe fact that no perfect market conditions exist (forexample, lack of tradeability, hedging, no short selling,transaction costs). As the options cannot be exercised ifthe specified threshold (performance target) is notreached, a discount of approx. 35 % (2005: approx. 34 %) was applied, derived from the probability of thethreshold not being reached, the latter in turn being calculated on the basis of volatility. A discount of 0.5(2005: 0.5 %) was applied for the possibility of theSupervisory Board capping the value of the option. Thevolatility of CENTROTEC shares is falling thanks to thegrowing number of shares and higher turnover of shares,among other reasons. The expected value for 2004 was

based on 39 % p.a. and the value for subsequent yearsbased on 35 %. The assumed volatility over the term ofthe option is lower, and is estimated at 34 %. Volatilitydescribes the intensity of fluctuation in the share pricearound its median over a fixed period. It was assumedthat no divided payment would be made. The risk-freeinterest rate is between 3.0 % and 4.1 % depending ontranche of options, and is based on risk-free alternativeinvestments in Germany of comparable term.

The actual period for which options are held has inthe past become much shorter than the maximum sevenyears, not least by virtue of the positive price develop-ment. Because of this, and based on similar experience atother companies, shorter terms have been assumed (Man-agement Board members 3 1/4 years and other optionholders 2 3/4 years). Levels of target attainment and fluc-tuation rates among option holders were moreover takeninto account when determining the underlying numberof options. As soon as the exact number of vested optionsin a tranche is determined, the anticipated option figuresare adjusted to bring them in line with those that havebecome vested. As the consideration received is in essencenot considered for purposes of recognition as assets, it isrecognised overall as an expense. A personnel expenseamounting to EUR 121 thousand arose in the 2006financial year from the stock option schemes describedhere (previous year: EUR 211 thousand). A further per-sonnel expense of EUR 139 thousand (2005: EUR 54thousand) is expected in subsequent periods from thestock option schemes outstanding at December 31.

The following table shows the stock option trancheswith the number of options that may still be exercised:

Stock option Options at Options attranches Date of issue Exercise price Date of expiry end 2006 end 2005 Change

Granted 1999 01/07/1999 7.39 30/06/2006 0 0 0

Granted 2000 10/01/2000 14.35 09/01/2007 0 4,501 -4,501

Granted 2001 02/05/2001 10.20 01/05/2008 14,877 46,376 -31,499

Granted 2002 10/04/2002 11.35 09/04/2009 27,384 27,384 0

Granted 2003 15/04/2003 4.00 14/04/2010 93,297 166,114 -72,817

Granted 2004 13/01/2004 8.70 12/01/2011 84,680 147,181 -62,501

Granted 2005 01/06/2005 19.70 31/05/2012 78,840 100,000 -21,160

Granted 2006 13/09/2006 21.20 12/09/2013 91,000 - 91,000

Total 390,078 491,556 (101,478)

IFRS 2 was applied to the tranches granted from 2003.The following table indicates additions and disposals of

options outstanding, together with the average exerciseprices of movements and reporting-date totals.

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11 Minority interests

This item in essence comprises the shareholders’ equityallocable to the minority interests of the CENTROSOLARGroup of EUR 55,050 thousand (previous year EUR 27,305thousand; including outside shares in the consolidatedshareholders’ equity of the fully consolidated subsidiariesof CENTROSOLAR AG). The outside shares in the consoli-dated shareholders’ equity moreover include the otherequity shares (EUR -205 thousand) of the companies inother segments that are fully consolidated but not fullyowned by CENTROTEC.

12 Pension accrual

Employees’ entitlements to defined benefit plans arebased on statutory or contractual arrangements anddirect pledges. The pension liabilities in Germany stem toa substantial degree from benefit obligations based oncontractual arrangements. These constitute defined bene-fit obligations by German companies, based substantiallyon benefit arrangements of the Essen Federation and onguidelines on the granting of company pensions and adefined benefit scheme. The obligations comprise thepayment of retirement benefits, payable upon reachingpensionable age. The level of the payments depends inessence on the number of years’ service completed andthe pensionable salary prior to the start of benefit pay-ments. The benefit obligations based on these contractu-

Total optionsunits/price in EUR Options Avg. exercise price Options Avg. exercise price

Start of year 491,556 9.62 546,235 6.79

Granted 91,000 21.20 100,000 19.70

Forfeited 21,160 19.70 10,640 8.70

Exercised 171,318 7.13 144,039 5.70

Lapsed 0 0.00 0 0.00

End of year 390,078 12.96 491,556 9.62

of which exercisable 220,238 6.17 244,375 6.19

al arrangements relate principally to the existing obliga-tions of one domestic company which was included inthe Consolidated Financial Statements for the first time inthe 2006 financial year. The plans based on statutoryarrangements largely consist of benefit obligations for alimited number of management employees in theNetherlands, who will receive life-long retirement benefitpayments from the time their employed relationship ceas-es as a result of reaching pensionable age. In other coun-tries, there exist commitments to a minor extent.

Retirement benefits in Germany are financed exclu-sively by means of pension accruals. The benefit obliga-tions in the Netherlands are financed mainly by means ofexternal pension funds.

The accrual for pension plans recognised in the bal-ance sheet corresponds to the present value of the shareof retirement benefits earned at the balance sheet date,taking account of future increases (defined benefit obli-gation, DBO) less the fair value at the balance sheet dateof the external plan assets, after adjustment for accumu-lated, unrecognised actuarial gains and losses andunrecognised past service cost.

The pension accrual was calculated using the project-ed unit credit method pursuant to IAS 19, which alsotakes account of anticipated pay and retirement benefitincreases. The extent of the accrual has been calculatedusing actuarial methods and the latest mortality tables(Germany: G. Heubeck 2005; Netherlands: “Collectief1993”).

2006 20052006 2005

Principal actuarialassumptions in %

Germany Netherlands Germany Netherlands

Pensionable age (years) 60 – 63 65 60 – 63 65

Discount rate 4.6 4.5 4.0 4.0

Assumed salary increases 1.5 1.8 1.5 1.8

Assumed pension increases 1.25 3.0 1.0 3.0

Employee turnover 2.0 – 4.5 2.1 4.5 2.2

Expected return on plan assets - 4.5 - 4.0

2006 20052006 2005


117

Discounting has been based on an interest rate in linewith a matching average interest rate for high qualitycorporate bonds. Values for statutorily due terminationpayments upon taking retirement are also included.

Retirement benefit paymentsin EUR ‘000 2006 2005

Fund-financed obligations 2,061 1,552

Fair value of plan assets (1,558) (1,575)

Subtotal 503 (23)

Present value of non-fund-financed obligations 23,158 1,556

Unrecognised actuarial gains (1,473) (308)

Pension accrual reported 22,188 1,225

Development in external plan assetsin EUR ‘000 2006 2005

Plan assets at January 1 1,547 1,536

Actual return on plan assets 76 73

Contributions to the plan (65) (62)

Plan assets at December 31 1,558 1,547

The interest expense for pensions is shown under interestexpense.

Pension costin EUR ‘000 2006 2005

Current service cost 374 111

Interest expense 280 91

Expected return on plan assets (66) (73)

Actuarial gains recognised in the current year (13) (60)

Total 575 69

The amounts recognised in the balance sheet developedas follows:

Development in accrualin EUR ‘000 2006 2005

At start of financial year 1,225 343

From commitments taken on through corporate acquisitions 20,563 820

Total expense recognised in the income statement 575 69

Payments made (175) (7)

At end of the financial year 22,188 1,225

13 Accruals

The following table shows the movements in accruals inthe year under review:

Addition AccrualsAccruals of acqui- usedin ‘000 EUR 31/12/2005 sitions Added Used Reversed 31/12/2006 <1 year

Warranty obligations 2,106 7,465 2,749 (1,257) (465) 10,598 1,071

Claims and court processes 50 1,095 67 (11) (13) 1,188 40

Accruals for long-service payments 478 0 0 (6) (30) 442 15

Other personnel-related accruals 400 1,252 65 (289) (137) 1,291 200

Ground remediation 160 0 0 0 0 160 0

Miscellaneous accruals 254 640 308 (311) (121) 770 462

Total 3,448 10,452 3,189 (1,874) (766) 14,449 1,788

A distinction between short-term and long-term accrualswas made on the balance sheet, based on the estimatedtiming of their use. The accrual for warranty obligationsis calculated for each type of revenue according to valuesindicted by experience, as well as for specific individualcases. The warranty obligations changed largely as aresult of acquisitions and were created for general andindividual warranty risks on the basis of various warrantyfactors. The warranty periods generally last between 2 and 6 years, possibly varying upwards for goodwill rea-sons. Around EUR 1 million in additions relates to oneguarantee issue in France from equipment supplied.

The personnel-related accruals largely relate to adjust-ment measures agreed and were calculated on the basis

of court settlement proposals or settlement formulasagreed with individuals or works councils. The personnel-related accruals include EUR 220 thousand for top-upamounts from potential obligations in respect of partialretirement arrangements, which were discounted at 4.6 % and recognised as a liability at their present value.The accruals for long-service payments take account ofpayments made after employment by the company for a specified number of years. They were discounted at 4.5 % and recognised as a liability at their present value.Ground remediation relates to the obligation to performremediation on a piece of land acquired.

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14 Financial debt

The following table shows bank liabilities and other loans,broken down according to real estate loans, generalcredit facilities and other loans.

Liabilities Total Of which Of which Of whichmaturities schedule outstanding maturity less maturity maturity more Interestin ‘000 EUR amount than 1 year 1 to 5 years than 5 years rate spread

2005

Real estate loans 18,896 2,308 8,678 7,910 3.5 – 6.7 %

Other loans 31,256 7,652 21,852 1,752 3.1 – 6.7 %

General credit facilities 12,208 12,208 0 0 3.0 – 10.5 %

Finance leases 171 66 105 0

Total 62,531 22,234 30,635 9,662

2006

Real estate loans 18,651 1,898 8,405 8,348 3.5 – 6.7 %

Other loans 133,649 22,412 64,131 47,106 3.5 – 8.0 %

General credit facilities 25,778 25,778 0 0 3.4 – 10.5 %

Finance leases 1,286 258 877 151

Total 179,364 50,346 73,413 55,605

Carrying amounts of liabilities denominated in the following currencies in EUR ‘000 2006 2005

EUR 177,224 61,328

DKK 2,119 1,146

GBP 21 57

Total 179,364 62,531

In the case of the real estate loans, the fixed interest ratesin the individual loan agreements expire at various timesbetween 2007 and 2018, with the result that the risk isadequately diversified. The same applies to the otherloans, where the fixed interest rates expire between 2005and 2021. The value of financial debt discounted withthe zero-coupon swap rates is approximately EUR 5.3 mil-lion (previous year approx. EUR 0.6 million) above thecarrying amounts. The other loans include a variable creditfacility pledged in the longer term.

The following table indicates the level of securities furnished:

Securities for liabilities to creditinstitutions in EUR ‘000 2006 2005





Other assets 5,164 121

Total 199,820 68,422

Interestpledged

Securities for liabilities to credit (percentageinstitutions in 2006 in EUR ‘000 of share)

Möller GmbH 100 %

Möller Medical GmbH & Co. KG 100 %

Brink Climate Systems B.V. 100 %

Ned Air Holding B.V. 100 %

Ubbink UK Ltd. 100 %

Ubbink France S.A.S. 100 %

Ubbink N.V./S.A. 100 %

Innosource Holding B.V. 100 %

Centrotherm Systemtechnik GmbH 90 %

CENTROSOLAR AG 21 %

Ubbink B.V. has submitted a settlement guarantee for abank to the value of EUR 1,926 thousand (previous yearEUR 2,364 thousand), covering loan obligations of UbbinkFrance from the construction of the new building inFrance. Ubbink B.V. has in addition submitted settlementguarantees to banks for its subsidiaries.

Financial derivatives have been concluded to hedgethe interest rate risk. Swaps, Caps and floors are thehedging instruments used. The following table shows thecontracts concluded:


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To hedge future purchases of materials based on USD,forward contracts maturing no later than July 2007 wereconcluded. At the reporting date, the market value of lia-bilities from derivative financial instruments was EUR 34thousand. The losses of EUR 2 thousand resulting fromthese were included in the income statement.

Market values represent the values at the balance sheetdate without regard to the underlying transaction andwere calculated by credit institutions on the basis of mar-ket models. Changes in value of interest-oriented cashflow hedges were distinguished within equity, with noeffect on income. The caps are reported under other non-current assets, and the floor under other non-current liabilities. CENTROTEC pursues the strategy of linking itsfinancing instruments and interest rate hedging instru-ments. The individual loans are increasingly being takenout at variable interest rates. CENTROTEC currently steersthe interest rate risk centrally by means of derivatives(swaps, caps and floors). By agreement with the Super-

visory Board, the Management Board has defined targetstructures: the aforementioned constellation of derivativesmeans that CENTROTEC is within its target structure.

Finance leases: Leasing arrangements are enteredinto only to a limited extent. The decision on whether tofinance an investment measure by bank loan or by leaseagreement is reached on a case-by-case basis and dependsprimarily on the prevailing terms available at the time ofdeciding. The majority of finance lease agreements pur-suant to IAS 17 (Finance Leases) incorporate a purchaseoption at a price of either EUR nil or well below theanticipated market value. It is therefore to be expectedthat the assets in question will pass into the ownership ofthe CENTROTEC Group at the end of the lease’s term.The following tables show the capital lease obligationswith corresponding discounted and nominal leasinginstalments including the interest component, brokendown according to the term and category of the leasedarticles.

Financial derivatesin EUR ‘000 Cap-/ Interest rate hedging Contract Market value Market value floor rateAsset volume Cost 31/12/2006 31/12/2005 Maturity Basis rate

Cap 3,000 73 7 10 until 2011 5.00 %

Cap 3,000 21 0 0 until 2007 4.25 %

Cap 5,000 72 88 45 until 2010 3.50 %

Cap* 15,000 24 33 - until 2009 4.25 %

Cap* 21,500 170 213 - until 2013 4.25 %

Swap* 21,500 0 181 - until 2013 3.83 %

LiabilityFloor 3,000 38 (3) (27) until 2011 2.75 %

Currency hedging Forward rate

Forward contracts 3,233 40 (39) - 02 to 04/2007 1.2783

Forward contracts 1,867 (4) 5 - 05 to 07/2007 until 1.3350

* armortising

Financial leases Of which maturity Of which maturity Of which maturity (nominal) in EUR ‘000 Total less than 1 year 1 to 5 years more than 5 years

2005

Technical equipment and machinery 161 50 111 0

Other equipment 18 18 0 0

Total 179 68 111 0

Of which interest portion 8 2 6 0

Present value 171 66 105 0

2006

Technical equipment and machinery 1,436 246 982 208


Total 1,528 271 1,049 208


Present value 1,286 258 877 151

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The following table shows the non-balanced operatinglease obligations (operational leasing) at the balancesheet date, with the corresponding lease instalments

broken down by maturity and minimum remaining period,as well as by category of the leased articles.

Operational leasing Of which maturity Of which maturity Of which maturityin EUR ‘000 Total less than 1 year 1 to 5 years more than 5 years

2005

Property 4,463 974 2,599 889

Vehicles 1,906 791 1,115 0



Total 6,481 1,823 3,768 889


Present value 5,878 1,768 3,422 688

2006

Property 7,191 1,659 4,274 1,258

Vehicles 4,803 1,351 3,452 0



Total 12,592 3,295 8,039 1,258

Of which interest portion 1,906 159 1,361 386

Present value 10,686 3,136 6,678 872

15 Other liabilities

The following summary shows the movements in otherliabilities, which were EUR 26,203 thousand higher at thebalance sheet date compared with the previous year. Thefollowing table shows the breakdown line by line:

Other liabilities in EUR ‘000 2006 2005

Other non-current liabilities

Outstanding purchase price payments for acquisitions 8,237 7,601

Miscellaneous other liabilities 215 213

Total non-current 8,452 7,814

Other current liabilities

Vacation and overtime 7,960 2,276

Outstanding invoices 2,981 1,527

Employee remuneration 2,975 901

Bonus payments to customers 1,599 886

Taxation and social premiums 4,245 2,339

Interest deferrals 910 56

Advances received 2,896 740

Credits outstanding 1,031 19

Outstanding purchase pricepayments for acquisitions 5,618 3,785

Partial retirement 2,088 167

Sales tax 3,130 1,328

Miscellaneous other liabilities 5,516 1,360

Total current 40,949 15,384


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The non-current outstanding instalments for acquisitionsrelate to the acquisition of Solarsquare AG for EUR8,237 thousand and will be paid in ten regular instal-ments from 2007.

The actuarially determined obligations for partial retire-ment were discounted at 4.5 % and recognised as a lia-bility at their present value. The liabilities, which relate tocurrent partial retirement obligations, were netted againstassets from securities amounting to EUR 1,262 thousandwhich were via a trusteeship in order to fulfil legal require-ments in respect of statutory insolvency insurance forpartial retirement obligations entered into. The miscella-neous other current liabilities include liabilities for pledgesand audit costs, among other things.

16 Deferred tax liabilities

The deferred tax liabilities pursuant to IAS 12 are calcu-lated on the difference between the measurements ofassets and liabilities in the IFRS balance sheet and the taxbalance sheet. These result often from continued fairvalue adjustments in the context of company mergers.The net values represent the total of the anticipated net-ted values of deferred tax assets and liabilities of a groupcompany in respect of a taxation authority.

2006 2005 2006 2005

Reversal expected within 12 months 8,859 133 4,023 126

Reversal expected after more than12 months 23,171 6,260 22,252 5,136

Total 32,030 6,393 26,275 5,262

GrossDeferred tax liabilities in EUR ‘000 Net

17 Other operating income

The breakdown of other operating income is as follows:

Other operating income in EUR ‘000 2006 2005

Costs passed on/costs refunded 1,633 712

Reversal of reductions for impairmenton receivables 799 16

Liquidation of accruals 766 1,245

Income from production of customer tools 629 137

Government grants 529 345

Sales proceeds from the disposal of fixed assets 528 136

Insurance and other compensation 382 281

Foreign exchange gains 174 8

Compensation claims, receivables from business partners 0 138

Other 1,286 512

Total 6,726 3,530

In the further breakdown of other operating income, theprior-year figures were moreover adjusted for greaterease of comparison. The compensation comprises pay-

ments from insurers and other compensation received orclaimed. The receivables from business partners includedeferred income from contract activity.

Government grantsin EUR ‘000 2006 2005

Personnel-related 241 58


Total 529 345

Furthermore

Distinguished on the assets side 117 0

The government grants include green tax rebates due tothe power used at production plants and investment sub-sidies from the EU regional development fund. In thereporting year, the group received unconditional govern-ment grants in the Netherlands, for example, totallingEUR 110 thousand (previous year EUR 216 thousand) forresearch and development activities. Conditions thatwere attached to these payments have been fulfilled asat the balance sheet date. Where the payments were inconnection with capitalised development costs, they havebeen distinguished on the assets side.

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19 Employee benefit costs and employee total

Employee payments in EUR ‘000 2006 2005

Wages and salaries 58,339 31,672

Social insurance 7,128 4,370

Expenses for defined benefit plans 361 51

Expenses for defined contribution plans 4,960 2,725

Share-based payment 324 262

Total 71,112 39,080

of which

Restructuring expense 107 166

Personnel expenses ratio (total/revenue) 17.9 % 25.6 %

Average At reporting day Average At reporting day

FTE 1,691 2,745 1,000 1,124

Individuals 1,768 2,842 1,048 1,208

2006Employee total 2005

20 Other operating expenses

Other operating expenses rose by EUR 32.5 million largelyas a result of acquisitions, but by a lower rate than rev-enue. In the further breakdown of other operating ex-penses, the prior-year figures were adjusted for greaterease of comparison. A retrograde inquiry of in the expensesfor guarantees was not possible. The item Miscellaneousincludes reductions for impairment to claims for substi-tute delivery from one supplier in the Solar Systems seg-ment, for which an item amounting to EUR 1,794 thou-sand had been created due to quality problems and over-

stepped delivery schedules. Various items contain costsfor the switch by the subsidiary CENTROSOLAR AG to thePrime Standard trading segment, which amounted toEUR 630 thousand. The expenses are included in full inthe income statement, as the switch of trading segmentdid not involve a capital increase. Marketing and promo-tional costs on the one hand arise in connection with thestrengthening and nurturing of existing customer rela-tionships and products; on the other hand expenses areincurred in placing technical innovations on markets orentering new geographical regions.

Other operating expenses are broken down as follows:

18 Cost of purchased materials and services as well as change in inventories

Cost of purchased materials in EUR ‘000 2006 2005

Cost of materials 246,461 65,839

Cost of services 10,542 3,225

Supplier discounts (1,170) (695)

Total 255,833 68,369

Change in inventories of finished goods and work in progress (10,511) 1,454

Adjusted cost of purchased materials 245,322 69,823

As well as the cost of materials, the change in inventoriesincludes personnel expense and other expense compo-nents. However, the cost of materials component is gen-erally the largest single item.


123

Other operating expenses in EUR ‘000 2006 2005

Promotional costs 8,454 2,867

Travel expenses and fleet 4,832 2,475

Outward freight 4,763 4,170

Energy 3,927 1,586

Legal and consultancy costs 3,524 1,074

Maintenance costs 3,206 1,758

Rent for buildings 2,764 1,030

Sales commissions 2,617 1,213

Impairment of inventories 2,002 208

Guarantee expenses 1,915 -

Packaging 1,891 910

Tool costs for small tools 1,571 636

Other personnel expenses 1,536 985

Insurance 1,455 787

Disposal of assets 1,000 64

IT expenses 955 831

Communication 846 421

R&D related expenses 721 96

Bad debt losses and impairment 1,597 11

Office materials 529 212

Building services 488 258

Exchange rate losses 386 37

Patent protection 385 405

Waste disposal 360 181

Leasing/other rent 347 233

Investor/stakeholder relations 332 84

Other taxes 329 198

Membership fees (e.g. Chamber of Commerce) 295 166

Miscellaneous 4,656 2,265

Total 57,683 25,161

21 Interest income and expense

Interest income and expense is broken down as follows:

Financial result in EUR ‘000 2006 2005

Interest income 590 194

Interest expense on loans (5,949) (2,276)

Other interest expenses (278) (71)

Total (5,637) (2,153)

of which

Interest rate hedging 6 14

Retirement benefit obligations 214 18

The interest expense relates in the main to the credit lia-bilities of the CENTROTEC Group.

22 Result from transactions with minority interests

Transactions that were recognised in the ConsolidatedFinancial Statements using the modified parent companymodel resulted in gains, as these transactions are bookedto income. These gains arise from the dilution of theinvestment in CENTROSOLAR AG and result from thetransactions shown in the table:

Result from transactions with minority interests in EUR ‘000 2006

Solara 2,207

CENTROSOLAR capital increase for cash 1,432

Biohaus 4,211

Solarstocc 2,022

Total 9,872

The gains reported reflect the net result of two effects.On the one hand, minority interests make a contributionto CENTROSOLAR AG in the form of a contribution(including in kind). This initially increases the entire share-holders’ equity of the CENTROSOLAR sub-group. Inreturn, however, the minority interests share in the equitythat was hitherto allocable to the existing shareholders.As existing shareholders do not participate in the capitalincrease, they surrender equity portions that were hither-to allocable to them to the minority interests. Since again arises, this means that the minority shareholders arecontributing a higher value, i.e. a premium, comparedwith the equity portion hitherto allocable to existingshareholders that is being surrendered to minority inter-ests.

23 Income tax expense

Income tax expense is composed as follows:

Income tax expense in EUR ‘000 2006 2005

Income tax expense for the currentfinancial year 6,235 4,860

Income tax expense for previous financial years 125 (738)

Tax deferral (4,807) 402

Total 1,553 4,524

124


The taxes for previous financial years include EUR 0 thou-sand (previous year EUR 99 thousand) for tax losses thatcan be carried back.

The relationship between actual tax expense andanticipated tax expense is as follows:

Reconciliation of actual tax expense with anticipated tax expense in EUR ‘000 2006 2005

Result before income taxes (EBT) 16,851 22,477

Less profit from transactions with minorities (9,872) (6,819)

Less result from investments recognised using the equity method (91) (113)

Adjusted result before income taxes 6,888 15,545

Anticipated tax expense (on basis of respective company tax rates) 2,274 5,226

Tax effect from non-deductible expenses 420 140

Tax effect from non-taxable income (81) (82)

Tax effect from goodwill amortisation 424 (102)

Realisation of tax losses notpreviously recognised (42) (263)

Tax effect from changes in tax rates (1,610) (22)

Adjustments from previous financial years 168 (373)

Total 1,553 4,524

The tax load ratio fell from 29.1 % to 22.5 % (based onthe adjusted result before income taxes). This is largelyattributable to the fact that the transfer of the registeredoffice of a subsidiary resulted in a change in the tax rate(EUR 1,550 thousand deferred tax income) and also thatgoodwill amortisation of EUR 2,001 thousand is not de-ductible for tax purposes. If the tax expense were increasedby the amount of EUR 1,550 thousand to EUR 3,103thousand and the adjusted result before taxes were in-creased by the goodwill amortisation to EUR 8,889 thou-sand, the effective tax rate would be 34.9 %. The antici-pated average tax rate fell 33.6 % in the previous year to33.0 % in the year under review as a result of further fallsin tax rates and a higher share of profits in countries withlower tax rates (in particular the Netherlands, Belgium).

Deferred tax in EUR ‘000 2006 2005

Deferred tax assets

Unused loss carryforwards 3,062 2,191

Pension and similar obligations 2,810 230

Other accruals 1,913 267

Stock options 277 404

Other liabilities 258 302


Inventories 192 8

Trade receivables 93 18

Intangible assets 234 47

8,980 3,783

Deferred tax liabilities



Inventories 796 122

Other liabilities 607 0

Other accruals 132 0


32,030 6,393

Deferred tax, balance (liabilities) 23,050 2,610

Deferred tax by country(reported net) in EUR ‘000 2006 2005

Germany 21,618 (1,635)

Switzerland 1,172 3,728

Denmark 218 174

Belgium 142 (5)

Netherlands 63 559

France (42) (34)

United Kingdom (86) (164)

Miscellaneous (35) (13)

Deferred tax, balance (liabilities) 23,050 2,610

The increase in Germany is largely attributable to deferredtax from assets identified in the context of purchase pricedistribution. The lower figure in Switzerland is the resultof a tax rate change following relocation within Switzer-land.


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24 Profit attributable to minority interests

The other shareholders of CENTROTEC are entitled to ashare of gains and losses, as stated separately underminority interests. The share of losses amounts to EUR163 thousand at the reporting date, and the share ofgains to EUR 1,145 thousand, resulting in the net posi-tion of a profit allocation of EUR 982 thousand (previousyear loss allocation of EUR 5 thousand).

25 Earnings per share

The earnings per share (basic) and the diluted earningsper share are illustrated in the following table. The basicearnings per share are calculated on the basis of theprofit or loss for the period attributable to the sharehold-ers of CENTROTEC Sustainable AG in relation to theweighted number of shares issued throughout the year,less treasury stock (6,040 shares).

Earnings per share

Actual Pro forma* Actual Pro forma*

Consolidated net income of shareholders in EUR ‘000 14,316 4,444 17,958 11,139

Weighted average ordinaryshares issued, ‘000 8,134 8,134 7,955 7,955

Basic earnings per share in EUR 1.76 0.55 2.26 1.40

* Comparative figure for consolidated net income excluding gain from transactions with minorities

2006 20052006 2005

The diluted figure includes potential shares from stockoptions in the number of shares to be taken into account,over and above the number of shares in the basic figure.The diluted earnings per share are based on the assump-tion that all stock options granted through stock optionschemes that could be exercised if the balance sheet datewere the end of the contingency period had actuallybeen exercised. Due to the fact that the exercising ofstock options is tied to the fulfilment of individual andcorporate objectives, it is expected that only a smallernumber of options than the maximum number grantedwill be exercised. The dilutive effect is calculated on theassumption that the issue of shares on the basis ofpotential exercise of options is made at fair value, beingthe average quoted price of the shares during the finan-cial year in question. The number of dilutive options thusdetermined is treated as an issue of ordinary shares forno consideration. Such ordinary shares generate no pro-ceeds and have no effect on the net profit attributable toordinary shares outstanding. Such shares are dilutive andare consequently added to the number of ordinary sharesoutstanding in the computation of diluted earnings pershare.

The stock option scheme of CENTROSOLAR, as well asagreements which are fulfilled in the form of ordinaryshares in CENTROSOLAR AG, likewise have a dilutiveeffect. This dilutive effect is initially included in the calcu-lation of the diluted earnings of CENTROSOLAR and thentaken into account in the calculation for CENTROTEC.218,000 options were issued at the end of December2006. These stock options for subscription to new bearershares in CENTROSOLAR AG were issued by the Super-visory Board of CENTROSOLAR to the Management Boardmembers and employees of companies of Solar Systems.They may be exercised no earlier than December 21, 2008.The conditions are comparable to those of the CENTRO-TEC stock option scheme. No other individual targetswere specified in the previous year apart from the 30 %threshold. The exercising of the options granted in 2006is also tied to further personal performance targets overand above the threshold for exercising already reflectedin the value of each option. These comprise revenue andEBITDA targets for the options issued in 2006. The weight-ed average fair value of the options issued in 2006 is EUR2.34 per option (2005: EUR 1.33 per option). The calcu-lation is based on the method described above under

126


Shareholders’ equity. A personnel expense amounting toEUR 203 thousand arose in the 2006 financial year fromthe stock option schemes described here (previous year:EUR 51 thousand). A further personnel expense of EUR

387 thousand (2005: EUR 352 thousand) is expected insubsequent periods from the stock option schemes out-standing at December 31.

Stock optiontranches Date of Exercise Date of Option OptionCENTROSOLAR issue price expiry at end 2006 at end 2005 Change

Granted 2005 26/09/2005 9.50 25/09/2012 303,000 303,000 0

Granted 2006 20/12/2006 8.40 19/12/2013 218,000 - + 218,000

Total 521,000 303,000 + 218,000

In the event of the options being exercised, they willhave an effect on the ownership interest of CENTROTECin CENTROSOLAR AG, together with its subsidiaries.

Diluted earnings per share

Actual Pro forma* Actual Pro forma*

Consolidated net income of shareholders

in EUR '000 14,316 4,444 17,958 11,139

Weighted average ordinary shares issued, ‘000 8,134 8,134 7,955 7,955

Assumed exercise of stock options granted(weighted average) 255 255 346 346

Weighted average diluted ordinary shares issued, ‘000 8,389 8,389 8,302 8,302

Diluted earnings per share in EUR 1.71 0.53 2.16 1.34

* Comparative figure for consolidated net income excluding gain from transactions with minorities

2006 20052006 2005

26 Segment report and revenues

The presentation of the primary segment reporting inthese Consolidated Financial Statements has changed inrespect of the order in which the segments are present-ed. The operating interest result of the segments isinsignificant.

In line with its internal reporting structure, the compa-ny is organised into the “Gas Flue Systems”, “ClimateSystems”, “Medical Technology & Engineering Plastics”and “Solar Systems” segments (primary segments). This is simultaneously the basis of value-based corporate

management within the CENTROTEC Group. The revenuesfrom external customers for these two areas, togetherwith the inter-segmental revenues for each segment, ineach case exceed 10 % of total external and inter-seg-mental revenues. Details of which fully consolidated com-panies in the Consolidated Financial Statements are allo-cated to which individual segments are indicated in thepresentation of the consolidated companies.

The revenues relate principally to deliveries of goodsThey are reported net of sales tax, returns, discounts andprice reductions. The “Gas Flue Systems” segment alsoincludes the figures for CENTROTEC Sustainable AG.


127

Inter-segmental business is priced according to the arm’slength principle. Pricing is comparable to third partytransactions less cost items (in particular distributioncosts), which do not occur in inter-segmental transac-tions. Income and expenditure are allocated directly tothe individual companies within the individual segments.The segment expenses and income also include alloca-tions of expenses for the holding company. EUR 441thousand (previous year EUR 641 thousand) was chargedto “Gas Flue Systems“, EUR 147 thousand (previous yearEUR 70 thousand) to “Climate Systems“, EUR 535 thou-sand (previous year EUR 506 thousand) to “MedicalTechnology & Engineering Plastics“ and EUR 150 thou-sand (previous year EUR 43 thousand) to “Solar Systems“.The “Gas Flue Systems” segment in addition includesEUR 1,123 thousand (previous year EUR 1,217 thousand)in income from charges for the holding company, leaving

a net positive effect of EUR 682 thousand (previous yearEUR 576 thousand) on the result for this segment.

Inter-segmental relationships, i.e. relationships andtransactions between the individual segments, are elimi-nated from the consolidation column. This simultaneouslyreconciles the figures with those in the ConsolidatedFinancial Statements.

The depreciation and amortisation for the segmentsrepresent the loss of value by the segments’ long-termassets, the investments, and the respective additions tothe fixed assets and intangible assets for the segments.

The segment assets include the fixed assets and currentassets for each segment. Entitlements to income tax rebatesand deferred tax assets capitalised are not included.

The segment liabilities include the operating liabilitiesand accruals for each segment. Income tax liabilities,deferred tax liabilities and financial debt are not included.

128

In the Climate Systems segment, the reductions for im-pairment include EUR 2,001 thousand in goodwill, lossesamounting to EUR 945 thousand from the disposal ofcarrying amounts of intangible assets and EUR 901 thou-sand for disputed accounts receivable, as their enforce-ability is no longer regarded as certain, as well as aroundEUR 1,000 thousand for accruals for a guarantee issue.

Further charges were incurred from the merger of loca-tions in the Netherlands. The result for the Solar Systemssegment includes reductions for impairment of EUR1,794 thousand other expenses and EUR 850 thousandin depreciation and amortisation.

The geographical breakdown of revenues is shown inthe following table (secondary segments):


Medical TechnologyBy segment Gas Flue Systems & Engineeringin EUR ‘000 & others Climate Systems Plastics Solar Systems Consolidation Total

2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005

Revenue from third parties 80,310 70,202 110,024 39,594 33,793 26,454 172,184 16,662 0 0 396,311 152,912

Revenue from other segments 2,748 455 309 260 1,200 1,076 4 0 (4,261) (1,791) 0 0

Change in inventories of finished goods and work in progress 301 (64) 131 (151) 971 445 9,108 (1,684) 0 0 10,511 (1,454)

Cost of purchased materials (40,997) (32,411) (56,650) (16,661) (13,625) (9,144) (148,822) (11,944) 4,261 1,791 (255,833) (68,369)

Employee benefits costs (16,843) (15,144) (29,391) (10,465) (13,921) (12,169) (10,957) (1,302) 0 0 (71,112) (39,080)

Depreciation and amortisation (2,884) (2,604) (6,385) (728) (1,464) (1,626) (7,066) (308) 0 0 (17,799) (5,266)

Other income and expense (14,299) (11,638) (17,860) (3,679) (5,071) (4,395) (12,323) (1,333) 0 0 (49,553) (21,045)

Segment result (EBIT) 8,336 8,796 178 8,170 1,883 641 2,128 91 0 0 12,525 17,698

Interest result (5,637) (2,153)

Profit from transactions with minorities 9,872 6,819

Result from investments accountedfor using the equity method 91 113 91 113

EBT 16,851 22,477

Income tax (1,553) (4,524)


Profit or loss attributable to minority interest 982 (5)

Profit attributable to shareholders 14,316 17,958

Balance Sheet Key Figures

Assets 77,527 64,971 221,075 42,952 29,947 23,307 143,666 71,167 0 0 472,215 202,397

Investments accounted for using the equity method 760 669 0 0 0 0 1,101 8,558 0 0 1,861 9,227

Loans and financial assets available for sale 0 0 109 137 0 0 2,589 0 0 0 2,698 137

Entitlement to income tax rebates* 6,304 3,811

Total liabilities 14,024 12,725 63,966 7,647 5,742 5,117 40,601 18,473 0 0 124,333 43,962

Financial liabilities 179,364 62,531

Income tax payable* 33,068 6,406

Investments

Total investments in property, plant,equipment and intangible assets** 16,669 5,734 113,904 9,397 3,400 2,470 49,607 35,871 0 0 183,580 53,472

* Including deferred tax

** Including goodwill

27 Cash flow statement

The Consolidated Cash Flow Statement shows how thegroup’s cash and cash equivalents changed in the courseof the financial year under review as a result of cash in-flows and outflows. A distinction is made between cashflows from operating activities on the one hand and cashflows from investing and financing activities on the other.The cash flows from operating activities are determinedaccording to the indirect method, by adjusting the earn-ings before interest and taxes for non-cash items, changesin working capital (receivables and other assets, invento-ries and liabilities) and all changes that are allocable toinvesting and financing activities to produce the cash flowfrom operating activities. By contrast, the interest resultand the income taxes paid are based on actual cash flows.The financial resources consist almost exclusively of de-mand deposits and the availment of current accountswith major, leading commercial banks. The financial re-sources are composed as follows:

Breakdown of cash and cash equivalents in EUR ‘000 2006 2005

Cash in hand 35 15


Marketable securities 0 1,560

Bank overdrafts (21,297) (12,207)(included in “current financial liabilities” item)

Total (1,249) (5,556)

The cash flow from operating activities fell year on yearfrom EUR 6,716 thousand to EUR 5,633 thousand in2006. The renewed rise in working capital in particularhad a negative effect on this cash flow indicator.

Financing streams in EUR ‘000 2006 2005

Financial resources raised 98,638 14,290

Financial resources repaid (16,004) (13,753)

Change in financial debt 82,634 537

Cash inflow from asset disposalsin EUR ‘000 2006 2005

Net residual carrying amounts 2,366 64

Gain/loss on asset disposals (472) 0

Proceeds from asset disposals 1,894 64

Short-term credit facilities to secure constant liquidity havebeen arranged with several different credit institutions. Atthe balance sheet date, the available borrowing facilitiesfrom current account, guarantee/surety or discount linesand from a free credit facility included amounts to EUR18.8 million (previous year EUR 13.2 million).

Substantial non-cash transactions result from the issueof stock options, from the acquisition of interests in com-panies in exchange for the issue of shares, and from pur-chase price liabilities incurred. The Consolidated Cash FlowStatement has been presented after adjustment for these.

EuropeanBy region European non-euroin EUR ‘000 euro countries countries Rest of world Consolidation Total

2006 2005 2006 2005 2006 2005 2006 2005 2006 2005

Revenue from third parties 342,354 129,113 40,582 18,892 13,375 4,907 0 0 396,311 152,912

Total assets 453,342 203,955 22,401 7,100 1,030 706 0 0 476,774 211,761

Investment in fixed assets 182,182 35,097 1,357 18,372 42 3 0 0 183,580 53,472


129

130


logistics. All agreements have been concluded for speci-fied tasks.

Overall it is assumed that substantial liabilities will notarise as a result of the contingent liabilities, or only to theextent evident in these Notes.

Further changes Supplementary notice pursuant to Section 25 (1) ofGerman Securities Trading Law (WpHG):1. Schroders plc and Schroders Administration Limited,

both London, reported on July 4, 2006 that their shares of voting rights had each fallen below the threshold of 5 % and were 4.9 % at that time.

2. Merrill Lynch Investment Managers Group Limited, London, gave notice on September 22, 2006 that its share of voting rights had fallen below the threshold of 5 % of CENTROTEC Sustainable AG to 4.91 %.

2_Significant events occurring after the balance sheet date

Acquisition of investmentsAlong with payment of the purchase price on February 5,2007 CENTROSOLAR AG acquired a 10 % interest inTrillion Sun International Co. Ltd, Hong Kong. The pur-chase price was USD 960,000 (EUR 743,034.06). Theinvestment is reported from that date by CENTROSOLARAG as an available-for-sale financial asset.

Acquisition of fixed assetsTo safeguard the future of the Fürth location for theCENTROSOLAR Group the company acquired the realestate in Fürth, Siemensstraße 3, including inventory(hoists, cranes, lifting platforms, lines etc.) from FlabegGrundstücksverwaltungs GmbH, Fürth, for EUR 3.0 mil-lion by notarised purchase agreement in December 2006.Ownership, benefits and costs pass to Centrosolar Grund-stücksverwaltungs GmbH along with the payment of thepurchase price in full on March 9, 2007. The productionplant of Centrosolar Glas GmbH & Co. KG is located onthe real estate. As at January 1, 2007 the entire realestate was rented out by the company to CentrosolarGlas GmbH & Co. KG. To finance the purchase of thereal estate, the company has already received a commit-ment to extend credit from IKB Deutsche IndustriebankAG for the amount of EUR 2,640 thousand and fromCentrosolar Glas GmbH & Co. KG for EUR 1,000 thou-sand.

E_Other particulars

1_Contingent liabilities and miscellaneous particulars

The customary warranty obligations are assumed, forwhich an accrual has been formed. In the context of itsordinary business activities, the company moreover regu-larly enters into contingent liabilities from guarantees,cheques and bills of exchange, among other things.Furthermore, contingent liabilities may arise from areas ofthe group in which there exist statutory arrangements onpartial retirement but for which no accrual has beenrecognised, as it is unlikely that employees in those areaswill call upon the existing statutory arrangements.Accruals were formed for areas in which the probabilityof use is greater than 50 %.

CENTROTEC Sustainable AG furthermore releases itsdesignated sponsor, Sal. Oppenheim jr. & Cie. KGaA, andCENTROSOLAR AG its designated sponsors Commerz-bank AG and Close Brothers Seydler AG, from liability inconnection with their sponsoring activities, subject to thisliability not resulting from gross negligence or fault onthe part of the designated sponsor.

In the context of the joint venture agreement betweenEconcern B.V., Ecoventures B.V., Ecostream B.V. andUbbink B.V. as well as Ubbink Solar Modules B.V., thereexist statutory and other restrictions that in essenceenvisage a mutual preemptive right of the shareholdersto shares in Ubbink Solar Modules B.V.

In the context of the partnership agreement draftedfor EnEV-Air GmbH, there exist statutory restrictionswhich in essence envisage a mutual preemptive right ofthe shareholders to shares in EnEV-Air GmbH.

Intercompany agreements exist within the context of control and profit transfer agreements betweenCENTROTEC Sustainable AG and Centroplast EngineeringPlastics GmbH, Marsberg as well as Centrotec Compo-sites GmbH, Brilon. These have a contractual term until atleast December 31, 2008. Financial obligations may arisein the future as a result of these. In connection with therestructuring measures initiated and the hiving-off of theMedical Technology area, the control and profit transferagreement between CENTROTEC and Centroplast wasterminated prematurely with effect from December 31,2006.

Group companies have concluded various agreementswith firms of consultants and specialists in the fields ofelectronic data processing, law, ecommerce, advertising,investor relations and the optimisation of production and


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Changes in the consolidation methodAt the start of the 2007 financial year, approx. one millionvoting rights were removed from the voting trust agree-ment. Since that date CENTROTEC has been working onthe assumption that it is no longer assured de facto con-trol over CENTROSOLAR AG and is therefore altering theaccounting method. CENTROSOLAR AG will consequent-ly be accounted for using the equity method, rather thanconsolidated comprehensively, from the start of January2007.

Changes in group bodiesAt the start of 2007, Dr. A. Kirsch left the ManagementBoard of CENTROTEC Sustainable AG to concentrate onhis role as Management Board Chairman of CENTROSO-LAR AG. Dr. G.-J. Huisman furthermore left the Manage-ment Board of CENTROSOLAR AG at the start of 2007and will switch to its Supervisory Board.

Further changes1. On January 30, 2007 we were notified by DWS

Investment GmbH, Frankfurt, pursuant to Sections 21 (1), (24) of German Securities Trading Law in conjunc-tion with Section 32 (2) of German Investment Law, that it has exceeded the threshold of 3 % of the voting rights in CENTROTEC Sustainable AG.

2. On February 20, 2007 we were notified by DWS Investment GmbH, Frankfurt, pursuant to Sections 21 (1), (24) of German Securities Trading Law in conjunc-tion with Section 32 (2) of German Investment Law, that it has exceeded the threshold of 5 % of the voting rights in CENTROTEC Sustainable AG.

On January 8, 2007, 145,000 options for employees,managing directors and Management Board memberswere issued at a price of EUR 22.20.

No further significant events occurred at and after thebalance sheet date, or only to the extent that they arealready represented as such or evident from the remarksin the group management report.

3_Related party disclosures

Parties are considered to be related if one party has theability to control the other party or exercise significantinfluence over the other party’s financial and operatingdecisions. Related party relationships where control existsare disclosed irrespective of whether there have beentransactions between the related parties. Intra-group

transactions are not disclosed as related party transac-tions in the Consolidated Financial Statements.

Key management personnel, including but not limitedto members of the Management Board and theSupervisory Board, are “related parties”. In addition,members of the family of the head of the SupervisoryBoard might be classified as related parties, although theManagement Board has not yet been confronted withdirect control from these family members. The familymembers in question would be Maren, Carl and MajaKrass.

Legal transactions with the Pari Group and Guido A. KrassThe Chairman of the Supervisory Board holds a minorityinterest in Pari Holding GmbH, Munich (“PH”). PH mighttherefore be classified as a “related party”, even thoughthe Management Board does not believe that controlactually exists between the parties. Further companies ofthe Pari Group could likewise be classified as “relatedparties”. These are Pari Corporate Finance Ltd., London(PCF), Pari Private Equity AG, Munich (PE) and Pari CapitalAG, Munich (PC). No legal transactions with PCF wereconducted in the year under review.

The Chairman of the Supervisory Board is a memberof the Supervisory Board of PC (see also details of theManagement Board and Supervisory Board). Hans Wiertz,Supervisory Board member of CENTROSOLAR AG, is amember of the Management Board of Pari Capital AGand Managing Director of Pari Holding GmbH. A consul-tancy agreement with PH exists for services in connectionwith corporate mergers and acquisitions, in respect ofidentifying, establishing contact with and acquiringpotential target companies. In the event of a transactionbeing realised, PH receives a fee according to the“Lehman formula”. There furthermore exists a consultan-cy agreement for services in connection with the raisingof equity between PH and CENTROSOLAR AG.

PH performed services on behalf of CENTROTEC in thefinancial year. Services for corporate acquisitions wereperformed for the CENTROTEC Group by PH to the valueof EUR 600 thousand for the Solar Systems segment(acquisition of Biohaus), and by Guido A. Krass to thevalue of approx. EUR 1,652 thousand for the ClimateSystems segment (acquisition of Wolf). These serviceswere performed on the same terms as those describedabove for PH. The second amount is also included in thetrade payables. CENTROSOLAR AG paid PH a total of

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EUR 70 thousand for administrative and service fees.CENTROSOLAR AG paid PC a total of EUR 2 thousand foradministrative fees. CENTROTEC charged Wolf HoldingGmbH EUR 311 thousand for corporate acquisitions. Allcalculations reflect the generally accepted market ratesthat are charged for such services in Germany and inter-nationally. A further sum of EUR 7 thousand was billedby CENTROTEC in connection with a motor vehicle leaseagreement. There exist current liabilities totalling a fur-ther EUR 65 thousand in respect of Supervisory Boardmembers.

A voting trust agreement has been concluded betweenUbbink B.V. and related parties. On the strength of thisagreement, the CENTROTEC subsidiary Ubbink B.V. heldmore than 6.0 million voting rights until December 31,2006 and therefore over 45.7 % of the voting rights inCENTROSOLAR AG. As a result of the way ManagementBoard posts were distributed until December 31, 2006(Dr. Huisman on the Management Board of CENTROSOLARAG and Dr. Kirsch on Management Board of CENTROTECAG), CENTROTEC’s de facto control over CENTROSOLARAG could be assumed until December 31, 2006. At thestart of the 2007 financial year approx. one million votingrights were removed from the voting trust agreement.Since that date, CENTROTEC has been working on theassumption that it is no longer assured de facto controlover CENTROSOLAR AG and is therefore altering theaccounting method. CENTROSOLAR AG will consequent-ly be accounted for using the equity method, rather thanconsolidated full, from the start of January 2007.

Legal transactions with Management Board members and Supervisory Board members (including of listed subsidiaries)Wim Brink retired from the Supervisory Board with effectfrom March 8, 2006. As a result of this, the companyBrink Holding B.V. and its subsidiaries are no longer clas-sified as related parties. Mr. Wim Brink received anamount of EUR 4 thousand in the previous year for serv-ices provided by Brink Climate Systems, on the basis of aconsultancy agreement. As a retired member of theSupervisory Board of CENTROTEC, he received Super-visory Board remuneration amounting to EUR 3 thousandfor his time on the Supervisory Board.

Dr. Bernhard Heiss no longer worked on behalf of thelaw firm Freshfields Bruckhaus Deringer in the periodunder review. The law firm is consequently no longerclassified as a related party. Furthermore, a consultancyagreement has been concluded with Dr. Heiss while amember of the Supervisory Board of CENTROSOLAR AG.The framework consultancy agreement envisages ad hocconsultancy by Dr. Heiss on legal questions arising in thecourse of business operations, as well as on special ques-tions. An appropriate remuneration per hour of his servic-es plus statutory sales tax is to be paid as consideration.Dr. Heiss did not charge any fees for legal consultancy inthe financial year. As Chairman of the Supervisory Boardof CENTROSOLAR AG, Dr. Heiss received remuneration ofEUR 20 thousand.

Friedrich Lützow is a member of the Supervisory Boardof CENTROSOLAR AG. A framework consultancy agree-ment has in addition been concluded with Mr Lützow.The framework consultancy agreement envisages ad hocconsultancy by Mr Lützow on questions regarding taxarising in the course of normal business operations, as wellas on special questions relating to tax law. An appropriateremuneration per hour of his services plus statutory salestax is to be paid as consideration. Corporate bodies haveapproved the existing contractual relationship. Mr Lützowbilled CENTROSOLAR EUR 59 thousand, Centrosolar GlasGmbH & Co. KG EUR 6 thousand, CENTROTEC EUR 31thousand and medimondi AG EUR 9 thousand for taxconsultancy. As Deputy Chairman of the Supervisory Boardof CENTROSOLAR AG, Mr Lützow received remunerationof EUR 15 thousand.

Hans Wiertz is a member of the Supervisory Board ofCENTROSOLAR AG and received Supervisory Board remu-neration of EUR 10 thousand.

A consultancy agreement was furthermore concludedwith Rob Slemmer following his departure from theManagement Board to enter retirement. The consultancyagreement envisages regular contributions by Rob Slemmeron a wide variety of questions arising from the businessoperations of the Climate Systems segment, as well as onspecial questions. In the 2006 financial year, Rob Slemmercontinued to work for CENTROTEC for approximatelytwo days a week after leaving the Management Board.An appropriate remuneration plus statutory sales tax is to


133

be paid as consideration. The remuneration for the peri-od after his time on the Management Board totals EUR87 thousand, including EUR 16 thousand for a car.

A settlement agreement was reached with one tempo-rary Management Board member in connection with oneacquisition transaction. He was released from guaranteesgiven to the CENTROTEC Group in return for a paymentof EUR 300 thousand to the acquirer.

Sauerland Solar Fund GmbH & Co. KG (SSF) could inaddition be classified as a related party. The company is aclosed-end fund of which only senior employees andManagement Board members are members. Various groupcompanies sold photovoltaic systems to SSF at marketprices, for a total of EUR 1,698 thousand, during the yearunder review. CENTROTEC Sustainable AG has concludeda service contract with SSF KG.

As Management Board members of listed subsidiarieswho are not simultaneously on the Management Boardof CENTROTEC Sustainable AG, Dr. Axel Müller-Groelingreceived a fixed cash payment of EUR 233 thousand aswell as remuneration in the form of stock optionsamounting to EUR 51 thousand, and thus EUR 284 thou-sand in total, and Thomas Guentzer a fixed cash paymentof EUR 177 thousand as well as remuneration in theform of stock options amounting to EUR 51 thousand,and thus EUR 228 thousand in total.

Finally we make reference to remarks in the Notes to theConsolidated Financial Statements of CENTROSOLAR AGwhich give further particulars of transactions with minori-ties by related parties; these do not, however, fall withinthe scope of CENTROTEC’s related parties and are there-fore regarded as supplementary information.

Legal transactions with investments accounted forusing the equity methodLegal transactions were conducted during the financialyear with companies accounted for using the equitymethod, in the normal course of business; the revenuesamounted to around EUR 1.2 million, purchases of mate-rials to approx. EUR 3.8 million and legal and consultancyservices to EUR 36 thousand. At the reporting date, loansoriginated by the enterprise amount to EUR 190 thousand,receivables to EUR 2 thousand and trade payables to EUR98 thousand.

The private company Immobilien GbR Wülbeck couldpossibly be quantified as a related party, as Dr. Gert-JanHuisman, Dr. Alexander Kirsch and Norbert Wülbeck –Managing Director of Centrotherm Systemtechnik – holdan interest in it. The p rivate company erected an industrialbuilding which is used by Bond Laminates for appropriateconsideration.

ComponentNon-performance- Performance with a long-term

dependent related incentivising Other Total Management Board member component1 component effect2 remuneration3 remuneration

Dr. G.J. Huisman 311 0 99 32 442

M. Beijer 155 41 49 99 344

A. Gaffal (from 11/6) 35 0 0 1 36

Dr. A. Kirsch (until 01/7) 296 0 100 0 396

P. van der Poel (from 12/06) 8 0 0 1 9

Dr. C. Traxler 232 0 49 1 282

R. Slemmer (until 03/06) 39 0 18 14 71

N. Vroege (04 to 11/06) 68 0 0 30 98

Total 1,144 41 315 177 1,678

1 Incl. employer's social contributions2 Valued options (max.)3 Pensions, company cars and other expenses

134


Total remuneration of the Management Board The remuneration paid to the members of the Manage-ment Board in the financial year amount to EUR 1,687thousand. This sum comprises non-performance-depend-ent components totalling EUR 1,144 thousand (previousyear EUR 1,135 thousand), performance-related compo-nents totalling EUR 41 thousand, components with along-term incentivising effect totalling EUR 315 thousandand other remuneration totalling EUR 178 thousand. Theremuneration of each individual Management Boardmember is shown in the previous table.For their services on the Management Board of CENTRO-SOLAR AG, in 2005 Dr. Huisman and Dr. Kirsch received

stock options for CENTROSOLAR AG, the pro rata valueof which is EUR 50 thousand in 2006 under IFRS rules.Dr. Kirsch in addition received stock options in 2006(issued mid-December), the time proportional value ofwhich is EUR 1 thousand.

Remuneration of the Supervisory BoardThe remuneration of the Supervisory Board totals EUR 55thousand. There were in addition expenses amounting toEUR 7 thousand.

Directors’ holdings The table shows directors’ holdings.

Management Board Shares (total) Options (total) Shares (total) Options (total)

Dr. Gert-Jan Huisman 23,016 64,058 16,016 96,473

Martin Beijer 1,500 30,818 0 55,754

Alfred Gaffal 0 0 0 0

Dr. Alexander Kirsch 20,450 101,543 16,450 106,644

Pieter van der Poel 0 0 0 0

Dr. Christoph Traxler 1,000 48,165 0 36,722

Supervisory Board

Guido A. Krass 1,200,000 0 1,200,000 0

Dr. Bernhard Heiss 0 0 0 0

Christian C. Pochtler 0 0 0 0

CENTROTEC

Ordinary shares 8,203,894 8,032,576

Treasury stock 6,040 6,040

2006 20052006 2005

The stock options have been issued on the same termsand conditions as to the other employees.

Management Board and Supervisory Board

The members of the Management Board at the reportingdate were: Dr. Gert-Jan Huisman, Nijkerk, Netherlands, merchant(Chairman)Martin Beijer, Doesburg, Netherlands, merchant Alfred Gaffal, Mainburg, Germany, merchant (fromNovember 16, 2006)Dr. Alexander Kirsch, Munich, Germany, merchant (untilJanuary 3, 2007)Pieter van der Poel, Velp, Netherlands, merchant (fromDecember 18, 2006)Dr. Christoph Traxler, Fulda, Germany, physicist

The members of the Supervisory Board at the reportingdate were:Guido A. Krass, Wadhurst, United Kingdom, entrepreneur(Chairman)Dr. Bernhard Heiss, Munich, Germany, entrepreneurChristian C. Pochtler, Mag., Vienna, Austria, entrepreneur

With effect from March 8, 2006 Christian C. Pochtler, MA,was appointed member of the Supervisory Board pursuantto Section 104 (2) of German Stock Corporation Law.Wim Brink retired from the Supervisory Board with effectfrom March 8, 2006.

Members of the Management and Supervisory Boardsalso serve on the following supervisory boards as definedin Section 125 (1), third sentence of German StockCorporation Law:


135

Guido A. Krass PACT Technologies AG, MunichPari Capital AG, Munich (Chairman)Wolf GmbH, MainburgUbbink B.V., Doesburg, Netherlands (Chairman)medimondi AG (until March 2007 Centromedical AG), Munich (Chairman)

Dr. Bernhard Heiss MME Moviement AG, Hamburg (Chairman)Kögel Holding AG, Munich (Chairman)Süddeutscher Verlag AG, MunichAltium Capital AG, MunichCENTROSOLAR AG, Munich (Chairman)

Wim Brink Newion Investments B.V., (until March 8, 2006) Heerenveen, Netherlands

(Chairman) Dutch Rescue Holding B.V., Hoogeveen, Netherlands (Chairman)KLS Nederland B.V., Hoogeveen, Netherlands (Chairman)

Christian C. Pochtler, Mag. Denzel AG, Vienna, Austria (from March 8, 2006)

Dr. Alexander Kirsch Pari Private Equity AG, MunichSolara AG, HamburgRolf Schmidt Industriplast A/S,Kolding, Denmark (until April 4, 2006)

4_Corporate Governance Code

Pursuant to Section 161 of German Stock CorporationLaw, the Management Board and Supervisory Board of acompany listed on the stock exchange are obliged todeclare once a year whether and to what extent the codehas been and is complied with.

The Management Board and Supervisory Board of CENTROTEC Sustainable AG and also of CENTROSOLAR

AG have declared the extent to which the recommenda-tions of the Government Commission on the GermanCorporate Governance Code are respectively compliedwith. The regularly submitted declarations and explana-tions are permanently available on the websites of thecompanies. We moreover make reference to the com-ments elsewhere in this Annual Report.

5_Independent auditors’ fees

The auditors of CENTROTEC AG are PricewaterhouseCoopers AG. The amounts shown below contain neitherfees for the foreign member companies of the PwC net-work nor fees for other auditors of group subsidiaries.

Expenses for auditor PwC in EUR ‘000

Expenses for auditing of the financial statements 434

Other certification or consultancy services 240

Tax consultancy services 0

Other services 0

Total expenses for 2006 674

6_Date and authorisation for issue of the financial statements

The financial statements were approved by the Manage-ment Board and authorised as a whole for issue onMarch 15, 2007. The Supervisory Board signed off thefinancial statements on March 20, 2007.

Once approved and ratified by the corporate bodiesand following their publication, these financial statementsmay only be amended to the extent that is permissible bylaw.

Brilon, March 20, 2007

Dr. Gert-Jan Huisman, Chairman, Finance

Martin Beijer, Gas Flue Systems

Alfred Gaffal, Climate Systems

Pieter van der Poel, Gas Flue Systems

Dr. Christoph Traxler, Medical Technology & Engineering Plastics

136


Independent Auditors’ Report

We have examined the annual financial statements –comprising the balance sheet, income statement andnotes – including the accounts, and the managementreport compiled by CENTROTEC Sustainable AG, Brilon,for the financial year from January 1 to December 31,2006. The accounts and the preparation of the annualfinancial statements and management report in accor-dance with the requirements of German commercial lawand the supplementary provisions contained in the arti-cles of incorporation are the responsibility of the compa-ny’s Management Board. Our responsibility is to passjudgement, based on our audit, on the annual financialstatements, including the accounts, and on the manage-ment report.

We carried out our audit of the annual financial state-ments in accordance with Section 317 of GermanCommercial Code, observing the German principles ofproper auditing promulgated by the German Institute ofAuditors (IDW). Those principles require that we plan andperform an audit to obtain reasonable assurance thatthere are no misstatements and violations which materi-ally affect the presentation of the company’s net worth,financial position and financial performance in the annualfinancial statements, based on the principles of properaccounting, and in the management report. The scope ofthe audit was determined on the basis of a knowledge ofthe business activities and the economic and legal con-text of the company, as well as the likelihood with whichparticular errors were to be expected. In the context ofthe audit, the effectiveness of the accounts-based inter-nal controlling system and evidence of the details provid-ed in the accounts, annual financial statements and man-

agement report are examined predominantly on a testbasis. The audit includes assessing the accounting princi-ples used and significant estimates made by the Manage-ment Board, as well as evaluating the overall presentationof the annual financial statements and managementreport. We believe that our audit provides a reasonablebasis for our opinion.

No objections are made on the basis of our audit.

In our opinion, formed on the basis of the findingsobtained in our audit, the annual financial statementsconform to the legal requirements as well as to the sup-plementary requirements of the articles of incorporationand, based on the principles of proper accounting, pro-vide a true and fair view of the net worth, financial posi-tion and financial performance of the group. The man-agement report is in agreement with the annual financialstatements, on the whole provides a suitable understand-ing of the company’s position and suitably presents theopportunities and risks of future development.

Kassel, March 21, 2007

PricewaterhouseCoopers AGWirtschaftsprüfungsgesellschaft

Plaum SiemonIndependent auditor Independent auditor

[ ]The Supervisory Board

Guido A. Krass(Chairman)

Guido A. Krass (50) is an industriallawyer and entrepreneur who has beenfocussing on rapidly growing medium-sized businesses since 1986. As afounder and majority shareholder ofCENTROTEC he is actively involved interms of strategy and human resourcesmanagement. He is able to call on aworldwide network of contacts in gener-ating new business ideas and identifyinginteresting acquisition targets.

Dr. Bernhard Heiss

Dr. Bernhard Heiss (51) is a lawyer andentrepreneur with particular expertise incorporate transactions and corporate reor-ganisation. He is a non-executive directorof and partner in several other prominentcompanies. The industry emphasis of hisactivities as a lawyer and entrepreneur ison the areas of the media (television,press, books) and automotive technology.

Christian C. Pochtler

Christian C. Pochtler (55), MA, has beensole proprietor and Managing Director ofthe iSi Group since 1984, the world leaderfor disposable pressurised containers up to 700 ml.

PhotosDeutsche Börse Frankfurt/Main CENTROTEC Group Image agenciesUlli HartmannBert Bostelmann

PrintJoh. Schulte, Marsberg

TextCENTROTEC Sustainable AG

ConceptMetaCom, Hanau, Georg Biekehör

Design/ProductionMetaCom, HanauJens Gloger, Viktor Diebold

Imprint

__CENTROTEC Sustainable AG__Am Patbergschen Dorn 9__D-59929 Brilon__Tel. +49 (0) 2961-96 631- 111__Fax +49 (0) 2961-96 631- [email protected]__www.centrotec.de__

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