ACCOUNTING POLICIES

The accounts of the domestic and foreign subsidiaries included in the Consolidated Financial Statements were prepared in accordance with the IFRS accounting and valuation regulations, applying uniform standards.
When applying the IFRS, estimates and assumptions need to be made in certain cases which have a corresponding impact on the net assets, financial position and results of operations of the Company. The assumptions and estimates made could have been entirely different in the same reporting period for equally understandable reasons. The assumptions and estimates made are routinely reviewed and adjusted. The Company points out that actual future results may deviate from the estimates and assumptions made.
The International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) have approved a number of amendments to existing International Financial Reporting Standards (IFRS) as well as some new IFRS rules and interpretations, which are mandatory for the MAX Gruppe from financial year 2020 onwards, and they have also adopted some further standards and interpretations as well as amendments to the current standards that are not yet mandatory in the EU. The amendments, standards and interpretations are as follows:

Announcement

Title

Mandatory application / voluntary application for the MAX Group from

Expected effects on the presentation of the net assets, financial position and results of operations of the MAX Group

New and amended standards and interpretations

various

Changes to references to the Framework in IFRS standards

01/01/2020

No effects

IFRS 3

Changes to the definition of a business operation

01/01/2020

No effects

various

Amendments to IAS 1 and IAS 8 Definition of "material"

01/01/2020

No effects

IFRS 9, IAS 39, IFRS 7

Interest Rate Benchmark Reform (IBOR)

01/01/2020

No effects

IFRS 16

Covid-19 related Rental Concessions

01/06/2020

No Covid 19 related rental concessions were granted to the Group companies. Accordingly, the amendments have no effect on the company's net assets, financial position and results of operations

New standards and interpretations to be applied in future

IFRS 9, IAS 39,
IFRS 7, IFRS 4,
IFRS 16

Interest Rate Benchmark Reform (IBOR) Phase 2

01/01/2021

The Company currently does not expect any significant effects on the company's net assets, financial position and results of operations

IAS 37

Onerous Contracts - Cost of Fulfilling a Contract

01/01/2022

The Company currently does not expect any significant effects on the company's net assets, financial position and results of operations

various

Annual Improvements to IFRS Standards 2018-2020

01/01/2022

The Company currently does not expect any significant effects on the company's net assets, financial position and results of operations

IAS 16

Property, Plant and Equipment: Proceeds before Intended Use

01/01/2022

The Company currently does not expect any significant effects on the company's net assets, financial position and results of operations

IFRS 3

Reference to Conceptual Framework

01/01/2022

The Company currently does not expect any significant effects on the company's net assets, financial position and results of operations

IAS 1

Classification of Liabilities as Current or Non-current

01/01/2023

No effects

IFRS 17

Insurance Contracts

01/01/2023

No effects

various

Amendment to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and ist Associate or Joint Venture

tbd

The Company currently does not expect any significant effects on the company's net assets, financial position and results of operations

Use of judgements and estimates
The preparation of the consolidated financial statements requires the executive directors to make judgements and estimates that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.

Discretionary decisions

Information about judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements arises in connection with the following matters:

Revenue recognition: Realisation of revenue from construction contracts over a period of time or at a point in time.

Financial assets accounted for using the equity method: Determination of whether the Group has significant influence over the financial asset.

Exercise of renewal options in connection with leases

Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties as at 31 December 2020 that may have a significant risk of causing a material adjustment to the carrying amounts of recognised assets and liabilities within the next financial year arises in connection with the following matters:

Revenue recognition: estimates in the context of the application of the cost-to-cost method.

Recognition of deferred tax assets: availability of future taxable profits against which deductible temporary differences and tax loss carryforwards can be utilised

Impairment testing of intangible assets and goodwill: key assumptions underlying the determination of the recoverable amount, including the recoverability of development costs

Recognition and measurement of provisions and contingent assets and liabilities: key assumptions about the probability and extent of the inflow or outflow of benefits

Valuation allowance for expected credit losses on trade receivables and contract assets: key assumptions in determining the weighted average loss rate

Assets

Acquired intangible assets

Acquired intangible assets (patent rights, licenses, IT software, know-how, technology, trademark rights, industrial property rights, websites, order backlogs, customer relationships and development projects) are carried at cost less amortization. Amortization is calculated using the straight-line method over the economic life, which is between 1 and 15 years.

Internally generated intangible assets

Internally generated intangible assets (development costs) are also recognized. The economic life is between 4 and 5 years. Development costs for new products for which technical feasibility and marketability tests have been performed are capitalized at the directly or indirectly attributable manufacturing costs, provided that a clear allocation of expenses is possible and also that the products are both technically feasible and can be marketed. The development work must also be sufficiently likely to generate future cash inflows; borrowing costs are not capitalized. Amortization is based on the expected economic life of the products. Development costs capitalized as of the date of the statement of financial position in cases where the development project has not yet been completed are tested for impairment using the license price analogy method.

Goodwill

If the acquisition costs for a business combination exceed the sum of the wholly revalued assets and liabilities including contingent liabilities, a positive difference is capitalized as goodwill. A negative difference is recognized in profit or loss after a reassessment.
The Group has identified the Process Technologies and Environmental Technologies business units as well as the individual companies of Evolving Technologies as cash-generating units. Goodwill is subjected to an impairment test in accordance with IAS 36 on each balance sheet date and whenever there are indications of impairment. A decline in value is recognized immediately as an expense in the Consolidated Statement of Comprehensive Income and is not reversed in subsequent periods.
The goodwill arising from acquisitions made prior to the date of transition to IFRS on 1 January 2004, was taken from the previous HGB financial statements and tested for impairment at this time. Goodwill amortized in previous periods has not been reversed.
The impairment test of goodwill is usually carried out at the level of a cash-generating unit. The impairment test is based on the calculation of the recoverable amount. The recoverable amount is either fair value less costs to sell or value in use, whichever is higher. Impairment tests in the MAX Automation Group are carried out as a rule by comparing the value in use and the carrying amount, whereby in individual cases the use of fair value less costs to sell is also possible.
If the carrying amount of the cash-generating unit to which the goodwill was allocated exceeds its recoverable amount, the goodwill allocated to this cash-generating unit is reduced by the difference. If the impairment loss exceeds the goodwill, the additional impairment loss is allocated pro rata to the assets allocated to the cash-generating unit (IAS 36.104 et seq.). The fair values or values in use (where quantifiable) of the individual assets are regarded as the lower limit.
The carrying amount of the cash-generating unit represents the so-called net assets and is composed of the assets required for business operations (operating assets) plus disclosed hidden reserves (especially goodwill) and less liabilities resulting from the operations.
When calculating the fair value less costs to sell, the procedure is conducted primarily with reference to market prices. The value in use is calculated on the basis of the discounted cash flow (DCF) method.
The weighted average cost of capital (WACC) approach is applied here (IDW RS HFA 40 (44)). The market risk premium amount is selected with reference to the pronouncements issued by the Institute of Public Auditors in Germany (Institut der Wirtschaftsprüfer – IDW). The risk-free base rate is calculated using a system recommended by the IDW (Svensson method). The beta factor, the borrowing rate and the debt-equity ratio are calculated with reference to capital market data relating to comparable companies (peer group) in the same sector.

The following input requirements must be taken into account:

Under IAS 36.50, cash flows from financing and for income taxes are not to be included in the calculation of the value in use.

The capitalization rate is a pre-tax interest rate that reflects current market estimates of the time value of money and the specific risks of the valuation object. Since the returns on risk-bearing equity securities which can be observed in the capital markets routinely include tax effects, the weighted capitalization rate must be adjusted for these tax effects.

The cost of equity is calculated on the basis of the Capital Asset Pricing Model. This calculation involves the risk-free rate, a risk premium and the beta factor of the respective business unit’s peer group. The borrowing rate used similarly results from the specific peer group. The weighted average costs of capital below reflect the individual debt-equity ratio.

In accordance with the range of 6 – 8% recommended by IDW, a value of 7% was used as the market risk premium.

Pre-tax cost of capital

Business Unit

2020

2019

Process Technologies

7.09%

7.51%

Environmental Technologies

6.66%

9.99%

AIM Micro Systems GmbH

6.41%

9.98%

ELWEMA Automotive GmbH

6.98%

8.85%

iNDAT Robotics GmbH

5.66%

9.83%

MA micro automation GmbH

6.47%

10.08%

Mess und Regeltechnik Jücker GmbH

6.42%

10.11%

NSM Magnettechnik GmbH

6.42%

10.07%

The value in use is determined on the basis of the present value of the cash flow from two periods of growth. The first period is based on the five-year plan prepared by the management of the respective cash-generating unit and approved by the Supervisory Board, which has been updated and takes into account the effects of the COVID-19 pandemic. Any new information which has come to light in the meantime has been taken into account. A perpetuity equal to the permanently recoverable amount according to the last year of the detailed forecast period is taken as a basis for the second phase, allowing for a growth rate of 1%. Based on the order backlog and the chronological completion of the orders, the chosen planning horizon mainly reflects the following assumptions for short-term to medium-term market developments: sales trend, market shares and growth rates, raw material costs, customer acquisition and retention costs, personnel development and investments. The MAX Automation Group envisages strong increases in sales and EBIT for the period from 2021 to 2025. The assumptions are determined internally and mainly reflect past experience or are compared with external market values.
In addition, sensitivity analyses were performed for all cash-generating units, assuming an increase in the discount rates by one percentage point and a simultaneous decrease in cash flows by 10%.
For the 2019 annual financial statements, the recoverable amount of ELWEMA Automotive GmbH was determined based on the net realizable value. As the basis for the valuation based on the net realizable value no longer existed in the first quarter, another impairment test was carried out in which the recoverable amount was determined based on the value in use. This resulted in an impairment requirement for goodwill of kEUR 3,671. This need for impairment was recorded accordingly in the first quarter of 2020. After the impairment of goodwill already recorded in the first quarter, the remaining goodwill in the amount of kEUR 494 and the self-generated intangible assets in the amount of kEUR 3,088 were written off in full on 30 June 2020.
As of 31 December 2020, a recoverable amount of kEUR 22,786 and a resulting need for impairment of kEUR 3,775 were determined for ELWEMA Automotive GmbH. Accordingly, write-downs were made on intangible assets in the amount of kEUR 1,602 and on property, plant and equipment in the amount of kEUR 355. The assets that were impaired in value were written down to their recoverable amount of EUR 0, which corresponds to their fair value less costs to sell. Market values were determined for the remaining non-current assets, which are land and buildings. As further recognition of the calculated impairment loss would cause the previously mentioned assets to fall below fair value, no further impairment losses were recognized, in accordance with IAS 36.105.
Due to the high deviation of the result of the impairment test from the sensitivity analysis of iNDAT Robotics GmbH and the low WACC of 5.66% compared to the other cash-generating units, the result of the sensitivity analysis was taken into account when determining the recoverable amount. The results of the impairment test and the sensitivity analysis were weighted at 50% each. The recoverable amount of EUR 6,306k calculated on this basis resulted in a complete impairment requirement of the remaining goodwill of EUR 3,464k. As a result, the goodwill was written down to EUR 0k as of December 31, 2020.
The sensitivity analyses for the cash-generating units to which significant goodwill has been allocated did not identify any further need for impairment.

Financial assets accounted for using the equity method

Companies over which MAX Automation SE has a significant, but not controlling influence are recognized using the equity method. The enterprise is valued at the cost of acquisition at the time of initial inclusion. This valuation approach for the investment is maintained in subsequent periods. Attributable annual profits or annual losses increase or decrease the carrying value of the investment, and this value can be written down to a maximum of 0 euro. Dividends received from the enterprise are deducted from the carrying amount.

Property, plant and equipment

Property, plant and equipment are capitalized at acquisition or production cost and depreciated over their estimated useful lives or written down, if necessary.
For land and buildings, the MAX Group uses the revaluation model of IAS 16. The reason for using this revaluation model is that the MAX Group intentionally makes adjustments for the effects of inflation when recognizing assets with a very long useful life. The effects of inflation can cause the replacement cost of this property, plant and equipment to be significantly higher than the historical acquisition or production cost reduced by write-downs. Therefore, the revaluation model has a capital preservation function.
The revaluation is not restricted to the acquisition or production costs as an upper limit. Excesses of acquisition or production costs occur mainly in the case of land, as this is generally not subject to any consumption of benefits. The revaluation is done at fair value, which is performed for land and buildings by calculating their income value. Independent appraisers assess the income value. The income approach involves a model with input factors that are based on unobservable market data (level 3 according to IFRS 13). The revaluation is performed at five year intervals.
At the time of revaluation, the cumulative depreciation is eliminated against the gross carrying amount. The remaining carrying amount is subject to revaluation. From this revaluation until the next time of revaluation, depreciation occurs over the remaining useful life on a fair value basis.
The revaluation is recognized directly in equity under other comprehensive income through the revaluation reserve.
Property, plant and equipment are depreciated on a straight-line basis over the following useful lives:

Expected useful lives

Building

5 to 50 years

Outdoor facilities

5 to 33 years

Technical equipment and machinery

1 to 14 years

Other plant and machinery

1 to 17 years

The calculation of the economic life takes account of the estimated physical wear and tear, technological obsolescence and legal and contractual restrictions.
Assets under construction are carried at cost. These assets start to depreciate on their completion or when they are ready for operational use.
If there are indications pointing to impairment, the recoverable amount of the asset or the cash-generating unit is calculated on the basis of its value in use in order to determine the extent of impairment. Impairment is recognized in profit or loss.
If the past cause of an impairment ceases to apply, the carrying amount of the asset is increased again accordingly.
The increase in the carrying amount is limited to the value which would have resulted if no impairment loss had been recognized for the asset in previous years. The reversal of the impairment loss is also recognized in profit or loss.

Investment property

Investment property consists of property held for rental income and/or for capital appreciation purposes. In the MAX Group, the fair value model, rather than the amortized cost model, is applied to all investment properties. In the view of management, the fair value model is the more relevant form of presenting a more accurate picture of the net assets, financial position and results of operations of the MAX Automation Group. The calculation of fair value was done by means of the income approach, which involves a model with input factors that are based on unobservable market data (level 3 according to IFRS 13).
An investment property is derecognized upon disposal if it is permanently no longer to be used or no future economic benefits are expected from the disposal. The gain or loss from the disposal is determined as the difference between the net realizable value and the carrying amount of the asset and is recognized in the Consolidated Statement of Comprehensive Income in the disposal period.

Non-current financial assets

Financial assets are measured at cost at the time of acquisition.
Loans are carried at amortized cost.
Financial assets that are not carried at fair value are regularly tested for impairment. Financial assets that are impaired are written down to the recoverable amount in profit or loss. If the reason for write-downs in earlier periods no longer applies, a write-up is recognized in profit or loss.

Inventories

Inventories are carried at acquisition or production cost or at net realizable value, whichever is lower. In addition to production material and production wages, production costs also include material and production overheads that must be capitalized. Discounts are made for lack of marketability. Inventories are valued using individual valuation, the moving average method or the first-in-first-out (FIFO) method.
Impairment losses are recognized when the net realizable value of an asset falls below its carrying amount.

Contractual assets

The companies of the MAX Group generate their revenue to a large extent from the creation and delivery of customer-specific equipment and machinery. For these orders, revenue and the anticipated gross margin are recognized according to the percentage-of-completion method (POC method) in line with the percentage of completion of an order over the period of performance.
The IFRS 15 criteria for this are:

The asset created does not have any alternative use.

The Group has a legally enforceable claim to remuneration for services that have already been rendered.

If both criteria are met, the percentage of completion is determined on the basis of the costs incurred for the work carried out in relation to the total expected costs (cost-to-cost method). As a result of this accounting method, both revenue and the associated costs are recognized systematically. Consequently, the results are recognized on an accrual basis over the period in which the power of disposal, the good or service is transferred. Customer payments are contractually agreed upon and are oriented toward progress on a project and predetermined milestones. This ensures that customer payments and performance progress are not too far apart in terms of time. The Group came to the conclusion that the input-based method is best suited for determining the percentage of completion since the individual companies use an IT-supported calculation procedure and can reliably estimate the planning costs and oversee the total costs using individualized project controlling.
The estimation of the extent of completion is of particular importance when using the percentage of completion method. It can also include estimates of the scope of delivery and services required to meet contractual obligations. These material estimates include total estimated costs, total estimated sales revenues, contract risks – including technical, political and regulatory risks – and other relevant variables. According to the percentage of completion method, changes in estimates can increase or decrease sales.
All other sales that do not meet the criteria for period-based sales recognition are recorded on a point-in-time basis. Revenue is recognized when the significant risks and rewards of ownership of the goods and products sold have been transferred to the customer. This is usually the case when the goods are delivered to the customer and simultaneously accepted by the customer (acceptance reports). Revenue from contracts with customers corresponds to the transaction price. The transaction price only includes variable consideration if there is a high probability that the actual occurrence of the variable consideration, e.g. a contractual penalty, will not result in a material reversal of revenue. The transaction price is not adjusted for a financing component since in particular the period between the transfer of goods and services and the payment by the customer is always less than 12 months.
If a reliable estimate of performance progress is not possible for orders either on the basis of output factors or input factors, the zero profit method is used, provided that it can be assumed that the companies can recover the costs incurred during fulfillment of the performance obligation. In case of this method, revenue and the associated costs are recognized in the same amount until a reliable estimate for measuring progress is possible. The gross margin here is at least partially retroactively adjusted in profit or loss only at a later stage of the order.
The other part of revenue from contracts with customers is generated both from the sale of standard machinery, replacement parts and other goods as well as from the rendering of services. This revenue is recognized at the time when the customer obtains control over the promised asset. This is usually the time when the machinery is delivered to the customer so that he acquires ownership or accepted delivery. Services rendered are recognized as sales upon their fulfillment. For standard machinery and replacement parts, customer payment takes place after invoicing. Depending on the structure of the contract, it takes place after delivery or acceptance. Invoices for payments on account are also issued to customers.
Contracts are reported under contract assets or contract liabilities. If the cumulative work (contract costs and contract net profit) exceed down payments, construction contracts are disclosed on the assets side under contractual assets. If a negative balance remains after deducting the down payments, it is disclosed as an obligation from construction contracts on the liabilities side under contractual liabilities. Partial services already invoiced are recognized under trade receivables. Anticipated contractual losses are considered on the basis of recognizable risks and immediately included in the contract net profit in full. Contractual revenue and contract modifications, meaning contractual changes and amendments, are recognized as contract revenue in accordance with IFRS 15. Contractual assets are usually recognized within a business cycle of the MAX Group. Therefore, they are disclosed under current assets in accordance with IAS 1, even if the recognition of the entire receivable extends over a period of more than one year.
Contractual assets are tested for impairment using the simplified procedure. For a more detailed explanation, please refer to the chapter “Risk Management.”

Performance obligations

The Group breaks down its contracts with customers into performance obligations, distinguishing between performance obligations that are settled either at a point in time or over a period of time in accordance with the terms of the contract. Customer contracts are analyzed in terms of separable performance obligations. Besides the performance obligation to construct machinery or equipment for the customer, mainly spare part packages and partial reconstructions are presented as separable performance obligations for the companies.

Current financial assets

In accordance with IAS 32, financial assets include trade receivables, receivables from banks, derivative financial instruments and other miscellaneous marketable financial assets. The Company assumes that the reported values of the financial instruments are generally consistent with their fair values.
Trade receivables are tested for impairment using the simplified procedure. For a more detailed explanation, please refer to the chapter “Risk Management.”

Cash and cash equivalents

Cash and cash equivalents are liquid assets measured at cost. They comprise cash in hand, bank deposits at call and other highly liquid current financial assets with a maximum term of three months at the time of acquisition. The underlying funds for financing purposes in the Consolidated Statement of Cash Flows are consistent with the definition of cash and cash equivalents cited here.
Equity and liabilities

Equity procurement costs

Equity procurement costs are deducted from the capital reserve after allowing for the taxes applicable to them.

Adjustment item for minority interests

The development of the adjustment item is based on the attributable annual results.

Pension obligations

The measurement of provisions for post-employment benefits is done in accordance with the actuarial projected unit credit method prescribed in IAS 19 “Employee benefits.” Here, future obligations are measured on the basis of the pro rata benefit entitlements as of the reporting date. The measurement takes assumptions (e.g. regarding salary development or the pension trend) into account for the relevant factors that affect the amount of the benefit. The calculation is based on the 2018 G life expectancy reference tables issued by K. Heubeck. Account is taken not only of the pensions and vested benefits known on the reporting date but also of expected future changes in salaries and pensions. The service cost is included in the personnel expenses in the Consolidated Statement of Comprehensive Income. Actuarial gains and losses, as well as gains and losses from the revaluation of plan assets, are recognized in “Other comprehensive income,” net of retained earnings. Interest expense is reported under net interest.

Provisions for taxes

Provisions for taxes include obligations from current income taxes. Income tax provisions are offset with corresponding tax refund claims if they exist in the same tax jurisdiction and their type and due dates are the same.

Other provisions

Other provisions take into account all recognizable obligations as of the reporting date that arise from past transactions or past events and whose amount and/or due dates are uncertain. Provisions are recognized at their respective expected settlement amounts, i.e., taking price and cost increases into account, and are not netted against reimbursement claims. Provisions are formed only if they are based on a legal or factual obligation to third parties. Non-current provisions are recognized at their settlement amount discounted to the reporting date and disclosed under non-current liabilities. When a loss on a contract is likely, the entity recognizes the present obligation under the contract as a provision.
The determination of provisions for impending losses from contracts, of warranty provisions, of provisions for dismantling, decommissioning and similar obligations and of provisions for legal disputes, regulatory procedures and official investigations (legal disputes) is largely associated with estimates. Provisions for anticipated losses on contracts with customers are recognized when the current estimated total costs exceed the estimated sales revenues. Losses from contracts with customers are identified through ongoing monitoring of project progress and the updating of estimates. This requires to a considerable extent assessments with regard to the fulfillment of certain performance requirements as well as the assessment of warranty expenses and project delays, including an assessment of the attribution of these delays to the project partners involved.
Litigation is often based on complex legal issues and involves considerable uncertainty. Accordingly, the assessment of whether a current obligation from a past event is likely as of the reporting date, whether a future outflow of funds is probable and the amount of the obligation can be reliably estimated, is based on considerable judgment. The assessment is usually carried out in consultation with internal and external lawyers. It may be necessary to set up a provision for ongoing proceedings due to new developments or to adjust the amount of an existing provision. In addition, the outcome of proceedings can result in expenses for the Company that exceed the provision made for the matter. The Company does not currently expect any significant effects on its net assets, financial position and results of operations.
Provisions for a restructuring are formed provided that a detailed, formal plan has been prepared and shared with the affected parties.

Liabilities

Trade payables and other original financial liabilities are recognized at amortized cost. Other liabilities are accounted for at their settlement amount.
Liabilities from leases are recognized at the start of the lease at the present value of the minimum lease payments.
Discounts and transaction costs are accounted for using the effective interest method. Non-current non-interest-bearing liabilities are stated at their present value.

Contract liabilities

Contractual liabilities constitute an obligation to customers if partial invoices submitted and payments received from customers prior to the performance of the promised service have been collected or become due. Contractual liabilities from partial invoices submitted and payments received from customers are written down against the work in progress as soon as the work has been performed. If a contract contains several separate performance obligations, however, only one contractual asset or contractual liability is to be recognized from this contract on a net basis.

Leases

At the beginning of the contract, the Company assesses whether the contract constitutes or contains a lease. This is the case if the contract includes the right to control the use of an identified asset against payment of a fee for a certain period of time.

As the lessee

On the provision date or when a contract containing a leasing component is changed, the Company divides the contractually agreed fee on the basis of the relative individual selling prices as far as possible. If it cannot be divided in exceptional cases, leasing and non-leasing components are accounted for as one leasing component.
On the provision date, the Company records an asset for the granted right of use and a lease liability. The right of use is initially valued at acquisition cost, which corresponds to the initial valuation of the lease liability, adjusted by payments made on or before the provision date, plus any initial direct costs and the estimated costs of dismantling or removing the underlying asset or restoring the underlying asset or the location at which it is located less any leasing incentives received.
Afterwards, the right-of-use asset is depreciated on a straight-line basis from the date of provision until the end of the lease term, unless ownership of the underlying asset is transferred to the Company at the end of the lease term or the cost of the right-of-use asset takes into account that the Company will exercise an option to purchase the asset. In these cases, the right of use is depreciated over the useful life of the underlying asset, which is determined in accordance with the regulations for property, plant and equipment. In addition, the right of use is continuously corrected for impairments, if necessary, and adjusted by certain revaluations of the lease liability.
For the first time, the lease liability becomes the present value of the lease payments not yet made on the provision date, discounted using the interest rate on which the lease is based or, if this cannot be easily determined, using the incremental borrowing rate of MAX Gruppe. Typically, the Company uses its incremental borrowing rate as the discount rate. The incremental borrowing rate of MAX Gruppe results from the interest on the syndicated loan of the MAX Gruppe. If an asset were not acquired under a lease, the purchase of the respective asset would be financed through the Group’s syndicated loan.
The lease payments included in the valuation of the lease liability include:

fixed payments, including de facto fixed payments,

variable lease payments that are linked to an index or (interest) rate, valued for the first time using the index or (interest) rate valid on the provision date,

amounts that are expected to be payable based on a residual value guarantee, and

the exercise price of a call option if the Group is reasonably certain that it will exercise it,

lease payments for an extension option if the Company is reasonably certain that it will exercise it,

as well as penalties for premature termination of the lease, unless the Company is reasonably certain that it will not terminate prematurely.

The lease liability is measured at its amortized carrying amount using the effective interest method. It is revalued if the future lease payments change due to a change in the index or (interest) rate, if the Company adjusts its estimate of the expected payments as part of a residual value guarantee, if the Company changes its estimate of the exercise of a purchase, extension or termination option or a de facto fixed lease payment changes. In the event of such a revaluation of the lease liability, a corresponding adjustment is to be made to the carrying amount of the right of use or this is made affecting income if the carrying amount of the right of use has decreased to zero.
The Group reports rights of use that do not meet the definition of investment property held, as well as lease liabilities, separately in the Consolidated Statement of Financial Position.

Short-term leases and leases based on assets of low value

The Company has decided not to recognize rights of use and lease liabilities for leases based on assets of low value as well as for short-term leases, including IT equipment. The Group recognizes the lease payments associated with these leases as an expense on a straight-line basis over the term of the lease. Leases for intangible assets are also treated in this way.

As the lessor

When the contract begins or when a contract that contains a leasing component is changed, the Company divides the contractually agreed fee on the basis of the relative individual selling prices.
If the Company acts as the lessor, it classifies each lease as either a finance lease or an operating lease at the start of the contract.
To classify each lease, an overall assessment is made as to whether the lease essentially transfers all of the risks and rewards associated with ownership of the underlying asset. If so, the lease is classified as a finance lease; if not, it is an operating lease. In making this assessment, the Group takes certain indicators into account, such as whether the lease covers most of the useful life of the asset.
The Group accounts for the main lease and the sub-lease separately when it acts as an intermediate lessor. It classifies the sub-lease on the basis of its right of use from the main lease and not on the basis of the underlying asset. If the main lease is a short-term lease to which the Group applies the exception described above, it classifies the sub-lease as an operating lease.
If an agreement contains leasing and non-leasing components, the Group applies IFRS 15 to split the contractually agreed remuneration.
The Group applies the derecognition and impairment requirements of IFRS 9 to the net investment in the lease. The estimated, non-guaranteed residual values used when calculating the gross investment in the lease are reviewed regularly by the Group.

Share-based payment agreements

The fair value on the day of granting share-based payment agreements to employees is recognized as an expense with a corresponding increase in equity over the period in which the employees acquire an unrestricted entitlement to the bonuses. The expense amount is adjusted to reflect the number of bonuses for which the applicable service terms and non-market performance terms are expected to be met, so that the ultimate expense amount is based on the number of bonuses that the applicable service terms and non-market performance terms end up with at the end of the vesting period. For share-based payments with non-exercise conditions, the fair value is determined on the date of granting taking these conditions into account; There is no need to adjust the differences between expected and actual results.
The fair value of the amount payable to employees in respect of stock appreciation rights that are settled in cash is recognized as an expense with a corresponding increase in liabilities over the period in which the unconditional right to those payments is acquired. The liability is remeasured on each reporting date and on the settlement date based on the fair value of the appreciation rights. All changes in the liability are recognized in profit or loss.
Statement of Comprehensive Income

Operating result

The operating result is the result of the continued sales-generating main activities of MAX Gruppe as well as the other income and expenses of the operating activity. The operating result does not include the financial result, profit and loss shares in companies accounted for using the equity method, and income taxes.

Research and development expenses

Expenses relating to the development of new products and processes, including significant improvements and refinements to current products, are recorded as expenses as they are incurred, as long as the prerequisites for capitalization as development costs in accordance with IAS 38 are not met.
Other operating income is recognized when the service is rendered or the entitlement arises. Interest income and interest expenses are recognized on an accrual basis.
Non-current assets (or disposal groups) held for sale and discontinued operations
Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered predominantly through a sales transaction rather than through continued use and the sale is highly probable. They are measured at the lower of their carrying amount and fair value less costs to sell, with the exception of assets such as deferred tax assets, assets resulting from employee benefits, financial assets and investment property, which are recognized at fair value, and contractual rights arising from insurance contracts, which are explicitly excluded from this rule.
An impairment loss is recognized for first-time or subsequent write-downs of the asset (or of the disposal group) to the fair value less selling costs. A gain is recognized for subsequent increases in the fair value of an asset (or of the disposal group) less selling costs, but not in excess of a cumulative impairment loss previously recognized. A gain or loss not previously recognized until the time of disposal of the non-current asset (or of the disposal group) is realized at the time of disposal.
Non-current assets (including those that are part of a disposal group) are not subject to depreciation if they are classified as held for sale. Interest and similar expenses attributable to the liabilities of a disposal group classified as held for sale will continue to be recognized.
Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are reported separately from the other assets in the Consolidated Statement of Financial Position. The liabilities of a disposal group classified as held for sale are also presented separately from other liabilities in the Consolidated Statement of Financial Position.
A discontinued operation is a part of the entity sold or classified as held for sale that constitutes a separate major business unit or a geographical business sector which is part of a single coordinated plan to dispose of such a business unit, or is a business sector or constitutes a subsidiary that was acquired solely for the purpose of resale. The results from discontinued operations are shown separately in the Consolidated Statement of Comprehensive Income.
Earnings per share
The undiluted earnings per share are calculated by dividing the portion of earnings after tax attributable to the shareholders of MAX Automation SE by the weighted average number of shares in circulation during the financial year, adjusted for bonus shares issued during the financial year and excluding any treasury shares.
The diluted earnings per share are calculated on the assumption that all potentially dilutive securities are either converted or exercised.
Currency translation
Transactions in foreign currencies are translated into the functional currency of the respective company at the average spot exchange rate on the day of the transaction. At the end of the reporting period, the Company assesses monetary assets and liabilities denominated in foreign currencies in the functional currency at the then applicable average spot exchange rate. Gains and losses from currency valuations are recognized in other operating income or other operating expenses in the Consolidated Statement of Income.
The annual accounts of the foreign subsidiaries included in the Consolidated Financial Statements whose functional currency is not the euro are translated into the Group currency, the euro, on the basis of their functional currency, which is their respective local currency.
The statements of financial position are translated from their functional currency into the reporting currency at the average spot exchange rate on the date of the statements of financial position using the closing rate method.
The conversion of the Consolidated Statement of Income items is carried out at the average exchange rate for the reporting period.
Equity is translated at historical exchange rates.
Gains and losses from currency translation are recognized in equity without affecting profit or loss.

Balance sheet: reporting date rate

Income statement: average rate

EUR=

31/12/2020

31/12/2019

31/12/2020

31/12/2019

China

CNY

8.02250

7.82050

7.87084

7.73388

Great Britain

GBP

0.89900

0.85080

0.88923

0.87730

Hong Kong

HKD

9.51420

8.74010

9.43408

8.67441

Poland

PLN

4.55970

4.25680

4.44318

4.29753

Switzerland

CHF

1.08020

1.08540

1.08139

1.09252

Singapore

SGD

1.62180

1.51110

1.62185

1.50813

USA

USD

1.22710

1.12340

1.14127

1.11959

Balance sheet: reporting date rate

Income statement: average rate

HKD=

31/12/2020

31/12/2019

31/12/2020

31/12/2019

China

CNY

0.84320

0.89400

0.84378

0.89891

Financial instruments
A financial instrument is a contract that gives rise to a financial asset at one entity and to a financial liability or equity instrument at another.
Financial assets and liabilities are divided into the categories prescribed by IFRS. Only the categories “at amortized cost” and “at fair value with changes in value in profit or loss” are currently relevant to the MAX Group in this regard.
A financial asset is measured at amortized cost if both of the following conditions are met and it has not been designated as FVTPL:
It is held as part of a business model whose purpose is to hold financial assets in order to collect contractual cash flows, and
The contractual terms of the financial asset give rise at specified dates to cash flows, which exclusively represent repayments and interest payments on the outstanding principal amount.
The Group does not make any use of the option of classifying financial assets and liabilities upon initial recognition as recognized in profit and loss at fair value (fair value option).
In determining whether the default risk of a financial asset has increased significantly since initial recognition and in estimating expected credit losses, the Group considers appropriate and reliable information that is relevant and available without an inappropriate expenditure of time and money. This includes both quantitative and qualitative information and analyses based on the Group’s past experience and well-founded assessments, including forward-looking information using CDS spreads.
A financial asset is considered to be in default if it is unlikely that the debtor will be able to pay the Group for its credit obligation in full. The asset is written down if no legitimate expectation exists that the contractual cash flows will be realized.

Derivative financial instruments and hedging transactions

Derivatives are initially recognized at their fair value at the time of entering into a derivative transaction and are subsequently reassessed at their fair value at the end of the reporting period. The recognition of subsequent changes in the fair value depends on whether the derivative is designated as a hedging instrument and, if this is the case, on the nature of the underlying hedging relationship.
The Group’s derivative instruments do not satisfy the prerequisites for recognition as hedging transactions. If derivatives do not satisfy the criteria for the recognition of hedging relationships, they are classified as “held for trading” for accounting purposes and recognized at fair value in profit or loss. They are presented as current assets and liabilities insofar as they are expected to be settled 12 months after the end of the reporting period.
Further details are provided in the chapter “Risk Management.
Income taxes
Income tax expense represents the sum of current tax expense and deferred taxes.
Current or deferred taxes are recognized in the Consolidated Statement of Income unless they are related to items which are recognized either in other comprehensive income or directly in equity. In this case, the current or deferred taxes are recognized in other comprehensive income or directly in equity. If current or deferred taxes result from the initial recognition of a business combination, the tax effects are reflected in the accounting for the business combination.

Current taxes

Current tax expense is calculated on the basis of taxable income for the current financial year. Taxable income differs from the profit for the year from the Consolidated Statement of Income due to expenses and revenues that are never taxable or tax deductible in subsequent years. The Group’s obligation for current taxes is calculated on the basis of the respectively valid tax rates.

Deferred taxes

Deferred taxes are recognized for differences between the carrying amounts of assets and liabilities in the Consolidated Financial Statements and the corresponding carrying values used in the calculation of taxable income. Deferred taxes are generally recognized for all taxable temporary differences; deferred tax assets are recognized to the extent that it is likely that taxable profits, for which deductible temporary differences can be used, are available. Deferred tax assets and deferred tax liabilities are not recognized if the temporary differences arise from goodwill or from the initial recognition (except for business combinations) of assets and liabilities which result from incidents that do not involve either taxable income or the profit for the year.
For taxable temporary differences that emerge from shares in subsidiaries, deferred tax liabilities are formed unless the Group can control the reversal of the temporary differences and it is likely that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets that arise from temporary differences in connection with shares in subsidiaries are recognized only to the extent to which it is likely that sufficient taxable income is available with which the claims from the temporary differences can be used. In addition, it must be possible to assume that these temporary differences will reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed every year on the reporting date and impaired in value if it is no longer likely that sufficient taxable income will be available in order to realize the claim in full or in part.
Deferred tax liabilities and tax claims are calculated on the basis of anticipated tax rates and the tax laws that are expected to be in effect at the time that the debt is settled or the asset realized. The measurement of deferred tax assets and deferred tax liabilities reflects the tax consequence that results from the way in which the Group expects to settle the liability or realize the asset on the reporting date.
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