MEC Global GmbH

Schwalbach am Taunus

Konzernabschluss zum Geschäftsjahr vom 01.01.2019 bis zum 31.12.2019

Table of Contents

Independent auditor's report

Financial Reporting

Engagement Terms, Liability and Conditions of Use

General Engagement Terms

Note:

We have issued the audit opinion presented below in compliance with legal and professional requirements subject to the conditions described in the enclosed "Engagement Terms, Liability and Conditions of Use".

If this document is used in electronic form for publication in the Bundesanzeiger (German Electronic Federal Gazette), only the financial reporting files are to be used for this purpose and, should a statutory audit be required, the audit opinion or corresponding attestation.

Independent auditor's report

To MEC Global GmbH

Opinions

We have audited the consolidated financial statements of MEC Global GmbH, Bad Soden am Taunus, and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at 31 December 2019, the consolidated statement of profit and loss, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the fiscal year from 1 January 2019 to 31 December 2019, and notes to the consolidated financial statements, including a summary of significant accounting policies. In addition, we have audited the group management report of MEC Global GmbH for the fiscal year from 1 January 2019 to 31 December 2019.

In our opinion, on the basis of the knowledge obtained in the audit,

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the accompanying consolidated financial statements comply, in all material respects, with the IFRSs as adopted by the EU, and the additional requirements of German commercial law pursuant to Sec. 315e (1) HGB ["Handelsgesetzbuch": German Commercial Code] and, in compliance with these requirements, give a true and fair view of the assets, liabilities, and financial position of the Group as at 31 December 2019, and of its financial performance for the fiscal year from 1 January 2019 to 31 December 2019, and

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the accompanying group management report as a whole provides an appropriate view of the Group's position. In all material respects, this group management report is consistent with the consolidated financial statements, complies with German legal requirements and appropriately presents the opportunities and risks of future development.

Pursuant to Sec. 322 (3) Sentence 1 HGB, we declare that our audit has not led to any reservations relating to the legal compliance of the consolidated financial statements and of the group management report.

Basis for the opinions

We conducted our audit of the consolidated financial statements and of the group management report in accordance with Sec. 317 HGB and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Our responsibilities under those requirements and principles are further described in the "Auditor's responsibilities for the audit of the consolidated financial statements and of the group management report" section of our auditor's report. We are independent of the group entities in accordance with the requirements of German commercial and professional law, and we have fulfilled our other German professional responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions on the consolidated financial statements and on the group management report.

Responsibilities of the executive directors for the consolidated financial statements and the group management report

The executive directors are responsible for the preparation of the consolidated financial statements that comply, in all material respects, with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to Sec. 315e (1) HGB, and that the consolidated financial statements, in compliance with these requirements, give a true and fair view of the assets, liabilities, financial position, and financial performance of the Group. In addition, the executive directors are responsible for such internal control as they have determined necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the executive directors are responsible for assessing the Group's ability to continue as a going concern. They also have the responsibility for disclosing, as applicable, matters related to going concern. In addition, they are responsible for financial reporting based on the going concern basis of accounting provided no actual or legal circumstances conflict therewith.

Furthermore, the executive directors are responsible for the preparation of the group management report that, as a whole, provides an appropriate view of the Group's position and is, in all material respects, consistent with the consolidated financial statements, complies with German legal requirements, and appropriately presents the opportunities and risks of future development. In addition, the executive directors are responsible for such arrangements and measures (systems) as they have considered necessary to enable the preparation of a group management report that is in accordance with the applicable German legal requirements, and to be able to provide sufficient appropriate evidence for the assertions in the group management report.

Auditor's responsibilities for the audit of the consolidated financial statements and of the group management report

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and whether the group management report as a whole provides an appropriate view of the Group's position and, in all material respects, is consistent with the consolidated financial statements and the knowledge obtained in the audit, complies with the German legal requirements and appropriately presents the opportunities and risks of future development, as well as to issue an auditor's report that includes our opinions on the consolidated financial statements and on the group management report.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Sec. 317 HGB and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) will always detect a material misstatement. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and this group management report.

We exercise professional judgment and maintain professional skepticism throughout the audit. We also

―	Identify and assess the risks of material misstatement of the consolidated financial statements and of the group management report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
―	Obtain an understanding of internal control relevant to the audit of the consolidated financial statements and of arrangements and measures (systems) relevant to the audit of the group management report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of these systems.
―	Evaluate the appropriateness of accounting policies used by the executive directors and the reasonableness of estimates made by the executive directors and related disclosures.
―	Conclude on the appropriateness of the executive directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor's report to the related disclosures in the consolidated financial statements and in the group management report or, if such disclosures are inadequate, to modify our respective opinions. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to be able to continue as a going concern.
―	Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements present the underlying transactions and events in a manner that the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and financial performance of the Group in compliance with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to Sec. 315e (1) HGB.
―	Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express opinions on the consolidated financial statements and on the group management report. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinions.
―	Evaluate the consistency of the group management report with the consolidated financial statements, its conformity with law, and the view of the Company's position it provides.
―	Perform audit procedures on the prospective information presented by the executive directors in the group management report. On the basis of sufficient appropriate audit evidence we evaluate, in particular, the significant assumptions used by the executive directors as a basis for the prospective information, and evaluate the proper derivation of the prospective information from these assumptions. We do not express a separate opinion on the prospective information and on the assumptions used as a basis. There is a substantial unavoidable risk that future events will differ materially from the prospective information.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Munich, 27 April 2020

Ernst & Young GmbH
Wirtschaftsprüfungsgesellschaft

Horbach, Wirtschaftsprüfer [German Public Auditor]

Mitrovic, Wirtschaftsprüferin [German Public Auditor]

Consolidated Financial Statements for the year ended 31 December 2019

Contents

Statement of directors' responsibilities

Consolidated statement of profit or loss

Consolidated statement of comprehensive income

Consolidated statement of financial position

Consolidated statement of changes in equity

Consolidated cash flow statement

Notes to the consolidated financial statements

Statement of directors' responsibilities

The directors prepare consolidated financial statements, which give a true and fair view of the financial position of the group and of the profit or loss of the group for that period. In preparing these financial statements, the directors accept responsibility for:

•	selecting suitable accounting policies and then applying them consistently;
•	making judgements and estimates that are reasonable and prudent;
•	stating whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
•	preparing the financial statements on the going concern basis unless it is inappropriate to presume that the group will continue in business.

The directors accept responsibility for keeping proper accounting records, which disclose with reasonable accuracy at any time the financial position of the group. They also accept responsibility for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Bad Soden, 27 April 2020

Siegfried M Schabel, Director and CEO

Patrick J McGlynn, Prokurist and CFO

for the year ended 31 December 2019	Note	2019 € '000	2018 € '000 Restated
Revenue	7	280,422	269,230
Cost of sales	8	(212,514)	(201,617)
Gross profit		67,908	67,613
Other operating income	9.1	540	595
Selling and distribution expenses	8	(31,186)	(29,199)
Administration expenses	8	(29,639)	(26,182)
Research and development expenses	8, 14	(11,225)	(11,129)
Amortisation of intellectual properties	14	(1,350)	(1,264)
Other operating expenses	9.2	(2,604)	(1,830)
Impairment of financial assets		77	214
Licence income with entities held for sale		3,520	3,451
Licence expense with entities held for sale		-	(23)
Operating (loss) / profit		(3,959)	2,246
Finance income	9.5	2,358	2,553
Finance expense	9.6	(3,836)	(3,868)
Share of losses of associates	10	-	(443)
Impairment of investment in associate	10	-	(365)
(Loss) / profit before tax from continuing operations	11	(5,437)	123
Income tax expense	11	(2,731)	(5,603)
Loss for the year from continuing operations		(8,168)	(5,480)
Discontinued Operations
Profit after tax for the year from discontinued operations	12	8,053	4,520
Loss for the year		(115)	(960)
Attributable to:
Owners of the parent	25	(268)	(1,411)
Non-controlling interests	25	153	454
Loss for the year		(115)	(957)

The accompanying notes form an integral part of this consolidated statement of profit or loss.

During 2019, the entities held for sale paid dividends of € 11,232,520 to the continuing entities in the Group. These dividends have been treated as part of the equity of the Group and will not be repeated going forward.

There are tax sharing arrangements in place in all German companies in the group. During 2019, the entities held for sale made a loss of € 2,776,894 under German GAAP. This amount of tax loss sharing is not shown on the face of the profit and loss as it would be a misleading indicator of financial performance.

Bad Soden, 27 April 2020

Siegfried M. Schabel, Director and CEO

Patrick J. McGlynn, Prokurist and CFO

	Note	2019 € '000	2018 € '000
Loss for the year for continuing and discontinued operations		(115)	(957)
Other comprehensive income from continuing operations
Other comprehensive income to be reclassified to profit or loss in subsequent periods:
Exchange differences on translation of foreign operations		898	73
Exchange gain on translation of foreign associate company	10	-	27
		898	100
Net other comprehensive income to be reclassified to profit or loss in subsequent periods		898	100
Other comprehensive (loss)/ income not to be reclassified to profit or loss in subsequent periods:
Re-measurement (losses) / gains on defined benefit plans	23	(2,234)	467
Income tax effect	11 ,22	544	(21)
		(1,690)	446
Net other comprehensive (loss) / profit not to be reclassified to profit or loss in subsequent periods from continuing operations		(1,690)	446
Other comprehensive income for the year, net of tax, from discontinued operations		1,879	833
Other comprehensive income for the year, net of tax		1,087	1,379
Total comprehensive income for the year, net of tax		972	422
Attributable to:
Owners of the parent	25	852	111
Non-controlling interests	25	120	311
		972	422

Bad Soden, 27 April 2020

Siegfried M. Schabel, Director and CEO

Patrick J. McGlynn, Prokurist and CFO

ASSETS	Note	31 Dec 2019 € '000	31 Dec 2018 € '000
Non-current assets
Property, plant and equipment	13	32,018	68,412
Intangible assets	14	17,945	30,385
Right of use assets	28	10,543	-
Goodwill	15	21,447	25,492
Investment in associated companies	10	-	4,884
Trade and other non-current receivables	17	163	914
Corporate income tax receivable		1,327	2,481
Other non-current financial assets	18	338	799
Deferred tax assets	22	8,518	11,060
		92,299	144,427
Current assets
Inventories	16	49,404	79,741
Contract assets		1,600	1,176
Trade and other receivables	17	31,638	83,222
Prepayments		4,736	9,068
Corporate income tax receivable		2,462	3,785
Other current financial assets	18	57,003	411
Cash and short-term deposits	19	30,497	44,491
		177,340	221,894
Current assets held for sale	12	246,053	2,118
Total assets		515,692	368,439

Bad Soden, 27 April 2020

Siegfried M. Schabel, Director and CEO

Patrick J. McGlynn, Prokurist and CFO

	Note	31 Dec 2019 € '000	31 Dec 2018 € '000
EQUITY AND LIABILITIES
Equity
Issued capital	25	25	25
Treasury shares	25	(4)	(4)
Share premium	25	41,262	41 ,262
Foreign currency reserves	25	8,218	5,525
Pension reserve	25	(16,588)	(15,014)
Retained earnings	25	84,688	90,013
Equity attributable to owners of the parent	26	117,601	121,807
Non-controlling interest	25	1,373	1,780
Total equity		118,974	123,587
Non-current liabilities
Interest-bearing financial liabilities at amortised cost	20	45,000	67,036
Other non-current financial liabilities	20	30	169
Trade and other payables	21	625	1,137
Lease liabilities	28	7,576	-
Deferred tax liabilities	22	3,426	7,427
Post-employment employee benefit obligation	23	27,874	33,869
Provisions	24	1,139	1,239
Government grants		-	91
		85,670	110,968
Current liabilities
Interest-bearing financial liabilities at amortised cost	20	52,062	322
Other current financial liabilities	20	257	186
Trade and other payables	21	69,959	117,237
Lease liabilities	28	2,989	-
Provisions	24	7,448	9,249
Shareholder liabilities	25	5,000	5,000
Government grants		-	14
Income taxes payable		850	1,876
		138,565	133,884
Current liabilities held for sale	12	172,483	-
Total liabilities		396,718	244,852
Total equity and liabilities		515,692	368,439

The accompanying notes form an integral part of this consolidated statement of financial position.

Bad Soden, 27 April 2020

Siegfried M. Schabel, Director and CEO

Patrick J. McGlynn, Prokurist and CFO

Consolidated statement of changes in equity for the year ended 31 December 2019

	Issued capital € '000	Share premium € '000	Treasury shares € '000	Foreign currency reserve € '000	Pension Reserve € '000
As at 1 January 2018	25	34,503	(4)	4,598	(14,807)
Net (loss) / profit for the year	-	-	-	-	-
Other comprehensive profit	-	-	-	927	595
Total comprehensive income / (loss)	-	-	-	927	955
Dividend paid by subsidiaries	-	-	-	-	-
Dividend paid to equity shareholder
Capital increase (note 30)	-	6,759	-	-	-
Capital investment by NCI (note 30)	-	-	-	-	(802)
As at 31 December 2018	25	41,262	(4)	5,525	(15,014)
Effect resulting from initially applying IFRS 16	-	-	-	-	-
As at 01-01.2019	25	41,262	(4)	5,525	(15,014)
Net (loss) / profit for the year	-	-	-	-	-
Other comprehensive profit / (loss)	-	-	-	2,694	(1,574)
Total comprehensive profit / (loss)	-	-	-	2,694	(1,574)
Dividend paid by subsidiaries	-	-	-	-	-
Dividends paid to equity shareholder	-	-	-	-	-
As at 31 December 2019	25	41,262	(4)	8,218	(16,588)

	Retained earnings € '000	Owners of parent total € '000	Non controlling interest € '000	Total equity € '000
As at 1 January 2018	97,778	122,093	9,201	131,294
Net (loss) / profit for the year	(1,411)	(1,411)	454	(957)
Other comprehensive profit	-	1,522	(143)	1,379
Total comprehensive income / (loss)	(1,411)	111	311	422
Dividend paid by subsidiaries	-	-	(336)	(336)
Dividend paid to equity shareholder	(5,000)	(5,000)	-	(5,000)
Capital increase (note 30)	-	6,759	-	6,759
Capital investment by NCI (note 30)	(1,354)	(2,156)	(7,396)	(9,552)
As at 31 December 2018	90,013	121,807	1,780	123,587
Effect resulting from initially applying IFRS 16	(57)	(57)	-	(57)
As at 01-01.2019	89,956	121,750	1,780	123,530
Net (loss) / profit for the year	(268)	(268)	153	(115)
Other comprehensive profit / (loss)	-	1,120	(33)	1,087
Total comprehensive profit / (loss)	(268)	852	120	972
Dividend paid by subsidiaries	-	-	(527)	(527)
Dividends paid to equity shareholder	(5,000)	(5,000)	-	(5,000)
As at 31 December 2019	84,688	117,602	1,373	118,975

See note 25 for definition of equity and reserves

	Note	2019 € '000	2018 € '000
Operating activities
Loss / (profit) before tax on continuing activities	11	(5,437)	123
Adjustments to reconcile profit before tax to net cash flows - continuing operations:
Non-cash items:
Depreciation and impairment of property, plant and equipment	13	4,157	4,015
Amortisation and impairment of intangible assets	14	3,075	2,637
Depreciation right to use assets		3,622	-
Impairment of investment in associate company	10	-	365
Share of losses of associate companies	10	-	494
(Profit) on disposal of property, plant and equipment	9.1,9.2	(7)	(4)
Net loss / (gain) on release of excess contingent consideration	9.1,9.2,20	19	(9)
Finance income	9.5,9.1	(237)	(361)
Finance expense	9.6	2,829	2,358
Gains / (losses) on financial instruments	18,20,27	-	159
Non-cash movement in provision and pension liabilities	23,24	4,642	1,337
Working capital adjustments:
Increase in trade and other receivables		6,377	800
Increase in inventories	16	(5,286)	(5,856)
Increase in accounts payable and customer advances		(531)	4,343
Spend on provisions and pensions	23,24	(3,434)	(6,303)
Income tax paid		(1,753)	(4,807)
Net cash inflows from operating activities - continuing operations		8,036	(709)
Net cash inflows from operating activities - discontinued operations		19,026	10,061
Net cash inflows from operating activities - continuing and discontinued operations		27,062	9,352

		2019 €'000	2018 €'000
Investing activities
Proceeds from the sale of property, plant and equipment	830	64
Purchase of property, plant and equipment ^*	13	(4,615)	(4,779)
Purchase / cost of intangible assets	14	(3,775)	(1,369)
Proceeds from sale of intangible assets to entities held for sale	14	9,945	-
(Repayments) / new loans with related parties	18,20,30	(171)	(249)
Proceeds from sale of investment in associate company	10	2,156	-
Investment in entities held for sale		(10,452)	(1,256)
Acquisition of non-controlling interest		-	(2,798)
Acquisition of subsidiary	5	-	(291)
Contribution to Joint Venture	10	-	(52)
Contingent consideration paid	20	(159)	-
Interest received from third parties		305	373
Interest received from entities held for sale		2,122	2,192
Net cash outflows used by investing activities - continuing operations		(3,815)	(8,165)
Net cash outflows used by investing activities - discontinuing operations	12	(4,848)	(5,722)
Net cash outflows used by investing activities - continuing and discontinued activities		(8,663)	(13,887)
Financing activities
Repayment of finance lease liability obligations	20	-	(35)
Repayment of lease obligations		(3,537)	-
New third party borrowings drawn down	20	7,444	4,788
New borrowings to discontinued operations	20,30	(10,250)	(3,314)
Repayment of third party borrowings	20	(215)	-
Interest paid to entities for held for sale		(405)	(662)
Interest paid to third parties		(3,615)	(923)
Distributions received from entities held for sale		11,233	6,348
Distributions paid to equity-holders		(5,000)	-
Transfers to held for sales entities under Group tax relief		(2,777)	(2,529)
Net cash used in financing activities - continuing operations		(7,122)	3,853
Net cash used in financing activities of discontinued operations	12	(6,001)	(2,341)
Net cash outflows used in financing activities -continuing and discontinued activities		(13,123)	1,512
Net increase / (decrease) in cash and cash equivalents		5,276	(3,023)
Net foreign exchange difference		878	(1,023)
Cash and cash equivalents at 1 January	19	44,301	48,345
Cash and cash equivalents at 31 December thereof:	19	50,455	44,301
Cash and cash equivalents - continuing activities		24,835	27,480
Cash and cash equivalents - discontinued activities	12	25,620	16,821

1. Corporate information

Corporate details and control

The consolidated financial statements of MEC Global GmbH (referred to hereafter as "the Group" or "MEC") for the year ended 31 December 2019 were authorised for issue in accordance with a resolution of the Board of Directors at their meeting held on 27 April 2020 in Bad Soden, Germany. This is also the date that the financial statements were issued to the MEC supervisory board. The Board of Directors do not have the authority to amend the financial statements after they are issued.

MEC Global GmbH is a limited liability company incorporated and domiciled in Germany, with a registered office address located at Messer Platz 1, 65812 Bad Soden, Germany.

The majority shareholder is MIG Holding GmbH, a company under the direct and indirect control of the Messer family. The parent company of MEC Global GmbH produces financial statements available for public use.

Main activities

The Group is involved in the following activities:

―	Castolin Eutectic The manufacture and worldwide distribution of specialised Castolin Eutectic products for the repair of wear damaged metal surfaces, speciality solutions for wear protection and preventative maintenance of any type of metal surface in an industrial environment, provision of technical solutions and advisory services, the preparation of prepared parts and solutions for industrial high wear problems and providing specialist services through the Castolin Service concept. This business is marketed using the Castolin, Castolin Service, Eutectic, Messer, Nevax, Monitor, OilTec, US Forge, Whertec and FMP brand names. Castolin Eutectic is wholly included in Assets held for sales.
―	Messer Cutting Systems The design, manufacture and distribution of specialised thermal cutting machines for metal working industries. This also includes machine installation, modernisation, repair services, the provision of spare parts and consumable materials under the Messer Cutting Systems brand name. The design, manufacture and distribution of oxyfuel technology equipment and systems for oxyfuel welding, cutting, soldering and heating products sold under the Messer brand name.
―	Spectron The manufacture and distribution of Gas Supply System regulator equipment designed and developed for the safe handling, sealing and maintenance of purity of gases under the Spectron brand name.
―	Analytical and Medical Equipment The design, development, manufacture, assembly of analytical and diagnostic instrumentation equipment and the sale and distribution of related consumables for the health industry.

DistributionsAt a shareholder meeting on 17 December 2019 in Bad Soden, Germany, the shareholders decided to declare a distribution in the amount of € 5,000,000. This dividend is due to be paid on 2 July 2020. The dividend declared in December 2018 amounting to € 5,000,000 was paid in full during July 2019.

Comparative amounts

The comparative figures are for the twelve-month accounting period ended 31 December 2018. The comparative consolidated statement of profit or loss has been restated, in line with IFRS 5, to present continuing operations. Refer to accounting policies section d) Non-current assets held for sale and discontinued operations.

Reporting exemptions

BIT Analytical Instruments GmbH, Castolin GmbH, Castolin Eutectic GmbH, MEC Holding GmbH, Messer Cutting Systems GmbH, Castolin GmbH and Spectron Gas Control Systems GmbH, all of which are fully consolidated domestic subsidiaries, will use the exemption regulations pursuant to Section 264 (3) of the German Commercial Code (HGB) and therefore refrain from disclosing its annual financial statements including annex and management report 2019.

2. Accounting policies and basis for preparation

2.1 Basis of preparation

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the E.U. and in accordance with the provisions of Section 315e HGB.

The consolidated financial statements have been prepared on a historical cost basis, except for financial assets at fair value through profit or loss and derivative financial instruments that have been measured at fair value.

The consolidated financial statements are presented in euros and all values are rounded to the nearest thousand (€ '000), except when otherwise indicated.

The 2018 comparative amounts in the profit and loss account have been restated for continuing activities only. This is to ensure an accurate comparison of the financial information in accordance with IFRS 5.

2.2 Basis of consolidation

The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 December 2019. The Group controls an investee if and only if the Group has:

•	Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee)
•	Exposure, or rights, to variable returns from its involvement with the investee, and
•	The ability to use its power over the investee to affect its returns

Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

•	The contractual arrangement with the other vote holders of the investee
•	Rights arising from other contractual arrangements
•	The Group's voting rights and potential voting rights

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the noncontrolling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without loss of control, is accounted for as an equity transaction.

If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity (excluding actuarial gains or losses), while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.

Non-controlling interests represent the portion of the profit or loss and net assets that are not held by the Group. Interests in Messer Griesheim Saldatura srl (Italy), Castolin Kaynak Sanayi ve Ticaret Ltd Sti (Turkey), Eutectic Castolin (West Africa) Ltd, Messerecuador SA (Ecuador), Castolin Eutectic (Thailand) Co. Ltd and Castolin Eutectic Saudi Arabia LLC not held by the Group and are presented separately in the consolidated statement of profit or loss and the consolidated statement of comprehensive income as well as within equity in the consolidated statement of financial position, separate from the owner of the parent's equity.

The significant accounting policies adopted by MEC Global GmbH and its subsidiaries (the Group) are set out below.

a) Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred at the acquisition date and the fair value amount of any non-controlling interest in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interest in the acquiree at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition related costs are expensed as incurred and included in other operating expenses.

Goodwill arose on the acquisition of MEC Acquisitions GmbH in February 2005 and those of subsequent acquisitions. Goodwill arising on the acquisition of foreign operations is treated as an asset of the foreign operation.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.

If the business combination is achieved in stages, the previously held equity is re-measured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss.

Any contingent consideration to be transferred by the Group will be recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IFRS 9 Financial Instruments, is measured at fair value with changes in fair value recognised in the statement of profit or loss in accordance with IFRS 9. Other contingent consideration that is not within the scope of IFRS 9, is measured at fair value at each reporting date, with changes in fair value recognised in profit or loss.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest, and the previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all the liabilities assumed and reviews the procedures used to measure the amounts recognised at the acquisition date. If the assessment still results in an excess of fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss.

The impairment difference is initially written off against any goodwill balance, followed by intangible assets such as intellectual property and then other tangible assets within that division and is expensed to the statement of profit or loss in that accounting period.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, each newly acquired business (including goodwill) acquired in a business combination is, from the acquisition date, allocated to each of the acquirer's cash generating units, or group of cash generating units, that is expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.

b) Investment in associate companies

An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. The considerations made in determining significant influence are similar to those necessary to determine control over subsidiaries.

The Group's investments in its associate companies are accounted for using the equity method.

Under the equity method, the investment in an associate is initially carried at cost. The carrying amount of the investment is adjusted to recognise changes in the Group's share of net assets of the associate since acquisition date, subject to any adjustments for relative capital investments as set out in more detail at note 10. Goodwill relating to the associate is included in the carrying amount of the investment and not tested for impairment individually.

The statement of profit or loss reflects the Group's share of the results of operations of the associate. Any change in OCI of those investees is presented as part of the Group's OCI. In addition, when there has been a change recognised directly in the equity of the associate, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associate companies are eliminated to the extent of the interest in the associate.

The aggregate of the Group's share of profit or loss of an associate is shown on the face of the statement of profit or loss outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate.

The financial statements of the associate are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group.

After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value, and then recognises the loss in "Share of (losses) / profits of associates" in the statement of profit or loss.

Upon loss of significant influence over the associate, the Group measures and recognises any retaining investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retaining investment and proceeds from disposal is recognised in profit or loss

c) Current versus non-current classification

The Group presents assets and liabilities in the statement of financial position based on a classification as current or non-current. An asset is shown as current when it is:

•	Expected to be realised or intended to be sold or consumed in the normal operating cycle;
•	Held primarily for the purpose of trading;
•	Expected to be realised within twelve months after the reporting period; or
•	Cash or cash equivalents unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

All other assets are classified as non-current.

A liability is shown as current when:

•	It is expected to be settled in the normal operating cycle;
•	It is held primarily for the purpose of trading;
•	It is due to be settled within twelve months after the reporting period; or
•	There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period

The Group classifies all other liabilities as non-current.

Deferred tax assets and liabilities are classified as non-current assets and liabilities.

d) Non-current assets held for sale and discontinued operations

The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Costs to sell are the incremental costs directly attributable to the disposal of an asset (disposal group), excluding finance costs and income tax expense.

The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Actions required to complete the sale should indicate that it is unlikely that significant changes to the sale will be made or that the decision to sell will be withdrawn. Management must be committed to the plan to sell the asset and the sale expected to be completed within one year from the date of the classification.

Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale. Assets and liabilities classified as held for sale are presented separately as current items in the statement of financial position.

A disposal group qualifies as a discontinued operation if it is a component of an entity that either has been disposed of, or is classified as held for sale, and:

•	Represents a separate major line of business or geographical area of operations;
•	Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or
•	Is a subsidiary acquired exclusively with a view to resale

Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the statement of profit or loss.

Additional disclosures are provided in note 12. All other notes to the financial statements include amounts for continuing operations, unless indicated otherwise.

e) Fair value measurement

The Group measures financial instruments, such as, derivatives at fair value at each balance sheet date. Fair values of financial instruments measured at amortised cost are disclosed. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

•	In the principal market for the asset or liability, or
•	In the absence of a principal market, in the most advantageous market for the asset or liability

The principal or the most advantageous market must be accessible to by the Group.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

•	Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
•	Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
•	Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation at the end of each reporting period.

The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions) without any deduction for transaction costs.

At each reporting date, senior management analyses the movements in the values of assets and liabilities which are required to be re-measured or re-assessed as per the Group's accounting policies.

Senior management also compares each of the changes in the fair value of each asset and liability with relevant external sources to determine whether the change is reasonable. For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. An analysis of fair values of financial instruments and measurement details are provided in note 27.

f) Revenue from contracts with customers

Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services. The Group has generally concluded that it is the principal in its revenue arrangements, because it typically controls the goods or services before transferring them to the customer.

Sale of goods

Revenue from the sale of goods is recognised at the point in time when control of the asset is transferred to the customer, generally on delivery of the equipment. The normal credit term is 30 to 60 days upon delivery.

The Group considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated (e.g. warranties). In determining the transaction price for the sale of equipment, the Group considers the effects of variable consideration, the existence of significant financing components, noncash consideration and consideration payable to the customer (if any).

Variable consideration

If the consideration in a contract includes a variable amount, the Group estimates the amount of consideration to which it will be entitled in exchange for transferring the goods to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty with the variable consideration is subsequently resolved. Some contracts for the sale of goods provide customers with a right of return and volume rebates. The rights of return and volume rebates give rise to variable consideration.

Rights of return

Certain contracts provide a customer with a right to return the goods within a specified period. The Group uses the expected value method to estimate the goods that will not be returned because this method best predicts the amount of variable consideration to which the Group will be entitled. The requirements in IFRS 15 on constraining estimates of variable consideration are also applied in order to determine the amount of variable consideration that can be included in the transaction price. For goods that are expected to be returned, instead of revenue, the Group recognises a refund liability. A right of return asset (and corresponding adjustment to cost of sales) is also recognised for the right to recover products from a customer.

Volume rebates

The Group provides retrospective volume rebates to certain customers once the quantity of products purchased during the period exceeds a threshold specific in the contract. Rebates are offset against the amounts payable by the customer. To estimate the variable consideration for the expected future rebates, the Group applies the most likely amount method for contracts with a single-volume threshold and the expected value method for contracts with more than one volume threshold. The selected method that best predicts the amount of variable consideration is primarily driven by the number of volume thresholds contained in the contract. The Group then applies the requirements on constraining estimates of variable consideration and recognises a refund liability for the expected future rebates.

Significant financing component

Generally, the Group receives short-term advances from its customers. Using the practical expedient in IFRS 15, the Group does not adjust the promised amount of consideration for the effects of a significant financing component if it expects, at contract inception, that the period between the transfer of the promised good or service to the customer and when the customer pays for that good or service will be one year or less.

Warranty obligations

The Group typically provides warranties for general repairs of defects that existed at the time of sale. These assurance-type warranties are accounted for under IAS37 Provisions, Contingent Liabilities and Contingent Assets. Refer to the accounting policy on warranty provisions in section p) Provisions.

In some instances the customer has an option to purchase warranty separately. These service-type warranties comprise two performance obligations because the promises to transfer the equipment and to provide the service-type warranty are capable of being distinct. Using the relative stand-alone selling price method, a portion of the transaction price is allocated to the service-type warranty and recognised as a contract liability. Revenue is recognised over the period in which the service-type warranty is provided based on the time elapsed.

Installation services

The Group provides installation services that are bundled together with the sale of equipment to the customer. Contracts for sales of equipment and installation services are comprised of two performance obligations because the promises to transfer equipment and provide installation services are capable of being distinct and separately identifiable. Accordingly, the Group allocates the transaction price based on the relative stand-alone selling prices of the equipment and installation services.

The Group recognises revenue from installation services over time, using an input method to measure progress towards complete satisfaction of the service, because the customer simultaneously receives and consumes the benefits provided by the Group.

Contract balances

Contract assets

A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration that is conditional.

Trade receivables

A receivable represents the Group's right to an amount of consideration that is unconditional (i.e. only a passage of time is required before payment of the consideration is due). Refer to accounting policies of financial assets in section 1) financial instruments - initial recognition and subsequent measurement.

Contract liabilities

A contract liability is the obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Group transfers goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Group performs its obligations under the contract.

Cost to obtain a contract

In some instances, the Group pays sales commission to its employees for contracts obtained for bundled sales of equipment and installation services. The Group has elected to apply the optional practical expedient for costs to obtain a contract which allows the Group to immediately expense sales commissions (included under employee benefits and part of cost of sales) because the amortisation period of the asset that the Group otherwise would have used is one year or less.

Rendering of services

Revenue from Castolin Services and long-term maintenance contracts is recognised by reference to the stage of completion. Stage of completion is measured by reference to labour hours incurred to date as a percentage of total estimated labour hours for each contract. When the contract outcome cannot be measured reliably, revenue is recognised only to the extent that the expenses incurred are eligible to be recovered.

Interest income

For all financial instruments measured at amortised cost interest income is recorded using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. Interest income is included in finance income in the statement of profit or loss.

Dividends

Income is recognised when the Group's right to receive the payment is established, which is generally when shareholders approve the dividend.

Rental income

Rental income arising from operating leases on investment properties is accounted for on a straight-line basis over the lease terms and is included in revenue due to its operating nature.

g) Taxes

Current income tax

Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where the Group operates and generates taxable income.

Current income tax relating to items recognised directly in equity is recognised in equity and not in the statement of profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

Deferred tax

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

•	When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss,
•	In respect of taxable temporary differences associated with investments in subsidiaries and associates, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except:

•	When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss,
•	In respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.)

Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in OCI or profit or loss as appropriate.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current income tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity or recognised tax group and the same taxation authority.

Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognised subsequently if new information about facts and circumstances change. The adjustment is either treated as a reduction in goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement period or recognised in profit or loss. See note 22 for further details of deferred tax.

Sales and Value Added Taxes

Revenues, expenses and assets are recognised net of the amount of sales / value added tax, except:

•	when the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item, as applicable
•	when receivables and payables are stated with the amount of sales tax included.

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.

h) Foreign currencies

The Group's consolidated financial statements are presented in euros, which is also the parent company's functional currency. For each entity, the Group determines the functional currency of that entity and items included in the financial statements of each entity are measured using that functional currency. The Group uses the direct method of consolidation and on disposal of a foreign operation, the gain or loss that is reclassified to profit or loss reflects the amount that arises using this method.

Transactions and balances

Transactions in foreign currencies are initially recorded by the Group's entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition.

Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rate of exchange at the reporting date.

Differences arising on settlement or translation of monetary items are recognised in profit or loss.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions.

Group companies

On consolidation, the assets and liabilities of foreign operations are translated into euros at the rate of exchange prevailing at the reporting date and their statements of profit or loss are translated at exchange rates prevailing at the dates of the transactions. The exchange differences arising on translation for consolidation are recognised in OCI. On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is recognised in profit or loss.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the spot rate of exchange at the reporting date.

The Group's main trading currencies (expressed in euro) are as follows:

Foreign currency		1 Jan 2018 Opening	2018 Average	31 Dec 2018 Closing	2019 Average	31 Dec 2019 Closing
British Pound	(GBP)	1.12710	1.12973	1.11791	1.14166	1.17536
Canadian Dollar	(CAD)	0.66494	0.65327	0.64082	0.67334	0.68503
Chinese Yuan	(RMB)	0.12813	0.12807	0.12698	0.12925	0.12787
Indian Rupee	(INR)	0.01305	0.01239	0.01254	0.01267	0.01247
Japanese Yen	(JPY)	0.00741	0.00768	0.00795	0.00819	0.00820
Russian Ruble	(RUB)	0.01441	0.01353	0.01254	0.01382	0.01429
US Dollar	(USD)	0.83382	0.84722	0.87336	0.89295	0.89015

i) Property, plant and equipment

Construction in progress, property, plant and equipment are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of the property, plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced at intervals, the Group depreciates them separately based on their specific useful lives. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the property, plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in profit or loss as incurred.

The present value of the expected cost for the restoration of an asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met. Refer to provisions (note 24) for further information about the recorded restoration provision.

Property, plant and equipment transferred from customers is initially measured at the fair value at the date on which control is obtained.

Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets as follows:

• Freehold buildings	20 - 33 years
• Leasehold buildings and improvements	over period of lease
• Plant, machinery and equipment	5 - 15 years
• Office equipment	3 - 5 years
• Motor vehicles	3 - 5 years

An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the profit or loss when the asset is derecognised.

The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year-end and adjusted prospectively, if appropriate.

j) Leases

The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

Group as a lessee

The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Group recognises lease liabilities to make lease payments and Right of Use Assets representing the right to use the underlying assets.

i) Right of Use Assets

The Group recognises Right of Use Assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right of Use Assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any re-measurement of lease liabilities. The cost of Right of Use Assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right of Use Assets are depreciated on a straight-line basis over the lease term.

If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. The Right of Use Assets are also subject to impairment. Refer to the accounting policies in section n) Impairment of non-financial assets.

The present value of the expected cost for the restoration of an asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met. Refer to provisions (note 24) for further information about the recorded restoration provision.

ii) Lease liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including insubstance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is re-measured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.

The Group's lease liabilities are set out in note 28.

iii) Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short-term leases and leases of low value assets are recognised as expense on a straight-line basis over the lease term.

Group as lessor

Leases in which the Group does not transfer substantially all the risks and rewards of ownership of an asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned.

k) Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and the related expenditure is reflected in profit or loss in the year in which the expenditure is incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite.

Intangible assets with finite lives are amortised over their useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives, except intellectual properties, is recognised in the statement of profit or loss in the expense category that is consistent with the function of the intangible assets.

Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the statement of profit or loss when the asset is derecognised.

Research and development costs

Research costs are expensed as incurred. Development expenditure on an individual project is recognised as an intangible asset, when the Group can demonstrate:

•	the technical feasibility of completing the intangible asset so that it will be available for use or sale
•	its intention to complete and its ability to use or sell the asset
•	how the asset will generate future economic benefits
•	the availability of resources to complete the asset
•	the ability to measure reliably the expenditure during development.

Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit, which management believe is not more than ten years. Amortisation is recorded within cost of sales. During the period of development, the asset is tested for impairment annually.

Intellectual properties

Patents, trademarks, know-how, customer contracts and other intellectual properties acquired by the Group are assessed to have a finite economic life and are stated at cost less accumulated amortisation and impairment losses. Intangible assets with economic finite lives are amortised. Amortisation is charged to other operating expenses in the statement of profit or loss on a straight-line basis over the estimated useful lives of intangible assets.

The estimated useful lives are as follows:

• Intellectual properties	8 - 10 years
• Trade names	50 years
• Technical databases	10 years
• Patents and licences, know-how	10 years
• Customer relationships	2 - 12 years
• Non-compete agreements	5 years

Software

Acquired computer software where it is expected to have a useful life in excess of one year is capitalised as an intangible asset. Computer software is amortised over a period between three and five years and recognised according to the function of the underlying assets.

1) Financial instruments - initial recognition and subsequent measurement

A financial instrument is any contract that gives rise to a financial asset in one entity and a financial liability or equity instrument in another entity.

Financial assets

Initial recognition and measurement

The classification of the financial assets at initial recognised depends on the financial asset's contractual cash flow characteristics and the Group's business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under IFRS 15. Refer to the accounting policies in section f) revenue from contracts with customers.

In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are 'solely payments of principal and interest (SPPI)' on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.

The Group's business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. The Group's business model is to hold financial assets arising from trading activities to collect contractual cash flows.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e. the date that the Group commits to purchase or sell the asset.

The Group's financial assets include cash and short-term deposits, trade and other receivables, loans and other receivables, quoted and unquoted financial instruments and derivative financial instruments and are classified either as financial assets at amortised cost of as fair value through profit or loss.

Subsequent measurement

For purposes of subsequent measurement, financial assets are classified in two categories:

―	Financial assets are amortised cost (debt instruments)
―	Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or re-purchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, irrespective of the business model. Notwithstanding the criteria for debt instruments to be classified at amortised cost or at fair value through OCI, as described above, debt instruments may be designated at fair value through profit or loss on initial recognition if doing so eliminates or significantly reduces, an accounting mismatch.

Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value presented as finance costs (negative net changes in fair value) or finance income (positive net changes in fair values) in the statement of profit or loss.

The Group has not newly designated any financial assets at fair value through profit or loss in 2019. As at 31 December 2019, no financial assets have been measured at fair value through profit or loss. See note 18 for further details (2018: € 148,552).

Financial assets at amortised cost (debt instruments)

This is the most relevant asset category to the Group. The Group measures financial assets at amortised cost if both of the following conditions are met:

―	the financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows and,
―	the contractual terms of the financial asset gives rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding

Financial assets at amortised cost are subsequently measured at amortised cost using the effective interest rate (EIR) method and are subject to impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the statement of profit or loss. The losses arising from impairment are recognised in finance costs in the statement of profit or loss for loans and in cost of sales or other operating expenses for receivables.

De-recognition

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised (i.e., removed from the Group's consolidated statement of financial position) when:

•

the rights to receive cash flows from the asset have expired or,

•

the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a "pass through" arrangement; and either

(a)	the Group has transferred substantially all the risks and rewards of the asset, or
(b)	the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a passthrough arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of the Group's continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Impairment of financial assets

Further disclosures relating to impairment of financial assets are also provided in Trade and other receivables note 17;

The Group recognizes an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate.

ECLs are in general recognized in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs for those customers not individually assessed. Therefore, the Group does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forwardlooking factors specific to the debtors and the economic environment.

The Group considers a financial asset as having a higher credit risk when contractual payments are 90 days past due and considers a financial asset in default when contractual payments are overdue by more than 180. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows. This is typically the case when the respective receivable is overdue by more than 3 years.

The Group uses a provision matrix to calculate ECLs for trade receivables and contract assets. The provision rates are based on days past due. The provision matrix is initially based on the Group's expectation of loss rates.

The assessment of ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions. The Group's historical credit loss experience and forecast of economic conditions may also not be representative of customer's actual default in the future.

Financial liabilities

Initial recognition and measurement

Financial liabilities are classified by the Group and determined, at initial recognition, as financial liabilities at fair value through profit or loss, liabilities at amortised costs or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, net of directly attributable transaction costs.

The Group's financial liabilities include trade and other payables, loans and borrowings, including bank overdrafts, financial guarantee contracts and derivative financial instruments.

Subsequent measurement

The measurement of financial liabilities depends on their classification as described below:

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are acquired for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition and only if the criteria of IFRS 9 are satisfied.

The Group has total financial liabilities at fair value through profit or loss at 31 December 2019 of € 288,167 (2018: € 354,816), which are made up of:

•	deferred contingent consideration arising from acquisitions of € 189,879 (2018: € 330,032), see note 20
•	forward currency contract of € 98,288 (2018: € 24,784), see note 26.

Loans and borrowings

This is the liability category most relevant to the Group. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised and through the EIR amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the EIR. The EIR amortisation is included in finance costs in the statement of profit or loss.

De-recognition

A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the de-recognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss.

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position, if there is a currently enforceable legal right to offset the recognised amounts, and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.

m) Inventories

Inventories are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition are accounted for as follows:

•	Production supplies and merchandise - purchase cost on a first in, first out basis,
•	Finished goods and work in progress - cost of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity but excluding borrowing costs,
•	Initial cost of inventories includes the transfer of gains and losses on qualifying cash flow hedges, recognised in other comprehensive income, in respect of the purchases of raw materials.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated selling costs necessary to make the sale. See note 16 for further details of inventories.

n) Impairment of non-financial assets

Further disclosures relating to impairment of non-financial assets are also provided in the following notes;

• Intangible assets	Note 14
• Goodwill and intangible assets with indefinite lives	Note 15

The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or cash-generating unit's (CGU) fair value less costs to sell and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets.

When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future cash flows are discounted to their present value using a post-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In management's view, the use of a post-tax rate and use of post-tax cash flows does not lead to a different assessment of recoverability, relative to the use of pre-tax rates and pre-tax cash flows as set out in IAS 36.56. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.

The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group's CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of four years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fourth year.

Impairment losses of continuing operations, including impairments on inventories, are recognised in the statement of profit or loss in expense categories consistent with the function of the impaired asset.

For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset's or CGU's recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognised.

The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of profit or loss.

The impairment difference is initially written off against any goodwill balance, followed by intangible assets such as intellectual property and then other tangible assets within that division and is expensed to the statement of profit or loss in that accounting period.

The following assets have specific characteristics for impairment testing:

Goodwill

Goodwill is tested for impairment annually as at 31 December and when circumstances indicate that the carrying value may be impaired.

Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than their carrying amount, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods.

o) Cash and short-term deposits

Cash and short-term deposits in the statement of financial position comprise cash at banks and on hand and short-term deposits with a maturity term that is a function of local commercial law and practice. Shortterm deposits with a short maturity of up to three months qualify as cash equivalents when they are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and short-term deposits as defined above, net of outstanding bank overdrafts as they are considered an integral part of the Group's cash management.

p) Treasury shares

Own equity instruments that are re-acquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group's own equity instruments. Any difference between the carrying amount and the consideration, if re-issued, is recognised in share premium. Voting rights related to treasury shares are nullified for the Group and no dividends are allocated to them. For further details of treasury shares see note 25.

q) Provisions and contingent liabilities

Provisions

General

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of profit or loss net of any reimbursement.

If, for long-term provisions, the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

Product warranty

Provision for product warranty-related costs is recognised when the product is sold or service provided to the customer. Initial recognition is based on historical experience. The initial estimate of warranty-related costs is revised annually.

Restructuring provisions

Restructuring provisions are recognised only when the Group has a constructive obligation, which is when a detailed formal plan identifies the business or part of the business concerned, the location and number of employees affected, a detailed estimate of the associated costs and appropriate timeline, and the employees affected have been notified of the plan's main features.

Restoration liability

The provision for restoration costs arose on the entering into lease rental contracts on properties used for manufacturing activities. This involves making the building suitable for efficient operations and normally the contracts involve restoration and de-commissioning costs to restore the buildings to their original condition.

Restoration costs are provided at the present value of expected costs to settle the obligation using estimated cash flows and are recognised as part of the cost of that particular asset. The cash flows are discounted at a current pre-tax rate that reflects the risks specific to the restoration liability.

The unwinding of the discount is expensed as incurred and recognised in the statement of profit or loss as a finance cost. The estimated future costs of restoration are reviewed annually and adjusted as appropriate.

Changes in the estimated future cost or in the discount rate applied are added to or deducted from the cost of the asset. A provision is only recognised where the requirement for restoration is specifically stated in the lease contract.

As at 31 December 2019, the value of this provision was € 939,712 (2018: € 1,251,791). This amount is contained within restructuring provision in note 24.

Contingent liabilities

Contingent liabilities are liabilities whose outcome will be confirmed only on the occurrence or nonoccurrence of uncertain future events outside the Group's control. Contingent liabilities, where the possibility of outflow of resources is not remote are explained in note 29.

Contingent assets

Contingent assets are only recognised as assets when the amount is virtually certain to be recoverable.

r) Pensions and other post-employment benefits

The Group operates a number of defined benefit and defined contribution post-employment benefit schemes some of which involve separately administered funds.

The cost of providing benefits under the defined benefit pension plans is determined separately for each plan using the projected unit credit method, with actuarial valuations being carried out at the end of each reporting period.

Re-measurement comprising of actuarial gains and losses, the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and the return on plan assets (excluding amounts included in net interest on the defined benefit liability), are recognised immediately in the statement of financial position with a corresponding debit or credit through OCI in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.

Past service costs are recognised in profit of loss on the earlier of;

•	The date of the plan amendment or curtailment, and
•	The date that the Group recognises related restructuring costs or termination benefits.

Net interest is calculated by applying the discount rate to the net defined benefit liability or asset and is shown within finance costs. As set out in note 9.4, the Group recognises service cost, comprising current service cost, past service cost, gains or losses on curtailments and non-routine settlements in the net defined benefit obligation under "cost of sales", "administration expenses" and "selling and distribution expenses", in consolidated statement of profit or loss (by function):

Defined benefit asset or liability comprises the present value of the defined benefit obligation (using a discount rate based on higher quality corporate bonds) less the fair value of plan assets out of which the obligations are to be settled. Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurance policies. Plan assets are not available to the creditors of the Group nor can they be paid directly to the Group.

Fair value is based on market price information and in the case of quoted securities it is the published bid price. The value of any defined benefit asset recognised is limited to the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.

Payments to defined contribution retirement benefit plans are recognised as an expense in the statement of profit or loss when employees have rendered service entitling them to the contributions.

s) Trade and other payables

Trade and other payables are stated at their amortised cost.

Holiday pay accruals

The Group accrues for the estimated cost of employee holidays, to the extent that a future liability (settled in either cash payments or annual leave/ future service foregone) is due to the employee.

Jubilee accruals

The Group accrues for the cost of jubilee or anniversary payments to employees based on actuarial assumptions of the likely amount payable discounted to current value.

2.4 Changes in accounting policies and disclosures

New and amended standards and interpretations

The Group applied IFRS 16 for the first time. The nature and effect of the change as a result of adoption of the new accounting standard is described below. Several other amendments and interpretations apply for the first time in 2019, but do not have an impact on the consolidated financial statements of the Group. The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.

The nature and impact of each amendment is described below:

IFRS 16 Leases

IFRS 16 was issued in January 2016 and replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees - leases of 'low-value' assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of up to 12 months duration). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the Right of Use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the Right of Use Asset.

Lessees will also be required to re-measure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the Right of Use Asset.

Lessor accounting under IFRS 16 is substantially unchanged from the current accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases.

IFRS 16, which is effective for annual periods beginning on or after 1 January 2019, requires lessees and lessors to make more extensive disclosures than under IAS 17.

Transition to IFRS 16

The Group has adopted IFRS 16 under the modified retrospective approach. Under this approach, the cumulative effect of applying IFRS 16 is recognized as an adjustment to equity at the date of initial application, i.e. 1 January 2019. The Group has applied the standard to contracts that were previously identified as leases applying IAS 17 and IFRIC 4. The Group has, as permitted by the standard, continued to treat short-term leases of less than 12 months duration and leases where the underlying asset is worth less than EUR 5,000 as a direct charge to profit and loss and not as leases under IFRS 16. The Group therefore does not apply the standard to contracts that were not previously identified as containing a lease applying IAS 17 and IFRIC 4.

Management of the individual subsidiaries assess the likelihood of whether lease contracts will be extended or not. Where a property rental contract has more than five years to the termination date, management will not usually make an evaluation of the need to extend the contract. Where a property rental contract has less than five years to the termination date, management will usually perform an evaluation of whether they will extend the contract. Where this is probable, the extension is reflected in the financial liabilities and right to use assets. Where it is not probable that the contract will be extended, the property rental contract remains unadjusted at the original termination date.

Management generally does not perform an evaluation of lower-value plant or motor lease contracts to determine if these are likely to be extended or not. Therefore, these leases are reflected in the financial statements at the values determined by the original termination date.

During 2019, the Group has performed a detailed impact assessment of IFRS 16. In summary, the impact of IFRS 16 adoption at 1 January 2019 resulted in the following;

•	Depreciation expense increased because of the depreciation of additional assets recognised. This resulted in increases in Cost of sales' and Operating expenses' of € 1,642,377 and € 1,979,379 respectively (note 28)
•	Interest charged on leases resulted in an increase in finance costs of € 195,081 in the year (see note 9.6)
•	Rent expense included in Cost of sales' and Operating expenses', relating to previous operating leases, decreased by € 1,587,373 and € 1,789,030 respectively.
•	Right of use assets, within Property, plant and equipment, increased by € 10,543,340 and lease liabilities increased by € 10,564,777 (see note 28). Assets accounted for under finances leases in 2018 (€ 3,811,402) are now accounted for under Right of use assets within Assets held for sale (note 12).

The weighted average incremental borrowing rate during the financial year was 2.26%.

IFRIC Interpretation 23 Uncertainty over Income Tax Treatment

The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 Income Taxes. It does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following:

•	Whether an entity considers uncertain tax treatments separately
•	The assumptions an entity makes about the examination of tax treatments by taxation authorities
•	How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates
•	How an entity considers changes in facts and circumstances

The Group determines whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments and uses the approach that better predicts the resolution of the uncertainty.

The Group applies significant judgement in identifying uncertainties over income tax treatments. Since the Group operates in a complex multinational environment, it assessed whether the Interpretation had an impact on its consolidated financial statements.

Upon adoption of the Interpretation, the Group considered whether it has any uncertain tax positions, particularly those relating to transfer pricing. The Company's and the subsidiaries' tax filings in different jurisdictions include deductions related to transfer pricing and the taxation authorities may challenge those tax treatments. The Group determined, based on its tax compliance and transfer pricing study, that it is probable that its tax treatments (including those for the subsidiaries) will be accepted by the taxation authorities. The Interpretation did not have an impact on the consolidated financial statements of the Group.

Amendments to IFRS 9: Prepayment Features with Negative Compensation

Under IFRS 9, a debt instrument can be measured at amortised cost or at fair value through other comprehensive income, provided that the contractual cash flows are 'solely payments of principal and interest on the principal amount outstanding' (the SPPI criterion) and the instrument is held within the appropriate business model for that classification. The amendments to IFRS 9 clarify that a financial asset passes the SPPI criterion regardless of an event or circumstance that causes the early termination of the contract and irrespective of which party pays or

receives reasonable compensation for the early termination of the contract. These amendments had no impact on the consolidated financial statements of the Group.

Amendments to IAS 19: Plan Amendment, Curtailment or Settlement

The amendments to IAS 19 address the accounting when a plan amendment, curtailment or settlement occurs during a reporting period. The amendments specify that when a plan amendment, curtailment or settlement occurs during the annual reporting period, an entity is required to:

•	Determine current service cost for the remainder of the period after the plan amendment, curtailment or settlement, using the actuarial assumptions used to re-measure the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event;
•	Determine net interest for the remainder of the period after the plan amendment, curtailment or settlement using: the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event; and the discount rate used to re-measure that net defined benefit liability (asset).

The amendments also clarify that an entity first determines any past service cost or a gain or loss on settlement, without considering the effect of the asset ceiling. This amount is recognised in profit or loss. An entity then determines the effect of the asset ceiling after the plan amendment, curtailment or settlement. Any change in that effect, excluding amounts included in the net interest, is recognised in other comprehensive income.

The amendments apply to plan amendments, curtailments, or settlements occurring on or after the beginning of the first annual reporting period that begins on or after 1 January 2019, with early application permitted. These amendments will apply only to any future plan amendments, curtailments, or settlements of the Group.

Amendments to IAS 28: Long-term interests in associates and joint ventures

The amendments clarify that an entity applies IFRS 9 to long-term interests in an associate or joint venture to which the equity method is not applied but that, in substance, form part of the net investment in the associate or joint venture (long-term interests). This clarification is relevant because it implies that the expected credit loss model in IFRS 9 applies to such long-term interests.

The amendments also clarified that, in applying IFRS 9, an entity does not take account of any losses of the associate or joint venture, or any impairment losses on the net investment, recognised as adjustments to the net investment in the associate or joint venture that arise from applying IAS 28 Investments in Associates and Joint Ventures.

These amendments had no impact on the consolidated financial statements as the Group does not have longterm interests in its associate and joint venture.

Annual Improvements 2015-2017 Cycle

These improvements include:

IAS 12 Income Taxes

The amendments clarify that the income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distributions to owners. Therefore, an entity recognises the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognised those past transactions or events.

An entity applies those amendments for annual reporting periods beginning on or after 1 January 2019, with early application is permitted. When an entity first applies those amendments, it applies them to the income tax consequences of dividends recognised on or after the beginning of the earliest comparative period. Since the Group's current practice is in line with these amendments, the Group does not expect any effect on its consolidated financial statements.

IFRS 11 Joint Arrangements

A party that participates in, but does not have joint control of, a joint operation might obtain joint control of the joint operation in which the activity of the joint operation constitutes a business as defined in IFRS 3. The amendments clarify that the previously held interests in that joint operation are not re-measured.

An entity applies those amendments to transactions in which it obtains joint control on or after the beginning of the first annual reporting period beginning on or after 1 January 2019, with early application permitted. These amendments are currently not applicable to the Group but may apply to future transactions.

IAS 23 Borrowing Costs

The amendments clarify that an entity treats as part of general borrowings any borrowing originally made to develop a qualifying asset when substantially all of the activities necessary to prepare that asset for its intended use or sale are complete.

The entity applies the amendments to borrowing costs incurred on or after the beginning of the annual reporting period in which the entity first applies those amendments.

An entity applies those amendments for annual reporting periods beginning on or after 1 January 2019, with early application permitted. Since the Group's current practice is in line with these amendments, they had no impact on the consolidated financial statements of the Group.

IFRS 3 Business Combinations

The amendments clarify that, when an entity obtains control of a business that is a joint operation, it applies the requirements for a business combination achieved in stages, including re-measuring previously held interests in the assets and liabilities of the joint operation at fair value. In doing so, the acquirer re-measures its entire previously held interest in the joint operation.

An entity applies those amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2019, with early application permitted. These amendments will apply on future business combinations of the Group.

3. Significant accounting judgements, estimates and assumptions

The preparation of the Group's consolidated financial statements require management to make judgements, estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities, and the disclosure of contingent liabilities at the end of the reporting period. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.

Accounting judgements

In the process of applying the Group's accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the consolidated financial statements:

•

Assets held for sale - during the year, the Board of Directors announced its decision to dispose of Castolin Eutectic, the welding and services division of the group. Operations of Castolin Eutectic are classified as a disposal group held for sale. The Board considered the subsidiary to meet the criteria to be classified as held for sale at that date for the following reasons:

―	Castolin Eutectic is available for immediate sale and can be sold to the buyer in its current condition
―	The actions to complete the sale were initiated and expected to be completed within one year from the date of initial classification
―	A list of potential buyers have been identified and negotiations as at the reporting date are at an advanced stage
―	The shareholders approved the plan to sell on 11 July 2019.

•

For more details on the discontinued operation, refer to note 12.

•

Intellectual property - assets were capitalised and amortised over estimated useful economic lives based on the advice of professional valuation experts. Management's estimates are set out in note 2.3(k). Intellectual property assets arising on subsequent acquisitions were amortised between 5 to 12 years, which management consider appropriate on a case by case basis. The net carrying value of Intellectual property assets as at 31 December 2019 was € 11,016,915 (2018: € 24,635,936).

In relation to amortisation of intellectual properties, there are arguments in favour of expensing the amortisation of intellectual properties € 1,350,041 (2018: € 2,369,953) as part of cost of sales and selling and distribution costs. During the current and prior year none of the intellectual properties were deemed to be impaired by management.

However, it is management's judgement that it is more meaningful and relevant to the users of the accounts to show the expenditure separately on the face of the statement of profit or loss. See note 14.

•

Fair value measurement of contingent consideration - contingent consideration resulting from business combinations amounted to € 189,879 (2018: € 330,032). The determination of the fair value is based on discounting future expected cash outflows considering the probability of achieving each performance target and the appropriate discount factor both of which require significant management judgement as set out in note 27. The views of local management in re-assessing the likely future results have been considered through the use of their budget as the basis for the remeasurement calculation.

Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market conditions or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

•	Impairment of goodwill - management determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the "fair value less cost to sell" or the "value in use" of the cash-generating units to which the goodwill is allocated. Management considers that the "value in use" basis is the most appropriate method for the Group. Estimating a value in use amount requires management to make an estimate of the expected future cash flows from the cashgenerating unit and also to choose a suitable discount rate in order to calculate the net present value of those cash flows. During the current year, management deemed there to be no goodwill impaired and therefore € nil was expensed to the profit and loss (2018: € nil). See note 15 for further details. The carrying amount of goodwill at 31 December 2019 was € 21,447,352 (2018: € 25,491,894).
•	Deferred tax assets - are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. The Group has a total tax loss and tax credits carry forward at 31 December 2019 amounting to € 65,415,853 (2018: € 88,289,436) and of this amount, € 11,535,202 (2018: € 18,224,251) has qualified to be recognised as the basis for calculating deferred tax assets. Unrecognised tax losses at 31 December 2019 were € 53,880,651 (2018: € 70,065,185) and unrecognised timing differences were € 5,281,571 (2018: € 4,187,192). These losses relate to subsidiaries that have a history of losses, do not expire and may not be used to offset taxable income elsewhere in the Group. The subsidiary has no temporary taxable differences which could partly support the recognition of deferred tax assets. Also, there are no tax planning opportunities available that would further provide a basis for recognition. If the Group was able to recognise all unrecognised deferred tax assets, both profit and net assets would increase by € 16,972,992 (2018: € 20,715,845). Further details on deferred tax assets are disclosed in note 22.
•	Pension obligations - the cost of defined benefit pension plans and the present value of the pension obligation is determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension benefit increases. All assumptions are reviewed at each reporting date. In determining the appropriate discount rate management considers the interest rates of corporate bonds in the respective country with an AAA or AA rating. The mortality rate is based on publicly available mortality tables for the specific country. Future salary increases and pension increases are based on expected future inflation rates for the specific country. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. The net employer liability as at 31 December 2019 was € 27,874,301 (2018: € 33,868,904). Further details about the assumptions used are given in note 23.
•	Business combinations - due to the inherent uncertainty concerning new acquisitions, management are obliged to make subjective assessments of certain items, such as the fair value of assets and liabilities acquired, and the estimates of the likely liabilities to arise under deferred contingent consideration arrangements, see note 5.
•	Provision for warranty - management have used a formula based approach to calculate the provision and on the basis of historic trends the amount € 4,976,173 (2018: € 7,187,308) has been found adequate as at 31 December 2019. Further details are given in note 24.

4. Standards issued but not yet effective

The new and amended standards and interpretations that are issued, but not yet effective up to the date of issuance of the Group's financial statements, where relevant to the Group are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective.

Amendments to IAS 1: Presentation of Financial Statements

In January 2020, the IASB issued amendments and clarification on the Classification of Liabilities as Current or Non-Current (Amendments to IAS 1). These affect only the presentation of liabilities in the statement of financial position and not the amount or timing of recognition of any asset, liability income or expenses, or the information that entities disclose about those items. They clarify that the classification of liabilities as current or non-current should be based on rights that are in existence at the end of the reporting period and align the wording in all affected paragraphs to refer to the "right" to defer settlement by at least twelve months and make explicit that only rights in place "at the end of the reporting period" should affect the classification of a liability. They clarify that classification is unaffected by expectations about whether an entity will exercise its right to defer settlement of a liability and make clear that settlement refers to the transfer to the counterparty of cash, equity instruments, other assets or services. The amendments are effective for annual reporting periods beginning on or after 1 January 2022 and are to be applied retrospectively.

Amendments to IFRS 3: Definition of a Business

In October 2018, the IASB issued amendments to the definition of a business in IFRS 3 Business Combinations to help entities determine whether an acquired set of activities and assets is a business or not. They clarify the minimum requirements for a business, remove the assessment of whether market participants are capable of replacing any missing elements, add guidance to help entities assess whether an acquired process is substantive, narrow the definitions of a business and of outputs, and introduce an optional fair value concentration test. New illustrative examples were provided along with the amendments.

Since the amendments apply prospectively to transactions or other events that occur on or after the 1 January 2020, the Group will not be affected by these amendments on the date of transition.

Amendments to IAS 1 and IAS 8: Definition of Material

In October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to align the definition of 'material' across the standards and to clarify certain aspects of the definition. The new definition states that, 'Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.'

The amendments to the definition of material is not expected to have a significant impact on the Group's consolidated financial statements.

Amendments to IFRS 9, IAS 39 and IFRS 7 (the amendments): Interest rate benchmark reform

In September 2019, the IASB published Interest Rate Benchmark Reform, Amendments to IFRS 9, IAS 39 and IFRS 7 (the amendments). This document concludes phase one of its work to amend IFRS in response to the financial reporting challenges posed by IBOR reform. The amendments provide reliefs to allow hedge accounting to continue during the period of uncertainty before IBOR is replaced. The IASB is now focusing on phase two of its project to deal with issues that may arise when an existing interest rate benchmark is replaced with a risk-free interest rate (RFR).

The amendments are effective for annual reporting periods beginning on or after 1 January 2020 and are to be applied retrospectively.

As the Group does not regularly participate in hedging instruments, these amendments are not expected to have a significant impact on the Group.

5. Business combinations and related subsequent events

There were no company acquisitions during 2019.

Spectron GCS (Singapore) Pte. Ltd

During 2019 a €18,639 loss (2018: €8,826 gain) was posted to the profit and loss in relation to the contingent consideration on the 2018 acquisition of Spectron GCS Singapore Pte Ltd.. This earn out / deferred consideration is based on local management achieving pre-set agreed financial performance targets over the first 36 months of trading from the acquisition date (note 9.2).

6. Restructuring and changes in Group's organisation

During the year the Group's subsidiary undertakings and their operations were restructured as follows:

Acquisitions

There were no company acquisitions during 2019 (note 5)

Closures and Liquidations

During the financial year, the Group decided to close certain entities as follows;

•	Following the decision by Senior Management to cease the process of establishing a Castolin Eutectic operation in Indonesia in September 2018, the company finally ceased operations in June 2019.
•	In June 2015, a decision was taken to close Soudures Nevax SAS in France. Following receipt of outstanding tax refunds, this company was officially wound-down in November 2019.
•	In 2018, Castolin Eutectic management decided to close the Monitor Coating operations in both Dalian, China and in Singapore. The formal closure of Monitor Coating China took place in 2019. It is expected the operation in Singapore will be officially closed within the next twelve months.
•	The closure of the South Africa company, which was officially announced in 2018, was on-going throughout 2019. It is expected that the company will be officially wound-down in the next six months. The distribution arrangements agreed with First Cut Pty Ltd for Messer Cutting products and Bolt & Engineering Distributors Group are expected to improve the overall trading performance going forward.
•	Following a long period of dormancy, FAWM Ltd (UK), was officially dissolved in July 2019.
•	In June 2019, the Board of Directors decided to dispose of the Castolin Eutectic division. The sale of the Castolin Eutectic division is expected to be completed within 12 months of the reporting date. Refer to notes 3 and 12 for details.

7. Revenue

	Note	2019 € '000	2018 € '000 Restated
Sale of goods gross		257,391	243,870
Sales with entities held for sale		2,282	3,676
Rebates, early payment and other sales discounts		(432)	(474)
Sale of goods net of rebates and discounts		259,241	247,072
Sale of services		20,435	21,339
Commission income as agent		59	157
Rendering of services		20,494	21,496
Rental income	28	687	662
Total revenue		280,422	269,230
Revenue - geographical split by destination
Europe		129,409	132,320
North, Central and South America		95,630	78,391
Asia, Australia and Oceania		54,551	57,676
Africa		832	843
Total revenue		280,422	269,230

The revenue information is based on the location of the customer.

8. Cost of sales

	Note	2019 € '000	2018 € '000
Cost of materials		(146,396)	Restated (139,433)
Cost of materials from entities held for sale		(51)	(55)
Labour costs and employment benefits	9.4	(49,689)	(46,323)
Production overheads and related expenses		(10,005)	(9,679)
of which depreciation & amortisation € 3,299K (2018: € 2,927K)	13,14
Production overheads - Right of Use depreciation	28	(1,642)	-
Contracted external services		(2,410)	(3,578)
Onerous contract	24	(890)	(1,131)
Warranty expense	24	(1,431)	(1,418)
Cost of sales		(212,514)	(201,617)

Cost of sales, selling and distribution, R&D and administration expenses by nature

	Note	2019 €'000	2018 €'000 Restated
Raw materials consumed		(140,688)	(137,401)
Employee benefit expense	9.4	(91,673)	(84,281)
Other expenses		(34,024)	(32,772)
Depreciation, amortisation and impairment expenses		(5,881)	(5,388)
Right of Use Depreciation	28	(3,622)	-
Short term hire / low value leases	28	(191)	-
Operating lease expenses		-	(3,472)
Transportation expenses		(3,336)	(3,229)
Auditor's fees	9.3	(402)	(400)
Advertising expenses		(62)	(54)
Changes in inventories of finished goods and work in progress		(4,689)	(1,126)
Cost of sales, selling and distribution, R&D and administration expenses		(284,568)	(268,123)

9. Operating expenses

9.1 Other operating income

	Note	2019 € '000	2018 € '000 Restated
License fee income		32	-
Foreign exchange gains		135	126
Old supplier liabilities written back		151	177
Profit on disposal of property, plant and equipment, intangible		23	11
Grant icome		93	127
Gain on reduction in contingent consideration	20	-	9
Gain on sale of commodity metal swap contracts		-	38
Other Income		106	107
		540	595

9.2 Other operating expenses

	Note	2019 € '000	2018 € '000 Restated
Severance, redundancy and relocation expenses		(1,801)	(655)
Foreign exchange losses		(443)	(802)
Legal and insurance claims cost		(319)	(361)
Loss on disposal of property, plant & equipment, intangible assets		(15)	(4)
Business establishment and re-organisation costs		-	(7)
Loss on increase in contingent consideration	20	(19)	-
Other expenses		(7)	(1)
		(2,604)	(1,830)

The € 18,639 loss (2018: € 8,826 gain) on the contingent consideration relates to the 2018 acquisition of Spectron GCS Singapore Pte Ltd.

Severance, redundancy and relocation expenses of € 1,800,679 (2018: € 654,883), includes the cost of restructuring several operations, see Note 24.

9.3 Audit fees

	Note	2019 € '000	2018 € '000
Audit fees to Group auditors Ernst & Young		600	614
Audit fees to other auditors		229	209
Total audit fees	8	829	823
Other fees paid to Group auditors E&Y - taxation services		24	21
Total professional fees for auditors		853	844
Total amount billed by Ernst & Young for all professional		624	635

9.4 Personnel / Employee benefit expenses

	Note	2019 € '000	2018 € '000 Restated
Wages and salaries		79,570	72,979
Social security contributions		11,571	10,270
Pensions and other similar post-employment	23	1,799	1,587
Termination benefit expense		1,790	655
		94,730	85 491
Employee benefits expense included in:
Cost of sales	8	49,689	46,323
Selling and distribution expenses	8	18,489	17,220
Administration expenses	8	15,804	13,673
Research and development expenses	8	7,691	7,065
Net finance expenses	9.6, 23	599	555
Other operating expenses		1,790	655
Total employee benefits expensed		94,062	85,491
Capitalised salaries	14	668	-
Total employee benefits		94,730	85,491

	31 Dec 2019 Headcount	31 Dec 2018 Headcount
Production and related support staff	822	830
Selling and distribution staff	258	253
Administration, R&D and related services	294	289
Annual headcount	1,374	1,372

The average number of employees during 2019 was 1,392 (2018: 1,340).

In addition, the number of employees working for the Group's associate companies was 63 (2018: 86).

9.5 Finance income

	Note	2019 € '000	2018 € '000 Restated
Interest income from cash and marketable securities		231	355
Interest income from related party	30	5	6
Interest income from entities held for sale	12	2,122	2,192
Total finance income		2,358	2,553

9.6 Finance expenses

	Note	2019 € '000	2018 € '000 Restated
Interest payable on loans and borrowings		(2,324)	(2,355)
Interest expense from entities held for sale	12	(405)	(662)
Interest on Accounts Receivable discounting		(100)	(29)
Lease expense		(195)	(1)
Amortisation of loan acquisition costs	20	(176)	(176)
Discount interest expense on long-term liabilities		(37)	(65)
Un-realised loss on forward contracts		-	(24)
Interest on shareholder loan	30	-	(1)
Financial expense		(3,237)	(3,313)
Post-employment benefits interest expense	9.4,23	(599)	(555)
Total finance expense		(3,836)	(3,868)

10. Investment in joint ventures and associates

The Group owns 49.0% of the voting shares in Pietro Galliani Brazing S.p.A (PGB), an Italian registered company that manufactures and distributes brazing products. This investment is now shown as part of the Assets Held for Sale (note 12).

During 2019, the sale of the Group's 50% interest in Edan-Messer Diagnostics (EMD) to Edan Investments was fully completed. The investment was written down to the consideration value in 2018 which resulted in an impairment expense of CNY 2,849,483 (the equivalent of € 364,945) charged to profit and loss. In 2019 a foreign currency loss of € 37,761 (CNY 292,159) arose on the final consideration received of € 2,155,665 and this loss was charged to the profit and loss.

The following table illustrates summarised information of the associate companies:

		2019	2018
	Note	Total € '000	EMD € '000	PGB €'000	Total € '000
Current assets		-	2,208	13,869	16,077
Non - current assets		-	3,336	5,876	9,212
Current liabilities		-	(2,505)	(8,018)	(10,523)
Non-current liabilities		-	-	(1,764)	(1,764)
Equity		-	3,039	9,963	13,002
Proportion of Group's ownership		-	50%	49%
Group's share of net assets		-	1,519	4,882	6,401
Goodwill		-	599	2	601
Reclassification- assets held for sale	12	-	(2,118)	-	(2,118)
Carrying amount of the investment		-	-	4,884	4,884

	2019	2018
	Total €'000s	EMD	PGB Restated €'000	Total
Revenue	-	1,188	-	1,188
Cost of sales	-	(1,183)	-	(1,183)
Administrative expenses	-	(893)	-	(893)
Finance costs	-	1	-	1
Loss before tax	-	(887)	-	(887)
Income tax charge	-	-	-	-
Loss for the year	-	(887)	-	(887)
Total comprehensive profit for the year	-	54	-	54
Group's share of OCI for the year	-	27	-	27
Group's share of loss for the year	-	(443)	-	(443)

11. Income tax expense

The reconciliation of the theoretical amount that would arise using the tax rate of the parent company to the total income tax amount of the Group is as follows:

	Not	2019 € '000	2018 € '000 Restated
Accounting loss before income tax		(8,053)	(5,182)
Tax calculated at parent company tax rate of 30% (2018: 30%)		(2,416)	(1,555)
Impact of higher corporate income tax rates in other countries		(61)	111
Un-recognised deferred tax on losses incurred		3,145	3,845
Un-recognised deferred tax on new timing differences		1,471	1
Use or reversal of previously un-recognised timing differences		(198)	(40)
Recognition of previously un-recognised tax losses		(1,176)	(207)
Deferred tax impact due to changes in local tax rates		(429)	39
Permanent difference where expenditure is not tax deductible		772	1,863
Permanent difference where revenue or gain is not taxable		1,580	(13)
Adjustments in respect of current income tax of prior year		(71)	247
Share tax losses		7	81
Other taxes as detailed below		107	1,231
Income tax expense reported per statement of profit or loss		2,731	5,603
Deferred tax expense reported in comprehensive income	22	545	(22)
Current income tax
Income tax expense current continued activities		3,547	2,496
Adjustments in respect of current income tax of prior year		(71)	247
		3,476	2,743
Deferred tax
Deferred tax benefit relating to temporary differences	22	(2,185)	(1,924)
Benefit on movement in un-recognised timing differences	22	(198)	(40)
Recognition of previously un-recognised tax losses and credits	22	(1,176)	(207)
Charge of provision against tax receivable	22	3,145	3,845
Deferred tax effect of change in local tax rates	22	(438)	(45)
	22	(852)	1,629
Other taxes
Irrecoverable withholding tax on foreign income		543	1,081
Research tax credit in France		(314)	(475)
Added Value Tax expense in France		121	108
Real estate tax in Germany		(243)	500
Other taxes		-	17
All other taxes		107	1,231
Income tax expense per statement of profit or loss		2,731	5,603

The Group's applicable tax rate represents the weighted average of the statutory corporate income tax rates in the tax jurisdictions in which the Group operates, which range between 10% in China 34% in Brazil (2018: 10% to 34.0%). Losses in certain jurisdictions reduced the overall Group taxation charge. The tax rate applicable to profits of the parent company, MEC Global GmbH, was 30%.

During the accounting year, the tax rate applicable to taxable profits changed in the following tax jurisdictions:

•	4.4% reduction from 34.0% to 29.6% in Belgium,
•	5.5% reduction from 29.5% to 24.0% in Italy,
•	2.9% increase, including state income taxes from 21.1% to 24.0% in the United States of America

12 Assets held for sale and discontinued operations

During the year, the Group publicly announced the decision of its Board of Directors to dispose of the Castolin Eutectic, the welding, brazing, coating and related services division of the Group. The sale of the Castolin Eutectic division is expected to be completed within 12 months of the reporting date. In accordance with IFRS accounting standards, Castolin Eutectic was classified as a disposal group held for sale on 31 December 2019 and its results presented as discontinued operations.

The results for the discontinued operations of the assets held for sale for the year are presented below:

	2019 € '000	2018 € '000
Revenue	296,141	289,110
Cost of Sales	(189,410)	(187,030)
Gross profit	106,731	102,080
Other operating income	2,262	2,202
Selling and distribution expenses	(58,191)	(56,840)
Administration expenses	(29,355)	(29,112)
Research and development expenses	(1,636)	(1,874)
Amortisation of intellectual properties	(880)	(1,106)
License expense with continuing operations	(3,520)	(3,451)
License income with continuing operations	-	23
Other operating expenses	(2,114)	(2,002)
Operating profit before tax from discontinued operations	13,297	9,920
Finance income	597	799
Finance expense	(3,519)	(2,523)
Share of income / (losses) of associate	438	(145)
Profit before tax from discontinued operations	10,813	8,051
Income tax expense	(2,760)	(3,531)
Profit for the year from discontinued operations	8,053	4,520
Attributable to:
Owners of the parent	7,920	4,266
Non-controlling interests	133	254
Profit for the year	8,053	4,520

During 2019, the entities held for sale paid dividends of € 11,232,520 to the continuing entities in the Group. These dividends have been treated as part of the equity of the Group and will not be repeated going forward.

There are tax sharing arrangements in place in all German companies in the group. During 2019, the entities held for sale made a loss of € 2,776,894 under German GAAP. This amount of tax loss sharing is not shown on the face of the profit and loss for discontinued operations as it would be a misleading indicator of financial performance.

The average number of employees in the discontinued operations during 2019 was 1,620 (2018: 1,640)

Castolin Eutectic Statement of financial position	Note	2019 € '000
Non-current Assets
Intangible assets	14	12,437
Goodwill	15	4,459
Investment in associated companies	10	5,321
Property, plant and equipment	13	32,964
Right of use assets	28	44,308
Trade and other non-current receivables	17	782
Corporate income tax receivable		767
Other non-current financial assets	18	475
Deferred tax assets		5,521
		107,034
Current assets
Inventories	16	37,081
Trade and other receivables	17	50,826
Accounts receivable from continuing operations	21	70
Prepayments		3,925
Corporate income tax receivable		614
Other current financial assets	18	174
Loans receivable from continuing operations	20	20,709
Cash and short-term deposits	19	25,620
		139,019
Total Assets		246,053
Non-current Liabilities
Interest-bearing financial liabilities at amortised cost	20	207
Trade and other payables		1,022
Lease liabilities	28	38,072
Deferred tax liabilities	22	3,835
Post-employment employee benefit obligation	23	8,197
Provisions	24	849
Government grants		77
		52,259
Current liabilities
Loans payable to continuing operations	18	56,829
Trade and other payables		52,504
Lease liabilities	28	6,228
Provisions	24	3,214
Government grants		15
Income taxes payable		1,434
		120,224
Total Liabilities		172,483
Net assets of entities held for sale		73,570

The Castolin Eutectic division also owns Intellectual property rights purchased from MEC Global GmbH on 31 December 2019 for a value of € 9,945,000. These have not been shown in the balance sheet set out above. For the purposes of preparation of the MEC Global Group financial statements at 31 December 2019 the asset transfer has been eliminated on consolidation, reducing the value of net assets in Castolin Eutectic by € 9,945,000 at 31 December 2019.

The net cash flows incurred by Castolin Eutectic are as follows:

	2019 € '000	2018 € '000
Operating	19,026	10,061
Investing	(4,848)	(5,722)
Financing	(6,001)	(2,341)
Net cash (outflow) / inflow	8,177	1,998

For the year ended 31 December 2019 Castolin Eutectic has been valued at the lower of the recoverable amount and its carrying value. The sales proceeds of the division are expected to exceed the net assets of the division and no impairment was recognised.

13. Property, plant and equipment

	Freehold		Leasehold improvement	Plant & machinery	Office Equipment	Motor vehicles	TOTAL PPE
	land € '000	buildings € '000	€ '000	€ '000	€ '000	€ '000	€ '000
At 1 January 2018	6,351	29,424	4,774	24,150	3,977	569	69,245
Additions	-	1,244	1,745	3,979	1,054	92	8,114
Acquisition	-	-	-	-	2	9	11
Net disposals	-	-	(4)	(362)	(17)	(15)	(398)
Depreciation cost	(1)	(1,842)	(720)	(5,140)	(1,442)	(204)	(9,349)
Reclassification	-	-	153	(35)	(109)	(9)	-
Net foreign exchange Carrying amount	79	544	102	33	50	(19)	789
at 31 December 2018	6,429	29,370	6,050	22,625	3,515	423	68,412
As at 31 December 2018 Gross carrying amount	6,439	45,396	13,992	78,253	18,056	2,117	164,253
Cumulative Depreciation	(10)	(16,026)	(7,942)	(55,628)	(14,541)	(1,694)	(95,841)
Net carrying amount	6,429	29,370	6,050	22,625	3,515	423	68,412
Restatement finance lease cost due to IFRS
16 Restatement finance lease depreciation due to IFRS 16		(3,039)	(1,311)				(4,350)
		399	140				539
Restated net carrying amount at 1. January 2019	6,429	26,730	4,879	22,625	3,515	423	64,601
Additions	-	891	371	6,478	1,356	181	9,277
Net disposals	-	-	44	(812)	(56)	(7)	(831)
Depreciation cost	-	(1,726)	(633)	(5,017)	(1,453)	(159)	(8,988)
Reclassification (note 14)	-	87	(32)	(25)	3	7	40
Net foreign exchange Assets held for sale	93	355	40	345	45	5	883
(note 12)	(3,417)	(9,675)	(2,817)	(15,346)	(1,475)	(234)	(32,964)
Carrying amount at 31 December 2019	3,105	16,662	1,852	8,248	1,935	216	32,018
As at 31 December 2019
Gross carrying amount	3,105	25,964	4,495	28,735	11,325	558	74,182
Cumulative depreciation	-	(9,302)	(2,643)	(20,487)	(9,390)	(342)	(42,164)
Net carrying amount	3,105	16,662	1,852	8,248	1,935	216	32,018

	Note	2019 € '000	2018 € '000 Restated
Depreciation expense by cost center
Cost of sales	8	2,572	2,320
Administration expenses		899	1,114
Selling and distribution expenses		308	396
Research and development expenses		378	185
Total depreciation cost		4,157	4,015

Property, plant and equipment include non-depreciable assets of € 3,104,630 (2018: € 6,428,870). This mainly consists of freehold land.

Property, plant and equipment is pledged as security to third parties to the extent set out in the guarantees given to the primary bank under the Senior Facilities Agreement (see note 20).

During 2019, reclassifications between tangible assets to intangible assets amounted to € 40,400 (see note 14).

At 31 December 2019 the value of assets under construction was € 29,728 (2018: € 521,628) which is included within the additions amount.

At 31 December 2019, € nil (2018: € 4,986) of plant and equipment was idle or withdrawn from use.

14. Intangible assets

	Note	Product development Costs € '000	Intellectual property € '000	Computer software € '000	Total intangible assets € '000
At 1 January 2018		3,051	26,296	2,486	31 ,833
Additions		-	-	1,778	1,778
Acquisition		-	620	-	620
Amortisation expense		(583)	(2,370)	(1,038)	(3,991)
Net foreign exchange		-	90	55	145
At 31 December 2018		2,468	24,636	3,281	30,385
At 31 December 2018
Gross carrying value		15,532	124,347	11 ,546	151,425
Cumulative amortisation		(13,064)	(99,711)	(8,265)	(121,040)
Net carrying value		2,468	24,636	3,281	30,385
Additions		2,609	21	1,649	4,279
Amortisation expense		(672)	(2,230)	(1,385)	(4,287)
Disposal		-	-	(70)	(70)
Reclassification	13	-	-	(40)	(40)
Net foreign exchange	12	-	76	39	115
Assets held for sale		-	(11,486)	(951)	(12,437)
At 31 December 2019		4,405	11,017	2,523	17,945
At 31 December 2019
Gross carrying value		17,689	62,796	6,754	87,239
Cumulative amortisation		(13,284)	(51,779)	(4,231)	(69,294)
Net carrying value		4,405	11,017	2,523	17,945

During 2019, reclassifications between tangible assets to intangible assets amounted to € 40,400 (see note 13).

Intellectual properties

Intellectual properties were initially valued at fair value on acquisition in February 2005 by an independent valuation company. Group management have valued subsequent acquisitions.

Trade and brand names held by Group companies have a net carrying value of € 7,488,275 (2018: € 17,589,651) with a weighted amortisation period remaining of 35.1 years (2018: 36.1 years). The Group's brand names included "Messer Cutting Systems", "Messer", "Castolin Eutectic", "Castolin Services", "BIT Analytical Instruments" and other smaller brands. The Group has the legal right to use the Messer brand name in return for a nominal annual payment payable to shareholders.

Customer relationships, representing the strong contractual and commercial contacts with customers have a carrying value of € 2,172,737 (2018: € 4,753,491) with a weighted average amortisation period remaining of 3.8 years (2018: 4.7 years).

Technical know-how, including processes, chemical formulations and rights has a carrying value of € 1,355,906 (2018: € 2,275,345) with a weighted average amortisation period of 3.0 years (2018: 3.2 years).

There was no Customer relations and technological "know-how" involved in the manufacturing processes in companies at the year-end (2018: € 17,445).

Product development costs

Product development costs € 4,405,334 (2018: € 2,467,668) represents the net carrying value of qualifying development spent primarily on new BIT Analytical Instruments products and technologies, which form a major part of future sales in this division.

Research and development expenditure in the statement of profit or loss was € 11,225,245 (2018: € 11,129,181). Amortisation of capitalised development was € 671,853 (2018: € 582,745), all included within cost of sales.

Included within product development costs additions are capitalised salaries of € 668,490 for work carried out in the development of a new product (see note 9.4).

Impairment of intangible assets

In compliance with IAS 36 Impairment of Assets, Group management carry out impairment tests of intangible assets on an annual basis. Arising from this exercise there was no impairments in 2019.

Intangible asset amortisation expense by cost center	Note	2019 € '000	2018 € '000 Restated
Cost of sales	8	727	607
Selling and distribution expenses		118	6
Research and development expenses		64	29
Administration expenses		816	731
Amortisation of intellectual properties		1,350	1,264
Total amortisation expense		3,075	2,637
Intellectual property amortisation expense analysis		2019	2018
		€ '000	€ '000
Customer relationships		640	595
Technical know-how		459	458
Trade and brand names		251	211
Total amortisation of intellectual properties		1,350	1,264

General

Other than to the extent set out in the guarantees given to the primary bank under the senior facilities agreement (see note 20), none of the intangible assets are pledged as security to third parties. There are no restrictions to title concerning any of the intangible assets listed above.

At 31 December 2019 and 2018 there were no contractual commitments to acquire new intangible assets, which have not already been capitalised.

15. Goodwill

	Note	2019 € '000	2018 € '000
Cost
At 1 January		25,492	24,696
Acquisition during the year.	5	-	13
Foreign exchange difference		414	783
Assets held for sale	12	(4,459)
At 31 December		21,447	25,492
		2019	2018
Goodwill analysed by cash generating unit:		€ '000	€ '000
BIT Group USA Inc.		11,380	11,165
Messer Cutting Systems		6,821	6,732
BIT Analytical Instruments GmbH		2,037	2,037
BIT Group France SA, France		1,025	1,025
Spectron Gas Control Systems		170	170
Spectron GCS Pte Ltd., Singapore		14	14
Whertec Inc.		-	2,238
Castolin Eutectic		-	1,567
Monitor Coatings, UK		-	358
FMP - Furnace Mineral Powders Inc., Canada		-	186
Net carrying value of goodwill as at 31 December		21,447	25,492

Messer Cutting Systems, Oxyfuel, Spectron Gas Supply Systems, BIT Analytical Instruments and Castolin Eutectic were purchased in the one acquisition and separate values were not applied to each division in 2005. It was necessary to allocate the value of goodwill on the acquisition € 14,223,013 to each of the original four divisions on the basis of allocating the surplus of discounted cash flow of the Group from the budget and plans for the five year period 2006-2010 and comparing the result to certain intangible assets (intellectual properties and development expenditure) and allocating the surplus over the divisions in direct proportion to this excess. The other cash generating units were acquired separately between 2006 and 2019.

Castolin Eutectic, Whertec Inc., Monitor Coatings, UK and FMP - Furnace Mineral Powders Inc., Canada are now classified as assets held for sale (note 12).

The recoverable amount is determined as the value-in-use for each cash-generating unit (CGU) and was calculated by determining the after tax discounted cash flows of the various divisions. Separate discount rates for each company in each division are used in all calculations and the range used in 2019 was as follows:

5.57%	(2018: 7.59%)	for BIT Group USA Inc.
7.20 - 10.83%	(2018: 8.86 - 13.00%)	for Messer Cutting Systems
5.57 - 6.09%	(2018: 7.59 - 8.35%)	for BIT Analytical Instruments GmbH
5.93%	(2018: 8.12%)	for BIT Group France SA
7.60%	(2018: 8.86-9.66%)	for Spectron Gas Control Systems
8.98%	(2018: 11.39%)	for Spectron GCS Pte Ltd, Singapore
-	(2018: 8.86%)	for Whertec Inc.
-	(2018: 8.86 - 17.48%)	for Castolin Eutectic
-	(2018: 9.43%)	for Monitor Coatings - UK
-	(2018: 8.86%)	for FMP - Canada

Appropriate discount rates of the relative business risk associated with each division were calculated as follows: determination of industry market risk by comparison to the beta for similar market quoted companies and local interest rates on debt and the debt to equity ratio for those quoted companies for each of the divisions. An average discount rate before tax for each of the divisions was derived from this comparison and this was then adjusted for individual geographic market risk using the risk associated with each market the Group trades in. A Weighted Average Cost of Capital (WACC) was then determined for each division on the basis of local taxation rates. The WACC rate was used to calculate the discounted cash flows for each division as set out above.

The post-tax rate (WACC) was used in the analysis since management is of the opinion that discounting post-tax cash flows at a post-tax discount rate would give the same result as discounting pre-tax cash flows at a pre-tax discount rate, as long as the pre-tax discount rate is the post-tax discount rate adjusted to reflect the specific amount and timing of the future tax cash flows.

The cash flow used for the impairment testing was the Group's formal budget and three year plans covering the four years 2020-2023. These budgets and plans are required by shareholders to manage the strategic direction of the company and financiers as part of the loan covenants. The budget and plans were developed on a bottom-up approach based on assessment of past experience and local management assessment of the future economic environment. In compiling the discounted cash flow, management considered a conservative zero growth assumption as the basis for the extrapolation of years beyond the budget horizon of 2023.

Where the recoverable amount of a CGU is less than the carrying value, they are deemed to be impaired. As at 31 December 2019, impairment testing showed that the Group had preserved the value of the goodwill and no cash-generating unit had become impaired.

Key assumptions used in "value in use" calculation.

The following are the key assumptions on which management has based its cash flow projections to undertake impairment testing of goodwill and intangible assets:

Budgeted gross margins - the basis used to determine the value assigned to the budgeted gross margins is the average gross margins achieved in the year immediately before the budgeted year, increased for expected efficiency improvements and adjusted for local market conditions.

Raw material price inflation - the basis used to determine the value assigned to the raw materials price inflation is the forecast price inflation in each country preparing a production budget where raw materials are sourced. Management used the then current market of commodity metals as the most objective basis for determining the cost of these materials and extrapolating related sales prices.

Bond Rates - the discount rate used is based on the weighted average cost of capital as set out above.

Foreign exchange and interest rates - the rates used are those prevailing at 31 December 2019.

Based on the assessment using the above assumptions, management found an excess of CGU's value in use above the CGU's carrying value.

We have performed a sensitivity analysis using the variables +1% WACC and -10% net present value of future cash flow and are satisfied based on these results that there is no indication of impairment.

16. Inventories

	2019 € '000	2018 € '000
Production supplies	26,161	36,467
Finished goods	7,243	22,261
Work in progress	15,432	13,430
Merchandise	568	7,583
Inventories	49,404	79,741

As at 31 December 2019, € 2,784,518 (2018: € 3,422,906) of the inventory was valued at net realisable value.

Movement in inventories	Note	2019 € '000	2018 € '000
Balance 1 January		79,741	74,133
Acquisition during the year	5	-	54
Movement in inventories during the year		5,743	5,578
Foreign exchange on translation		1,001	(24)
Assets held for sale	12	(37,081)	-
Balance 31 December		49,404	79,741

The current estimated replacement value of inventories held by the Group as at 31 December 2019 was € 52,947,832 (2018: € 85,062,623).

During the year, adjustments to inventory net realisable value expensed to cost of sales amounted to € 52,733 (2018: € 223,202 expensed to cost of sales). Other than to the extent set out in the guarantees given to the senior bank under the senior facilities agreement (see note 20), none of the above inventories are pledged as security to third parties.

17. Trade and other receivables

	Note	31 Dec 2019 € '000	31 Dec 2018 € '000
Non-current
Long-term supplier advances and deposits		163	914
		163	914
Current
Accounts receivable - trade		30,226	81 ,598
Accounts receivable - associate companies	30	-	455
Accounts receivable - related parties	30	669	1,076
Accounts receivable with entities held for sale	12	725	-
Interest receivable		18	93
		31,638	83,222
Trade and other receivables (net)		31,801	84,136
Gross amount of trade and other receivables		33,243	87,358
Trade receivable impairment provisions		(1,442)	(3,222)

Following the procedures set out in note 26, there are no further known risks suggesting that the credit quality of the balance of € 31,801,189 (2018: € 84,135,750) is impaired and that this balance will not be collectible in full.

As at 31 December, trade receivable impairment provisions were as follows:

Trade receivable impairment provisions	Note	2019 € '000	2018 € '000
As at 1 January		3,222	3,781
Impairment charge for the year	9.2	947	585
Un-used amounts reversed	9.1	(539)	(477)
Impairment amounts utilised during the year		(741)	(646)
Foreign exchange translation difference		32	(21)
Assets held for sale	12	(1,479)	-
As at 31 December		1,442	3,222

The Group has applied a simplified approach and records lifetime expected losses on all trade receivables based on management judgements on customer lists rather than using a mathematical model approach which was deemed impractical following a review of the customer profiles.

In 2019 € 297,688 (2018: € 790,020) was recognized as a provision for expected credit losses on trade receivables based on the provision matrix. An additional € 1,144,599 (2018: € 2,432,091) relates to customers where specific information on credit events is available.

18. Other financial assets

	Note	2019 € '000	2018 € '000
Loans receivable	26	9	470
Loans receivable - investment	26, 30	329	329
Non-current financial assets		338	799
Marketable securities held as trading investments	27	-	148
Loan receivable - related party	26, 30	173	257
Other financial assets	27	-	6
Other investments		1	-
Loans with entities held for sale	12	56,829	-
Current financial assets		57,003	411
Total financial assets		57,341	1,210

BIT France Group SA has granted an interest-bearing loan (currently 1.5% (2018: 1.5%) per annum) to 20% investment company SCI de la Valsiere. There currently are no defined repayment dates for the loan and the balance outstanding as at 31 December 2019 was € 328,661 (2018: € 334,577). € 328,661 (2018: € 328,661) is shown within non-current financial assets and the interest element of € nil (2018: € 5,916) is shown within current financial assets.

19. Cash and cash equivalents

	Note	2019 € '000	2018 € '000
Short-term deposits		15,204	18,758
Cash at bank and on hand		15,293	25,733
	26	30,497	44,491
Bank overdraft	20	(5,662)	(190)
Cash and cash equivalents in the cash flow statement		24,835	44,301

Short-term deposits earn interest income at floating rates based on market deposit interest rates, which vary between 0.2% - 5.5% (2018: 0.05% - 11.7%). The weighted average interest rate during the financial year was 1.49% (2018: 1.96%).

Cash amounting to € 10,615,039 (2018: € 13,696,351) is held in territories (Brazil, PR China, India and Russia), where the Group's free use of cash for pooling is restricted by exchange control regulations. These companies can use this cash freely within their own territory and it would be possible for the Group to extract up to € 9,391,389 (2018: € 10,076,868) in the form of dividends or distributions at any time. It is Group policy to extract surplus cash on an annual basis to the extent that these companies are able to pay dividends and it is consistent with overall management strategy.

We have individually assessed the cash and bank balances and believe that none are impaired.

20. Financial liabilities at amortised cost

Non-current	Note	2019 € '000	2018 € '000
Revolving credit facility	27	45,000	38,000
Right of use lease liability	27,28	7,576	-
Senior loan notes	27	-	25,600
Obligations under finance leases	27	-	3,476
Real estate loans	27	-	121
Deferred bank fees	27	-	(161)
Long-term borrowings	27	52,576	67,036
Current
Senior Loan notes	27	25,852	-
Loans with entities held for sale	12	20,709	-
Bank overdrafts	19,26,27	5,662	190
Right of use lease liability	27,28	2,989	-
Obligations under finance leases	27	-	206
Real estate loans	27	-	96
Other loans	27	-	6
Deferred bank fees	27	(161)	(176)
Short-term and current portion of long-term borrowings	27	55,051	322
Borrowings	27	107,627	67,358

Details of financial liabilities at amortised costs

Interest rates and terms of repayment are as follows:

Repayable	Credit rating	Currency 000's		Interest Rates	Interest Type	2019 € '000	2018 € '000
Bank loans
Revolving credit facility	Aa2	EUR	45,000	1.3%	Variable	45,000	38,000
Real estate loan	Aa2	GBP	-	2.23%	Variable	-	217
						45,000	38,217
Loan notes
Senior loan note 2020	Baa1	USD	15,000	6.10%	Fixed	13,352	13,100
Senior loan note 2020	Baa1	EUR	12,500	5.50%	Fixed	12,500	12,500
						25,852	25,600
Bank overdrafts - secured
Overdraft on demand		USD	1,076	1.3%	Variable	958	-
Overdraft on demand		EUR	4,704	1.3%	Variable	4,704	-
Overdraft on demand		CNH	1,500	1.3%	Variable	-	190
						5,662	190
Other loans
Term loan - Ecuador	N/A	USD	-	11.01 %	Fixed	-	6
Loans held for sale	N/A	Various	-	-	Variable	20,709	-
Lease liability	N/A	Various	-	2.27%	Fixed	10,565	-
						31,274	6

The € 48,000,000 five year revolving credit facility ("senior facilities agreement") agreed with HSBC and three other banks on 29 August 2015 was amended in December 2015 to include a further increase option to this facility of € 20,000,000 and a new maturity date of 17 December 2020. The facility was further amended in November 2016 to extend the maturity date to 17 December 2021. There were no changes in 2019. € 3,000,000 (2018: € 10,000,000) of this facility was not drawn down at the end of the financial year. The initial loan set up cost plus additional costs incurred for amendments will be amortised over the duration of the facility. At 31 December 2019 the residual un-amortised amount of € 160,968 (2018: € 336,504) is shown as a debit balance within borrowings, as it is expected the revolving credit facility will be used extensively over the remainder of the facility. An amount of € 175,536 (2018: € 175,536) was amortised to finance costs during the year (note 9.6).

At 31 December 2019, there were further un-drawn ancillary credit facilities of € 5,000,000 (2018: € 5,000,000) from HSBC, € 296,098 (2018: € 5,000,000) from UniCredit Bank, € 1,009,978 (2018: € 3,288,729) from Commerzbank and € 2,632,949 (2018: € 2,429,447) from BW Bank.

Covenants

As part of the agreement with the banking consortium last amended in November 2016, the Group must adhere to three specified covenants. Failure to comply with the covenants may give the lenders the right to demand immediate repayment of the entire loan amount outstanding. At 31 December 2019, the Group met the terms of all of the covenants set out below and the directors consider the risk of a covenant breach occurring to be possible but based on recent trading results in 2019 and conversion of certain loan liabilities to equity in 2018 and 2019 the likelihood is becoming more remote. The covenants are prepared on a 'frozen GAAP basis' reflecting accounting treatment before adoption of IFRS 16 on 1 January 2019. The covenants are prepared for MEC Group as a whole (including continuing and discontinuing operations).

1. Interest cover

Total interest cover is calculated as the ratio of consolidated adjusted EBITDA to consolidated net finance charges for the relevant period. As at 31 December 2019, total interest cover should not be less than 6.00: 1. Consolidated adjusted EBITDA is defined within the covenant agreement as EBITDA adjusted for foreign exchange and fair market value gains and losses and excluding dividends or distributions received from non-group members.

2. Debt cover

This ratio is expressed as total net debt to consolidated adjusted EBITDA for the relevant period and net debt should not be greater than 2.50 times the value of consolidated adjusted EBITDA.

3. Equity Ratio

Equity ratio is defined as the ratio of equity to consolidated assets which should not be less than 27.5%.

Covenant tests

All covenants were tested at each quarter-end throughout 2019 and as of 31 December 2019.

1.	Interest cover was 10.7: 1.00
2.	Debt cover was 1.35: 1.00
3.	Equity Ratio was 30.70%

These covenant ratios were all achieved as at 31 December 2019.

Guarantor companies

The Guarantor companies listed below should contribute at least 65% of Revenue, EBITDA and Net Assets of the overall Group adjusted for components held in certain specified territories.

As at 31 December 2019, the net assets of the guarantor companies comprised 67.5% of the Group's qualifying net assets (2018: 65.6%). During the current year, the guarantor companies comprised 65.0% of the Group's qualifying revenue (2018: 67.0%) and 106.3% of the Group's qualifying consolidated adjusted EBITDA (2018: 92.1%).

Guarantees provided

Senior facilities agreement

Under the terms of the Senior facilities agreement, certain companies of the Group guarantee the value of the loan outstanding. The following companies constitute material subsidiaries and act as guarantors to the Senior facilities agreement with primary bank lender, HSBC and three other banks:

Monitor Coatings Limited, GmbH,	Messer Cutting Systems, Inc.,	MEC Holding
Spectron Gas Control System GmbH,	Eutectic Japan Ltd,	BIT Group France SA,
BIT Analytical Instruments GmbH,	Eutectic Corporation,	Castolin GmbH,
Castolin Eutectic Ireland Limited, Messer Cutting Systems GmbH,	Messer Eutectic Castolin SARL, Messer Eutectic Castolin Sp.zo O,	BIT Group USA, Inc.

Senior loan notes

On 2 July 2010 the Group entered into two further 10 year senior loan notes which both mature on 2 July 2020. One of the loan notes is for € 12,500,000 with a fixed coupon rate of 5.50%, the other loan note is for USD 15,000,000 with a fixed coupon rate of 6.10%. There are no derivative instruments associated with these loan notes.

The following companies act as guarantors to the holders of the senior loan notes:

MEC Acquisitions GmbH, GmbH,	Messer Cutting Systems, Inc.,	MEC Holding
Spectron Gas Control System GmbH,	Eutectic Japan Ltd,	BIT Group France SA,
BIT Analytical Instruments GmbH,	Eutectic Corporation,	Castolin GmbH,
Castolin Eutectic Ireland Limited, Messer Cutting Systems GmbH,	Messer Eutectic Castolin SARL,	BIT Group USA Inc.

None of the Group's loan payables were in default during the year. The Group has offered no collateral to borrowers against loans or payable balances in 2019 and 2018. If the Group were to breach the terms of the loan covenants set out above, then the primary lender, HSBC and the other lenders would have the option to demand re-payment of the loan from the guarantor companies.

Financial liabilities

	Notes	2019 €'000	2018 €'000
Current
Deferred contingent consideration	2.3l, 27	159	161
Forward currency contract	2.3l, 26,27	98	25
Total current other financial liabilities		257	186
Non-current
Deferred contingent consideration	2.3l, 27	30	169
Total non-current other financial liabilities		30	169
Total other financial liabilities		287	355

On 1 August 2018, the Group acquired 100% of the voting shares of Spectron GCS Singapore Pte, Ltd. As part of the purchase agreement with the previous owner there is a deferred contingent consideration calculated based on the annual EBITDA performance of the acquired company over the following three years. At 31 December 2019, management expect that € 159,487 will be paid in 2020 (see note 26). The fair value of the liability is dependent on movements in market discount rates, exchange rates and final valuations of the acquired relevant annual EBITDA performance over the three years. The reestimate of the deferred contingent consideration liability for the year ended 31 December 2019 of € 18,639 is shown in other income in the statement of profit or loss (note 9.1). The € 18,639 loss (2018: € 69,530 gain) on the increase in contingent consideration liability reflects the increase in the estimated future costs relating to the acquisition of Spectron GCS Singapore Pte, Ltd. The prior year gain relates to the reductions in the estimated future costs relating to the acquisition of Whertec Inc. and Spectron GCS Singapore Pte, Ltd.

Changes in liabilities arising from financing activities 2019 (in € '000)

	1 Jan 2019	Restatement on adoption of IFRS 16	1 Jan 2019 (restated)	Cash flows	Foreign Exchange	New leases	Other	Classified as Held for Sale	31 Dec 2019
Current interest bearing loans and Borrowings (excluding items below)	292	-	292	7,638	(244)	-	23,945	(116)	31,515
Current obligations under finance leases contracts	205	(205)	-	-	-	-	-	-	-
Current lease liabilities	-	9,826	9,826	(10,906)	109	2,572	7,615	(6,227)	2,989
Non-current interest-bearing loans and borrowings (excluding items below)	63,721	-	63,721	5,316	-	-	(23,945)	(92)	45,000
Non-current obligations under finance lease contracts	3,476	(3,476)	-	-	-	-	-	-	-
Non-current lease liabilities	-	46,037	46,037	-	647	7,175	(8,211)	(38,072)	7,576
Loans payable to entities held for sale	-	-	-	-	-	-	-	20,709	20,709
Total liabilities from financing activities	67,694	(52,182)	119,876	2,048	512	9,747	(596)	(23,798)	107,789
Deferred bank fees	(336)	-	(336)	-	-	-	176	-	(160)
Total Borrowings	67,358	(52,182)	119,540	2,048	512	9,747	(420)	(23,798)	107,629
New borrowings drawn down				10,788
Repayment of loans				3,432
Lease repayments				(12,172)

The 'Other' column includes the effect of reclassification of non-current portion of interest-bearing loans and borrowings, including leases liabilities to current due to the passage of time, and the effect of accrued but not yet paid interest on interest bearing loans and borrowings. The Group classifies interest expense in cash flows from operating activities.

Changes in liabilities arising from financing activities 2018 (in € '000)

	1 Jan 2018	Cash flows	Foreign Exchange	Accruals	Other	31 Dec 2018
Current interest bearing loans and Borrowings (excluding items below)	357	(165)	2	-	98	292
Current obligations under finance leases contracts	218	(274)	14	45	202	205
Non-current interest-bearing loans and borrowings (excluding items below)	60,229	4,719	(1,129)	-	(98)	63,721
Non-current obligations under finance lease contracts	3,437	-	241	-	(202)	3,476
Total liabilities from financing activities	64,241	4,280	(872)	45	-	67,694
Deferred bank fees	(512)	-	-	-	176	(336)
Total Borrowings	63,729	4,280	(872)	45	176	67,358
New borrowings drawn down		4,789
Repayment of shareholder loans		(236)
Finance lease repayments		(273)

21. Trade and other payables

		2019 € '000	2018 € '000
Non-current
Other payables and accruals		625	1,137
Current
Accounts payable - trade third parties		29,907	59,513
Other payables and accruals		19,743	36,960
Contract liabilities		19,907	18,840
Accounts payable - associated companies	30	-	1,416
Accounts payable - related parties	30	309	478
Accounts payable with entities held for sale	12	70	-
Interest accrued on senior loan notes	20	23	30
		69,959	117,237
Total trade and other payables		70,584	118,374

Other payables and accruals include payroll liabilities and indirect taxes, rebates to customers and balances due to employees such as unpaid sales commission, bonus, salaries and holiday accruals.

Terms and conditions of the above financial liabilities:

•	Trade payables are non-interest bearing and are settled between 30-90 days depending on local commercial custom and legislation.
•	Other payables and accruals are non-interest bearing and payment terms vary between 1-9 months.
•	Interest payable is settled twice throughout the financial year.

22. Deferred tax assets and liabilities

Deferred tax assets and deferred tax liabilities at 31 December are as set out below:

	Note	2019 € '000	2018 € '000 Restated
Deferred tax:
Opening balance asset		3,633	4,672
Reversal of temporary differences	11	(2,975)	(2,096)
Origination of temporary differences Recognition of previously un-recognised tax losses and	11	5,177 3,083	4,097
credits Movement in un-recognised timing differences during the	11	816	1,175
year	11		83
Movement in tax provision	11	(4,543)	(4,393)
Effect of changes in local income tax rates	11	467	45
Profit or loss credit continuing activities	11	2,025	(1,089)
Amount taken through other comprehensive income	11	977	(48)
Amount taken to Assets Held for Sale	12	(1,686)	-
Amount arising on acquisition	5	-	(90)
Exchange translation differences		143	188
Closing balance net asset		5,092	3,633
Split of deferred tax assets and liabilities
Deferred tax assets		8,518	11 ,060
Deferred tax liabilities		(3,426)	(7,427)
		5,092	3,633

The directors believe that tax losses carried forward can be used in future accounting periods to reduce the future tax expense arising from anticipated future profits.

Components of deferred tax assets / (liabilities) recognised in respect of deductible temporary differences are as follows:

Specification of deferred tax asset / (liabilities) components	2019 € '000	2018 € '000	OCI 2019 € '000	Transfer HFS 2019 € ' 000	P&L 2019 € '000	OCI 2018 € '000	Acquis 2018	P&L 2018 € '000
Deferred tax liability
Intangible assets	(3,868)	(7,866)	-	3,331	667	-	(105)	795
Property, plant & equipment	(418)	(1,395)	-	933	44	-	-	122
Goodwill	(801)	(481)	-	(425)	105	-	-	(373)
Accruals and other	(35)	(51)	-	(4)	20	-	-	42
Total component	(5,122)
liabilities		(9,793)
Offsetting items	1,696	2,366
Deferred tax liability	(3,426)	(7,427)
Deferred tax asset
Tax losses carried forward	2,236	3,464	-	(1,849)	621	-	16	(1,064)
Post-employment benefits	4,471	5,279	977	(1,854)	69	(48)	-	(155)
Other payables and accruals	1,002	1,737	-	(588)	(147)	-	-	334
Inventory profit elimination	621	918	-	(591)	294	-	-	11
Provisions: warranty	344	548	-	(327)	123	-	-	(27)
Intangible Assets	576	-	-	-	576
Interest	380	219	-	1	160			219
Receivables: bad debt	176	318	-	(152)	10	-	-	(43)
Goodwill	-	544	-	-	(544)	-	-	(13)
Other items	408	399	-	(161)	170	-	-	(749)
Total component assets	10,214	13,426
Offsetting items	(1,696)	(2,366)
Deferred tax asset	8,518	11,060
	5,092	3,633	977	(1,686)	2,168	(48)	(89)	(901)
Of which;
Discontinued activities			433	(1,686)	1,173	(26)	-	540
				-			(89)	(1,441
Continuing activities			544		995	(22)		)
Exchange translation difference					(143)			(188)
Transfer to Assets Held for Sale				1,686			-
Deferred tax expense in other comprehensive income (note 11)			(544)			48
Deferred tax credit in profit or loss (note 11)					852			(1,629)

Deferred tax liabilities:

As at 31 December 2019, the net value of retained distributable earnings in all subsidiaries and branches was an amount of € 136,811,605 (2018: € 126,147,942). This consists of retained earnings in the amount of € 223,320,514 (2018: € 201,335,662) and retained losses of € 86,508,909 (2018: € 75,187,720). If deferred taxes were recognised for these temporary differences, the liability would be based on the respective withholding tax rates only, taking into account the German tax rate on 5.0% of corporate dividends where applicable.

Tax losses

Subsidiaries of the Group have total tax losses amounting to € 65,415,853 (2018: € 88,289,436) which are available for offset against the future taxable income of those subsidiaries. Tax losses on which a deferred tax asset was recognised amount to € 11,535,202 (2018: € 18,224,251). Tax losses of € 24,358,213 (2018: € 24,358,213) held at Messer Cutting Systems GmbH are not recognised in the financial statements. These losses are included in the € 53,880,651 (2018: € 70,065,185) of tax losses, for which deferred tax assets (DTA) have not been recognised in the financial statements due to uncertainty as to whether future taxable income will be sufficient to utilise these losses fully in the foreseeable future.

At 31 December 2019, the Group had no tax credits (2018: € 935,586) available for carry forward against profits in future years.

It is estimated that the tax losses will expire as follows:

	Tax losses with DTA recognise d 2019 € '000	Tax losses with no DTA recognise d 2019 € '000	Total tax losses 2019 € '000	Total tax losses 2018 € '000
Expire in: Less than one year	-	-	-	-
One to three years	-	-	-	-
Three to five years	-	3,010	3,010	345
Greater than five years	11,535	50,871	62,406	87,944
Total losses	11,535	53,881	65,416	88,289

23. Post-employment employee benefit obligations

Expense recognised in the statement of profit or loss

Expenses incurred by the Group in respect of retirement benefits during the year were as follows:

	Note	2019 € '000	2018 € '000 Restated
Defined contribution schemes		1,133	915
Defined benefit schemes		666	672
Pensions and similar benefits	9.4	1,799	1,587

There were no defined contribution payments relating to post-employment health care costs in 2019 or 2018.

Amounts recognised in the statement of financial position

Subsidiaries of the Group have amounts included in the consolidated statement of financial position at 31 December 2019 in respect of a number of defined benefit and defined contribution schemes, which they operate as follows:

Liabilities	2019 € '000	2018 € '000
Defined contribution schemes - payables	(495)	(760)
Defined benefit schemes - provisions	(27,874)	(33,869)
Total Liabilities	(28,369)	(34,629)
Net liabilities for defined benefit obligations	2019	2018
	€ '000	€'000
Present value of unfunded defined benefit obligations	16,557	23,136
Present value of funded defined benefit obligations	38,596	42,032
Total gross present value of defined benefit obligations	55,153	65,168
Fair value of defined benefit plan assets	(27,279)	(31,299)
Net liability for defined benefit obligations	27,874	33,869
Defined benefit obligation asset	-	-
Defined benefit obligation liability	27,874	33,869
Defined benefit obligation net liability	27,874	33,869

The Group is committed to a number of post-employment arrangements in various subsidiaries. These arrangements can be either defined benefit or defined contribution in nature. Generally, these arrangements comprise obligations on, or post retirement. The costs of settling these obligations are met both by payments from employees and/or from the companies concerned, taking account where appropriate, of the recommendations of independent qualified actuaries.

There are funded defined benefit pension schemes in place in Messer Cutting Systems Inc., and Messer Griesheim Ltd. The assets of these plans are held in separately administered funds.

The boards of the funded pension funds are composed of an equal number of trustee representatives from both the employer and (former) employees. The board of trustees is required by law or by articles of association to act in the interest of the fund and all relevant stakeholders in the scheme, i.e. active employees, inactive employees, retirees, employers. The board is responsible for the investment policy with regard to the assets to the fund.

Benefits under the various plans vary from country to country, but generally the employees are entitled to post-retirement annual installments amounting to a fixed percentage of final salary for each year of service until reaching the retirement age in that country. The pensionable service period is limited to 35-40 years' service resulting in a maximum annual entitlement that varies between 66% (in UK) and 70% (in the USA) of final salary, which is then adjusted downwards depending on the level of state retirement benefits.

These funded plans expose the Group to actuarial risks, such as investment risk, interest rate risk, longevity risk and salary risk. The risk relating to benefits payable to dependents of plan members (widows and orphan benefits) forms part of the actuarial risk in the British and American schemes.

Expense recognised in the statement of profit or loss	Note	2019 € '000	2018 € '000 Restated
Current service costs		67	67
Past service costs		-	50
Net interest expense	9.4, 9.6	599	555
Defined benefit schemes costs in profit or loss Re-measurement of the net defined benefit liability		666	672
(Gain) / loss on plan assets (excluding amounts included in net interest)		(3,086)	1,824
Actuarial loss arising from changes in demographic assumptions gains		865	203
Actuarial loss / (gain) arising from changes in financial assumptions		4,493	(2,406)
Actuarial (gain) arising from experience adjustments - obligations		(38)	(79)
Defined benefit losses / (gains) recorded in other comprehensive ir		2,234	(458)
Total net defined benefit schemes cost		2,900	214

Management, based on independent actuarial valuations received, expect that the 2020 defined benefit expense in profit or loss will be € 499,794 and that contributions of € 452,078 will be paid to defined benefit schemes during 2020. Over the following four years to 31 December 2024, management expect to make further un-discounted payments totalling € 2,428,911.

Principal actuarial assumptions at the reporting date (expressed as weighted averages):

	2019	2018
Discount rates applied at 31 December	2.12%	2.78%
Future inflation rate	1.88%	2.22%
Future salary increases	1.93%	2.59%
Future pension increases	2.60%	2.75%
Rate of staff turnover	1.13%	2.54%
Future rate of state pension increases	1.75%	1.78%

•	The disclosures for 2018 are based on MEC Global GmbH Group. Disclosures for 2019 represent the continuing operations within MEC Global GmbH Group only

Discount interest rates are based on market indicators and the increase since last year is indicative of the general increase in inter-bank market interest rates since the beginning of the year. This rate is also used to determine the overall expected rate of return on plan assets.

Post-retirement benefits under the Group's many defined benefit schemes are based on varying percentages of members' remuneration depending on local circumstances over various periods before retirement. The weighted average remaining service lives of employees in these schemes is 10.93 years (2018: 14.45 years).

The weighted average duration of the DBO liability is 13.44 years (2018: 12.76 years). Based on actuary's reports, Group management expect the DBO liability to pensioners to be settled as follows: € 2,547,275 over the next twelve months, a further € 10,379,181 over the following four years and a further € 14,215,324 over the following five years to 31 December 2029.

The future rate of state pension increase is relevant for those schemes where post-retirement benefits are restricted by the amount of state retirement benefits. Employees pay a fixed contribution of pensionable salaries to the pension plan, which varies by plan and by country. The balance of contributions is funded by the subsidiaries based on local actuarial measurement framework.

The rate of staff turnover has an impact on the eventual defined benefit obligation in so far as the proportion of staff leaving will not receive full benefits on retirement or, in the case of termination benefit schemes, the rate and timing of the final liability.

Mortality assumptions

The actuarial mortality assumptions (surviving year's post-retirement) on pension plans are as follows:

	Residency	Male	Female
BIT Analytical Instruments GmbH	Germany	21.6	25.3
Messer Cutting Systems Inc,	USA	16.6	18.3
Spectron Gas Control Systems GmbH	Germany	21.6	25.3
Messer Griesheim Ltd,	UK	21.0	23.1
MesserSoft GmbH	Germany	21.6	25.3
Messer Cutting Systems GmbH	Germany	21.6	25.3

	Unfunded Liability € '000	Funded Liability € '000	Fair value of plan assets € '000	Carrying value € '000
MCS Inc., US pension scheme	-	(24,388)	19,319	(5,069)
MCS GmbH, Germany pension scheme	(14,461)	-	-	(14,461)
Messer Griesheim Ltd, UK pension scheme	-	(14,208)	7,960	(6,248)
BIT GmbH, Germany pension scheme	(855)	-	-	(855)
MCS Korea Ltd, lump-sum scheme	(549)	-	-	(549)
BIT Group France SA, France pension	(304)	-	-	(304)
scheme Spectron Gas Control Systems GmbH	(165)	-	-	(165)
Other pension schemes	(223)	-	-	(223)
Total	(16,557)	(38,596)	27,279	(27,874)

The employment benefit plans in France, Germany, South Korea, and Poland are not funded by separately administered assets. In France liabilities for employment obligations are provided to pay employees a lump-sum benefit on retirement based on their years' service to the company. In Korea the liabilities for employment obligations are provided to pay for either a lump sum to employees on retirement or a pension after retirement. Every employee has the right to select a preference.

Employees participating in the German Messer Cutting Systems GmbH (MCS) and BIT Analytical Instruments GmbH "Ordnung der betrieblichen Zusatzversorgung" scheme (a pension scheme to supplement the pension payments of employees who earned in excess of the state social insurance limits), are no longer entitled to receive new benefits under this scheme. Existing benefits up to 2002 remain in place for all eligible employees. Since 2002, entrance for new MCS employees to the contributory defined benefit pension scheme ("Ordnung der betrieblichen Grundversorgung") was also terminated, though existing employees are entitled to continue membership. Annual cost of living increase entitlements in Germany are considered part of the employee benefit obligation and differences between actual increases and those estimated are treated as part of actuarial gains and losses each year.

Movement in plan assets	2019 € '000	2018 € '000
Note	31,299	33,24
Balance 1 January		4
Net interest (total included in profit or loss)	1,085	969
Return on plan assets (excluding amounts included in net interest expense) included in Other Comprehensive Income	3,718	(2,249)
Company contributions to plan assets	946	493
Benefits paid to pensioners from plan assets	(2,086)	(1,801)
Exchange difference on plan assets	1,097	643
Assets held for sale	(8,780)	-
12
Balance 31 December	27,279	31,29

Analysis of plan asset, investment in	2019 € '000	2018 € '000
Managed investment funds	26,060	28,411
Cash and cash equivalents	1,219	2,752
Fixed income bonds and notes	-	109
Equity investments	-	11
Property - real estate	-	16
	27,279	31,299
Analysis of investment in managed investment funds
Equity investments	19,117	19,673
Fixed income bonds and notes	6,045	7,595
Money market funds	898	1,143
	26,060	28,411

There is no concentration of assets, either geographic or by industrial sector, in any investment fund. The various funds are independently administered subject to the direction of pension trustees, appointed by the company and employee representatives, who act in compliance with local pension legislation. Virtually all equity and debt instruments have quoted prices in active markets.

The actual return on plan assets during the year to 31 December 2019 was a profit of € 4,642,834 or 18.33% (2018: loss of € 637,147 or 1.97%) of the average value of aggregate plan assets including the effect of foreign exchange gain of € 683,350 (2018: gain of € 642,679). Due to the increase in international equity markets, the underlying return was higher than the actuarial expected rate of return of 2.78% (2018: 2.43%) and this resulted in pension schemes with plan assets with a high proportion of equities performing strongly during 2019.

In local currencies, the plan assets of the US plan increased by 20.02% (2018: 4.94% decrease), and increased by 10.74% (2018: 2.42% decrease) in Messer Griesheim (UK) over the course of the year.

The majority of the plan assets are held through separately managed diversified investment funds. Given the nature of these diverse investment funds, there is limited further meaningful detailed information available either separately per scheme or in aggregate without undue cost.

None of the pension funds operated by MEC subsidiaries have within their assets any financial instrument of MEC Global or any of its subsidiaries or any asset used by MEC Global GmbH or any of its subsidiaries.

The assets of the other plans within the Group are not generally held in separate trustee-administered funds.

Movement in defined benefit obligations	Note	2019 € '000	2018 € '000
Balance 1 January		(65,168)	(68,124)
Current service cost		(589)	(613)
Past service cost		-	(37)
Discount interest expense		(1,809)	(1,636)
Gain on settlement of closed scheme		-	(2)
Company contributions to schemes		1,216	1,606
Benefits paid to pensioners		2,086	1,801
Actuarial (loss) / gain - demographic assumptions		(870)	394
- financial assumptions		(5,375)	2,842
- experience adjustments		(24)	(345)
Exchange difference on defined benefit obligations	12	(1,598)	(1,054)
Transfer to assets held for sale		16,978	-
Balance 31 December		(55,153)	(65,168)

There were no other material transactions with the pension plans during 2019. The defined benefit obligation € 55,153,487 (2018: € 65,167,921) has been calculated by independent actuaries based on discount rates and other actuarial assumptions appropriate for each scheme. If, assuming all other assumptions and exchange rates remained constant, the following drivers changed the defined benefit obligation would be as follows:

Sensitivity	Defined Benefit Obligation
Discount rates were increased by 0.5%	€ 51,802,415
Discount rates were decreased by 0.5%	€ 58,868,884
Salary increases were 0.5% higher	€ 55,374,224
Salary increases were 0.5% lower	€ 55,034,465
Pension increases were 0.5% higher	€ 56,255,537
Pension increases were 0.5% lower	€ 54,130,517
Male mortality were to increase by one year	€ 56,348,896
Male mortality were to decrease one year	€ 53,976,797
Female mortality were to increase one year	€ 56,105,990
Female mortality were to decrease one year	€ 54,220,447

Given the diversity and variety of post-retirement plans the Group does not attempt to hedge against the discount interest rate risk. Each pension trustees board follows the local investment manager's advice on the most desirable investment strategy considering the age profile of employees in adherence to local laws - a greater proportion of low risk debt instruments as employees approach retirement age etc. - as it would be illegal in most jurisdictions to impose an overall Group investment strategy on each scheme.

24. Other liabilities, provisions

The Group's other liabilities and provisions comprise:

Provisions	Note	Product Warranty € '000	Restoration, restructuring and litigation provision € '000	Total Provisions € '000
Current liability		7,187	2,062	9,249
Non-current liability		-	1,239	1,239
At 1 January 2019		7,187	3,301	10,488
Additional provisions		3,119	4,697	7,816
Unused amounts reversed		(1,188)	(230)	(1,418)
		1,931	4,467	6,398
Charged to cost of sales	8	1,931	890	2,821
Charged to other expenses	9.2	-	3,577	3,577
		1,931	4,467	6,398
Utilised during year		(1,583)	(2,790)	(4,373)
Un-winding of discounted liabilities		-	36	36
Impact of change in discount rate		-	26	26
Exchange differences		53	21	74
Assets held for sale	12	(2,612)	(1,450)	(4,062)
At 31 December 2019		4,976	3,611	8,587
Current liability		4,976	2,472	7,448
Non-current liability		-	1,139	1,139

Restoration, restructuring and litigation provision

At the end of 31 December 2019, an amount of € 939,712 (2018: € 1,251,791) has been provided as the net present value of the future clean-up costs or restoration to the original conditions as set out in the lease contracts of rented properties. Most of this amount relates to rented properties in Germany. Where there are uncertainties concerning the amount to be provided, the probable liability is used. This provision has been discounted to present value.

An amount of € 646,165 (2018: € 695,264) relates to on-going negotiations or contested litigation. Management have provided their best estimate of the likely outcome. Some of these actions have been outstanding for many years and some have already been determined by the legal system but are subject to on-going legal appeals.

At the end of 2019 € 887,275 has been provided against an onerous contract in BIT Group USA Inc.

An amount of € 1,138,190 (2018: € 1,000,446) relates to a restructuring provision relating to the closure costs and severance costs associated with the restructuring of certain operations worldwide.

General

At 31 December 2019 and 2018, the Group recognised no assets for expected re-imbursements relating to the above liabilities.

25. Issued capital and reserves

Share capital

The authorised and issued share capital for MEC Global GmbH is € 25,000 which is made up of the following six shares ("Geschäftsanteile"):

Par Value		Ownership interest
€	16,050	64.2%	held by MIG Holding GmbH
€	1,600	6.4%	held by MIG Holding GmbH
€	550	2.2%	held by MIG Holding GmbH
€	500	2.0%	held by MIG Holding GmbH
€	2,700	10.8%	held by MIG Holding GmbH
€	3,600	14.4%	held by MEC Holding GmbH
€	25,000	100.0%

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at annual and general meetings of the company. The shareholders have fully paid up all shares in MEC Global GmbH.

Treasury shares

On 29 December 2006, MEC Holding GmbH, a Group company purchased shares with a nominal value of € 3,600 for consideration of € 11,165,288 from former shareholders. The balance as at 31 December 2019 was € 3,600 (2018: € 3,600).

Share premium

Share premium, a capital reserve, represents the difference between the purchase consideration paid on acquisition and the amount of share capital issued to shareholders as adjusted for transactions with former shareholders. As at 31 December 2019, the share premium amount was € 41,262,819 (2018: € 41,262,819).

Foreign currency reserve

Foreign currency reserves represent the accumulated foreign exchange profits and losses that are taken to equity. The reserve is used for foreign currency translation differences arising on the consolidation of the financial statements of subsidiaries, which do not prepare their accounts in Euro and also on non-Euro denominated long-term loans to subsidiaries forming part of the net investment in subsidiaries.

As at 31 December 2019, accumulated foreign exchange profits of € 8,218,198 (2018: € 5,524,553) had been taken to equity since the Group commenced operations in February 2005. Upon disposal of the corresponding investments, the cumulative foreign currency reserves are recognised as income or expenses in the same period in which the gain or loss on disposal is recognised. During 2019, the functional currencies of many of the Group's larger subsidiaries in the United States of America and Japan appreciated in value against the Euro, resulting in a € 2,660,602 (2018: € 783,964) increase in the Euro value of the net assets of subsidiaries and associate companies, when these net assets were translated at year-end, which in turn gave rise to a foreign exchange translation gain, which is properly reflected in other comprehensive income during the financial year.

Pension reserve

The pension reserve represents the cumulative net actuarial movements on the defined benefit schemes that have been taken through other comprehensive income net of the non-controlling interest's share. At 31 December 2019, the balance in this account was € 16,588,166 (2018: € 15,013,547).

Retained earnings

Retained earnings or revenue reserves represent the amount available to the Group for distribution to shareholders. As at 31 December 2019, the amount in this account was € 84,687,686 (2018: € 90,011,661) reflecting accumulated profits less distributions made or payable.

Distributions paid and proposed	2019 € 000's	2018 € 000's
Declared and paid during the year Equity distributions on ordinary shares
Final distribution declared	5,000	5,000
Final distribution paid	-	-

Non-controlling interests

Non-controlling interests at 31 December 2019 include investments in Messer Griesheim Saldatura Srl (Italy), and the following non-controlling interests in entities classified as Held for Sale: Messerecuador SA (Ecuador), Castolin Kaynak Sanayi ve Ticaret Ltd, Sti (Turkey), Castolin Eutectic Saudi Arabia LLC and Castolin Eutectic (West Africa) Limited (Nigeria). The closing balance includes their proportion of the fair value of identifiable assets and liabilities recognised upon acquisition or part sale of a subsidiary and their share of any profits less losses and dividends paid since acquisition.

The amount of non-controlling interests as at 31 December 2019 was € 1,373,192 (2018: € 1,779,844).

26. Financial risk management objectives and policies

The Group's principal financial instruments, other than derivatives, comprise bank loans and overdrafts, right-of-use leases, trade payables and loans given. The main purpose of these financial instruments is to raise finance for the Group's operations. The Group has various financial assets such as trade receivables and cash and short-term deposits, which arise directly from its operations.

The Group enters into derivative transactions, primarily commodity metal swaps contracts and foreign exchange forward contracts to manage certain commodity metal risks and foreign exchange risk arising from the Group's operations and its sources of finance. It is and has been throughout 2019 and 2018, the Group's policy that no trading in derivatives or other acquired financial assets with a significant risk of movements in fair value shall be undertaken.

Interest rate risk

The Group's exposure to the risk of changes in market interest rates relates primarily to the Group's long-term debt obligations with floating interest rates.

To manage interest rate risk, the Group enters into interest-rates swaps, in which the Group agrees to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed upon notional principal amount. At 31 December 2019, approximately 53.1% (2018: 43.5%) of the Group's borrowings are at a weighted average fixed rate of interest 4.46% (2018: 5.23%). The split of fixed and variable loans set out below is based on the underlying debt.

	Note	2019 € '000	2018 € '000
Borrowings at fixed interest rates		57,126	29,288
Borrowings at variable interest rates		50,501	38,070
Total borrowings	20,2	107,627	67,358

During the year, the total net interest expense was € 1,478,166 (2018: € 1,315,241) (see notes 9.5 and 9.6). After excluding discounting, interest on right of use lease liabilities and financial gains and losses the net interest expense was € 2,188,370 (2018: € 2,085,415). If market interest rates increased by 1.0% (100 basis points) during the year, the equivalent net interest expense was estimated to be € 2,805,080 (2018: € 2,666,612) and if interest rates had fallen by 1.0% (100 basis points), the equivalent net interest expense was estimated to be € 1,581,022 (2018: € 1,495,405).

Foreign exchange risk

The Group is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than one of the euro zone countries. The currencies giving rise to this risk are primarily US Dollar, Pounds Sterling and Chinese Yuan. When considered appropriate, the Group uses forward exchange rate contracts to manage currency risk. A number of large sales denominated in Russian Rubles (RUB) in Messer Cutting Systems GmbH were planned for 2019 and 2020. To hedge against the foreign exchange risk the group has entered into a forward currency contract to sell Russian Rubles at a fixed exchange rate. At 31 December 2019 the contract liability is recorded at a fair value of € 98,288.

The Group has borrowed USD 15,000,000 in senior loan notes maturing in 2020 to finance the business. The Group has not entered into hedging instruments on these senior loan notes. If the dollar appreciates by 1.0%, the equivalent loan balance was estimated to increase by € 133,523 (2018: €131,004), while a depreciation in the dollar of 1% would cause an decrease in the loan balance of €132,200 (2018: € 129,707).

Credit risk

The Group's objective is to only trade with recognised, creditworthy third parties. It is Group policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an on-going basis with the result that the Group's exposure to bad debts is generally not significant. There were no significant concentrations of credit risk within the Group, see note 17. The exposure to credit risk mainly comprises trade and loan receivables. The total amount of un-impaired trade and other receivables was € 30,225,846 (2018: € 81,598,376). No collateral is held against trade receivables in either year.

The credit risk associated with loans receivable from third parties is as follows (see note 18);

•	Long-term loans to employees to assist in the finance of residential properties in the amount of € 9,294 (2018: € 470,656), which is underwritten by the French state,
•	Loan receivable from related party, SCI de la Valsiere amounting to € 328,661 (2018: € 334,577),
•	Loan receivable from related party, Tarek Nasser Al-Akeel Company Ltd of SAR 729,537 (€ 173,469)

With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents, held for trade investments and certain derivative instruments, the Group's exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying value of these instruments.

None of the Group's loan receivables were in default during the year. No collateral is held against loan balances receivable in 2019 and 2018.

An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses for all receivables not individually assessed. The calculation reflects the best estimate based on historical evidence and management assessment. Generally, trade receivables are written-off if past due for more than three years and are not subject to enforcement activity.

The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in Note 18. The Group does in general not hold collateral as security. Any letters of credit, other forms of credit insurance or guarantees received are considered integral part of trade receivables and considered in the calculation of impairment.

The Group evaluates the concentration of risk with respect to trade receivables and contract assets as low, as its customers are located in several jurisdictions and industries and operate in largely independent markets.

Liquidity Risk

The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity of both its financial investments and financial assets (e.g. accounts receivable, other financial assets) and projected cash flow from operations.

The following table shows MEC's contractually agreed (undiscounted) cash flows payable under financial liabilities and derivative assets and liabilities as at the balance sheet date:

LIQUIDITY RISK at 31 December 2019	Note	TOTAL € '000	Payment within 3 months € '000	Payment between 3-12 months € '000	Payment between 1-5 years € '000	Payment after 5 years € '000
Bank overdraft	20	5,662	5,662	-	-	-
Loans payable Loans to entities		70,852	-	25,852	45,000	-
classified as held for sale	12,20	20,709	20,709	-	-	-
Contingent consideration	20	193	127	33	33	-
Interest payable		828	77	751	585	-
Lease payments	20,28	11,130	1,315	1,836	5,499	2,480
Accounts payable		50,581	39,951	10,004	512	114
Total financial liabilities		160,540	67,841	38,476	51,629	2,594

LIQUIDITY RISK at 31 December 2018	Note	TOTAL € '000	Payment within 3 months € '000	Payment between 3-12 months € '000	Payment between 1-5 years € '000	Payment after 5 years € '000
Bank overdraft	20	190	190	-	-	-
Loans payable		67,962	86	265	64,566	3,045
Contingent consideration	20	348	145	16	187	-
Interest payable		2,320	21	1,556	743	-
Accounts payable		99,504	82,914	15,506	926	158
Total financial liabilities		170,324	83,356	17,343	66,422	3,203

The liquidity risk tables above exclude cash flows from financial derivatives, which are set out separately below.

The Group's objective is to maintain a balance between continuity of funding and flexibility through use of bank overdrafts, bank loans, right-of-use leases and hire purchase contracts (collectively borrowings). 53.1% (2018: 0.48%) of the Group's debt at 31 December 2019 will mature in less than one year based on balances reflected in the financial statements.

Replacement financing arrangements for the short term have been put in place as set out in Note 20. As at 31 December 2019, committed but un-drawn bank facilities were € 12,513,150 (2018: € 33,586,444). Further details of borrowing rates and related terms are set out in note 20. Bank overdrafts are secured by floating charges over certain Group assets.

Estimated future cash flows relating to financial derivatives 31 December 2019

	TOTAL € '000	Payment within 3 months € '000	Payment between 3-12 months € '000	Payment between 1-5 years € '000	Payment after 5 years € '000
Carrying values
Financial derivative liabilities (note 27)	(98)	(75)	(23)	-	-
Un-discounted cash flows
Forward foreign exchange contracts
Buy	1,759	1,350	409	-	-
Sell	(1,857)	(1,425)	(432)	-	-
Net estimated cash outflows	(98)	(75)	(23)	-	-

Estimated future cash flows relating to financial derivatives 31 December 2018

	TOTAL € '000	Payment within 3 months € '000	Payment between 3-12 months € '000	Payment between 1-5 years € '000	Payment after 5 years € '000
Carrying values
Financial derivative liabilities (note 27)	25	25	-	-	-
Un-discounted cash flows
Forward foreign exchange contracts
Buy	481	481	-	-	-
Sell	(457)	(457)	-	-	-
Net estimated cash outflows	25	25	-	-	-

Capital management

The primary objective of the Group's capital management is to ensure that it maintains strong capital ratios in order to comply with loan covenants, support its business, and maximise shareholder value. The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years ended 31 December 2019 and 2018.

The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt and the absolute value of equity as defined in the loan covenants (in note 20). The Group's policy is to maintain the long-term gearing ratio between 25.0% and 40.0%.

This target level can be reduced from time to time, when management considers it desirable to reduce debt to a lower, safer level. The Group includes within net debt interest bearing loans and borrowings, less loans receivable and cash and cash equivalents, excluding discontinued operations. Capital includes equity attributable to the equity holders of the parent.

Capital management - gearing ratio	Note	2019 € '000	2018 € '000
Interest bearing loans and borrowings	12,20	131,587	67,358
Cash and cash equivalents	12,19	(56,117)	(44,491)
Net debt		75,470	22,867
Equity (excluding non-controlling interests)		117,601	121,807
Combined capital / equity and net debt		193,071	144,674
Gearing ratio		39.1%	15.8%

The high gearing ratio at 31 December 2019 of 39.1% (2018: 15.8%) reflects the increase in interest bearing borrowings on transition to IFRS 16 at 1 January 2019. On 1 January 2019 liabilities of €55.9m were recognised in the balance sheet which were not previously recorded (note 28). This gearing rate is deemed satisfactory in terms of preserving equity holder's value and forms a solid base for possible debt financed investments in the coming year.

27. Financial instruments

Effective interest rate and re-pricing analysis

In respect of interest bearing financial liabilities, the following table indicates their effective interest rates at the reporting date and the periods in which they re-price.

31 December 2019	Note	EIR %	Total Debt € '000	Within 1 Year € '000	Between 1-3 Years € '000	Between 3-5 Years € '000	More than 5 years € '000
Bank loans
EUR - Floating loan	20	1.3%	45,000	-	45,000	-	-
EUR - Deferred fees	20	n/a	(161)	(161)	-	-	-
Overdraft	20	1.3%	5,662	5,662	-	-	-
			50,501	5,501	45,000	-	-
Senior loan note
EUR - Fixed rate loan 2020	20	5.50%	12,500	12,500	-	-	-
USD - Fixed rate loan 2020	20	6.10%	13,352	13,352	-	-	-
			25,852	25,852	-	-	-
Lease obligations	28	2.27%	10,565	2,989	3,562	1,616	2,398
Loans payable to entities held for sale	12	3.89%	20,709	20,709	-	-	-
Total borrowings	20		107,627	55,051	48,562	1,616	2,398

Fair values

The Group's principal financial instruments not carried at fair value are cash and cash equivalents, trade receivables, other current assets, other non-current assets, trade and other payables, bank overdrafts and long-term borrowings.

In the opinion of management, the fair value of Right of Use lease liabilities and long-term borrowings at fixed and floating rates of interest approximate their historical cost carrying amounts, in light of the intended repayment schedule and the existence of derivative contracts fixing the currency and interest rate, which are carried at fair value.

The fair value of forward currency contract provision and asset as set out in note 26 as at 31 December 2019 was a net liability of the equivalent of € 98,288 (2018: € 24,784). When the Group entered into the contract the purpose was to limit its exposure to possible future foreign exchange rate movements.

Fair value hierarchy

As at 31 December 2019, the Group has the following financial instruments held for trading and measured at fair value.

Assets and liabilities measured at fair value	Note	Total 2019 € '000	Level 1 € '000	Level 2 € '000	Level 3 € '000
Financial liabilities at fair value through profit or loss
Deferred contingent consideration	20	189	-	-	189
Forward currency contract	26	98	-	98	-
Total liabilities		287	-	-	-

During the reporting period ending 31 December 2019, there were no transfers between Level 1, Level 2 or Level 3 fair value measurements.

Deferred contingent consideration is assessed as Level 3 and is based on a combination of observable market data (interest and exchange rates) and internally generated local management's forecasted projection of earnings over the period covered by the earn-out under the deferred consideration agreement. The value is most sensitive to changes in the latter variable, as management's annual re-assessment of likely future earnings, in light of updated information on market and technology conditions can have a material impact on the value of the liability.

Contract details are as follows:

Fair value of derivative contracts as at 31 December	2019 €	2018 €
1) Notional amount RUB'000s 130,006 Maturity dates: Jan 2020 - Apr 2020 Forward currency contract - agreement to buy RUB 99,312,000 at 73.5742 and RUB 30,964,000 at 75.0490 Fair Value Liability to Commerzbank Credit Rating: A1	(98,288)	-
2) Notional amount € 457,051 Maturity Date: 11 January 2019 Forward currency contract - agreement to sell INR 38,417,600 and buy USD 520,000 Fair Value Liability to HSBC Credit Rating: A2	-	(24,784)
Total net fair value of swap contracts liabilities	(98,288)	(24,784)

Fair value of derivative contracts	Note	Current € '000	Non-current € '000	2019 € '000	2018 € '000
Financial liabilities	26	(98)	-	(98)	(25)

28. Leases

Right of use assets

	Land & Buildings € '000	Building Restoration € '000	Machinery & Equipment € '000	Office Equipment € '000	Motor Vehicles € '000	TOTAL € '000
At 1 January 2019 Net finance leases	3,811	-	-	-	-	3,811
Transition	45,459	-	352	414	5,869	52,094
New Leases	7,052	-	198	137	2,365	9,752
Additions	-	499	-	-	-	499
Termination	(12)	-	-	(13)	(22)	(47)
Other (index re-measure)	(570)	-	4	13	3	(550)
Depreciation	(7,955)	(62)	(110)	(271)	(3,082)	(11,480)
Net Foreign Exchange	671	3	19	5	74	772
Asset held for sale (Note 12)	(39,173)	(388)	(414)	(195)	(4,138)	(44,308)
Carrying amount at 31 December 2019	9,283	52	49	90	1,069	10,543
As at 31 December 2019 Gross carrying amount	11,909	65	55	189	1,720	13,938
Cumulative depreciation	(2,626)	(13)	(6)	(99)	(651)	(3,395)
Net carrying amount	9,283	52	49	90	1,069	10,543

Right of use depreciation expense by cost center	Note	2019 € '000	2018 € '000
Cost of sales	8	1,642	-
Administration expenses		482	-
Selling and distribution expenses		348	-
Research and development expenses		1,150	-
Total depreciation cost	8	3,622	-

Lease liability movement (discounted) At 1 January 2019	Note	Current	Non Current	TOTAL
Transition to new standard		9,826	46,037	55,863
New leases during the year		2,572	7,175	9,747
Interest cost		1,267	-	1,267
Lease rental payments		(12,172)	-	(12,172)
Transfer non-current to current		8,211	(8,211)	-
Other (index re-measure)		(596)	-	(596)
Exchange		109	647	756
Transfer to Assets held for sale	12	(6,228)	(38,072)	(44,300)
Carrying amount at 31 December 2019	20,27	2,989	7,576	10,565

	Note	2019 € '000	2018 € '000
Not later than one year		2,989	-
Between one and three years		3,562	-
Between four and five years		1,616	-
Between five and ten years		2,316	-
Later than ten years		82	-
Total discounted lease maturity	20,27	10,565	-

As at 31 December 2019, non-current and current financial liabilities at amortised amount to € 7,575,767 (2018: € nil) and € 2,989,011 (2018: € nil) (as listed in note 20). The incremental borrowing rate used to calculate the lease liability is specific for each leased asset type and country the lease is held in. The weighted average incremental borrowing rate during the financial year was 2.26% (2018: -%).

Lease obligations expense

The values of un-discounted minimum future lease payments, under non-cancellable leases at the reporting date are as follows:

	Note	2019 € '000	2018 € '000
Not later than one year		3,151	-
Between one and three years		3,776	-
Between four and five years		1,723	-
Between five and ten years		2,398	-
Later than ten years		82	-
Total minimum lease payments	26	11,130	-
Lease of land & buildings		9,926	-
Lease of motor vehicles		1,059	-
Lease of plant & machinery		50	-
Lease of office equipment		95	-
Total minimum lease payments	26	11,130	-

During 2019, the total short term lease expense amounted to € 191,106 (2018: € nil). Short term leases are defined as leases of less than one year duration or are lower value leases as set out under IFRS 16.

Income from leases

Minimum future lease income that was expected to be received under non-cancellable leases at the reporting date was as follows:

Sub-lease income	2019 € '000	2018 € '000
Real Estate Property
Not later than 1 year	667	699
Between 1 and 5 years	456	904
Total minimum lease income	1,123	1,603

As set out in note 7, sub-lease income arising during the year was € 687,333 (2018: € 661,825).

29. Commitments and contingencies

(a) Commitments

Operation lease obligations expense

The values of un-discounted minimum future lease payments, under non-cancellable operating leases at the reporting date are as follows:

	2019 € '000	2018 € '000
Not later than one year	-	11,296
Between one and three years	-	14,541
Between four and five years	-	8,757
Between five and ten years	-	12,632
Later than ten years	-	8,189
Total minimum operating lease payments	-	55,415
Lease of land and buildings	-	47,544
Lease of motor vehicles	-	6,881
Lease of plant and machinery	-	578
Other leases	-	412
Total minimum operating lease payments	-	55,415

During 2019, the total rental expense for all operating leases was € nil (2018: € 12,987,602).

No operating lease income arose under contingency provisions of lease contracts.

(b) Contingencies

During the normal course of business the Group is subject to legal claims and potential claims. As at 31 December 2019, there are a number of legal claims against the Group, the outcome of which cannot be determined at the date of approval of the financial statements.

Senior debt facility agreement

Under the terms of the facility agreement with HSBC and three other banks, dated 29 August 2015, certain subsidiaries, which constitute Material Subsidiaries (listed in note 20), act as guarantors to that agreement.

Capital commitments

At 31 December 2019, the Group had contracted for € 12,623 (2018: € 1,225,080) of capital expenditure, but this was not recognised as an asset in the financial statements, as the items were not delivered, installed or otherwise ready for use by the Group.

Other future commitments

Contracted purchase orders

Other future commitments contracted at the reporting date, but not recognised in the financial statements include an amount of € 6,827,743(2018: € 13,824,463) relating to large supplier orders for the BIT division. Messer Cutting Systems India Private Ltd have also committed to the purchase of € 9,977 (INR 800,000) worth of supplies for their Oxyfuel business. The exact delivery dates for these goods, based on production planning, was undecided at the reporting date.

Guarantees

In compliance with local tax legislation, a number of subsidiaries provided individual guarantees to their tax authorities to cover custom clearance and other tax liabilities. A number of subsidiaries provided guarantees to cover monies received in advance from customers and in some cases to cover possible future warranty payments on goods sold. A number of subsidiaries, which trade from leased premises, have provided guarantees to the counter-party in relation to future rental obligations.

30. Related parties

The financial statements include the financial statements of subsidiaries listed in the following table:

		Ownership interest
Subsidiary	Location of incorporation	Dec 2019	Dec 2018
Castolin Gesellschaft m.b.H.	Wiener Neudorf, Austria	100%	100%
MEC Holding GmbH	Wiener Neudorf, Austria	100%	100%
Messer Eutectic Castolin Benelux SA	Enghien, Hainaut, Belgium	100%	100%
Messer Cutting Systems do Brasil Ltda	Jundiai, Sáo Paulo, Brazil	100%	100%
Eutectic Canada Inc.	Vaudreuil-Dorion, Québec, Canada	100%	100%
Whertec Canada, Inc.	Toronto, Ontario, Canada	100%	100%
Eutectic Castolin (Shanghai) Co., Ltd	Shanghai Pudong, P.R. China	100%	100%
Eutectic Castolin (Kunshan) Metal Products Co., Ltd	Kunshan, Jiangsu, P.R. China	100%	100%
Messer Cutting Systems (China) Ltd	Kunshan, Jiangsu, P.R. China	100%	100%
Lai Fei Te Oilfield Equipment Dalian Co., Ltd	Jinzou, Dalian, P.R. China	-%	100%
Spectron Gas Control Systems (Shanghai) Co., Ltd	Shanghai, P.R. China	100%	100%
Messer Eutectic Castolin spol. s.r.o.	Chrastany, Czech Republic	100%	100%
Messerecuador S.A.	Quito, Pichincha, Ecuador	70%	70%
Messer Eutectic Castolin Egypt LLC	New Maadi, Cairo, Egypt	100%	100%
Messer Eutectic Castolin Misr Trading LLC	New Maadi, Cairo, Egypt	100%	100%
Messer Eutectic Castolin Par LLC	New Maadi, Cairo, Egypt	100%	100%
BIT Group France SA	Montpellier, France	100%	100%
Messer Eutectic Castolin S.A.R.L.	Evry, Paris, France	100%	100%
Soudures Nevax SAS	Verrieres-le-Buisson, Paris, France	-%	100%
BIT Analytical Instruments GmbH	Schwalbach, Germany	100%	100%
Castolin Eutectic GmbH	Kriftel, Germany	100%	100%
Castolin GmbH	Kriftel, Germany	100%	100%
MEC Acquisitions GmbH	Bad Soden am Taunus, Germany	100%	100%
MEC Holding GmbH	Bad Soden am Taunus, Germany	100%	100%
Messer Cutting Systems GmbH	Gross-Umstadt, Germany	100%	100%
MesserSoft GmbH	Dortmund, Germany	100%	100%
Spectron Gas Control Systems GmbH	Frankfurt am Main, Germany	100%	100%
Castolin Zrt.	Pecs, Hungary	100%	100%
Messer Cutting Systems India Private Ltd	Coimbatore, Tamil Nadu, India	100%	100%
Castolin Eutectic Ireland Ltd.	Dublin, Ireland	100%	100%
PT Castolin Eutectic Indonesia	Bekasi, Indonesia	-%	100%
Messer Griesheim Saldatura S.r.l.	Milan, Italy	97%	97%
Eutectic Japan Ltd.	Yokohama, Japan	100%	100%
Eutectic Korea Ltd.	Incheon, South Korea	100%	100%
Messer Cutting Systems Korea Ltd.	Busan, South Korea	100%	100%
Bienes Raices Victoria S.A.	Mexico City, Mexico	100%	100%
Eutectic Mexico S.A. de C.V.	Mexico City, Mexico	100%	100%
Castolin Trio AS	Tananger, Norway	100%	100%
Messer Eutectic Castolin Sp. z o.o.	Gliwice, Poland	100%	100%
Messer Eutectic Castolin ooo	Moscow, Russia	100%	100%
Castolin Eutectic Saudi Arabia LLC	Al Khobar, Saudi Arabia	60%	60%
Messer Eutectic Castolin (S) Pte Ltd	Singapore, Singapore	100%	100%
Spectron GCS Singapore Pte, Ltd.	Singapore, Singapore	100%	100%
Messer Eutectic Castolin Slovensko s.r.o.	Bratislava, Slovakia	100%	100%
Messer Eutectic SA (Proprietary) Limited	Johannesburg, South Africa	100%	100%
Castolin Iberica S.L.U.	Madrid, Spain	100%	100%
Castolin Scandinavia AB	Gothenburg, Sweden	100%	100%
Messer Eutectic Castolin Switzerland S.A.	Dallikon, Switzerland	100%	100%
Castolin Eutectic (Thailand) Co. Ltd	Patumthani, Thailand	49%	49%
Castolin Kaynak Sanayi ve Ticaret Limited Sirketi	Istanbul, Turkey	49%	49%
Messer Kesim Sistemleri Makina Ticaret Limited Sirketi	Istanbul, Turkey	100%	100%
TOB Messer Eutectic Castolin	Kiev, Ukraine	100%	100%
Castolin Eutectic Monitor Coating Middle East FZE	Dubai, United Arab Emirates	100%	100%
Messer Griesheim Ltd	Cramlington, United Kingdom	100%	100%
Spectron Gas Control Systems Limited	Coventry, United Kingdom	100%	100%
Castolin Eutectic Ltd.	Redditch, United Kingdom	100%	100%
Monitor Coatings Limited	Newcastle, United Kingdom	100%	100%
FAWM Ltd.	Newcastle, United Kingdom	-%	100%
BIT Group USA, Inc.	Irvine, CA, USA	100%	100%
Whertec Inc.	Jacksonville, FL, USA	100%	100%
Eutectic Corporation	Menomonee Falls, WI, USA	100%	100%
Messer Cutting Systems Inc.	Menomonee Falls, WI, USA	100%	100%
Eutectic of Puerto Rico, Inc.	Puerto Rico, USA	100%	100%
Eutectic Castolin (West Africa) Limited	Lagos, Nigeria	70%	70%

Associate Companies

		Ownership interest
Subsidiary	Location of incorporation	Dec 2019	Dec 2018
Pietro Galliani Brazing S.p.A.	Vergato, Italy	49%	49%
Edan-Messer Diagnostics Limited	Mong Kok, Hong Kong	-%	50%

Castolin Kaynak Sanayi Ve Tierat Ltd sti, a company registered in Turkey, despite the 49.0% shareholding is fully consolidated in the consolidated financial statements. This is because of a management contract combined with the commercial leverage derived from being the sole supplier of branded products allows the Group to effectively control the operational and strategic direction of this Turkish company.

In addition to the above incorporated entities, as at 31 December 2019, the Group has an un-incorporated branch entity, trading in the Netherlands.

Other related parties include:

•	The ultimate parent, MIG Holding GmbH,
•	Entity with significant influence over the Group, Messer Group,
•	Associate companies (note 10),
•	Non-controlling interest entities or persons controlling same,
•	Key management and directors

Transactions with related parties

The ultimate parent

As set out in Note 1, a dividend of € 5,000,000 was declared on 17 December 2019. This dividend is due for payment on 2 July 2020.

Messer Group and associate companies

The following table provides the total amount of transactions, which have been entered into with related parties for the relevant financial year (for information regarding outstanding trading balances as at 31 December 2019 and 2018 refer to notes 17 and 21 and outstanding loan balances refer to notes 18 and 20).

2019 Transactions with related parties	Sales & recharges to related parties € '000	Purchase & recharges from related parties € '000	Amounts owed by related parties note 17&18 € '000	Amounts owed to related parties note 20&21 € '000
Entities with significant influence over the Group
Messer Group	6,343	3,185	669	309
Messer Medical Austria GmbH	11	-	-	-
Hardtberg GmbH (rental cost)	-	453	-	-
	6,354	3,638	669	309
Other related parties
Dr. Tarek Nasser Al Akeel, loan asset (note 18)	-	-	173	-
SCI de la Valsiere (note 18)	-	-	329	-
	-	-	502	-
Total related party transactions / balances	6,354	3,638	1,171	309
2018 Transactions with related parties
Entities with significant influence over the Group
Messer Group	8,055	6,346	1,076	451
Messer Medical Austria GmbH	10	-	-	-
Hardtberg GmbH (rental cost)	-	567	-	-
	8,065	6,913	1,076	451
Other related parties
Dr. Tarek Nasser Al Akeel, trade payable	-	-	-	27
Dr. Tarek Nasser Al Akeel, loan asset (note 18)	-	-	257	-
SCI de la Valsiere (note 18)	-	-	329	-
	-	-	586	27
Associate companies
Pietro Galliani Brazing Group SpA (notes 10,21)	65	8,155	42	1,416
Edan-Messer Diagnostics Ltd (note 10)	281	-	413	-
	346	8,155	455	1,416
Total related party transactions / balances	8,411	15,068	2,117	1,894

The Group enters into transactions with Messer Group companies to increase market penetration in certain territories, where the MEC Group is establishing a market presence. Similar assistance is granted to Messer Group companies in markets where the MEC Group currently has the stronger presence.

Terms and conditions of transactions with related parties

Outstanding balances at the year-end are un-secured, interest free and settlement occurs in cash. There are no guarantees provided or received for any related party receivables or payables, with the exception of Pietro Galliani Brazing SpA. Messer Cutting Systems GmbH has provided a guarantee through Commerzbank to third party supplier, Heraeus Metallhandel GmbH, to cover liabilities of up to € 800,000 (2018: € 800,000), on behalf of associate company Pietro Galliani Brazing SpA in Italy.

Key management and directors

Key management and the directors are related parties of the entity, as they are those who own, directly or indirectly, a voting interest in the company sufficient to give them significant influence over it. Total remuneration of directors and key management are as follows:

	2019 € '000	2018 € '000
Salaries and other short-term employee benefits	378	409
Total compensation paid to key management personnel	378	409

At 31 December 2019 and throughout the full year, the serving directors were Siegfried M. Schabel and Patrick J. McGlynn. There were no loans to or from any of the above officers during the current year.

Supervisory board

The MEC Holding GmbH supervisory board director's remuneration amounted to € 33,660 (2018: € 33,234).

This supervisory board is also responsible for the MEC Global GmbH Group. The supervisory board members at 31 December 2019 consisted of the following members:

	Stefan Messer (Chairman)
	Dr. Martin Beck
	Dieter Tanke (employee representative)
	Rainer Bamback (employee representative) (resigned 30 June 2019)
	Marcel Messer (appointed 20 May 2019)
	Ernst Bode (appointed 20 May 2019)
	Rudolph Springer (appointed 16 October 2019)

31. Subsequent events

COVID-19 Impact

In early 2020, there was a serious outbreak of an infectious respiratory disease Covid 19 in the Wuhan region of PR China, which subsequently spread internationally to become a global pandemic. National governments, in the interest of containing the spread of the disease, introduced various regulatory measures - limiting ability to travel, meet people, handle goods and provide services - which have impacted on most companies ability to trade. This will inevitably have an impact on the trading results of MEC Global Group in 2020. The extent of the impact will be determined by the length of time these government measures remain in place. If the measures are of short-term duration, then management believe that demand may recover within the current year. If the measures continue for longer duration, the economic impact will be negative but inherently difficult to quantify. During March, a number of our production plants were forced to shut down in line with local government restrictions. The unaudited sales for the first quarter were 9.6% lower than the same period last year. Continuing activity sales decreased 18.1% while discontinuing activity sales decreased 2.1%. Our production plant in the Kunshan region of PR China, which was the first plant to close in January, re-opened however and we are confident the other plants will also re-open once their local government restrictions are lifted.

Sale of Castolin Eutectic Division

On 19 April 2020, the MEC Group entered into an agreement with private equity investor Paragon Partners to acquire its 100% interest in the Castolin Eutectic division, which has been accounted as asset and liabilities held for sale in these financial statements. The consideration is based on certain contingencies, which are not quantifiable at this time. Closing is depending on approval of from the competition authorities in certain European countries and is expected to take place latest July 31, 2020.

Group Management Report for the fiscal year 2019

1. Group fundamentals

1.1 MEC Global GmbH Structure and Tasks

With its registered headquarters in Bad Soden am Taunus and business address in Bad Soden am Taunus, MEC Global GmbH is the top-level holding company of "Messer Eutectic Castolin" (MEC) and does not conduct separate business operations.

MEC Global GmbH holds a 100% interest in MEC Acquisitions GmbH, which, in turn, holds a 100% interest in MEC Holding GmbH.

MEC Global GmbH owns the business shares of MEC Holding GmbH via MEC Acquisitions GmbH, an interposed associated company. MEC Holding GmbH coordinates and steers the operative business of a total of 66 national and international companies within the scope of the Group's strategy. The MEC Group is active in the markets through four divisions: Castolin Eutectic develops, manufactures and sells products and applications in the areas of welding, soldering and thermal coating; Messer Cutting Systems (MCS) operates in the area of flame cutting machines including the upstream and downstream handling of material; Spectron manufactures gas control equipment; and the fourth division, BIT Group is engaged in the development and manufacturing of medical diagnostic instruments.

Messer Cutting Systems has production plants in Germany (headquarters), USA, Brazil, India and China. BIT Group has production sites in Germany, USA and China. Spectron operates production locations in Germany and the UK. The Castolin Eutectic division operates production facilities in Ireland, Poland, France, Italy, China, Singapore, the UK, UAE/Dubai, Egypt, USA, Canada and Mexico.

With decision from the 17th of July 2019 the shareholder decided to start a de-invest process of the Castolin Eutectic division. In accordance with IFRS accounting standards, Castolin Eutectic was classified as a disposal group held for sale on 31 December 2019 and its results presented as discontinued operations. The figures in the following management report represent the continued operations.

These Consolidated Financial Statements were prepared in accordance with International Financial Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB) and as adopted by the EU, as well as the supplementary regulations under commercial law according to section 315e, sub-section 1 of the German Commercial Code (HGB).

1.2 Changes during the Fiscal Year 2019

The following changes in the Consolidated Companies could be reported in the preceding fiscal year 2019:

The Castolin Eutectic operation in Indonesia ceased operations in June 2019.

Nevax SAS in France was wound-down in November 2019.

The Monitor Coating operations Dalian, China and Singapore were closed in 2019.

FAWM Ltd (UK) was dissolved in July 2019.

In July 2019, the Board of Directors decided to dispose of the Castolin Eutectic division. On the 19th of April 2020 the share purchase agreement was signed an aspect a closing of this transaction within three months after signing.

For further information please also see item 6 in the notes to the consolidated financial statements.

1.3 Research & Development

With the objective of strengthening our innovative capacities and further expanding our competitiveness, we are focusing on research & development (R&D) mainly in all MEC Global's business areas. In the year under review, expenses for research & development from the continuing operations totaled EUR 11.2 million. Our investment into R&D this year has slightly increased over prior years.

One of the major R&D projects in the Cutting Division was the development of the new generation of the Global control penal.

As a supplier of diagnostic and medical devices, the BIT Group operates research and development facilities in Irvine near Los Angeles, California, Montpellier, France, as well as in Schwalbach, Germany.

One of the focus projects in the business year was the development for hematology products in France.

In total the companies from continuing operations expensed kEUR 11.225 as Research and Development costs. This includes kEUR 672 amortization from capitalized development costs from prior year. In the year under review, there was additional capitalization from Research and Development costs in the amount of kEUR 668.

The discontinued operations expensed kEUR 1.636 as Research and Development costs. None of these costs are capitalized in 2019 and no amortization is included.

1.4 Employees and Company Culture

Employees Worldwide

We have averaged 1,392 employees in 2019 in comparison to 1,340 employees in the previous year. The average number of employees is allocated to the individual business areas as follows:

Division	2019	2018	variance
Messer Cutting Systems	1.057	1.007	50
BIT Group	323	322	1
Corporate	12	11	1
Average Headcount	1.392	1.340	52

The average number of employees in the discontinued operations during 2019 was 1,620 (2018: 1,640).

2. Economic Report

2.1 Macroeconomic and Industry-related Parameters

The MEC Global group's business units are not focused on one industry. The various products, services and technologies can be applied across many different industries. Our products and services are sold globally throughout our network of 66 subsidiaries and our global network of dealers and agents. This is why the cross-sector key business ratio of the gross domestic product (GDP) is an important indicator for MEC Global Group's economic development.

The Global economy and the worldwide GDP growth rate slowed in 2019, which can be attributed to various factors including trade conflicts, above all between the USA and China, and the associated uncertainty and hesitancy among investors. For the first time since the financial crisis, global trade has seen a setback. For 2020, the developed industrial countries expect steady economic growth, even accelerated growth in emerging countries. ¹ In the US, the GDP increase will fall short of 2019, due to lower exports and investments. The growth rates of the Chinese economy also decreased further in 2019. In addition to political measures initiated by the Chinese government, another reason is the trade conflict with the USA. For 2020, the GDP growth rate is expected to decline again. ² All of these forecasts are based on the assumption, however, that risks such as an upsurge of trade disputes, another slowdown in the investment cycle, financial market stability and geopolitical risks will only intensify to a limited extent or not at all. ³

Germany saw a significant economic slowdown in 2019. This goes back to the global downturn of industrial activity as well as decreasing world trade volume. The global increase in political uncertainty and international trade conflicts have put a damper on export demand for capital goods. For 2020, a GDP increase of 1.1 percent is expected. In addition to a favorable domestic economy, production in the exporting industries is expected to gradually recover again. ⁴

Over the course of the past year, economic growth prospects in the euro zone have been a bit clouded, 2020 can be expected to bring moderate economic growth, accompanied by a decrease in unemployment, increasing wages and an actual increase in consumer demand. The economic downturn in the UK also casts a shadow over the euro zone. The true impact of Brexit remains yet to be seen due to the current lack of arrangements for future trade relations between the UK and the EU. ⁵

¹ Compare with 2020 annual economic report page 71

² Compare with 2019/20 annual expert report of the Council of Experts on page 20 et seq.

³ Compare with 2019/20 annual expert report of the Council of Experts on page 19 et seq

⁴ Compare with 2020 annual economic report page 67

⁵ Compare with 2020 annual economic report page 71

2.2 MEC Global Group's Business Development

In the 2019 fiscal year, sales amounting to EUR 280.4 million are slightly above the previous year figure by 4.2%.

The Messer Cutting Systems division was able to book an order intake in almost all relevant markets. As a result of the stabilizing order volume, which already started to become visible in the previous year, and the related sales increase, the Division was in the position to exceed the macroeconomic growth figures in the year under review. While the ongoing political sanctions still have a negative effect on our business, the companies succeeded in gaining new customers and markets, not least because of new products and services that were introduced. One of our main goals is to continue a strategic realignment of the division in the year under review and expect a further increase in the harmonization of the product portfolio, of internal business processes and also the geographic diversification of individual business areas.

For the discontinued operation, Castolin Eutectic Division, the 2019 fiscal year was characterized by a continued slight increase in sales in a lower one percent range. The EBITDA were increase disproportionately in a two digit percentage increase.

Despite the slight increase in overall sales, the MEC Group closed the year under review with negative earnings of EUR 8.2 million. This loss was mainly driven by unabsorbed development contracts and impairments in preparation of the divestiture of the Castolin Division.

2.3 Situation of the Company

2.3.1 Earnings Situation

Within the financial year the MEC Group applied new accounting standard IFRS 16 for leases. The adoption lead to different effects within the earnings situation. Because of additional assets recognised within the balance sheet the depreciation increased in 2019 by EUR 3.6 million, rent expenses decreased by EUR 3.4 million and finance costs increased by EUR 0.2 million.

In 2019, the MEC Global Group achieved EUR 280.4 million in sales, a 4,2% increase over the previous year's sales level. The increase in sales was achieved in both divisions, Messer Cutting Division and BIT.

In the Cutting Division the order in hand on the end of the business were increased by 0,5%, the orders in hand in he BIT Division has increased by 11% compared to 2018.

The group's global sales are allocated to the following business units:

Division	2019 '000 EUR	2018 '000 EUR	variance '000 EUR	variance %
Messer Cutting Systems	225.402	215.567	9.835	4,6%
BIT Group	55.020	53.663	1.357	2,5%
Total sales	280.422	269.230	11.192	4,2%

Discontinued operation	2019 '000 EUR	2018 '000 EUR	variance '000 EUR	variance %
Castolin Eutectic	296.141	289.110	7.031	2,4%

The Messer Cutting Systems business unit was able to increase sales over the current year by EUR 9.9 million or 4.6%. The highest growth was achieved in the US market, in comparison to the prior year sales increased by EUR 14.5 million or 23.6%.

Within BIT Group of Companies sales increased during the fiscal year by EUR 1.4 million or 2.5%, which originates from risen business in the US.

In the 2019 fiscal year, the operating result decreased by EUR 6.2 million from a profit of EUR 2.2 million in 2018 to a loss of EUR 4.0 million in 2019. Higher selling, distribution and administration expenses especially in the Messer Cutting Systems division affected the operating loss in the year under review.

The operating result of the discontinued operations increased during the reporting year by EUR 3.4 million in 2018 to EUR 13.3 million in 2019 due to higher revenues.

In the year under review, the group generated a loss of EUR 8.2 million compared to a consolidated loss of EUR 5.5 million in the year before.

The profit for the year from discontinued operations sharply increased by EUR 3.5 million or 78.2% to EUR 8.1 million.

2.3.2 Financial Position

2.3.2.1 Financing

Financing of MEC group is realized through the subsidiary MEC Holding GmbH. MEC Holding GmbH coordinates the treasury function and ensures the group's financing. In addition, MEC Holding's financial function includes revenue sharing within the group companies whereby it takes on or issues liquidity using revolving intercompany loans.

As at the balance sheet date December 31, 2019, net liabilities amounted to EUR 77.1 million (previous year EUR 22.9 million) and are calculated as follows:

Net debt of the continued operations	31.12.2019 '000 EUR	31.12.2018 '000 EUR	variance %
Interest bearing loans and borrowings ^*)	97.062	67.358	44,1%
Lease liabilities	10.565	0	>100%
Cash and short term deposits	-30.497	-44.492	-31,5%
	77.130	22.866	237,3%

Net debt of the discontinued operations	31.12.2019 '000 EUR
Interest bearing loans and borrowings ^*)	57.036
Lease liabilities	44.300
Cash and short term deposits	-25.620
75.716

^*) According to the Group's internal definition of net debt, non current and current laibilities are not included

In 2019, the ratio of financial liabilities (EUR 97.1 million) to the balance sheet total was 18.8% (previous year: 18.3%).

The adoption of the new accounting standard IFRS 16 for leases lead to lease liabilities of EUR 10.6 million). Therefore net debt increased. Liabilities held for sale include EUR 44.3 million lease liabilities.

In addition to employing equity, the MEC subgroup finances itself through long-term bonds placed in the USA (US Private Placement "USPP") and a syndicated bank loan.

The group's medium and long-term financing is secured. The revolving credit line which was extended to EUR 68 million in the fiscal year 2015 was extended by another year in the year under review so that the company has now credit lines at its disposal until December 17, 2021.

This translates into a revolving credit line for the company amounting to EUR 68 million. This line which has been existing since December 2015, was issued by a banking syndicate consisting of four domestic banks and is due on December 17, 2021. The interest rate is based on EURIBOR in the currency being used plus a margin at the usual market rate depending on the ratio of the net debt to EBITDA.

The company is offering two more private placements with a term until July 2020 (USD 15 million and EUR 12.5 million). The interest rate for the bonds stated above is between 5.5% and 6.1% per annum.

Converted to EUR, the MEC Global GmbH and its group companies had a credit line of EUR 93.9 million at their disposal as at December 31, 2019 (previous year EUR 93.6 million). As at the balance sheet date, the amount of EUR 70.9 million was claimed by the company (previous year EUR 63.6 million).

As a result from the disinvestment decision of the Castolin Eutectic Division, MEC Global Group believes that they are in the position to repay a significant portion of the existing external financing debt after the closing in 2020. - The execution of a new adjusted financing contract is planned by the company after the closing.

We refer to item 20 in the notes to the consolidated financial statements for the 2019 fiscal year of MEC Global GmbH regarding off-balance-sheet commitments.

2.3.2.2 Liquidity Development

The following table shows an abridged version of the Statement of Cash Flow (see notes to the consolidated financial statements) for the 2019 fiscal year as well the corresponding comparative figures from the previous year.

Cash Flow Statement	2019 '000 EUR	2018 '000 EUR	variance '000 EUR
Profit/Loss before tax	-5.437	123	-5.560
Depreciation and impairment of property, plant and equipment	4.157	4.015	142
Amortisation and impairment of intangible assets	3.075	2.637	438
Depreciation right to use assets	3.622	0	3.622
Other non-cash movements	7.246	4.339	2.907
Working capital adjustments	560	-713	1.273
Spend on provisions and pensions	-3.434	-6.303	2.869
Income tax paid	-1.753	-4.807	3.054
Net cash inflows from discontinued operations	19.026	10.061	8.965
Net cash flows from operating activities	27.062	9.352	17.710
Net cash flows from investing activities	-8.663	-13.886	5.223
Net cash flows from financing activities	-13.123	1.514	-14.637
Net increase / (decrease) in cash and cash equivalents	5.276	-3.020	8.296
Net foreign exchange difference	878	-1.024	1.902
Cash and cash equivalents at 1 January	44.301	48.345	-4.044
Cash and cash equivalents at 31 December	50.455	44.301	6.154

Cash flow from ongoing operating activities was at EUR 27.1 million for the fiscal year 2019, which is an increase from the previous year's value (EUR 9.4 million). The profit before tax decreased in the fiscal year by EUR 5.6 million and resulted in a loss of EUR 5.4 million. Amongst others the increase in depreciation right to use assets, decreased spend on provisions and pensions, decreased income tax paid and increased net cash flows from discontinued operations have compensated the decrease of profit before tax by EUR 17.7 million. The cash flow from investing activities decreased due to the fact that in the reporting year no acquisitions of subsidiaries and non-controlling interest took place (prior year EUR 3.1 million). The cash flow from financing activities increased due to repayment of lease obligations in the amount of EUR 3.5 million, higher interest expenses of EUR 3.6 million (previous year EUR 0.9 million) and distributions paid to equity-holders of EUR 5.0 million (previous year EUR 0).

2.3.2.3 Investments

Our investments are geared towards the financial protection of our existing business and the use of profitable growth potential. We therefore primarily plan to invest in projects that offer potential for sustained profitable growth. We also plan to invest in modernizing our production and service facilities as well as our sales channels on a regular basis.

The investments in long-term assets in the year under review amounting to EUR 13.6 million, however, concern almost all group companies. The highest investments in 2019 are in the Messer Cutting Systems business, e.g. EUR 2.6 million for the building extension and plant and machinery in it within the MCS India, EUR 1.2 million on test equipment for laser machines within MCS China and EUR 1.9 million on product development for the Next Generation Global Control & Omnifab Software within MCS Germany. EUR 0.7 million are invested into product development within BIT France.

We refer to items 13 and 14 in the notes to the consolidated financial statements for further details.

At 31 December 2019, the Group has capital commitments of EUR 12.6k.

2.3.3 Net Asset Position

As of 31 December 2019, the balance sheet total amounted to EUR 515.7 million (prior year EUR 368.4 million). EUR 54.8 million of this increase resulted from the new applied IFRS 16 standard (Leases). The proportion of long-term tied assets amounts to 17.9% (prior year: 39.2%) and is fully financed through equity capital (23.1%) and long-term liabilities (16.6%). The reduction in the reporting year is due to the reclassification of assets held for sale, which is disclosed within the current assets.

The equity capital ratio has decreased by 10.4 percentage points from 33.5% to 23.1% over the previous year because of the higher liabilities related to the disclosure of liabilities held for sale (thereof EUR 56.8 million loans payable to continuing operations) and lease liabilities (EUR 54.8 million).

The adoption of the new accounting standard IFRS 16 for leases lead to higher right of use assets within property, plant and equipment (+ EUR 10.5 million) as well as to higher lease liabilities (+ EUR 10.6 million). Current assets held for sale include EUR 44.3 million right of use assets (prior year EUR 3.8 million assets under finance lease) and liabilities held for sale include EUR 44.3 million lease liabilities (prior year EUR 0).

The balance sheet structure as at December 31, 2019 is shown via comparison with the previous year's figures in the table below.

Balance sheet structure	31.12.2019		31.12.2018
	'000 EUR	%	'000 EUR	%
Non-current assets	92.299	17,9 %	144.427	39,2 %
Current assets	177.340	34,4 %	221.894	60,2 %
Current assets held for sale	246.053	47,7 %	2.118	0,6 %
Total assets	515.692	100,0 %	368.439	100,0 %
Equity	118.974	23,1 %	123.587	33,5 %
Non-current liabilities	85.670	16,6 %	110.968	30,1 %
Current liabilities	138.565	26,9 %	133.884	36,3 %
Current liabilities held for sale	172.483	33,4 %	0	0,0 %
Total equity and liabilities	515.692	100,0 %	368.439	100,0 %

As of 31 December 2019, the working capital amounted to EUR 12.7 million without amounts from discontinued operation (previous year EUR 46.9 million). Considering the results for the discontinued operations the working capital is calculated as follows:

Working Capital	31.12.2019 '000 EUR	31.12.2018 '000 EUR	variance '000 EUR
Inventories	51.004	80.917	-29.913
Inventories from discontinued operation	37.081	0	37.081
Trade and other receivables	31.638	83.222	-51.584
Trade and other receivables from discontinued operation	50.826	0	50.826
Accounts payables and accruals	-50.052	-98.397	48.345
Accounts payables and accruals from discontinued operation	-52.504	0	-52.504
Customer advances	-19.907	-18.840	-1.067
Total	48.086	46.902	1.184

The increase of working capital compared to the previous year is for the most part based on increase of the sale activity in Castolin Eutectic and MCS.

The increase in current business assets is essentially the result of the increase of inventories which could not be fully covered by the increase of accounts payables and customer advances.

2.3.4 Overall Statement on the Economic Situation

Despite the ongoing developments in the economic environment, MEC Global was able to increase sales by 4.2%. The loss for the year from continuing operations increased by EUR 2.7 million. The company has still a strong capital ratio of 23.1%.

2.3.5 Financial Indicators

MEC Global Group essentially uses controlling variables for the control of the group which are derived from the operating figures of the Consolidated Statement of Profit or Loss (Revenue and EBITDA) as well as from the key operating cash flow figures. The corresponding comparative figures are derived based upon a multi-tier bottom-up planning process that includes all group companies worldwide and also includes a rolling update of the medium-term planning in addition to the budget figures for the following year. All fiscally relevant variables, including their corresponding budget figures, are made available on a monthly basis to the supervisory bodies and the Managing Directors of the Group Companies through a reporting system. Further explanations as well as the composition of these key figures are shown as they relate to the profit situation and the financial situation. For internal measurement, MEC Group use the Adjusted EBITDA. Based on the EBITDA the FX amount and with the senior management agreed exceptional items will be excluded.

2.3.6 Non-Financial Performance Indicators

The quality of our products and processes, occupational health and safety, protection of the environment as well as various consumer protection requirements are performance indicators to which all professional and managerial staff must commit, and which also include observing extensive national regulations.

3. Supplementary Report

COVID-19 Impact

In early 2020, there was a serious outbreak of an infectious respiratory disease Covid 19 in the Wuhan region of PR China, which subsequently spread internationally to become a global pandemic. National governments, in the interest of containing the spread of the disease, introduced various regulatory measures - limiting ability to travel, meet people, handle goods and provide services - which have impacted on most companies' ability to trade. This will inevitably have an impact on the trading results of MEC Global Group in 2020. The extent of the impact will be determined by the length of time these government measures remain in place. If the measures are of short-term duration, then management believe that demand may recover within the current year. If the measures continue for longer duration, the economic impact will be negative but inherently difficult to quantify. During March, a number of our production plants were forced to shut down in line with local government restrictions. The unaudited sales for the first quarter were 9.6% lower than the same period last year. Continuing activity sales decreased 18.1% while discontinuing activity sales decreased 2.1%. Our production plant in the Kunshan region of PR China, which was the first plant to close in January, re-opened however and we are confident the other plants will also re-open once their local government restrictions are lifted.

Sale of Castolin Eutectic Division

On 19 April 2020, the MEC Group entered into an agreement with private equity investor Paragon Partners to acquire its 100% interest in the Castolin Eutectic division, which has been accounted as asset and liabilities held for sale in these financial statements. The consideration is based on certain contingencies, which are not quantifiable at this time. Closing is depending on approval of from the competition authorities in certain European countries and is expected to take place latest 31 July 2020.

4. Opportunities and Risk Report

4.1 Risk Management across the Group

4.1.1 Opportunities

Management believes that opportunities will arise for MEC Global GmbH and its diversified subsidiaries from the increased orientation towards high-yield industrial goods and services business, as well as the fast-growing regions and industries throughout the globe.

Opportunities management comprises all measures which promote systematic and transparent handling of events or developments. Due to the integral connection of the planning and reporting processes in Controlling with the strategy processes, opportunities management is an integral part of strategic and value-oriented corporate management.

As part of Group-wide ongoing strategy and budget planning, we systematically evaluate opportunities and risks from the relevant market and technology trends across all business units and derive appropriate operative measures. In essence, the identified opportunities are of a strategic nature with a medium and long-term orientation, so to some extent, their relevance far exceeds the forecast period.

Operations planning, which is based upon strategic planning and monthly reporting, allows us to draw conclusions, thus should enable a more sophisticated evaluation adjustment of risks and opportunities and their impact on the current and future earnings and liquidity status.

The Group's decision makers are involved in our opportunities' management, starting with the MIG Holding GmbH's Corporate Management down to those responsible in the various regions and Project Managers with market responsibility. This structured decision-making within the Group shall ensure the reliable recognition of opportunities and their systematic use.

Strategic Opportunities for the Business Units

All factors that drive current and future global growth serve as the basis for the Group's continued strategic development. Our decisions are based on where the Group might benefit from global trends in the areas demographics, urbanization, globalization and digitalization while also considering restrictions, such as the limited renewability of natural resources and political and social transformations.

In addition to optimizing the efficiency of each of our business units, we also see opportunities in synergistic effects arising from the interaction between our companies, regions and business units. This applies to an efficient administration, cost-saving and automated transaction processing of administrative tasks and the related shared use of the Group's local resources beyond the limits of our business units.

Ongoing digitalization has created an increasing interconnection between previously separate value chains. The cooperation between the Company operations, the Group's top management and the central IT Company as a partner for digitalization processes is aiming towards a continuous modernization of our IT infrastructure and, as a result, to increased process efficiency and decreased operating costs. We consider digitalization as an important macro trend which will considerably change our industry and the markets in the years to come.

Operational Opportunities for the Business Units

The MEC Global subsidiaries operate diversified business segments, and we will go deeper into their operational opportunities as follows:

Messer Cutting Systems has been developing and producing machines for cutting steel for over 100 years. Despite the fact that we have been servicing both the market and the technology for many years, we are seeing promising potential for a continued expansion of our business activities.

Laser-cutting of steel is still the newest technology and will continue to gain importance down the road as compared to the traditional autogenous or plasma cutting methods. This technological development opens new market segments to us which could not be served in high quantities in the past due to cost considerations.

Messer Cutting Systems covers with his five production facilities all major regions of the world. Actual trends automation in connection with "Industry 4.0" will give us the possibility increase the cooperation with our customers in this specific arears

BIT Group business unit develops and produces in-vitro diagnostic medical device for the medical sector. The decoding of human DNA has resulted in the development of new areas of application and rapidly expanding treatment methods. BIT can profit in the next years from these trends since they develop and produce the instruments needed to carry out modern analysis and diagnostic procedures.

4.1.2 Risks

Our risk management with its structured processes will ensured control of the Group's overall risk exposure.

Management considers the risk to be limited and there are no events that raise significant doubts about that could jeopardize the continued existence of the Group.

For us, risks include all impending events or developments the impact of which is likely to negatively affect the achievement of the company objectives. Risk management includes measures which promote systematic handling of risks. Because of its integral link with the planning and reporting processes in Controlling, risk management is an important part of value-oriented corporate management and goes beyond statutory early risk detection.

Our aim is continuously enhancing the Group's risk management system, and have it interlinked with or internal control system. With is also the base of the interaction with the supervisory bodies - the Advisory Board and Supervisory Board.

These standardized risk management procedures should ensure that Management, the Advisory Board and Supervisory Board are informed of the Group's current risk situation in a timely and structured manner. Despite a comprehensive risk analysis, their occurrence cannot be systematically ruled out.

The goal of risk management is to communicate risks and opportunities transparently.

The focus in our risk management instruments is also on deviations in our key indicators "adjusted EBITDA" and "Working Capital" (current operating assets) as well as "Free Cash Flow" (Net Cash Flow).

Those risks and opportunities not included in the financial report updated monthly form part of a reporting of those business units.

The divisions' monthly reporting to the Parent Company and the Advisory Forum ("Steering Committee Shareholders") serves to verify our strategies and measures, the evaluation of monetary and key financial figures as well as their mutual feedback. Direct responsibility for early identification, controlling and communication of risks lies with the respective management of the divisions and subsidiaries. The CEOs of the individual business units shall ensure an uniform reporting in Steering Committees and Management meetings held on a regular basis.

During the planning process and under special circumstances, we further consider macroeconomic cluster risks; here, this is based on Group-wide risk scenarios under consideration of centrally specified interdependencies and assumed risks. These risk scenarios deal predominantly with growth slowdown in important national economies and other exogenous shocks and their impact on the Group.

Risks arising out of particular circumstances should immediately be reported to the Company Management. If needed, these risks are reported outside the established reporting cycle.

Risk management is a combined top-down/bottom-up process. The binding system specifications are communicated top down from the Group and apply to all operating units. The original responsibility, identification and control of risk along the value-added chain starts at the bottom with the leading specialist managers in the operating units.

The identified risks are discussed and evaluated by the divisions and the Company Management as well as the Supervisory Board in its role as a supervisory body. Binding specifications on how to deal with risks identified are established and forwarded to the individual Companies for implementation.

As a rule, all operating units are obligated to establish an appropriate risk management system according to binding Group guidelines within each area of responsibility and to ensure proper risk control.

We will prevent risks by applying our risk management principles and refrain from doing business wherever this would conflict with our ethical and Group policies. These include first of all our zerotolerance policy when it comes to compliance matters as well as the ban on speculation.

We will transfer risks if financial risks can be minimized by centralized measures such as taking out insurance policies.

The scope and set-up of the insurance coverage will be derived from risk evaluations through which the Group Companies' insurable risks are identified, evaluated and reduced or abolished by specific protection concepts.

All Group companies will be subject to binding standards in order to maintain a sustained and high level of risk prevention.

The internal control system is the sum total of all systematically defined controls and monitoring activities with the purpose of ensuring security and efficiency of business transactions, reliability of financial reporting as well as the compliance of all activities with laws and regulations. Creating an effective and efficient internal control mechanism is an important measure for controlling procedural risks.

Various surveillance measures in the financial reporting process contribute to allowing a consolidated financial statement in conformance with the law and regulations despite potential risks.

Uniform accounting guidelines for the consolidated financial statement, updated on a regular basis, are available to all employees involved. We use a Group system for consolidation based on standard software. This allows us to ensure a uniform procedure and minimize the risk of false statements in Group accounting and external reporting.

The Group's Controlling and Accounting function is technically responsible for preparing the consolidated financial statement and defines binding content with due dates for the de-centralized units. This is how we are aiming to ensure conformity in the Group-wide accounting practices with the lowest possible margin for discretion with regard to the Statement, valuation and disclosure of balance sheet items. Our Group-owned Shared Service Organization supports the de-centralized units of the Castolin Europe business unit with the preparation of local statements.

With regular central systems backups with our relevant IT systems we try to ensure that during the consolidation process data loss and systems failure are avoided.

Risks in Respect of Overall Economic Development

Despite all economic indicators pointing to growth in the years to come, some economic risks still persist. This applies to the protectionism of certain countries, for example, but also unresolved political issues such as Brexit and its impact on the economy in the Euro zone. The influence of the still ongoing conflicts in crisis regions is also hard to estimate at this point. MEC Global GmbH too, has not remained unaffected by these potential influences on the global economy.

Fiscal Risks

The Group's financial requirements are controlled by the treasury function of MEC Holding GmbH. On the MEC Global GmbH side, we are trying to optimize the liquidity needs through our cash pool and ensure that no unnecessary liquidity is tied up. The transactions entered into by MEC Global GmbH directly with external finance partners are kept to a minimum thanks to the MEC Global GmbH financing function.

Default risk - in general, we plan to enter only into contracts for financial instruments with such counterparties whose credit rating is outstanding or who are part of a deposit guaranty fund. Having said this, the transactions are carried out within pre-defined counterparty limits. Outstanding payments and default risks for our deliveries and services provided are under constant surveillance and they are in part additionally secured by trade credit insurance. We closely monitor the credit rating of large accounts.

Liquidity risk - it is important to secure financial solvency and the Group's financial flexibility. This is why we work on the basis of liquidity planning with MEC Holding GmbH to ensure long-term safeguarding of our liquidity situation. The funds are forwarded to MEC Holding GmbH as part of cash pooling.

For the entire MEC Group, to which MEC Global GmbH also belongs, covenants have been agreed with the banks and financing partners which govern the compliance with certain key figures in relation to the loans taken up by the group. The admissible maximum values have not been reached so that our situation is quite favorable as regards the availability of additional liquidity. As at the end of 2019, all agreed upon covenants were below the stipulated maximum values.

Market risk - a number of control measures limit the fair value or future cash flow fluctuations from financial instruments resulting from market changes or eliminate them altogether. These financial instruments are made available by the MEC Holding GmbH Treasury function which also monitors the use and performance of derivative financial instruments.

Currency risk - in order to limit the risks from the multitude of multi-currency cash flows, we have developed uniform consolidated policies for foreign currency exchange management. As a rule, all Group Companies must report foreign currency entries at the time they are incurred. Our Group Companies use the services of the Group's Treasury Department in MEC Holding GmbH for their active hedging strategies. Translation risks or the valuation risk for balance sheet stocks from the conversion of foreign currency items are generally not hedged.

Interest risk - in order to cover our capital requirements, we have taken up liquidity on the international money and capital markets in various currencies and with varying maturities. To some extent, the resulting financial debt and our financial investments are exposed to the risk of changing interest rates. It is for that reason that we prepare interest analysis on a regular basis with the results being included in our risk management system.

Risks resulting from Company Sales and Restructurings

The acquisition of companies or shares is one of the pillars of our growth strategy. Acquisitions within our existing business activities are associated with settlement risks. We continuously monitor risks identified in this category.

Procurement Risks

We purchase raw materials or primary materials but also energy and freight capacities in order to be able to manufacture our high-quality products. Depending on the market situation, purchases prices may vary considerably and burden our cost structure. Suppliers may also fail, which in turn may jeopardize our production and our ability to meet contractual obligations with our customers. The individual risks identified in this category are of a low level.

We also secure risks from volatile raw material costs by using derivative financial instruments, predominantly commodity futures. The use of such financial instruments is subjected to strict regulations.

Manufacturing Risks

Interruptions of business or material damage is always likely to occur in our plants given unfavorable conditions. In addition to the cost for damage repairs, there is above all the risk that interruption of business operations could threaten our ability to fulfill contractual obligations with our customers. We plan to counter these risks by ongoing preventive maintenance and modernizing and investing in our machines and production facilities. We take out insurance policies to take out the risks to external service providers.

Sales Risk

Economic risks may limit our market perspectives, leading to sales risks. Should these events persist, one possible risk control measure could also involve a market-oriented adaptation or shift of capacities.

As a diversified industrial group, we are globally present, maintain and foster long-term customer relations. Our level of diversity with complex product and customer structures plays in important part of our risks related to regional sales market crisis can be considered minimal.

Order-related Risks

The handling of orders in special machinery construction with long project terms is a crucial challenge in the Messer Cutting Systems business unit. Exceeding costs or deadlines in various order phases is always a possibility. Our Controlling plans to keeps track of the work progress with regard to the individual machines on a daily basis.

We carefully verify our customers' credit rating prior to concluding a contract and assign seasoned project managers to the subsequent order processing. The order processing of the current status further allows us to ensure that payments are scheduled according to order progress, limiting payment default. We usually expect 90% of the total project volume as payment before shipment of the finished machine.

Risks from Trade Restrictions

Because of its global orientation, MEC Global is exposed to risks that may result from trade restrictions such as duties, export restrictions, customs regulations, embargo measures, extensive economic sanctions vis-à-vis certain countries, people, companies and organizations, as well as other obstacles motivated by protectionism or politics. These restrictions are not only likely to impair our business activities in certain national markets but, in the event of violations, may lead to sometimes considerable penalties, sanctions, damage to our reputation and claims for recompensation. This is why we try to strictly observe all regulations and provisions regarding customs and export controls as well as other trade restrictions.

Litigation Risks

Risks may arise from passive pendent or imminent legal disputes or from passive regulatory or Administrative Court procedures against the Group (litigation risks). Litigation risks are systematically classified, analyzed and reported to the Company Management as part of risk management. We will carefully verify all third-party claims as to whether they are well founded. External legal counsel will be mandated for judicial and extrajudicial legal disputes. According to the applicable risk standards, no litigation risks exist according to the current perspective which individually or cumulatively could be classified as high risk.

IT Security Risks

Our IT-supported business processes are exposed to various IT security risks. Human errors, organizational or technical procedures and/or security gaps during information processing allow for potential risks which compromise the confidentiality, availability and integrity of information. We will therefore continuously verify our processes and technologies. For the IT integration of our business processes it is mandatory to steadily reduce the associated risks for our Group companies and business partners.

Our IT processes are supported by our IT partner Messer Information Services GmbH ("MIS"). MIS supports us in identifying and removing risks that arise from IT-based data processing or storage.

Together with the Group's Data Protection Officer, our experts try to ensure that all personal data will be processed only in accordance with the German Federal Data Protection Act. All of these measures should enable us to protect the Group's Business Information and the privacy of our business partners and employees and adequately respond to any new potential risks.

Personnel Risks

We need highly skilled personnel and executives in all business units. There is always the risk that open positions cannot be filled with the number of people needed, or that we might lose skilled staff, whereby we consider the level of individual personnel risk as moderate.

MEC Global fosters long-term employee retention within the Group. This includes consistent Management development, career advancement opportunities and incentives. Through cooperation with schools and universities, we can contact qualified students and graduates at an early stage and can build our necessary talent pool.

Risks from Pension Obligations

The investment portfolio intended to cover pension liabilities is exposed to capital market risks. In order to keep these risks as low as possible, individual forms of investment will be selected and weighted based on independent expert studies. The capital investments are geared towards being able to fully and permanently fulfill the associated pension obligations with regard to the current and future returns on investment.

Pension obligations bear risks based upon the longer life expectancy of the beneficiaries as well as from the obligation to carry out regular pension adjustments. Some countries may further experience a considerable increase in payments into pension funds as a consequence of increasingly stringent requirements. It may be that in individual cases, an injection of supplementary funds may be necessary when a pension plan is dissolved. We consider the overall risks associated with pension obligations to be in the moderate range.

Operational Risks of the Business Units

The operational subsidiaries are exposed to the same risks as those named in the above categories. Other risks are those specific to the industry, above all in the medical sector in which the BIT Analytical Instruments subsidiary operates. Due to the highly regulated markets, further risks may be possible here. Regulatory approvals, for example require constant (re)-audits and the high-level protection regulations in patent law require further measures to ensure our access to the market.

From the current prospective, there exist no endangered risk for the company.

Picture of the risk profile and its impact until 2023

Risk	Probability of Occurrence	Short-term Impact	Medium-term Impact
Risks in overall economic development	Possible	High	High
Fiscal Risks	Possible	Moderate	Moderate
Risks resulting from company sales and restructurings	Unlikely	Moderate	Moderate
Procurement risks	Unlikely	Moderate	Moderate
Manufacturing risks	Unlikely	Moderate	Moderate
Sales risk	Unlikely	Moderate	Moderate
Contract Risks	Unlikely	Moderate	Moderate
Risks from trade restrictions	Unlikely	Moderate	Moderate
Litigation risks	Unlikely	Moderate	Moderate
IT security risks	Unlikely	Moderate	Moderate
Personnel Risks	Unlikely	Moderate	Moderate
Risks in respect of pension obligations	Unlikely	Moderate	Moderate

4.2 Forecast

It is increasingly more difficult to forecast the future because it depends on a multitude of factors, many of which are beyond MEC Global's sphere of influence. These influence factors have an impact on our business activities, earnings, business strategy and thus our overall success. We are especially affected by the changes in the general economic and social environment because they have an immediate effect on our business processes, customers and suppliers.

Estimates for future business performance follow the risks and opportunities associated with the expected market conditions and competitive situation in the planning period. Following a satisfactory start in the initial months of 2020 both our backlog of orders and the business situation in general have remained at similar levels to those of last year so that we would expect an one digit increase of sales and a stronger two digit increase in EBITDA under normal business development. But in the first and second quarter 2020 the economic is under pressure based on the COVID 19 pandemic so that we may be not in the position to quantify the impact on the Company performance.

Assessment of the Risk Situation

On the basis of the information known to us today and under consideration of the programs already started or planned, there are no identifiable risks that could individually or in conjunction with other risks threaten the survival of the MEC Global GmbH at present or in the foreseeable future in our view, the risk potential is still at a reasonable level, also due to the geographically specific allocation of personnel and technical resources in the areas production, development, procurement and distribution. Unexpected negative impact, however, arising from macroeconomic and industry-specific risks on the earnings, financial and asset situation may not be categorically ruled out.

Future-related statements

The forecast report contains future related statements based on management's current assessments of future developments. These statements are not to be understood as guarantees that these expectations will really occur. The future development of the MEC Group as well as the results achieved are subject to various risks and uncertainties and may therefore differ considerably from the future related statements.

5. Risk Reporting with Regard to the Use of Financial Instruments

In addition to derivatives, bank and overdraft facilities, financial leasing, payables and receivables as well as loans granted are among the Group's important financial instruments. The sole purpose of these financial instruments is to finance Group operations. To the extent this is necessary, the Group also carries out transactions with derivatives, here mainly interest swaps, forward foreign-exchange contracts and forward contracts with commodity metals (silver and nickel) which are implemented in the operating business. The objective of such transactions is to control the interest, foreign exchange and material price risks which arise out of the business operations. All hedging transaction in the MEC sub-group are carried out exclusively or by way of direct reconciliation with the MEC Holding GmbH Treasury Department. The current portfolio of financial instruments hedges individual identified risks.

The company approach is to cover specific individual FX risks to avoid losses on contract based on the market movement of currencies. For the business year we've identified on sales contract dominated in RUB with were secured with plain vanilla forward contracts. For more information please see also the notes to the consolidated financial statements and items 26 and 27 for more detailed information on the use of financial instruments.

Bad Soden on 27 April 2020

MEC Global GmbH

Company Management

Siegfried Schabel

Patrick J. McGlynn

Engagement Terms, Liability and Conditions of Use

We, Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, conducted our audit of this financial reporting on behalf of the Company. Besides satisfying the legal disclosure requirement (Sec. 325 HGB ["Handelsgesetzbuch": German Commercial Code]) for statutory audits, the audit opinion is addressed exclusively to the Company and was issued for internal purposes only. It is not intended for any other purpose or to serve as a decision-making basis for third parties. The result of voluntary audits summarized in the audit opinion is thus not intended to serve as a decision-making basis for third parties and must not be used for purposes other than those intended.

Our work is based on our engagement letter for the audit of these financial statements including the "General Engagement Terms for Wirtschaftsprüfer and Wirtschaftsprüfungsgesellschaften [German Public Auditors and Public Audit Firms]" as issued by the Institute of Public Auditors in Germany ["Institut der Wirtschaftsprüfer": IDW] on 1 January 2017.

To clarify, we point out that we assume no responsibility, liability or other obligations towards third parties unless we have concluded a written agreement to the contrary with the respective third party or liability cannot effectively be precluded.

We make express reference to the fact that we will not update the audit opinion to reflect events or circumstances arising after it was issued, unless required to do so by law.

It is the sole responsibility of anyone taking note of the summarized result of our work contained in this audit opinion to decide whether and in what way this information is useful or suitable for their purposes and to supplement, verify or update it by means of their own review procedures.