1. Report by Company Management Page Group Management Report as of 31 December 2014 Page 11

ANNUAL REPORT 2014 CONTENTS 1. Report by Company Management Page 4 2. Group Management Report as of 31 December 2014 Page 11 3. Consolidated Fin...
Author: Antony Holmes
2 downloads 0 Views 6MB Size
ANNUAL REPORT 2014

CONTENTS 1. Report by Company Management

Page 4

2. Group Management Report as of 31 December 2014

Page 11

3. Consolidated Financial Statements as of 31 December 2014

Page 37

4. Auditor‘s Report

Page 59

2

Annual Report 2014

3

Annual Report 2014

1. Report by Company Management Foreword Ladies and Gentlemen, Dear Investors, In 2014 – the tenth year of the company‘s existence – as in previous years, German Pellets Group has consistently advanced on its path of growth, proving itself to be able to improve earnings in relation to the previous year; this is despite what were, in part, more difficult market conditions. The basis for this was, on the one hand, the more favourable manufacturing costs in the USA and, on the other, the expansion of sales operations in almost all European core markets. German Pellets will also continue in the forthcoming years to benefit from these developments and also from the good prospects for the global pellet market. In particular, the trading business was able to be further expanded, so that all in all we were able to attain a turnover of EUR 593.0 m. This corresponds to growth of around 6.5% compared to the previous year (EUR 556.9 m.). At the same time, the annual surplus rose from EUR 4.5 m. to EUR 7.9 m. We have also further optimised our capital structure; as a result one of the outcomes was that our equity ratio increased from 13.7% to 15.4%. 2014: Mild winter and reduction in oil price The business year 2014 began with a rather mild winter and ended with a reduction in the oil price. The pellet market has proved to be robust despite these framework conditions and was able to grow further, albeit at a slower pace. The pellet prices were at a lower level, and this was consistent with reduced raw-material costs. With the further internationalisation of our business, and also the expansion of our sales structures, we made significant strides towards what offers the prospect of being the sustained development of our company. We also succeeded in concluding new contracts with European energy groups and thus attaining greater independence from individual markets. This strategic thrust will continue to determine our actions in the future. Here is an overview of our core milestones in the past business year: USA activities The US site in Woodville, Texas, operated by German Pellets Group, reached full capacity in 2014, as did the storage and loading operations in Port Arthur on the Gulf of Mexico. Due to more favourable raw-material costs and energy costs, the Woodville facility thus made a positive contribution to the Group‘s result in the past business year. The second US site operated by German Pellets was just about to be completed as of the end of the calendar year, with the first stage of the extension; the commencement of operations took place at the start of 2015.

4

Peter H. Leibold

Expansion of our sales structures So as to expand the end-customer direct business in Germany, we have increased the workforce at the customer centres in Wismar and Landshut respectively, also setting up a new regional centre in Ulm and taking over Michael Wäsler GmbH for the Munich metropolitan area. At the end of 2014, jointly with ZG Raiffeisen Energie GmbH, we founded the company best:Pellets Handelsgemeinschaft GmbH for wood-pellet sales in Germany‘s south-west. The aim of all strategic activities in this area is to intensify the direct contact with end-customers and also to boost turnover and margins. It was in this same context that the silo-truck fleet was substantially expanded. Likewise internationally, we have driven forward the expansion of our sales structures. Thus, in Austria we have taken over HEIZWERT GmbH; by this and other measures we have already attained a volume growth of around 30%. In Denmark also, we are now supplying end-customers directly. An online-shop was also set up for the Danish border trade. In a similar vein, the expansion of the sales structure in France developed positively. Here we were able to achieve a substantial growth in turnover. German Pellets has succeeded in getting itself listed as a supplier in almost all relevant consumer markets in France. This development is taken into account by the formation of a sales company in France. In Italy we are now marketing pellets from international trade operations via three port locations, thereby supplying Italy‘s still-growing end-consumer market. The company is conducting market research in North America and Asia, primarily in Japan, Korea and China.

Annual Report 2014

Expansion of trading activities A further point of emphasis in the past year has been the expansion of our trading activities. We succeeded in concluding two new medium-term to long-term supplier contracts with European energy groups, for the supply of large volumes of wood pellets and also, for the first time, wood chips. We have also signed declarations of intent with further European energy groups and are confident of negotiating the contractual details to a conclusion before the end of 2015. A further significant development is the issue of a corporate bond in the Prime Standard section at the Frankfurt Stock Exchange. This step offers our investors a high level of transparency and a good level of tradability of the bond. At the same time, with the exchange offer made within the context of the corporate bond 2014/19, which was accepted up to a volume of around EUR 26 m., we succeeded in taking a first step towards the refinancing of the 2011/16 corporate bond.

As part of these stated developments, personnel levels were significantly expanded both in the USA and also at the European facilities, by around 70 staff in all. With qualified and motivated staff, we create the foundation for our company‘s continued success. I am very confident that the strategic path embarked upon by German Pellets Group will continue in the future to enable us to grow on a profitable and sustainable basis. We look forward to advancing along this path with our colleagues, customers, business partners and investors and we express our thanks for the trust placed in us. Peter H. Leibold Managing Director German Pellets GmbH

Press hall in the pellet plant

5

Annual Report 2014

1.1. Overview – Key Figures for the Group

Business year Busi Bu sine si ness ss yyea ear

Business year Bu Busi sine ness ss yyea earr

Change Chan Ch ange an ge

31.12.2014 as o off 31.12. 2.2014 2. 14

31.12.2013 as o off 31 31.1 .12.20 2013 13

cent in p per er ccen entt en

(in (i n EU EUR R m. m.)

Equity Equi Eq uity ty Sales Sale Sa less le Total output Tota To tall ou ta outp tput ut

76.4 76 .4

60.9

25.5 .5

593.0 593. 59 3.0 3. 0

556.9 556. 55 6.9 6. 9

6.5 6.5

585.3 585. 58 5.3 5. 3

582.9 582. 58 2.9 2. 9

0.4 0.4

50.2 50 .2

49.3 49 .3

1.8 1. 8

7.9 7. 9

4.5 4.5

75.6 75 .6

Earnings before depreEarn Ea rnin rn ings in gs bef efor ef ore or e interest, interest st,, ta tax, x, d dep epre re-re ciation amortisation (EBITDA) ciat ci atio at ion n an and d am amor orti or tisa sati sa tion ti on ((EB EBIT EB ITDA IT DA)) DA income year Nett in Ne inco come co me for for tthe he y yea earr

6

Annual Report 2014

1.2. Market assessments A combination of a mild winter and a downturn in prices for fossil energies led to a certain slowing-down compared to the dynamic growth in recent years in terms of new installations of pellet-heating units and pellet stoves. Nevertheless, in 2014 in the pellet market, growth rates in the upper-single-digit or respectively the double-digit rate were able to be attained. What remains encouraging is the development in the Italian and French pellet stove markets. The reason for this is the comparatively high prices for fossil energies in these countries. Market-drivers: Price-advantage of wood pellets compared to fossil energies The price advantage of wood pellets compared to fossil energies acts as a market-driver for the pellet heating market. Here is a comparison of end-user energy prices compared to light heating oil, natural gas and electricity in core European markets in 2014.

Figures stated in Ct. per kWh. Heating oil

Natural gas

Electricity

Pellets

Belgium

6.56

6.58

20.97

4.99

Denmark

13.84

9.08

30.42

5.55

Germany

6.57

6.78

29.81

5.07

France

7.36

7.01

15.85

5.00

Italy

12.42

7.97

24.46

5.01

Austria

7.28

7.48

20.21

4.94

Sweden

10.88

11.84

19.67

5.57

1)

Market-drivers: Security of supply of wood pellets compared to fossil energies According to a report by German business magazine ‚Wirtschaftswoche‘, based on forecasts by Dutch, British and German public authorities for energy and other business affairs, Europe‘s natural-gas sources are running out. By 2025, natural-gas production in western and northern

Source: Energy Information Service, self inquiry, by acceptance of 3,000 litres heating oil in premium quality, national average

Europe will decline very significantly. Reasons are stated to be declining reserves available, technical problems and risks, in addition to high costs for opening up new sources of natural gas. Alternatives such as fracking and natural gas from Azerbaijan, Iran or Iraq are expensive, it is noted, and/or fraught with political difficulties (‚Wirtschaftswoche‘ Issue no. 8, 14.02.2015). In September 2014 Fatih Birol became new head of the International Energy Agency (IEA). Previously Birol was the Agency‘s Chief Economist; he is often quoted for having said „We must leave oil before it leaves us“. At the start of the year, the IEA warned that, in view of the decline in oil prices, the energy supply of the the future is not secure, consumers are dependent on a small number of oil producers, and the investment requirement for oil production is high. Market-drivers: Political Developments and Framework Conditions In October 2014, the European Union‘s heads of state and government agreed on a joint climate and energy framework for the period up to 2030. The new goals encompass a reduction in greenhouse gases by at least 40% and a share of at least 27% for renewable energies within the overall energy mix. The Dutch Government decided in 2014 to give financial support to biomass-co-firing, via the SDE+ support programme. At the end of the reporting period, this already

1)

Consumer prices for the purchase of 1,000l of light heating oil on the qualifying date of 15 December 2014 for deliveries “free-house” in Belgium, Denmark, Germany, France, Italy, Austria and Sweden, Energieinformationsdienst (EID), issue no. 03/2015; Natural gas, sale to private households in Belgium, Denmark, Germany, France, Italy, Austria and Sweden, annual consumption 20 gigajoule to under 200 gigajoule, including taxes, Statistisches Bundesamt, data pertaining to the energy price development, first half-year 2014; Electricity, sale to private households in Belgium, Denmark, Germany, France, Italy, Austria and Sweden, annual consumption between 2,500 and 5,000 kWh, including taxes, first half-year 2014, Statistisches Bundesamt, data pertaining to the energy price development; Consumer price for the purchase of 6 t of pellets, bulk goods, ENplus A1 quality, price index Germany, December 2014; Deutscher Energieholz- und Pelletverband; Average price for pellets in Austria, bulk goods, according to pricing of propellets Austria, December 2014; Consumer price for pellets, loose merchandise, for the purchase of 6 t of pellets, in Belgium, Denmark, France, Italy and Sweden, market prices determined by German Pellets

7

Annual Report 2014

led once again to an upturn in demand. The previous support programme for co-firing in the Netherlands would have expired after ten years. In 2014 there were delays in the EU approval for the new CfD (Contract for Difference) financial support for biomassuse in British power stations. In January 2015 the first power-station project was approved in the context of this financial-support system; approval is expected for another two in the near future. Meanwhile the British Government has announced that in the autumn of 2015 there will be a further allocation round for CfD biomass projects. CfD offers energy businesses in the UK greater planning security and financial security in making the switch from coal to wood pellets.

Other European countries are also talking of a bottleneck in modernisation of the heating sector. Asked about the trends and prospects in the heating market, 41 per cent of German installation engineers take the view that the future lies with pellet heating. That is the result of the 2014 annual analysis by the company BauInfoConsult GmbH. In this process, installation engineers from all over Germany were surveyed on a representative basis. The sanitation, heating and air-conditioning professionals expect a strengthened demand for pellet-heating units over the next five years.

In May 2014 in Germany, the new Energy Saving Ordinance (abbreviation: ‚EnEV‘) came into force. This sets up an arrangement in which 30-year-old heating units – subject to certain exceptions – are no longer permitted to be operated in Germany as of 01.01.2015. As of the start of 2015, the second stage of the Federal Immission Protection Ordinance (‚BImSchV‘) came into force in Germany. Old units not fulfilling the more exacting requirements in terms of waste-gas values are no longer permitted to be operated. Modern pellet-heating units fulfil the new threshold values and, as of the start of 2014, were already required to fulfil them as a prerequisite for financial support from German national-government funds. The company submitting this report takes the view that the introduction of more demanding threshold values constitutes a competitive advantage that pellet-firing units have in comparison to other biomass-firing facilities. Market-drivers: areas of potential in the heating market In Germany in 2014, the average age of heating units was 17.6 years. This information is obtained from the study ‚How does Germany provide heating?‘ produced by the BDEW, the German Association of Energy and Water Industries. This study indicates that 36% of all German heating systems were installed before 1995 and are thus over 20 years old. According to the BDEW, the results thus clearly showed the immense potential for greater energy efficiency and for reduced CO2 emissions. Around 40% of buildings and dwellings in Germany are heated by natural gas, and around 30% by oil.

8

Annual Report 2014

1.3. Future prospects The further internationalisation of the pellet business of German Pellets Group, particularly in the USA, takes on increasing significance. In this context, existing production sites in the USA are being expanded. The industrial pellet market continues to be primarily dependent on political framework conditions; the demand for pellets in the heating market is predominantly dependent on consumer prices for fossil energies and on weather conditions. In view of current developments and forecasts, further growth is expected in the global market for pellets, taking it up to 60 m. tonnes by 2022 (2014: 25.7 m. tonnes; source: Hawkins Wright, London). The expectation is that 35 m. tonnes would be needed for the industrial pellet market alone, and 25 m. tonnes for the heating sector. Currently German Pellets Group‘s expectation is that the pellet-boiler market will show increased dynamism in important European core markets. The resumption of higher price levels for fossil energies favours this view. While the price advantage for wood pellets in Germany, compared to heating oil, was briefly no more than around 5% in January 2015, by March the gap had climbed again to reach 20%. Forecasts point to slightly increasing oil prices over the course of the year. In other core markets for pellets, wood pellets‘ price advantage against fossil fuels is markedly higher. In Austria and France the cost advantage amounted to around 50% despite the downturn in the oil price; in Italy the figure was even 150%.

This group of companies wishes to further expand its sales structures in the European core markets and, to the extent that it is strategically purposeful to do so, is placing its emphasis on the end-customer direct business. For this purpose, in February 2015 the pellet business of Nord Energie GmbH & Co. KG, Risum-Lindholm, was taken over, thus strengthening the end-customer business in northern Germany. In Denmark the shareholders‘ stake in German Pellets Denmark ApS was taken over 100%. Hitherto German Pellets had a 15% interest. At present, German Pellets is preparing to found its own subsidiary company in France for sales purposes.

Wismar, 30 April 2015

Signed: Peter H. Leibold Managing Director

Pellet-heating units contribute to the switch-over in the heating-market that society as a whole wishes to see. This is emphasised by the decisions taken by the German and Austrian national governments, both to put the financial support to pellet-heating activities onto a permanent footing and also to increase the funds provided for this. France has also improved the financial-support conditions provided. Taking Germany as an example: Here those switching over receive between at least EUR 3,000 in financial support (previously EUR 2,400) and max. EUR 8,000 (previously EUR 3,600). In addition, German Pellets has intensified its marketing and sales promotion operations, jointly with leading producers of boilers and heating-unit construction businesses, because customers‘ feedback and demand are positive.

9

Annual Report 2014

10

Annual Report 2014

2. Group Management Report as of 31 December 2014 2.1. Foundations of German Pellets GmbH 2.1.1. Business activity and Group structure Worldwide, German Pellets is one of the largest producers and providers of wood pellets. Since its foundation in 2004, German Pellets Group has been producing wood pellets from the sustainably renewable raw material wood and selling these Europe-wide in order to generate heat and electricity, both on the private consumer market and also on the market for medium-sized commercial customers and the power-station market. Production is currently taking place at 15 sites in Germany and Austria, as well as in the USA. In the first instance, German Pellets Group produces wood pellets of the DINplus and ENplus A1 end-user high-quality level. The German Pellets Group also operates as a dealer for wood pellets and other energy-wood segments. To this end, German Pellets buys in pellets, wood chips or wood briquettes from around the world on a substantial scale, so as to be able to sell these on to customers.

Sales are made by German Pellets Group into the following customer segments: •

Private consumer market (small-scale firing units / heating units in one-family and two-family houses);



Market for medium-sized commercial customers (firing units for the production of electricity and heating; biomass-based heating units / power stations for municipalities and industrial customers);



Power-station market (energy companies‘ large-scale facilities).

In addition, German Pellets Group produces animal litter for the large-animal and small-animal sector, selling these products nationally and internationally to dealers and to end-users. German Pellets Group is operating nationally and internationally in all customer segments with its focus on western Europe. Beyond this, German Pellets Group is producing biomasssourced electricity at four sites, feeding this into the official electricity network and trading with CO2 certificates allocated for the combined heating and power stations.

Delivery of raw material to the pellet mill Woodville. Primarily the mill supplies wood pellets to the european power plant market. In 2014 it achieved a capacity of 500,000 tonnes per year.

11

Annual Report 2014

German Pellets GmbH is the parent company of the German Pellets Group and has the following subsidiary companies: Name/registered office

Activity

Capital share in %

German Pellets Sachsen GmbH, Torgau, Germany

Production

100

German Pellets Genussrechte GmbH, Wismar, Germany

Financing

100

German Pellets Beteiligungs GmbH, Wismar, Germany

Intermediate holding

100

Name/registered office

Activity

Capital share in %

German Pellets Holding IV USA, Inc., USA 2)

Intermediate holding

100

GP Lumber, LLC, USA 3)

Production

100

GP Lumber Louisiana, LLC, USA 3)

Production

100

GP Logistics USA, LLC, USA 3)

Logistics

100

1)

Acquisition and first consolidation in 2014 First-time inclusion in the consolidation circle 3) Newly-founded in 2014 2)

German Pellets Logistics GmbH, Wismar, Germany

Logistics

100

German Pellets Trading GmbH, Wismar, Germany

Sales

100

German Horse Pellets GmbH, Wismar, Germany

Sales

100

Südpell GmbH, Wismar, Germany

Intermediate holding

100

FireStixx Holz-Energie GmbH, Essenbach-Altheim, Germany

Sales

100

German Pellets Holding USA, Inc., Wilmington, USA

Intermediate holding

100

German Pellets Czeska s.r.o., Klatovy Pila Luby, Czech Republic

Logistics

100

German Pellets Texas LLC, Woodville, USA

Production

100

German Pellets EPC s.r.l., Bolzano, Italy

Production

Glechner Beteiligungs GmbH, Mattighofen, Austria

Intermediate holding

100

Glechner GesmbH, Mattighofen, Austria

Sales

100

Glechner Pellet-Produktion GmbH, Simbach am Inn, Germany

Production

100

Reg-Energie Verwaltungs GmbH, Ingolstadt, Germany

Intermediate holding

100

Reg-Energie GmbH & Co. KG, Ingolstadt, Germany

Sales

100

WOODOX Management GmbH, Leipzig, Germany

Sales

100

Firestixx Trading GmbH, EssenbachAltheim, Germany

Sales

100

German Pellets Louisiana LLC, Urania, USA

Production

100

HEIZWERT GmbH, Waldneukirchen, Austria 1)

Sales

100

German Pellets Holding II USA, Inc., USA 2)

Intermediate holding

100

12

76

In addition to this, German Pellets GmbH has substantial holdings in the following: Name/registered office

Activity

Capital share in %

German Pellets Holding Italia s.r.l., Bolzano, Italy

Holding

49

German Pellets Wärme GmbH, Magdeburg, Germany

Heating service

20

German Pellets (Austria) GmbH, Vienna, Austria

Sales

40

German Pellets Italia Energia s.r.l., Bolzano, Italy

Sales

40

German Pellets Denmark ApS, Give, Denmark

Sales

15

WUN Bioenergie GmbH, Wunsiedel, Germany

Production

12

best:Pellets Handelsgemeinschaft GmbH, Karlsruhe, Germany 3)

Sales

50

Annual Report 2014

2.1.2. Markets German Pellets is serving four markets, in particular – the heating market, the industrial heating market, the powerstation market and the animal-hygiene market. In this context German Pellets essentially concentrates on western Europe. The European heating market Wood pellets are used to produce heating in pellet-fuelled central-heating units and pellet-fuelled stoves, used in one-family and two-family houses (private consumer market). The market is growing, especially in western Europe, against the background of rising prices for fossil-based energy sources, increasing acceptance levels and the consumers‘ desire to achieve greater sustainability, in addition to a favourable regulatory framework. German Pellets is supplying the heating market with premium wood pellets of the brands ‚German Pellets‘, ‚FireStixx‘, ‚Hot‘ts‘, among others. The European industrial heating market Wood pellets are used in industrial boilers for the production of local heating, district heating and process heating in municipalities, as well as in commerce and industry. Due to particularly short amortisation periods, the demand has been robust for years now. Additionally, in some countries there are regulations at various administrative levels or respectively the obligation to use renewable energies in public buildings.

(e.g. horses, cattle, poultry). Such products are based on natural ingredients, primarily on wood. 2.1.3. Goals and strategies German Pellets Group‘s aim is to continue to grow dynamically and to attain sustainable economic viability and a higher level of value creation. The objective for German Pellets Group, in almost all activity areas, especially in purchasing, production and sales, is to permanently generate new areas of potential for an economic return. For this purpose, it is planned to expand and build up the company‘s internationalisation, especially in the USA, in order to optimise production and raw-material sourcing, as well as further extending the value chain over the shortterm to medium-term. A further point of emphasis is the strengthening of end-customer sales in Europe‘s core markets, the aim being to further expand the market position on a permanent basis. Furthermore the goal for the sourcing of raw materials and the sales markets is for them to be secured over the short-term to medium-term, for their production sites and capacities to be optimised, and for their production costs to be reduced.

The European power-station market Wood pellets are used in power stations to produce ‚green‘ electricity and heating. The power-station market for wood pellets has gained increasing significance over the last few years. Energie groups such as RWE, E.ON, Vattenfall, DRAX, Dong and GDF Suez have converted power-station units to the use of pellets. Further areas of potential are in prospect. The bulk of pellet-use in the power-station market is sold on the basis of long-term contracts. The animal-hygiene market The national and international market for animal litter includes products for small animals (e.g. rodents and cats) and also large animals and commercially-used animals

13

German Pellets produces wood pellets in premium quality for the private heating market.

Annual Report 2014

2.2. Economic report 2.2.1. Framework Overall economic framework The global economy was able to gain a certain amount of increased dynamism over the reporting period. Geopolitical confrontations (e.g. in Ukraine), injected uncertainty in the world‘s economic performance and dampened down levels of growth. Consequently the IMF adjusted its forecasts in the World Economic Report over the course of the year down to 3.3 per cent in October 2014. In April 2014 the value had still been 0.4 per cent higher. In the Euro-zone the years of economic stagnation and recession appeared to come to an end during the reporting period. Most countries in western Europe were able to extricate themselves from the recession. Yet the high level of national indebtedness and the stony path towards consolidation hampered dynamic growth. Overall framework conditions in our most important consumer markets in Europe: Germany Viewed in terms of a west European comparison, the German economy grew at an above-average level. In terms of the course of the year, the first quarter of 2014 produced particularly strong results. Yet as the year progressed the economic growth then weakened off. In particular, companies‘ investment dynamism fell short of expectations, against the background of global economic developments. A recovery set in during the last months of the year, driven by a robust employment market and high expenditure on consumption. In sum, the gross domestic product rose by 1.6% (previous year: 0.1%; statistical data: German Federal Office of Statistics). Austria The Austrian economy grew by 0.3% in 2014, yet this figure meant that it performed less well than expected. Particularly in the second half of the year, Austria‘s economy lost momentum. Due to a combination of an unfavourable level of orders, a downturn in domestic and export final demand and a rather bleak mood, customers are reticent about investing. Over the reporting period, the unemployment rate rose by 0.8% to reach 8.4%, despite an

14

increase in the number of those in employment. The reason is the robust expansion of the supply in the workforce (source: Austrian Chamber of Commerce). Italy The Italian economy‘s national performance took a further downturn during the reporting period. Yet the negative development amounted to only -0.4% (previous year: -1.7%). The inflation rate went down from 1.2% to 0.2%. The Italian employment market reflects the nation‘s economic performance. In mid-2014 the unemployment rate was 12.7%. Germany is Italy‘s most important trading partner, with a 12.4% share of its exports and accounting for 14.8% of Italian imports. Italy‘s import share is especially high with regard to energy. Approx. 79% of the nation‘s energy demand is met by imports (Statistical data: Federal Foreign Office, Federal Republic of Germany). France The French economy recorded further growth during the reporting period. After economic growth of around 0.3% in 2012 and 2013, the expectation for 2014 is 0.4% growth. Yet youth unemployment, at around 25%, remains a problem. The overall unemployment rate was at 10.3% at the end of 2014 (Statistical data: Federal Foreign Office, Federal Republic of Germany). Denmark In 2014 Denmark‘s GDP growth level reached 0.8%. Experts‘ assessment is that Denmark is in the process of definitively overcoming the consequences of the economic and financial crisis. In December 2014 unemployment was at 5% (according to the OECD: 6.4%). Employment is on the decline in traditional sectors of industry; Denmark is striving to attain growth in knowledge-based and hightechnology sectors with future growth prospects (Statistical data: Federal Foreign Office, Federal Republic of Germany). Belgium Belgium has also overcome the phase of economic weakness. The gross domestic product grew by 1% in 2014. The unemployment level remained high, at 8.5%, significantly above the EU average. The service sector dominates the Belgian economy, with manufacturing industry accounting for only 15% of GDP. To a large degree, the country

Annual Report 2014

is dependent on foreign energy companies and energy imports. The decision-making authority in energy policy is distributed between the regions – Flanders, Wallonia, and Brussels – and the Federal Government (Statistical data: Federal Foreign Office, Federal Republic of Germany).

Number of pellet heatings in Germany

United Kingdom In 2014 the British economy further recovered from the consequences of the financial crisis. Economic growth of over 3% is expected (2013: 1.7%). This puts the economic performance back at its pre-financial-crisis level. Despite a growing economy, budget consolidation continues to determine policy in the United Kingdom. The employment market has also shown further positive development. With unemployment at 6% it is almost as low as it was six years ago. Developments in the global energy and pellet market During the reporting period, an upturn in the demand for energy was evident worldwide. This development is carried, above all, by the sustained economic growth in major threshold economies such as China and India. Globally, renewable energies‘ proportion of total energy has grown further during the reporting period, according to a current market analysis by the German Energy Agency (dena). This points out that use of biomass is a reality in many countries. In order to produce both electricity and heating. The global pellet market grew by around 7% during the reporting period, to a consumption level of 25.7 m. tonnes (previous year: 24 m. tonnes). Of this, around 11 m. tonnes were required for the power-station market, in order to produce electricity and heat (CHP), while around 14 m. tonnes were used for the heating market (source: Hawkins Wright, London). In Europe, the largest market for wood pellets, consumption rose from 19 m. tonnes to reach 20 m. tonnes in 2014. Around a half of this was used in the European heating market (source: Argus Media, London). German Pellets holds a leading market position in the European pellet market. Pellets in the heating market Due to the mild winter of 2013/14 and a mild autumn in 2014 there were reduced levels of consumption, characterised by regional differences. At around 10 m. tonnes, pel

15

In Germany in 2014, the pellet boiler market increased up to 358.000 installations. Source: German Pellet Institute (DEPI)

let consumption in the European heating market is at the previous year‘s level despite the mild winter. This stabilisation is a direct consequence of the further market growth in pellet-fuelled installations. In Germany, pellet consumption went down by 0.2 m. tonnes, to reach 1.8 m. tonnes (source: Germany‘s association for energy-wood and pellets; Deutscher Energieholz- und Pelletverband). In the reporting period, the annual average price for wood pellets in Germany was at EUR 258 per tonne (previous year: EUR 273). Likewise, in Austria pellet consumption went down in 2014, to reach 810,000 tonnes (previous year: 880,000; source: ProPellets Austria). In Italy the trade association AIEL projects growth in pellet consumption, from 2.5 m. tonnes to around 2.9 m. tonnes. Of this, around 80% would be used in pellet stoves. Italy has the role of the largest market for pellet stoves, by a big margin. Likewise in other European markets for the German Pellets Group, pellet consumption has risen further due to dynamic market growth: in France, according to the industry‘s trade association (propellets france) consumption rose from 850,000 tonnes to around 900,000 or 1 m. tonnes. In Denmark the national trade association recorded a slight increase (5%), taking the figure up to around 650,000 tonnes per year. In the United Kingdom‘s still-young market for pellet-fuelled heating, the Renewable Heat Incentive (RHI)

Annual Report 2014

financial-support programme has led to a further rise in demand. The UK is a small market but a rapidly growing one. More than 1,400 MW of output – among private consumers as well as commercial facilities – were installed by the end of the year. Accordingly, pellet demand rose in this segment by 120%, taking the figure to 200,000 tonnes. In the Balkans and in south-eastern Europe, e.g. in Romania, Bulgaria and Greece, the development of still-young markets for pellets is in evidence. Up to now, these are being supplied by smaller eastern European and western European producers. Developments in the pellet-boiler market In the core European markets, market-growth in the pelletboiler market was in the upper single-digit or respectively in the double-digit range during the reporting period. In Germany and Austria market developments in 2014 were less dynamic than in the preceding years. There are many layers to the reasons explaining this: they include the mild winter of 2013/14, the declining oil price in the course of 2014, but also what was a rather high level of workload for the relevant specialist engineering professionals. In view of continuing low interest rates and a robust economy, consumers commissioned other investments, including larger ones such as expensive baths. In Germany the pellet-boiler market recorded 12 per cent growth (previous year: 15%). By year-end the number of pellet-fuelled heating facilities installed in Germany grew from 321,500 to 358,000 units, according to the German Pellets Institute. During the reporting period, the demand was especially high for pellet boilers in the output range above 50 kW, i.e. for use in industrial and commercial enterprises and in municipalities. This sector recorded growth of 35% compared to the previous year. The reporting period heralded the new Energy Saving Ordinance (EnEV). This sets up an arrangement in which 30-year-old heating units – subject to certain exceptions – are no longer permitted to be operated in Germany as of 01.01.2015.

tion – propellets Austria – takes the view that there will be positive consequences for the pellet-boiler market in Austria. Accordingly, for new installations and refurbishments in national-government buildings solely highly-efficient alternative energy systems may be used. The installation of new oil-fuelled heating units is only permitted to be booked as an energy-efficiency measure until 2018. After a high-point was reached for new installations in Italy in 2013, demand has stabilised. With 225,000 newlyinstalled pellet stoves (previous year: 275,000), demand is high. This corresponds to market growth of around 10%. Installed capacity of pellet stoves thus reached more than 2.2 m. units at year-end (2013: 2 m.; source: AIEL). In France, the reporting period saw the addition of around 80,000 pellet stoves (previous year: 100,000) as well as around 7,500 pellet-fuelled heating units. Thus, here too, demand has stabilised at a high level. The main driving force in the market in France and Italy is what, in terms of a European comparison, are the sustained high prices for fossil-fuels. In Italy, heating oil was up to 70% more expensive than in Germany during the reporting period and thus almost three times the prices of wood pellets. In France in 2014, heating costs were able to be cut by up to two-thirds by using wood pellets, compared to electricity for heating, frequently used in France and sourced from nuclear power stations.

On the Austrian market for pellet boilers, market growth amounted to around 6%, with around 6,500 newly-installed units (previous year: 10%). In 2014, the Austrian Government passed into law the Energy Efficiency Act (Energieeffizienzgesetz). Because of this, the trade associa-

16

Annual Report 2014

Pellets in the industrial and power-station market European demand for industrial pellets rose during the reporting period from 9 m. tonnes to around 10 m. tonnes, even if demand declined in certain individual countries. In the United Kingdom the complete conversion of a second power-station unit in the Selby facility, operated by the Drax group, led to a higher level of demand than was expected. In Belgium the temporary abolition of ‚green electricity‘ certificates led to a lower demand level than was expected. Yet the largest potential in the European power-station market continues to be offered by the U.K., with power stations already converted and further conversions currently in the planning phase. Accordingly, Hawkins Wright of London forecasts an annual level of pellet demand that is between at least 7 m. tonnes (low scenario) and up to 23 m. tonnes (high scenario) up to 2019. 4.6 m. tonnes were consumed during the reporting period. State subsidies and the high level of CO2 tax on coal are prompting Danish power-station operators to effect a step-by-step conversion to biomass. The Dong energy group is planning to use wood pellets in four power plants in the future and requires 2 m. tonnes p.a. solely for that purpose. According to Hawkins Wright, during the reporting period pellet consumption in the Danish industrial and power-station markets rose by about 200,000 tonnes, to reach 1.5 m. tonnes.

Hawkins Wright, London, projected a demand level of 1 m. tonnes. Yet by year-end actual consumption figures reached 1.9 m. tonnes. Animal-hygiene market The number of domestic pets is on the increase, especially in the small-animals sector, due to the demographic development in society; this is a fundamental factor in the market growth observed. In around 40% of households in Germany, people share their lives with domestic animals. In Germany alone, there are about 7.6 m. small animals and around 12.3 m. cats; among non-domestic animals, there are around 1.2 m. horses (source: ZZF Deutschland e.V.). In the animal-hygiene sector, the market is shaped by a small number of larger suppliers and a lot of small producers. The GfK consumer-research body has discerned growth in the development of own-branded products among retail chains. This also applies to the small-animals segment. Pellet production Wood-pellet production continued to rise worldwide in 2014. According to a provisional estimate by Hawkins Wright, the London-based consultancy and news service, global pellet production rose from 23 m. tonnes to around 25 m. tonnes, meaning a rise of around 10%. Of this, the heating market and the electricity market respectively each account for one million tonnes. The rise in wood-pellet production is attributable to growth, in particular, in North America, East Asia and Europe.

In the Netherlands, calculations indicate a rise in demand up to as much as 3.5 m. tonnes of wood pellets per year, due to the inclusion of biomass co-firing in the programme of financial support named SDE+, starting in 2015. The financial-support programme offers subsidies to power-station operators for an eight-year period (source: Hawkins Wright, London). Sweden‘s ambitious energy goals, to reduce greenhouse gases by 40% and to reach a 50% share for renewable energies, both by 2020, are prompting a further increase in annual demand for industrial pellets, used as fuel in combined heat-and-power plants. According to Hawkins Wright, the two-million mark could be reached in 2015 (in 2014 the figure was around 1.7 m. tonnes). Outside Europe, the reporting period saw growth in woodpellet demand, especially in Korea. At the start of 2014

17

Annual Report 2014

18

Annual Report 2014

2.2.2. Course of business developments Overall statements about the course of business developments Against the background of the overall economic and market-relevant framework conditions, the operative development attained by the German Pellets Group in the reporting year was indeed satisfactory. Along the entire value chain, the successful corporate strategy – spanning from purchasing, via production, through to sales – was further developed and strengthened. Acquisition of raw materials The first half of 2014 was characterised by a lasting positive economic development in the German saw-mill industry, recording robust levels of supply and turnover. First reductions in production levels were in evidence at the end of the first half-year at certain sites in the saw-mill industry. The surplus levels of supply and the high stock levels in the saw-mill residual wood sector, from the first quarter, made themselves felt far into 2014‘s second quarter. Accordingly, the incidence of ancillary saw-mill products was at above-average levels in the first half-year, leading to sinking prices at the markets for saw-mill residual wood in Germany. In the second half-year, it did not prove possible to make avail of the saw-mills‘ good capacity-usage figures; this was accompanied by reductions in volume of product cut, a correspondingly lower level of saw-mill residual wood, and rising prices. This situation lasted until October 2014. Then the saw-mills‘ cutting output rose due to a slight improvement in the demand for timber, yet this was accompanied by a sustained poor level of revenue on the part of the saw-mills. Thus it was appropriate to estimate the level of saw-mill residual wood for the German pellet industry in the fourth quarter as ranging from ‚sufficient‘ to ‚lower‘. The import both of saw-mill residual wood and also of logs was significantly reduced throughout Germany and limited to long-term contracts; spot-quantities disappeared from the market. It was solely German Pellets‘ Wismar site, with its direct access to the sea, that continued to import at a high level. The market for industrial wood in Germany was constant and balanced during the reporting period, with margi-

19

The arise of residual wood from sawmills was stable in the first half year of 2014, but declined during the second half year. This development was accompanied with an adjustment of prices.

nal price-adjustments. The amount of wood cut and consequently the quantity available were at a constant high level; this resulted from high levels of harvesting, due to the favourable weather conditions for wood felling. It was only from time to time that the industrial-wood market slightly came under pressure due to increased use of sawmill residual wood, enabling price cuts to be achieved with regard to spot quantities. The market for energy wood (renewable resources) in Germany was characterised by high stock levels and a low outward-flow of goods, due to the mild winter of 2013/14 and consequently low consumption; this led to a slight downturn in prices. To a large degree, the German Pellets Group has secured the supply of wood to the German sites through long-term contracts with saw-mills, forestry businesses run by regional government bodies, private forest owners, and also trading companies. There are contractual commitments and supply relationships established with around 250 suppliers. During the reporting period, the level of raw-mate-

Annual Report 2014

rial available in Germany deserved to be characterised as adequate solely because the demand for wood pellets was lower due to the mild winter. Likewise, the Austrian sites are structurally set up in such a way that the supply of saw-mill residual wood is secured by long-term contracts. Accordingly, the supply for the reporting period can also be described as good. The prices for saw-mill residual wood have only moderately gone down despite the mild winter and the resulting reduced demand. For the supply of raw materials in Woodville, Texas, USA, German Pellets likewise relies on supply from a regional provider, secured over the long term. The supply proceeded as expected. The use of various raw-material sources enabled prices to be kept stable despite what were, in part, extended periods of rain. Sale of pellets Private-consumer market Because of the mild weather, the first quarter of 2014 saw reduced consumption among end-users, varying on a regional basis. The marketing campaigns were strengthened for the stock-up activities of the spring. New partners and end-customers were able to be gained; across the Group, this led to a substantial increase in quantity. German Pellets reacted to the expected postponements both of stock-up operations and also of new installations into the second half-year by launching marketing promotions. Subsequently a revitalisation of the end-customer business was evident in the autumn and winter, across the Group. During the reporting year, German Pellets made a variety of investments in order to strengthen sales operations and enhanced the strength of its economic return, through acquisitions, collaboration with partners, and its own optimisation activities. Thus, as of 1 September 2014 the pellet business of Michael Wäsler GmbH, Munich, was taken over and successfully integrated into the Group. This particularly strengthened the end-customer direct business. Work has been and is in progress on further takeovers. The customer centres in Wismar and Landshut were strengthened in terms of staff numbers; the aim is to approach more end-customers and to establish the bond

20

between them and the company and its brands long-term, through highly-competent advice and optimum service. In Ulm a new regional centre was established for direct endcustomer sales in the Ulm/Swabia region. With the joint venture, sealed in October between German Pellets and ZG Raiffeisen Energie GmbH, a cooperativelyorganised trading and services company from Baden, the sales activities in the south-west German pellet market were drawn together more strongly. The name of the joint subsidiary company is ‚best:Pellets Handelsgemeinschaft‘. Joint pellet sales to end-users began on 1 January 2015. Through the takeover of HEIZWERT GmbH (Waldneukirchen, Austria), at the beginning of 2014, the end-customer direct business was extended in Austria. In Austria, German Pellets proved to be able to boost quantities, thanks to this measure and others, and despite a business year characterised by a mild winter, resulting in reduced consumption. In Denmark the end-customer direct business was extended by the set-up of an online border shop. The fleet of silo trucks to supply end-customers was extended in the core markets – Austria, Denmark and Germany. As of year-end, the company‘s own vehicle fleet comprised 137 vehicles (previous year: 107). Market for wood pellets – bagged goods In 2014, this company was able to substantially expand its sales to the sector-specialist trade. In Germany a distinct increase was attained in quantities ordered from existing customers. New orders were able to generated in Austria and Denmark, among other places, in addition to countrywide product listings in Italy. In Italy, German Pellets has been among the first pellet dealers to obtain ENplus certification; this is in order to guarantee its customers high quality, from production abroad, via logistics, and through to the end-consumer. In France, German Pellets was listed in almost all leading consumer markets during the reporting period. For this purpose, the French sales team was further reinforced in terms of more personnel. Beyond this, there was the first-time supply of wooden briquettes to the sector-specialist trade.

Annual Report 2014

Market for medium-sized commercial customers The company was able to conclude several medium-term to long-term supplier contracts in the medium-sized customer segment during the reporting period. Around 300,000 tonnes of wood-pellet supply was able to be concluded for private commercial and municipal facilities. For instance, this included a ten-year contract with the operator of a combined heat-and-power plant in Germany, supplying commercial properties via a local-heating network. Industrial market and power-station market Expertise in production, acquisition and logistics for wood pellets make the German Pellets Group an in-demand business partner for the supply of large quantities of wood pellets. Over the reporting period, German Pellets made a successful entry into the trade with wood chips. In August 2014 a fuel supply contract spanning several years was signed with a European energy provider for the supply of wood chips to a power plant in France. In December 2014 a further supply-contract was signed with a European power-station operator, spanning a 10-year term and supplying up to 5 m. tonnes of pellets. The supply is projected to start at the end of 2016. Sales of animal-hygiene products The Group‘s subsidiary, German Horse Pellets GmbH, has further established itself during the reporting period as a supplier of high-calibre animal-litter products in all relevant market segments. The business-year 2014 was able to be concluded with a positive overall result.

also distribution chains for animals‘ supplies. With some business partners, it proved possible to attain a unique selling point on the basis of product variation and the quantity made available. Significant quantity increases were also attained with regard both to existing articles and also to the opening up of new and innovative products. Litter for large animals A further extended network of dealers, long-term cooperation deals with large wholesale-chains, and targeted sales to end-customers: all this contributed to the turnover figures being brought to a good level during the reporting period in the market segment of litter for horses and other large animals. Both domestically and also with constant growth abroad, sales were able to be developed on a level that is moderate and corresponds to what were rather mild winter months. Another point of focus was export into overseas markets via container freight. Sales partners in South Korea, Dubai, Bahrain and Singapore are given mention here, as representing this business that provides good margins. In the reporting period, German Horse Pellets acted as litter supplier for the equestrian World Cup tournament in Leipzig and for the Hamburg Derby, the world‘s most difficult equestrian show-jumping event. A long-term cooperation as a litter supplier was also concluded up to the end of 2018 with DOKR, Germany‘s Olympic Committee for horse-riding. The German-Horse Pellets Tour is a firmlyestablished part of the tournament calendar for amateur equestrian show-jumping enthusiasts.

Litter for small animals Turnover recorded a significant increase in the small-animals market segment. Demand increased for environmentally-friendly litter for rodents and cats, both domestically and also (especially) in export markets. The PEFC-certified product portfolio of litter for small animals, supplied by German Horse Pellets, guarantees 100% use of renewable resources. The high standards were repeatedly confirmed during the reporting period by the recertification in accordance with ISO:9001 quality-management. In the reporting period, new long-term cooperation deals and contracts were concluded with the current sales partners, namely the German and European food retailers, and

21

Annual Report 2014

22

Annual Report 2014

Production



Wismar (Mecklenburg-Vorpommern, Germany)

For the site operated by the German Pellets Group in Woodville, Texas, the ramp-up phase was concluded in the first half of 2014. Since then, the site has been producing at a high level of capacity use.



Herbrechtingen (Baden-Württemberg, Germany)



Ettenheim (Baden-Württemberg, Germany)



Torgau (Saxony, Germany)

The construction of the pellet site in Urania, Louisiana, has been delayed for weather reasons. Production was able to be begun at the start of 2015. In the first expansion stage, the site has a technical capacity of 578,000 tonnes.



Wilburgstetten (Bavaria, Germany)



Pfarrkirchen (Bavaria, Germany)



Mattighofen (Austria)

At the production sites operated by the German Pellets Group, process-optimisation measures were carried out on an ongoing basis during the reporting period, aimed at enhancing efficiency and at securing the quality-management. Further points of emphasis were work safety and preventive fire-protection measures.



Oberweis/Gmunden (Austria)



Wunsiedel (Bavaria, Germany)



Abtenau (Austria)



Erndtebrück (North Rhine-Westphalia, Germany) up to 01.04.2014



Woodville (USA)



Löbau (Saxony, Germany) 1)



Oranienbaum (Saxony-Anhalt, Germany) 1)



Osterfeld (Saxony-Anhalt, Germany) 1)



Plattling (Bavaria, Germany, Erdenwerk)



Urania (USA, commences operation in 2015)

Effective as of 01.04.2014, German Pellets Group has relinquished its minority holding in NRW Pellets GmbH, the operator of the pellets facility in Erndtebrück. The pellet facility of NRW Pellets GmbH has been a partner facility of the German Pellets Group since 01.04.2014. German Pellets has secured the quantities produced via a mediumterm supply contract and thereby guarantees short lines of supply for its customers in North Rhine-Westphalia. In December 2014, short-time working arrangements were introduced at the Torgau site of the Group‘s subsidiary, German Pellets Sachsen GmbH. The reason for this was that the ancillary saw-mill products needed as raw materials were not available in sufficient quantity in the immediate surroundings. The Torgau site is generating less than two per cent of the Group‘s turnover. The reduced production quantity was replaced by more favourably-priced bought-in quantities. This measure had no substantial impact on the German Pellets Group‘s situation in terms of finance and economic return. During the reporting period, the German Pellets Group commanded an annual production capacity of 2.454 m. tonnes of wood pellets, in Germany, Austria and the USA combined; this includes partner sites whose capacity resources German Pellets has secured contractually. The completion of the first extension stage of the Urania (USA) facility means that available production capacity rises to 3.032 m. tonnes p.a.

1)

Management of operations by German Pellets GmbH is effected via a contract for supplying to the company. Further Sites: •

Port Arthur (USA, port-based facility)

Production sites, the capacities of which German Pellets has secured by means of fixed contracts: •

Erndtebrück (North Rhine-Westphalia, Germany) from 01.04.2014



Hengersberg (Bavaria, Germany)



Ingolstadt (Bavaria, Germany)



Vilshofen (Bavaria, Germany)



Fuchstal-Asch (Bavaria, Germany)



Vielsalm (Belgium)

German Pellets‘ production sites are listed as follows:

23

Annual Report 2014

Logistics During the reporting period, the German Pellets Group has once again distributed several millions of raw materials and wood pellets on roads, railway tracks and waterways. To this end, the company cooperates with logistics service-providers, maintaining a network of storage facilities in central Europe, as well as a storage and loading facility at the Gulf of Mexico in Port Arthur (Texas). This storage and logistics network was further expanded during the reporting period. This enables German Pellets to receive large import volumes, optimise freight prices, and maintain access to stocks of goods, at all times and in proximity to the customer.

turn in oil costs has also had a positive effect on freight rates. Another contributory factor is that German Pellets has further established rail transport arrangements, also including bagged goods in this context. German Pellets has also intensively invested further in its vehicle fleet, especially in the silo vehicle area so as to supply end-customers. The vehicle fleet in Europe amounted to 137 vehicles at year-end (2013: 107).

Constant high volumes of freight on the part of the freight-loading companies were characteristic of the logistics market in Germany during the reporting period. The German Pellets Group was able to at least keep the freight prices stable, because freight rates were established contractually over the medium-term to long-term. The down-

Logistics and storage network of the German Pellets Group in Europe

24

Annual Report 2014

25

Annual Report 2014

Company bonds / participation rights In November 2014, German Pellets GmbH placed a new bond in the Prime Standard category at Frankfurt Stock Exchange, at a volume of EUR 100 m. The bond has a fiveyear term, like those placed in 2011 and 2013 respectively, and a 7.25% coupon. In addition, numerous investors are making avail of the voluntary exchange offer for the 2011/16 corporate bond that matures on 1 April 2016. A volume of around EUR 26 m., corresponding to an exchange ratio of around 32 %, was exchanged by the existing investors in the 2011/16 corporate bond to obtain the 2014/19 corporate bond. The net issue proceeds serve the purpose of exchanging the 2011/16 bonds and also the expansion of international production capacities. This includes the expansion of existing sites or the creation of new production facilities in the USA, as well as the creation of saw-mill and product-sorting capacities at the site in Woodville, USA. All three bonds issued by German Pellets GmbH attained an annual average price that was above par. As of the balance-sheet cut-off date, German Pellets Group records profit participation-rights amounting to EUR 34.684 m. (previous year: EUR 26.823 m.). Energy management EEG cost apportionment Germany‘s Renewable Energies Act (‚EEG 2014‘), dated 21 July 2014, entered into force on 1 August 2014. The applications for claiming the special compensatory ruling were given a positive decision for the German Pellets Group of companies as a whole. This ensures that, for 2015, the German production sites can make avail of the limitation ruling with regard to the EEG cost apportionment. For the first time, the application was made so as to include the Wilburgstetten facility. This means that, at that site also, the German Pellets Group can benefit from a reduction in its costs for sourcing electricity that amounts to approx. EUR 265 k. In accordance with the definition in the EEG 2014, as before it, all German Pellets Group site are deemed to be energy-intensive; in the future, due to the certified management system (ISO 50001), they will continue to

26

benefit from the limitation applicable according to the special compensatory ruling. In the year 2014 the advantages obtained from the EEG limitation to the cost-apportionment amounted to around EUR 4.200 m. DIN EN ISO 50001 energy management system The process of being granted the certificate for the DIN EN ISO 50001 energy management system was secured in April 2014 in the recertification audit; this provides the German Pellets Group not only with the EEG limitation to the cost apportionment for its German sites, but also continues to secure the reimbursement of the electricity tax in the future. Starting in 2015, DIN EN ISO 50001 certification is a prerequisite for obtaining the reimbursement. The reimbursement for electricity tax amounts to around EUR 1.000 m. The energy management system was subjected to ongoing development throughout the reporting period. Subsequently the energy-related performance was able to be improved. Overall energy demand was reduced by around 12.5 GWh (13.8%). In Germany, this corresponds to the electricity requirement of around 3,500 three-person households. The expansion of the energy-management activity-area in terms of personnel, as well as the expansion of internal competence, make it possible in the future for the staff assigned to energy management to be able to implement the annual internal audits autonomously. This leads to improved quality of the result amid a simultaneous cost reduction for the audit process. At the start of 2014, the process was begun whereby an energy management system according to DIN EN ISO 50001 requirements is to be implemented at Glechner Pellet-Produktion GmbH in Pfarrkirchen, in addition to the headquarters and the site in Mattighofen (Austria). As of 1 August 2014, the energy management system entered into force to the full extent; the certification process was concluded in December. For the current year it is scheduled for the Glechner Pellet production in Oberweis/ Gmunden to complete the certification process.

Annual Report 2014

Obtaining electricity Due to the current electricity-price development on the stock-exchange, the reporting period featured long-term contracts being concluded for electricity supply in the years 2017 and 2018, based on attractive conditions. These make provision for the costs for sourcing electricity to be around 15 per cent below the price for supplies made in 2015 and 2016.

reporting period German Pellets GmbH was able to sell around 500,000 certificates at a total value of EUR 3.100 m. Investments The investment in tangible assets amounted to EUR 3.049 m., essentially being attributable to investments for maintenance and replacement activities at the German and Austrian sites (overview of the Group‘s facilities, p. 41).

Exemption from electricity tax for the Woodville site As of year-end 2014, an application was made for the Woodville site to obtain exemption from the Sales and Use Tax; a positive decision was received in December. In the future, the Woodville facility is completely exempted from the latter tax, as a result of which the electricity-sourcing costs are able to be reduced by around 7%. CO2 certificates At the Wismar and Ettenheim sites, the German Pellets Group operates heating stations that are subject to emissions-trading requirements, for generating process heat. For these, German Pellets GmbH receives an allocation of emission rights each year. Against the background of the company‘s sustainability policy, these heating stations are using exclusively renewable resources for heat generation. Thus, it is only a very small part of the annual allocation of emission rights in the form of CO2 certificates that has to be submitted for emissions generated. As a result, in the

Electricity delivery costs (EUR per mWh)

Development of electricity delivery costs at german production sites of the German Pellets Group between 2009 and 2018.

27

Annual Report 2014

2.2.3. Situation in terms of economic return, finances and assets Situation in terms of economic return In the 2014 business year sales rose to EUR 593.0 m. (previous year: EUR 556.9 m.). 31.12.2014 EUR k.

31.12.2013

%

EUR k.

%

Trading revenue

360,160

60.7

309,589

55.6

Pellet revenue

204,800

34.5

218,968

39.3

Animal bedding revenue

14,840

2.5

14,792

2.7

Other

13,207

2.3

13,558

2.4

593,007

100.0

556,907

100.0

The increase in sales essentially resulted from the further expansion of the trading business. The downturn in the pellet revenue was attributable to the price effect. The trading revenue includes revenues amounting to EUR 102.544 m. (previous year: EUR 81.698 m.) for the newlybuilt facilities of Texas Pellets, Inc. (USA), Louisiana Pellets, Inc. (USA), Woodville Lumber, Inc. (USA) and Urania Lumber, Inc. (USA). Animal bedding´s share of overall turnover remained almost unchanged. The sales are juxtaposed with cost of materials amounting to EUR 443.9 m. (previous year: EUR 443.9 m.). The cost-ofsales ratio of total operating performance amounts to 75.8 %; it was thus able to be further improved compared to the previous year (76.2%). Personnel costs reached EUR 25.733 m. in business year 2014 (previous year: EUR 22.177 m.) and were thus at a level 16 % above the previous year. The personnel costs ratio in relation to total operating performance amounted to 4.4% (previous year: 3.8 %). The increased personnel costs level resulted from the expansion of the scope of consolidated enterprises, the building-up of staff numbers in the USA, and the expansion of sales operations. Thanks to new contracts and energy-efficiency measures being concluded, the electricity costs in the German Pellets GmbH sites were able to be reduced by around 14%. The additional production quantities at the Woodville, Texas, site led to the Group as a whole being faced with an increase in electricity costs amounting to around 16%.

In essence, this rise emerges from the scheduled depreciation of the goodwill for HEIZWERT GmbH, included in the Group balance sheet for the first time in 2014, and the scheduled depreciations on the operating resources of German Pellets Texas LLC, that operates the Texas site. The other operating expenses amounted to EUR 77.608 m. and were thereby able to be reduced in comparison to the previous year (previous year: EUR 81.154 m.). In essence, this downturn is due to a one-off effect in the previous year. The largest item among the other operating expenses is, at EUR 26.874 m. (previous year: EUR 25.706 m.) the delivery costs; in essence, these are the freight costs and packaging costs. Expenditure resulting from currency-exchange differences continue to be indicated here, amounting to EUR 8.403 m.; these are juxtaposed with revenue from currency-exchange differences, amounting to EUR 9.047 m. Depreciations of financial assets, amounting to EUR 400 k. (previous year: EUR 2.265 m.) essentially include value-corrections on a holding. The interest expenses amounted to EUR 21.737 m. (previous year: EUR 19.406 m.). This increase is attributable to the issue of the additional bond. The bond was issued to finance the German Pellets Group‘s further growth. The annual result after deduction of taxes amounted to EUR 7.882 m. (previous year: EUR 4.500 m.) at an EBITDA of EUR 50.236 m. (previous year: EUR 49.301 m.). Property situation The Group‘s structure in terms of property and capital is as follows: 31.12.2014 EUR k.

31.12.2013

%

EUR k.

%

Assets Fixed assets

253,028

51.1

208,361

47.0

Current assets

188,892

38.2

187,310

42.2

Liquid funds

38,326

7.7

36,252

8.2

Prepaid expenses

14,539

3.0

11,697

2.6

494,785

100.0

443,620

100.0

The depreciations of fixed assets amounted in business year 2014 to EUR 17.806 m. (previous year: EUR 16.409 m.).

28

Annual Report 2014

31.12.2014 EUR k.

31.12.2013

%

EUR k.

%

Liabilities and Equity Equity

73,228

14.8

56,248

12.7

Difference from consolidation of capital

376

0.1

1,639

0.4

Special item for subsidies and grants

2,280

0.4

2,572

0.6 35.3

Bonds / silent participations

209,142

42.3

156,600

Accruals

12,787

2.6

13,662

3.0

Liabilities

194,589

39.3

212,124

47.8

Deferred taxes

2,383

0.5

775

0.2

494,785

100.0

443,620

100.0

The increase in fixed assets is essentially brought about by the increase in financial assets, amounting to EUR 60.313 m. The scheduled depreciations on tangible fixed assets acted as a counter-current item. The current assets have increased by EUR 1.582 m. compared to the previous year. This effect essentially results from a slight decrease among work in progress and incomplete projects, as well as from an increase, attributable to turnover, in the trade receivables. The equity ratio in balance-sheet terms amounted to 14.8% as of 31 December 2014 (previous year: 12.7%). All in all, EUR 76.4 m. of equity capital (II) were available (previous year: EUR 60.9 m.). One factor explaining this strengthening of equity is the earnings, above previousyear level, and the further rise in the profit participation rights.

In 2011 German Pellets GmbH placed a bond of EUR 80 m. volume on the market; then, in 2013, a second bond amounting to EUR 72 m., and in 2014 one amounting to over EUR 100 m.; the latter was used in part (EUR 25.6 m.) to refinance the 2011 bond. Bank loans have been reduced by EUR 13.3 m. compared to the previous year; this is done by means of scheduled payment of principal on loans. The interest-rate and debt-repayment conditions forming part of the bank loans are at levels customary in the market. All payments agreed to were made on time. The reduced level of trade receivables relates to the project business in the USA. As of the balance-sheet cut-off date, the liquid funds amounted to EUR 38.326 m. (previous year: EUR 36.252 m.). The development taken by liquidity is presented by the capital-flow calculation for the Group, the key elements of which are presented as follows:

Period income

2014

2013

EUR k.

EUR k. 7,882

4,500

Depreciation/Amortisation

17,806

20,114

Cash flow

25,688

24,614

Financing and liquidity The Group‘s total liabilities amount to the following: 31.12.2014 EUR k. Bonds Silent participations Bank loans Advanced payments received Trade payables Liabilities to companies in which participations are held Other liabilities

29

31.12.2013

%

EUR k.

%

207,942

51.5

154,400

1,200

0.3

2,200

41.8 0.6

57,821

14.3

71,114

19.3

19,820

4.9

7,775

2.1

103,310

25.6

117,689

32.0 0.2

1,028

0.3

762

12,610

3.1

14,784

4.0

403,731

100.0

368,724

100.0

Annual Report 2014

30

Annual Report 2014

2.2.4 Non-financial performance indicators Sustainable supply and sourcing of raw materials Sustainability is a decisive criterion used in selecting raw materials and raw-materials‘ suppliers. German Pellets attaches much importance to the place of provenance being a facility with sustainable forestry. To the greatest degree possible, raw materials are sourced from suppliers certified according to SFI Fiber Sourcing, PEFC Chain of Custody, FSC (Forest Stewardship Council) or a comparable system. German Pellets requires from its suppliers that the raw materials originate from forestry enterprises that are run according to the social, environmental and economic principles of sustainability. German Pellets does not accept raw materials sourced from specially-protected forests or reserves. Internal monitoring processes subject to high standards ensure a sustainable raw-materials supply. This includes seamless documentation of the provenance, suppliers and volumes involved and also a risk assessment. Indeed, at some sites German Pellets is itself PEFC-certified, as is the case at the Woodville facility in the USA. Social-Affairs Report As an annual average, German Pellets-Group employed 628 staff (previous year: 556). Of these, 416 were manufacturing-staff (previous year: 359), 198 were administrative staff (previous year: 181) and 14 were trainees (previous year: 16). The rise in the past business year is the result of a substantial increase in staff levels in the USA, especially at the Urania site. In addition, the takeover of HEIZWERT GmbH, Waldneukirchen, Austria, and of Michael Wäsler GmbH, Munich, brought with them staff new to the company. Beyond this, German Pellets Group built up the sales teams in the course of the past business year. At all times, German Pellets Group attaches much importance to qualified and suitably-competent staff. We addressed the need for training among our staff in the past business year as follows:

31



Training by internal trainers



Training by external trainers



Training on the job



Seminars at external academies

One of the areas of focus in the further-training activities is quality management. This affects personnel in the production and storage sites and also drivers. Moreover, training activities were held aimed at improving energy-related performance in all areas of the company, in addition to subject-specific training events in sales, marketing, bookkeeping, planning and controlling, as well as on a crossdepartmental business with regard to the new legislative rulings. Young staff who have completed their vocational training in our Group of companies were granted the opportunity during the reporting period, to attain further development in ‚training on the job‘. We carefully and steadily introduce these staff to their assignments. As a measure for pursuing greater compatibility of working and family life, flexitime models and flexible working hours are offered. In the past business year there was a good level of take-up of these opportunities. Research and development Over the reporting period, German Pellets continued its commitment to examining any inappropriate smells exuded by wood pellets, within the context of a research programme at Graz Technical University in Austria. Interim results indicate, among other things, that inappropriate smells can emerge due to microbiological processes taking place during the storage of raw materials. Beyond this, the scientists are examining the possibilities involved in the use of antioxidants. This will be an area of emphasis in research activity in 2015. In the reporting period, a point of emphasis in German Pellets Group‘s research and development activity was the optimisation of production and transport processes, the aim being to reduce manufacturing costs and to further improve the product characteristics. The company is also concerning itself with the anaerobic thermal degradation of wood pellets.

Annual Report 2014

Quality management The Group-wide quality-management team had its staff numbers increased over the reporting period. Accordingly, provision of specialist advice to customers was able to be further extended. In addition, Customer Centre staff and drivers were given even more extensive training with regard to technical product characteristics and also issues relating to quality and product management. So as to ensure and to improve the quality, in the reporting period self-monitoring operations were intensified with regard to the pellets produced in-house, in addition to monitoring of the most important suppliers. A further emphasis-area in quality-management was the build-up and introduction of a structure for taking-up and processing quality reports.

2.2.5. Follow-up report Effective as of 16 February 2015, German Pellets took over the pellet business of Nord Energie GmbH & Co. KG, Risum-Lindholm. German Pellets is thereby further extending its direct business in northern Germany. Within the course of intensifying the end-customer business in Denmark, the company obtained a 100% holding in German Pellets Denmark ApS. German Pellets had hitherto held a 15% interest. The company is also founding a sales company of its own in France. In first-quarter 2015 the pellet facility in Urania, Louisiana, USA, began its operations. In the first quarter of 2015, the German and Austrian national governments respectively decided to raise, with immediate effect, the financial-support resources provided for rehabilitation of heating facilities and for conversion to pellets. The financial-support rates provided by national government were boosted in both countries by EUR 600 respectively. According to this, those making conversions in Germany now obtain a grant of at least EUR 3,000 for this purpose; this figure rises to EUR 3,500 if a new buffer storage unit is added. It is possible to get up to EUR 8,000 in financial support for a pellet-fuelled heating unit. In Austria, financial support obtained from national govern-

32

ment now amounts to EUR 2,000. Additions can be made to this through various programmes at individual Austrian-state level. Likewise, at the start of 2015, in France the financial-support conditions were improved for the installation of pellet-fuelled heating units and pellet stoves. The rate of financial support was raised. 30% of the investment costs can be tax-deducted. Moreover, the level of financial support provided no longer depends on recipients‘ salaries. In January 2015, the European Union (EU) approved the first British power-station project for the new financialsupport system CfD (Contract for difference). Approval is expected in the near future for an additional two sites. CfD offers energy groups in the UK greater planning and financial security in making the switch from coal to wood pellets. Britain‘s Ministry of Energy and Climate Protection has announced that a further round of allocations for CfD biomass-projects is to be expected in the autumn of this current year. In the Netherlands, agreement was reached on the sustainability criteria to be applied for inclusion of biomassco-firing in the SDE+ financial-support programme. From 2015, power-station operators thereby receive subsidies for also using wood pellets in coal-fired power stations. In the spring of 2015, the energy group Dong concluded a new contract for the supply of heating regarding its new power-station Avedøre in Copenhagen, Denmark. This deal was a prerequisite for the conversion of a power-station-unit to operate 100% on biomass. An annual pellet demand of around 1.5 m. tonnes is expected for this. At the start of the year, the Italian Government in Rome raised the value-added-tax rate for pellets from 10% to 22%, so as to generate extra state revenue. The country – Europe‘s largest consumer of pellets – expects to gain additional income of EUR 96 m. as a result.

Annual Report 2014

2.2.6. Report on opportunities and risks According to the International Monetary Fund (IMF, forecast: April 2015) the world economy will grow further over the next two years, namely by 3.5% this year and 3.8% next year. Yet the IMF does expect a split in the global economy. The wealthy national economies of Europe and North America will grow at a better rate than expected. The economic-performance forecasts for Germany range from growth of 1% to 2%. Not least against this background, German Pellets Group sees the market for wood pellets, primarily in Europe, as being characterised by sustained growth. Very good development prospects are offered by what are expected to be further price-increases for fossil fuels, in comparison to pellets – particularly in Europe outside Germany – and also by the acceptance of and high level of demand for renewable energies, and the rising level of consciousness with regard to sustainability. However, long-term low prices for oil and gas could slow down the growth in the pellet market. High prices for raw materials in Europe and fluctuations in the availability of European sources of raw materials could endanger the further development of the pellet market. German Pellets already reacted to these risks many years ago and by means of what are, in some instances, longterm contracts for raw-materials supply, it has attained a secure and diverse basis for acquisition of raw materials (a mix of logs, saw-mill residual wood and wood chips). At several sites, investments were made in integrated logprocessing facilities, so as to guarantee a flexible production structure in the use of raw materials. This makes German Pellets Group more independent of market fluctuations in the various areas of raw material, providing a substantial competitive advantage in relation to competitors relying on saw-mill waste materials as their raw-materials source. Beyond this, German Pellets is tackling the fluctuating European prices with its strategic orientation and with the internationalisation of its production activities and (increasingly) of raw-material sourcing, primarily with a shift towards North America. The USA offers a clear reduction in costs for materials and also energy: this results in a significant improvement in profitability. Increasing globalisation in the pellet markets, involving the opening up of further raw-materials sources and the emergence of an

33

international infrastructure, secures demand in Europe over the long term. The strengthening of the dollar has no ramifications for long-running contracts with power-station groups, because the currency of these supply contracts is the US dollar. The changes in the exchange rate of the Euro in relation to other currencies leads to exchange-rate risks in a large quantity of payment flows especially in USD. As a matter of principle, in the case of the trading business, German Pellets strives to conduct purchase and sales transactions in the same currency. If this is not possible, derivative financial instruments are used to secure the transaction. For the quantities produced in the USA the currency for the sales contracts is USD. In relation to various suppliers, German Pellets has entered into long-term obligations to purchase certain quantities of wood, wood chips and saw-mill residual wood. In the event of a downturn in demand for wood pellets in the heating market, it is not to be ruled out that German Pellets is under an obligation to purchase the contractuallydefined supply quantities. This risk is addressed by means of corresponding supply contracts with users from the energy sector / power-generation sector. On the sales side also, German Pellets has concluded longterm contracts that make provision for the supply of wood pellets in large quantities. In the event of bottlenecks in the supply of raw materials or pellets to German Pellets, or in the event of outages in pellet production in the German Pellets‘ sites, there is the risk that German Pellets must buy-in pellets so as to fulfil these supply contracts. Due to its well-balanced concept with regard to its sites, German Pellets can guarantee a high level of security of supply. The demand for wood pellets is subject to seasonal fluctuation; it depends not only on the the duration of cold periods, but also on the development of fossil-fuel prices. A sustained reduction in prices for fossil-based fuels could lower the demand for wood pellets. Apart from supplying private customers and medium-sized clients such as hospitals, the German Pellets Group also supplies customers in the heat-generation and energy-generation segments. Thus the risk to demand in the heating market can be counteracted by means of a corresponding shift into

Annual Report 2014

the energy market or respectively the electricity-generation market. New competitors could enter into the production and sale of wood pellets or the existing competitors could raise the competitive pressure. German Pellets has at its disposal large, modern and efficient production facilities providing high productivity and international certification. The Group also commands a comprehensive sales network in the principal European markets; aside from investing in the further expansion of the distribution network, it is also investing in the direct business, supplying to end-customers. Due to its well-balanced site-strategy concept and its wide-based selection of suppliers, German Pellets can secure a high degree of supply security and supply capability – this includes major power-station customers. The many years of expertise in logistics and in the management of wood pellets enables the company to have a strong balance between just-in-time supply for the customer and the optimisation of freight costs. Technical risks in connection with the operation of production sites and also power stations can lead to lost turnover and to costs. German Pellets is producing wood pellets and animal litter in several sites. It is also generating heat and electricity sourced from biomass in power stations at various sites, the sales figures of which contribute to the company turnover. The danger exists that the production sites and power plants operated by German Pellets generate no yield or a smaller yield than is expected, because they are incapacitated due to unforeseen reasons, such as a fire, or due to the non-operation of a turbine with regard to electricity or heat generation; this can also happen because the electricity generated cannot for technical reasons be fed into the electricity grid or respectively the heat gained cannot be supplied to the intended user. German Pellets tackles this risk by concluding insurance policies accordingly and by undertaking ongoing maintenance, care and repair work on the production facilities.

management team that is risk-oriented and has proved its merits in practice. The last major project – the construction and operational launch of the facility in Texas – was completed successfully.

2.2.7. Risk-reporting with regard to the use of financial instruments The company only enters into such risks as are unavoidable and as are assessed to be controllable, with regard to the possible creation of values or respectively the securing and expansion of the company‘s market position. Regular analyses of key indicators are intended to serve as a basis for suitable measures to counteract possible emerging risks as quickly as possible. This happens within the framework of our permanent risk-management activities in the systems provided for this purpose. Due to both the project commitment in the USA and the trading business conducted in foreign currency, the German Pellets Group is subject to currency risks accordingly. In part, these risks are secured against by currencysecuring transactions, predominantly through forwardexchange transactions. Moreover the German Pellets Group is subject to a risk of interest-rate changes due to loans that charge variable rates of interest. This risk is met by concluding interest-rate swap transactions that are usually in accordance with the corresponding underlying transaction in terms of the characteristics relevant for securing purposes (nominal value, basic rate of interest, etc.). The derivatives that German Pellets uses are exclusively instruments for securing transactions that are customary in the market, concluded in partnership with banks that have high levels of credit-worthiness.

Project risks emerge for German Pellets in connection with site-specific orders in the process of producing pellet-sites. Aside from calculation risks, in the implementation phase of projects there is also the risk that completion deadlines cannot be kept. German Pellets counteracts this risk by using staff with project experience and also a project-

34

Annual Report 2014

2.2.8 Forecast report It is the German Pellets Group‘s intention to continue to grow further in all markets and to reach sustained profitability. For this purpose, the internationalisation process is being further built up and expanded, especially in the USA, so as to optimise production and also raw-materials sourcing. In this current business year the second US facility operated by the German Pellets Group, namely in Urania, Louisiana, goes into full-scale operational mode. Consequently the proportion of turnover accounted for by pellets produced in-house will increase significantly, thus prospectively improving the material-expenses ratio to around 70%.

report was produced. Nevertheless the statements relating to the future are associated with the risks that apply to all considerations relating to the future.

German Pellets GmbH Wismar, 27 April 2015

_________________ Signed: Peter H. Leibold, Managing Director

The trading business will be further expanded. We are in negotiations with European energy groups in this regard. German Pellets currently expects that the negotiations will be concluded before 2015 is over. Sales to end-customers in the core sales markets are being further strengthened by targeted investments in sales and logistics. The aim in this segment is to generate aboveaverage growth. Against this background, the Group is expecting for the business year 2015 an overall result amounting to around EUR 600 m., with an EBITDA level at around EUR 50 m.; this is due to the updated planning, taking into account the downturn in market prices. German Pellets intends to further improve the capital structure and to raise the equity ratio above 20%.

2.2.9. Statements relating to the future The Directors‘ Report states facts relating to the past and also makes statements relating to the future. The data material describing the past is predominantly derived from the annual return for the past business year. Statements making projections into the future are subject to uncertainties and risks that can influence the actual occurrence of the state of affairs presented. For this reason, such a state of affairs is referred to using the conditional mode of expression. The statements and expositions directed to future events were produced on the basis of the data and information available at the date when the director’s

35

Annual Report 2014

36

Annual Report 2014

3. Consolidated Financial Statements as of 31 December 2014 3.1. Consolidated balance sheet as of 31 December 2014 Assets

Business year

Previous year

EUR k.

EUR k.

A. Fixed assets I. Intangible assets 1. Acquired concessions, industrial property rights and similar rights and assets as well as licences to such rights and assets

10,858

14,040

2. Goodwill

13,866

15,547

24,724

29,587

1. Land, land rights similar to land, and buildings, including buildings on property owned by others

25,826

26,340

2. Technical equipment and machinery

74,743

84,187

5,255

5,977

II. Tangible assets

3. Other equipment, office furniture and equipment 4. Prepayments and construction in progress

2,501

2,604

108,325

119,108

III. Financial assets 1. Participations 2. Shares in affiliated companies 3. Loans to entities in which participations are held 4. Long-term investments 5. Other loans

118

515

5,639

2,834

336

336

2

1

113,884

55,980

119,979

59,666

B. Current assets I. Inventories 1. Raw materials, consumables and supplies 2. Work in progress, incompleted projects 3. Finished goods and merchandise 4. Advanced payments

6,191

6,153

38,098

41,192

9,267

10,789

0

13

53,556

58,147

107,194

97,915

II. Trade receivables and other assets 1. Trade receivables 2. Receivables from companies in which participations are held

11,792

14,303

3. Other assets

16,350

16,945

135,336

129,163

III. Cash and cash equivalents

38,326

36,252

C. Prepaid expenses

14,539

11,697

494,785

443,620

Total assets

37

Annual Report 2014

Liabilities and Equity

Business year

Previous year

EUR k.

EUR k.

A. Equity I.

Share capital

II. Capital reserve

1,050

1,050

1,000

1,000

512

512

27,111

22,630

7,882

4,500

-8

-19

34,684

26,823

959

-278

38

30

73,228

56,248

III. Revenue reserves Other revenue reserves IV. Retained earnings brought forward from prior year V. Net income for the year Loss allocated to non-Group shareholders VI. Reserves from capital consolidation VII. Equity difference from currency exchange VIII. Shares of external partners B. Difference from consolidation of capital C. Special item for subsidies and grants

376

1,639

2,280

2,572

3,740

5,016

D. Accruals 1. Tax accruals 2. Other accruals

9,047

8,646

12,787

13,662

207,942

154,400

1,200

2,200

57,821

71,114

E. Liabilities 1. Bonds 2. Silent participations 3. Bank loans 4. Advanced payments received 5. Trade payables 6. Liabilities to companies in which participations are held 7. Other liabilities F. Deferred tax liabilities Total liabilities and Equity

38

19,820

7,775

103,310

117,689

1,028

762

12,610

14,784

403,731

368,724

2,383

775

494,785

443,620

Annual Report 2014

3.2. Consolidated Income Statement for the period from 1 January 2014 to 31 December 2014 Business year

Previous year

EUR k.

EUR k.

1. Sales 2. Increase or decrease in finished goods and work in progress 3. Other capitalised services 4. Total output 5. Other operating income

593,007

556,907

-7,714

25,921

13

50

585,306

582,878

12,527

13,692

368,841

385,775

75,015

58,163

443,856

443,938

21,716

18,598

4,017

3,579

25,733

22,177

17,806

16,409

of this, income from currency conversion: EUR 9.047 m. (previous year: EUR 2.850 m.) 6. Cost of materials a) Expenses for raw materials, consumables, supplies and purchased merchandise b) Expenses for purchased services

7. Personnel costs a) Wages and salaries b) Social security and pension costs 8. Depreciation/Amortisation a) Of tangible and intangible assets b) Of current assets in exsess of depreciations common in the capital company 9. Other operating expenses

0

3,705

17,806

20,114

77,608

81,154

83

67

-130

14

of this, expenditure from currency conversion: EUR 8.403 m. (previous year: EUR 6.478 m.) 10. Income from participations 11. Income from affiliated companies 12. Income from other securities and long-term financial investments 13. Other interest and similar income 14. Write-down of financial assets and securities included in current assets

0

0

7,198

2,382

400

2,265

15. Interest and similar expenses

21,737

19,406

16. Result from ordinary operations

17,844

9,979

6,866

3,314

638

357

17. Taxes on income of which deferred taxes: EUR 1.339 m. (previous year: EUR 1.003 m.) 18. Other taxes 19. Payments for profit participation rights

2,458

1,808

20. Net income

7,882

4,500

-8

-19

21. Loss/income allocated to non-Group shareholders

39

Annual Report 2014

3.3. Consolidated Statement of Changes in Equity as of 31 December 2014

German Pellets GmbH

As of 31 December 2012

Share capital

Capital reserve

Revenue reserves

Retained earnings brought forward from prior year

EUR k.

EUR k.

EUR k.

EUR k.

Shares of external partners

Net income for the year

Reserve from capital consolidation

Equity difference from currency exchange

Equity

Minority interest

Accumulated other Group earnings

Equity

EUR k.

EUR k.

EUR k.

EUR k.

EUR k.

EUR k.

EUR k.

Group equity

EUR k.

1,050

1,000

512

17,400

4,428

13,612

-73

37,929

2

-3

-1

37,928

Addition of shares of external partners

0

0

0

0

0

0

0

0

12

0

12

12

Change of Consolidated group

0

0

0

802

0

0

0

802

0

0

0

802

Currency differences

0

0

0

0

0

0

-205

-205

0

0

0

-205

Change

0

0

0

0

0

13,211

0

13,211

0

0

0

13,211

Reclassification

0

0

0

4,428

-4,428

0

0

0

0

0

0

0

Group net income for the year

0

0

0

0

4,500

0

0

4,500

0

0

0

4,500

Income allocated to nonGroup shareholders

0

0

0

0

-19

0

0

-19

0

19

19

0

As of 31 December 2013

1,050

1,000

512

22,630

4,481

26,823

-278

56,218

14

16

30

56,248

Currency differences

0

0

0

0

0

0

1,237

1,237

0

0

0

1,237

Change

0

0

0

0

0

7,861

0

7,861

0

0

0

7,861

Reclassification

0

0

0

4,481

-4,481

0

0

0

0

0

0

0

Group net income for the year

0

0

0

0

7,882

0

0

7,882

0

0

0

7,882

Income allocated to nonGroup shareholders

0

0

0

0

-8

0

0

-8

0

8

8

0

As of 31 December 2014

1,050

1,000

512

27,111

7,874

34,684

959

73,190

14

24

38

73,228

40

Annual Report 2014

3.4. Consolidated Fixed Asset Movement Schedule as of 31 December 2014 Acquisi-

Depre-

tion costs,

Additions

manu-

to scope

factu-

of consoli-

ring costs

dation

Additions

Disposals

Reclassifications

Currency exchange differences

Reversal of impair-

Amortisa-

ment los-

tion accu-

ses

mulated

01.01.2014 EUR k.

Depre-

ciation /

31.12.2014 EUR k.

EUR k.

EUR k.

EUR k.

EUR k.

EUR k.

EUR k.

ciation / Amortisation cur-

Book value

Book value

31.12.2014

31.12.2013

EUR k.

EUR k.

rent year EUR k.

A. Fixed assets I. Intangible assets 1. Acquired concessions, industrial property rights and similar rights and assets as well as licenses to such rights and assets 2. Goodwill Total intangible assets

18,174

4

2,105

23,884

1,653

281

42,058

1,657

2,386

4,094

48

0

0

5,379

1,257

10,858

14,040

0

0

0

0

11,952

3,615

13,866

15,547

4,094

48

0

0

17,331

4,872

24,724

29,587

II. Tangible assets 1. Land, land rights similar to land, and buildings, including buildings on property owned by others 2. Technical equipment and machinery

32,245

0

629

685

389

82

0

6,834

871

25,826

26,340

148,781

335

648

451

998

0

0

75,568

10,010

74,743

84,187

16,584

1,351

1,463

2,801

-1,109

289

0

10,522

2,053

5,255

5,977

3. Other equipment, office furniture and equipment 4. Prepayments and construction in progress Total tangible assets

2,604

0

309

86

-326

0

0

0

0

2,501

2,604

200,214

1,686

3,049

4,023

-48

371

0

92,924

12,934

108,325

119,108

III. Financial assets 1. Participations

2,566

0

4

0

0

0

0

2,452

400

118

515

2. Shares in affiliated companies

2,835

0

2,960

0

0

0

0

156

130

5,639

2,834

548

0

0

212

0

0

0

0

0

336

336

1

1

0

0

0

0

0

0

0

2

1

55,980

0

57,904

0

0

0

0

0

0

113,884

55,980

3. Loans to entities in which participations are held 4. Long-term investments 5. Other loans Total financial assets Total fixed assets

41

61,930

1

60,868

212

0

0

0

2,608

530

119,979

59,666

304,202

3,344

66,303

8,329

0

371

0

112,863

18,336

253,028

208,361

Annual Report 2014

3.5. Consolidated Cash Flow Statement for the period from 1 January 2014 to 31 December 2014 Business year

Previous year

EUR k.

EUR k.

A. Cash flow from operating activities 1. Result for the period before extraordinary items

7,882

4,500

18,206

18,674

3. Profit/Loss from the disposal of fixed assets

-69

-200

4. Profit/Loss from associated companies

130

-14

-1,263

-2,594

-292

-519

58

-88

5,448

-29,332

-11,022

-42,546

-966

3,009

-2,091

47,303

16,021

-1,807

1,001

598

11. Payments made for the acquisition of intangible and tangible assets

-5,430

-8,654

12. Payments received from the disposal of financial assets

0

0

-55,243

-45,194

-1,832

-120

-61,504

-53,370

0

12

7,861

13,211

2. Depreciation/Amortisation of fixed assets

5. Other expenses/income not affecting payment - Reversal of difference from consolidation of capital - Reversal of special items for subsidies - Change in discounts 6. Increase/decrease in inventories 7. Increase/decrease of receivables and other assets 8. Increase/decrease of accruals 9. Increase/decrease of liabilities that cannot be assigned to financial activities = Cash generated from operating activities B. Cash flow from investment activities 10. Payments received from the disposal of intangible and tangible assets

13. Payments made for investments in financial assets 14. Payments made for the acquisition of consolidated companies = Cash flows from investment activities B. Cash flow from financing activities 15. Payments received from equity contributions (Addition of shares from external partners) 16. Payments received from issuing profit participation rights (Increase in reserves from capital consolidation) 17. Payments received from issuing bonds

55,942

72,000

18. Payments made for repayment of bonds

-2,400

-4,000

19. Payments made for repayment of silent participations

-1,000

-300

42

Annual Report 2014

20. Payments received from issuing of (financial) loans

Business year

Previous year

EUR k.

EUR k. 9,204

21,610

21. Payments made for repayment of (financial) loans

-31,259

-21,373

= Cash flows from financing activities

38,348

81,160

22. Effective changes in cash funds

-7,135

25,983

23. Financial resources at the beginning of the period

31,201

4,510

319

67

1,269

641

D. Financial resources at the end of the period

25,654

31,201

Cash on hand, bank balances

38,326

36,252

24. Changes due to group of consolidated companies in cash funds 25. Changes in cash funds associated with exchange rates

Current bank liabilities

43

-12,672

-5,051

25,654

31,201

Annual Report 2014

44

Annual Report 2014

3.6. Notes to the Consolidated Financial Statements for the business year from 1 January 2014 to 31 December 2014

Company

Registerd office

1. German Pellets Sachsen GmbH

Torgau, Germany

100.00

3.6.1. General information

2. German Pellets Genussrechte GmbH

Wismar, Germany

100.00

The parent company in the Group is German Pellets GmbH, with its headquarters in Wismar (Germany). The society is entered in the commercial register of Schwerin Local Court, under registration number HRB 8769. The Group‘s business year begins on 1 January and ends on 31 December of the respective year.

3. German Pellets Beteiligungs GmbH

Wismar, Germany

100.00

4. German Pellets Logistics GmbH

Wismar, Germany

100.00

5. German Pellets Trading GmbH

Wismar, Germany

100.00

6. German Horse Pellets GmbH

Wismar, Germany

100.00

The functional currency and the reporting currency is the Euro. The consolidated statement are stated in EUR k. (including the previous year).

7. Südpell GmbH

Wismar, Germany

100.00

8. FireStixx Holz-Energie GmbH

EssenbachAltheim, Germany

100.00

The consolidated statemement of German Pellets GmbH were produced on the basis of the accounting stipulations of German Commercial Code (HGB) and of the ‚German Accounting Standards‘ (DRS) approved by Accounting Standards Committee of Germany (Deutscher Standardisierungsrat). The regulations of German Limited Liability Companies Act and of the shareholders‘ agreement were also taken into account.

9. German Pellets Czeska s.r.o.

Klatovy, Czech Republik

100.00

The methods of accounting, valuation and recognition, used in the preceding business year, were essentially maintained without changes. The income statement was produced according to the total cost method. According to the categories of size stated in Section 293, Para. 1, German Commercial Code (HGB), the company is obliged as a parent company to produce consolidated financial statements and a group management report.

3.6.2. Delineation of the Consolidated Group 1. Fully consolidated companies As of 31 December 2009, for the first time, the company produced consolidated financial statements according to Sections 290 et seq., Germans Commercial Code (HGB). As of 31 December 2014, the following companies were included into the consolidated financial statements, according to the full-consolidation method:

45

Capital share in %

10. German Pellets Holding USA, Inc.

Wilmington, USA

100.00

11. German Pellets Texas LLC

Woodville, USA

100.00

12. German Pellets EPC s.r.l.

Bolzano, Italy

76.00

13. Glechner Beteiligungs GmbH

Mattighofen, Austria

100.00

14. Glechner Gesmbh

Mattighofen, Austria

100.00

15. Glechner Pellet-Produktion GmbH

Simbach am Inn, Germany

100.00

16. WOODOX Management GmbH

Leipzig, Germany

100.00

17. FireStixx Trading GmbH

EssenbachAltheim, Germany

100.00

18. German Pellets Louisiana LLC

Urania, USA

100.00

19. Reg-Energie GmbH & Co. KG

Ingolstadt, Germany

100.00

20. Reg-Energie Verwaltungs GmbH

Ingolstadt, Germany

100.00

21. HEIZWERT GmbH

Waldneukirchen, Austria

100.00

22. German Pellets Holding II USA, Inc.

Woodville, USA

100.00

23. German Pellets Holding IV USA, Inc.

Wilmington, USA

100.00

24. GP Lumber, LLC

Woodville, USA

100.00

25. GP Lumber Louisiana, LLC

Olla, USA

100.00

26. GP Logistics USA, LLC

Wilmington, USA

100.00

The companies with the numbers 21 to 26 inclusive in the sequence have been included in the consolidated financial statements for the first time in 2014. In the case of Number 21 it is a case of acquiring a partial stake-holding; all the others were founded in 2014 or in preceding years.

Annual Report 2014

The shares in German Pellets Sachsen GmbH, Torgau, was acquired in 2009 at a purchase price of EUR 927 k. The capital consolidation was made according to the bookvalue method by means of offsetting the acquisition costs with the subsidiary company‘s equity, as shown by the books, at the time of the first consolidation. What resulted from this is a negative differential amount, entered on the liabilities side, consisting of EUR 9.260 m. In the subsequent years the differential amount developed as follows: In the years 2011 and 2013, subsequent acquisition costs of EUR 456 k and EUR 48 k respectively were entered on the assets side. The accumulated loss off-setting amounted as of 1 January 2014 to EUR 7.576 m. In 2014 a loss of EUR 1.180 m. was offset (previous year: EUR 2.462 m.), so that as of 31 December 2014 there is no longer a negative differential amount entered on the liabilities side. The amount amortised is stated in the income statement under „Other operating income“. German Horse Pellets GmbH was acquired with effect as of 1 January 2011. After the setting off of the acquisition costs against the revalued assets and liabilities, what results is goodwill to the amount of around EUR 1.773 m.; this is amortised over a useful life of 5 years using the straight-line method (amortisation in current year: EUR 354 k.). Südpell GmbH was founded by means of a notarially-attested contract – dated 3 May 2011. The acquisition costs amount to EUR 25 k. At the time of initial consolidation, there was no adjustment. With effect as of 1 January 2011, Südpell GmbH acquired Holzspäne Blieninger GmbH, FireStixx Holzenergie GmbH, Blieninger GmbH & Co. KG and also Blieninger Beteiligungs GmbH (including the subsidiary company Blieninger Holzspäne s.r.o., Klatovy (Czech Republic)). As of 1 July 2011 the last three companies named were merged so as to be part of Holzspäne Blieninger GmbH. At the same time, the company was changed so as to become FireStixx Holz-Energie GmbH. After the setting off the acquisition costs against the revalued assets and liabilities, the remaining goodwill amounts to about EUR 16.521 m.; this is amortised over a useful life of 8 years using the straightline method (amortisation – current year: EUR 2.067 m.). The useful live is estimated with particular consideration

46

given to the use of the „FireStixx“ brand name and the long-term customer relationships acquired. The FireStixx brand name has been introduced and is known nationally and internationally. German Pellets Czeska s.r.o. (previously Blieninger Holzspäne s.r.o.), Czech Republic, was acquired together with the Blieninger Group as a subsidiary of FireStixx HolzEnergie GmbH, without additional purchase costs having emerged. The resulting negative differential amount, entered on the liabilities side and consisting of around EUR 626 k., is to be amortised over the coming years (written off at EUR 84 k. per year; other operating income). German Pellets Holding USA Inc. was founded in a contract dated 12 May 2011. The acquisition costs comprise USD 1,000.00 (Euro 691.80). No differential amount emerged. German Pellets Texas LLC was founded on 30 June 2011. Hitherto. No acquisition costs have emerged. No equity capital existed as of the date of the initial consolidation. By a notarially-attested purchase contract dated 26 March 2012, Südpell GmbH acquired all holdings in Glechner Beteiligungs GmbH, Glechner GesmbH and Glechner Pellet-Produktion GmbH respectively. The total acquisition costs amount to EUR 3.680 m. After the setting off the acquisition costs against the revalued assets and liabilities, the remaining goodwill amounts to about EUR 927 k; because of the well-established brand name of the companies acquired, this is amortised over a useful life of 8 years using the straight-line method (amortisation in current year: EUR 116 k). The share in WOODOX Management GmbH was acquired with effect as of 1 January 2012. After the setting off the acquisition costs against the revalued assets and liabilities, the remaining goodwill amounts to about EUR 2.518 m.; this is amortised over a useful life of 5 years using the straight-line method (amortisation in current year: EUR 504 k). By means of the purchase contract dated 23 June 2012, all shares in FireStixx Trading GmbH were acquired. The acquistion costs of EUR 25 k equate to the equity of the company in which the share is hold and for which consolidation is required.

Annual Report 2014

For the company German Pellets Louisiana LLC, formed in 2012, no acquisition costs have hitherto emerged. The holding company did not report any equity capital as of the date of initial consolidation. Reg-Energie GmbH & Co. KG was acquired with effect as of 1 January 2013. After the setting off the acquisition costs (EUR 60 k) against the revalued assets and liabilities, the remaining goodwill amounts to about EUR 539 k.; this is amortised over a useful life of 5 years using the straightline method (amortisation in current year: EUR 108 k.) Reg-Energie Verwaltungs-GmbH was acquired with effect as of 1 January 2013. After the setting off the acquisition costs (EUR 60 k) against the revalued assets and liabilities, the remaining goodwill amounts to about EUR 35k.; this is amortised over a useful life of 5 years using the straightline method (amortisation in current year: EUR 7 k.) With effect as of 1 January 2014, Glechner Beteiligungs GmbH took over all shares in HEIZWERT GmbH, Waldneukirchen. After the setting off the acquisition costs against the revalued assets and liabilities, the remaining goodwill amounts to about EUR 1.653 m.; this is amortised over a useful life of 5 years using the straight-line method (amortisation in current year: EUR 331 k.). In the previos business year, HEIZWERT GmbH achieved revenue income of EUR 5.655 m. (previous year: EUR 6.161 m.), with annual earnings of EUR -46 k. (previous year: EUR 92 k.). For the remaining companies equity capital items have countered the acquisition costs at the time of intial consolidation so that there are no differences. The change to the consolidated group does not result in a substantial change for the comparability to the previous year‘s financial statement accounts; so that no presentation of information in accordance with DRS 19 is made.

47

2. Affiliated companies By means of the equity method, according to Sections 311 et seq., Germans Commercial Code (HGB), the following companies are included in the consolidated financial statements: Company

Registerd office

Capital share in %

1. German Pellets Wärme GmbH

Magdeburg, Germany

20.00

2. German Pellets (Austria) GmbH

Wien, Austria

40.00

3. German Pellets Italia Energia s.r.l.

Bolzano, Italy

40.00

4. German Pellets Holding Italia s.r.l.

Bolzano, Italy

49.00

5. best:Pellets Handelsgemeinschaft GmbH

Karlsruhe, Germany

50.00

The investment in German Pellets Wärme GmbH (previously: German Pellets Solutions GmbH), Wismar, has been included in the consolidated financial statements since 2010 as an affiliated company. The company held a 40% share in the company until December 2012. In December 2012 the company sold 20% of the company share in that company at a purchase price of EUR 20 k. The original goodwill, amounting to EUR 67 k., is amortised over a period of 5 year using the straight line method; as of the cut-off date, and after taking into account the sale of the shares, it amounts to EUR 4 k. (amortisation 2014: EUR 6 k.). best:Pellets Handelsgemeinschaft GmbH was founded on 17 October 2014 as a joint venture, together with ZG Raiffeisen Energie GmbH, Karlsruhe. The acquisition costs, amounting to EUR 25 k., were juxtaposed with corresponding equity items, the result being that no differential amount emerged. The company is included in the consolidated financial statements as an affiliated company. The affiliated companies‘ accounting and valuation methods essentially correspond to those used by German Pellets GmbH.

Annual Report 2014

3. Participations Due to a lack of influence on management the following participations are not consolidated and are consequently reported at the book-value of the participation: Company

Registerd office

Capital share in %

1. German Pellets Denmark ApS

Give, Denmark

15.00

2. WUN Bioenergie GmbH

Wunsiedel, Germany

12.00

3. FireStixx-Salzburg-Pellet-Produktion GmbH

Abtenau, Austria

16.67

4. PEPA Beteiligungs GmbH

Wien, Austria

10.00

tively using the average exchange-rate over the reporting period with regard to all items in the income statement. Differential amounts from the various conversions are indicated, on a neutral basis in terms of affecting the currentperiod result, according to Article 308a of Germans Commercial Code (HGB), in a separate equity item. Assets and liabilities from current business activity, stated in foreign currency, and having a maturity of less than one year, are converted using the average spot exchange rate for the cut-off date. For items with a maturity of one year or more the realisation imparity principle applied. 3. Capital consolidation

The participation in NRW Pellets GmbH, Erndtebrück, reported in the previous year, was given up in the current business year.

3.6.3. Consolidation principles

For first-time consolidations through 31 December 2009, the capital consolidation is made according to the bookvalue method, as required by Section 301, Para. 1, Germans Commercial Code (HGB) (old law). The acquisition costs are set off against proportional book equity of the subsidiaries at the date of the acquisition.

1. General accounting and valuation methods The consolidated financial statements have been prepared in accordance with sections 290 et seq. , Germans Commercial Code (HGB). German Pellets GmbH was founded with the Articles of association dated 1 December 2005. The consolidated financial statements are prepared as of the cut-off date for the annual financial statements of the parent company. This cut-off date is also the cut-off date of all companies included in the Group accounts. Interim financial statements for the subsidiaries were therefore not necessary. The financial statements were consolidated financial statement prepared using the accounting and valuation methods that applied to the parent company. So far as this was necessary, the annual financial statements of the subsidiaries were adjusted to the methods used by the Group.

For first-time consolidations after 1 January 2010, the capital consolidation is made according to the new-valuation method, as required by Section 301, Para. 1, Germans Commercial Code (HGB) in the version of the Accounting Modernisation Act (BilMoG). The acquisition costs are set off against proportional revalued equity of the subsidiaries at the date of the acquisition. 4. Other information Group-internal balances and transactions are eliminated completely, as are unrealised profits from the Group-internal transactions. Within the framework of the elimination of interim-earnings, profits resulting from Group-internal supplier relationships and service-provider relationships are eliminated.

The valuation of asstes and liabilities was made consistently troughout the group in accordance with section 308, Germans Commercial Code (HGB), subject to the facts of the matter being the same across the group. 2. Currency conversion Financial statements of foreign subsidiaries are converted on a uniform basis for all items in the balance sheets, using the exchange-rate on the cut-off date, or respec-

48

Annual Report 2014

3.6.4. Accounting and valuation principles

3.6.5. Notes to the consolidated financial statements

Compared to the previous year, there has been no substantial change in the accounting and valuation methods used.

1. Fixed assets

Intangible and tangible fixed assets are carried at the acquisition or manufacturing costs - and if they can be used up, reduced by scheduled or extra ordinary amortisation. Scheduled amortisation was compared using the straight-line method over the projected lifetime of the assets.

The composition and development of the fixed asstes can be seen in the Consolidated Fixed Asset Movement Schedule. 2. Intangible assets The item „Acquired concessions, industrial property rights and similar rights and assets as well as licenses to such rights and assets“ is comprised as follows:

Investments in affiliated companies are indicated using the equity value, according to Section 312, Germans Commercial Code (HGB).

1. Total from individual financial statements

The participations are valued at their acquisition costs according to Section 255, Para. 1, Germans Commercial Code (HGB).

3. Realisation of silent reserves in connection with remeasurement of the investment in FireStixx Holz-Energie GmbH pelprotec patent (after accumulated amortisation EUR 1.522 m.)

EUR k. 8,689

2. Elimination of intra-group transactions

-603 8,086

As a matter of principle, the inventories are valued at their acquisition costs or respectively their manufacturing costs. The fair value as of the cutt-off date was applied if it was lower. Receivables and other assets are carried at their nominal value, less any valuation adjustment necessary. Accruals cover all recognisable risks and uncertain liabilities; they are valued at the amount to be paid, in accordance to sound business judgement. Accruals with a maturity of more than one year are discounted at the average market-interest-rate of the previos seven business years. The derivative financial transactions are summarised according to Section 254, Germans Commercial Code (HGB), as a valuation unit with one underlying transaction, in so far as a direct securing-connection exists between the financial transaction and the underlying transaction.

4. Covering silent debts with regard to sales rights WOODOX Management GmbH Amount shown:

3,478

-706 10,858

The individual financial statements in particular show a purchased operating right and three sales rights as well as acquired software licenses that are valued at acquisition cost less scheduled straight-line depreciation. The patent resulting from the revaluation according to Section 301, Para. 1, Germans Commercial Code (HGB), is depreciated over an expected useful life of 11 years (future scheduled depreciations p.a.: EUR 435 k). The stated goodwill includes, apart from the values from the individual financial statements, the continued positive adjustment derived from off setting the parent company‘s holdings in the company in question against the revalued equity of the subsidiary.

The liabilities are stated at redemption amount consisdering the imparity principle. The income statement is prepared according to the totalcosts method – see Section 275, Para. 2, Germans Commercial Code (HGB).

49

Annual Report 2014

The items are stated as follows: EUR k.

EUR k.

4. Financial assets

1. Goodwill from individual financial statements

954

The participation in the affiliated companies have changed as follows:

2. Goodwill from acquisitions Acquisition costs - German Horse Pellets GmbH

1,772

- FireStixx Holz-Energie GmbH

16,521

- WOODOX Management GmbH

according to the straight-line method (future scheduled depreciations p.a.: EUR 168 k).

2,518

2,663 157

-130

14

5,639

2,834

- Reg-Energie GmbH & Co. KG

539

Share of earnings and amortisation of goodwill As of 31.12.

1,653

As of the cut-off date, goodwill totalling EUR 2.956 m. is included, after depreciations amounting to EUR 43 k. There are also negative equity-values amounting to EUR 977 k., not indicated.

23,965 Accumulated amortisation

EUR k.

2,935

927

- HEIZWERT GmbH

EUR k. 2,834

- Glechner Group

35

31.12.2013

As of 1.1. Net additions / disposals

- Reg-Energie Verwaltungs GmbH

31.12.2014

-11,053 12,912

Amount shown:

13,866

The goodwill is amtortised according to the straight-line method over a useful life of 5 years or 8 years (future scheduled depreciations p.a.: EUR 3.486 m). The reader‘s attention is directed to the explanations given in Section II.

The participations valued at acquisition costs are comprised as follows: 31.12.2014

NRW Pellets GmbH German Pellets Denmark ApS

3. Tangible assets

EUR k. 1. Total from individual financial statements 2. Realization of silent reserves in connection with the revaluation of the acquired investment in FireStixx Holz-Energie GmbH, with regard to buildings, machines and vehicles (depreciations p.a. EUR 168 k., accumulated depreciations: EUR 590 k). Amount shown:

400

2

2 110

WUN Bioenergie GmbH

3

3

PEPA Beteiligungs GmbH

3

0

118

515

Amount shown:

107,897

428

108,325

Assets resulting from the individual financial statements are valued at acquisition costs, less scheduled straight-line depreciation. Assets with acquisiation and manufacturing costs not exceed EUR 150.00, are depreciated in their full value in the year of acquisition. Assets with acquisition or manufacturing costs exceed EUR 150.00 but not EUR 1,000.00 are summarised as a collective item and depreciated straight-line over 5 yaers, independent of how they are removed from fixed assets. The new items resulting from the revaluation according to Section 301, Para. 1, Germans Commercial Code (HGB), are depreciated over the useful life of the underlying asset

50

EUR k. 0

110

FireStixx-Salzburg-Pellet-Produktion GmbH

The tangible assets are comprised as follows:

31.12.2013

EUR k.

The participation in NRW Pellets GmbH was given up during the year being reported, after a value-adjustment of EUR 400 k. 5. Inventories The raw materials, consumables and supplies were valued using the lower of cost or market price as of the balance sheet date. Work in progress and finished goods were valued using the lower of cost or market price as of the balance sheet date. The manufacturing costs comprise directly attributable material and wage costs as well as pro rata overhead costs. Merchandise was valued, at the lower of cost or market price as of the cut-off date.

Annual Report 2014

Intragroup profits were eliminated when calculating the purchase costs or manufacturing costs 6. Trade receivables and other assets Other assets include receivables issued to shareholders, amounting to EUR 4.520 m. (previous year: EUR 3.771 m.).

per termination is possible both by the participation-rights holder and for the issuer, no earlier than after 60 full calendar months have elapsed. After that, if no notice of termination is issued subject to a six-month notice period to the respective year-end, the period of use is extended by one further calendar year.

The receivables issued to shareholders include shortterm loans amounting to EUR 4.503 m. (previous year: EUR 3.611 m,), charging interest at rates between 3% and 9%. During the business year, further funds amounting to EUR 892 k. were provided. Beyond this, this balance sheet-item essentially includes fees on options regarding the acquisition of company participations, amounting to EUR 3.800 m. (previous year: EUR 0 k.) and suppliers with debit balances: EUR 2.576 m. (previous year: EUR 1.870 m.). Other assets with a remaining period of use of more than one year comprise EUR 6.119 m. (previous year: EUR 6.024 m.).

As of the balance sheet date, all participation rights are still within the initial 60-month holding-period. Within twelve months after the accounts‘ cut-off date, the initial holding period elapses for participation rights with a nominal volume of EUR 1.799 m.; in one year to five years, the initial holding period elapses for a further EUR 32.885 m.

7. Liquid funds

The adjustment has developed as follows:

Cash and all funds with an original maturity date of up to three months are accounted as liquid funds.

The composition and development of the equity capital can be seen from the Group‘s equity-capital overview. 10. Adjustment from capital consolidation

EUR k.

As of 01/01/2014

8. Prepaid expenses This item includes a disagio to the value of EUR 215 k. (previous year: EUR 274 k.). 9. Equity The fully paid-share capital, the capital reserves and the other profit reserves have not changed. The composition and development of the equity can be seen in 3.3. ‚ Consolidated Statement of Changes in Equity as of 31 December 2014‘. The reserve from the capital consolidation includes exclusively the profit participation capital transferred to German Pellets GmbH by way of a loan and to be qualified as equity at the subsidiary German Pellets Genussrechte GmbH. Subdivided into units of EUR 250.00 each, it comprises 138,737 units (previous year: 129,245 units) of participation rights. As of the cut-off date, German Pellets GmbH holds 16,020 units (previous year: 21,952 units). The value of these participation rights – amounting to EUR 4.005 m. – is not reported as a reserve in the consolidation.

EUR k.

1. German Pellets Sachsen GmbH, Torgau

Reversal in the amount of the annual net loss of the participation company (other operating income)

1,180

-1,180

As of 31/12/2014

0

2. German Pellets Czeska s.r.o., Czech Republic As of 01/01/2014

459

Reversal (straight linear)

-83

As of 31/12/2014

376

Amount shown:

376

The reader‘s attention is directed to the explanations given in Section II.

Interest is charged on the participation rights at 8% p.a. The term of the participation rights is undetermined. Prop-

51

Annual Report 2014

11. Special item for subsidies and grants Investment subsidies and grants received from public funds (Section 5, Number 4, of the Act regarding the Germany-wide joint assignment ‚Improvement of regional economic structure‘) and the investment subsidies in Austria are reported as a liability item. These incoming funds are liquidated according to schedule, as a yield spanning the period of use of the items to which the respective subsidy relates. In the current year, the item was liquidated by the amount of EUR 292 k. (previous year: EUR 518 k.), on a basis that affects the current-period result.

Amounts owed to companies in which participations are held

1,028

0

0

762

0

0

10,431

2,012

167

3,445

11,633

3,066

85

4,355

Total

169,116

234,313

302

60,937

Previous year

171,492

196,636

596

75,616

*) There of taxes

TEUR

1,371

Previous year

TEUR

1,156

Previous year

0

Other liabilities *) Previous year

*) There of relating to social security

TEUR

133 102

12. Other accruals

Previous year

TEUR

The other accruals include:

There of to holders of profit participation rights

TEUR

600

Previous year

TEUR

2,109

31.12.2014

31.12.2013

EUR k.

EUR k.

Bond interest

The numbers of the remarks regarding securing items mean the following:

6,437

6,844

Holiday

534

599

Other personnel accruals

204

210

Financial statements and auditing

306

269

83

85

600

85

76

37

807

517

9,047

8,646

Record retention of business documents Legal costs Customer rebates Other Amount shown:

2, 6

13. Liabilities

1 = Land charge 2 = Chattel mortgage of assets 3 = Assignment for security purposes – transferable rights 4 = Chattel mortgage of inventories 5 = Assignment for security purposes – receivables 6 = Partial customary retentions of title 7 = Guarantees by the Land Mecklenburg-Vorpommern and by private persons

The other liabilities essentially include lease-purchase agreement liabilities, namely EUR 3.791 m. (previous year: EUR 4.743 m.), and also interest-payment liabilities comprising EUR 2.456 m. (previous year: EUR 1.808 m.).

The liabilities and their remaining periods up to due-date are as follows:

Bonds Previous year Silent participations

up to 1 year

1 to 5 years

over 5 years

These of: secured amounts

EUR k.

EUR k.

EUR k.

EUR k.

0

207,942

0

2,400

152,000

0

0

40

1,160

0

1,000

1,200

0

34,487

23,199

135

55,384

Previous year

35,671

34,932

511

70,261

Advanced payments received

19,820

0

0

0

2,337

5,438

0

1,000

Trade payable

103,310

0

0

2,108

Previous year

117,689

0

0

Previous year

0

Bank loans

Previous year

52

Types of security

1, 2, 3, 4, 5, 7

6

6

Annual Report 2014

14. Deferred tax liabilities

3.6.6. Information on the Group´s Income Statement

The disclosed deferred taxes result from the difference between the balance sheet value in the commercial books I, II or III and the consolidated balance sheets compared to the tax books and losses carried-forward. A tax rate of 30% was applied to the total difference.

The sales items are sub-divided as follows:

31.12.2014

31.12.2013

EUR k.

EUR k.

Deferred tax liabilities - Total from individual financial statements

2,387

1,865

- Revaluation FireStixx Holz-Energie GmbH

1,172

1,353

0

14

3,559

3,232

Deferred tax assets - Total from individual financial statements

-798

- 2,023

- Revaluation WOODOX Management GmbH

-212

-237

- Consolidation of debts and intercompany profit

-166

-197

-1,176

-2,457

2,383

775

Amount shown:

The income statement item Taxes on income includes, after taking into account currency differences from the conversion made at average exchange-rates, deferred taxes from the release of deferred tax assets amounting to EUR 1.281 m., and also from the addition of deferred tax liabilities, amounting to EUR 58 k. For reasons of transparency and clarity, it was not reported on income statement. The indicated deferred tax assests include EUR 798 k. from the (complete) carrying-forward of losses of a German company, which will prospectively be used within the next five years.

2013 %

EUR k.

%

Pellet revenue

204,800

34.5

218,968

39.3

Trading revenue

360,160

60.7

309,589

55.6

14,840

2.5

14,792

2.7

Animal bedding revenue

The items are indicated as follows:

- Consolidation of debts and intercompany profit

2014 EUR k.

Other items

13,207

2.3

13,558

2.4

Total sales

593,007

100.0

556,907

100.0

Trading revenue includes revenue amounting to EUR 102.544 m. (previous year: EUR 81.698 m.) for the newbuild facilities with regard to Texas Pellets, Inc. (USA), Louisiana Pellets, Inc. (USA), Woodville Lumber, Inc. (USA), and Urania Lumber, Inc. (USA). In regional terms, sales in the business-year 2014 are arranged as follows: EUR k.

%

Germany

246,553

USA

153,751

25.9

Austria

68,021

11.5

United Kingdom

47,125

7.9

Italy

33,605

5.7

Scandinavia

23,930

4.0

BeNeLux, France

15,795

2.7

4,227

0.7

593,007

100.0

Other items Total sales

41.6

The other operating income includes, in particular, the liquidation of the special item for subsidies and grants, to the value of EUR 275 k. (previous year: EUR 518 k.), income from exchange-rate differences, to the value of EUR 9.047 m. (previous year: EUR 2.850 m.), and income for other accounting periods, to the value of EUR 0 (previous year: EUR 7 k.). Personnel costs include expenditure for pension costs, to the value of EUR 53 k. (previous year: EUR 60 k.). With regard to the amortisation of goodwill from the capital consolidation, the reader‘s attention is directed to Section II and Section V respectively. The other operating expenses include exchange-rate differences to the value of EUR 8.403 m. (previous year: EUR 6.478 m.) and expenses in other accountion period, to the value of EUR 2.932 m. (previous year: EUR 221 k.).

53

Annual Report 2014

Taxes on income, amounting to EUR 6.866 m. (previous year: EUR 3.314 m.), are essentially allotted to earnings from ordinary operation (EUR 17.844 m.; previous year: EUR 9.979 m.).

3.6.7. Notes to the Cash Flow Statement The financial resources are comprised as follows:

Cash on hand, bank balances Current bank liabilities

31.12.2014

31.12.2013

EUR k.

EUR k.

38,326

36,252

-12,672

-5,051

25,654

31,201

The total acquisition costs of the participations in fully consolidated subsidiaries acquired in 2014 amount to the fully-consolidated subsidiary companies, comprises EUR 1.832 m. (previous year: EUR 120 k.). The acquisition costs for affiliated companies amount to EUR 2.935 m. in 2014 (previous year: EUR 172 k.) and EUR 4 k. for other participations (previous year: EUR 282 k.). With the acquisition of fully-consolidated subsidiaries companies, in business year 2014 the company received cash and cash equivalents (cash, bank balances and ongoing bank loans) amounting to EUR 152 k. (previous year: EUR 74 k.). Resulting from de-consolidation of hitherto fully-consolidated companies (where applicable): outflow from the Group = EUR 0 k. (previous year: EUR 7 k.).

3.6.8. Other information 1. Liability relationships In connection with the financing of the pellet facilities in Texas and Louisiana, German Pellets GmbH has submitted guarantees to the trustee acting for the bond creditors with regard to the repayment of instalment sums. These are valued at USD 29.3 m. for the financing of the site in Texas, with a term that expires in 2038, and at USD 29.4 m. for the site in Louisiana, with a term that lasts until August 2015. As of the date of production of these balance sheets (April 2015) there is no reason to believe that a demand is to be made in this regard.

54

2. Derivative financial instruments and valuation units The derivative financial instruments used solely serve the purpose of securing currency risks and interest-rate risks. They cover the original financial transactions (underlying transactions) and are summarised in valuation units, together with the latter, according to Section 254, Germans Commercial Code (HGB). These items are uniformly declared for accounting purposes according to the ‚freezing‘ method. This means that value-changes in the underlying transaction and the securing transaction balance one another out, and are not recorded in the accounts. Contracts for securing interest rates In the business year interest-rate swaps were used in order to secure future payment flows from variable-interest-rate loans (EURIBOR). The foundation for the interestrate swaps is the underlying transactions with comparable, counter-current risks (micro-hedge) on which identical factors exert an influence. The interest-rate risks of the underlying transactions are secured to the full extent by the securing transactions. The securing transactions are not characterised by any additional risks not contained in the underlying transaction. The counter-current developments with regard to the loan interest-rate and the interest-rate on the interest-rate swaps balance one another out: because of this, the loans and the interest-swaps are a unit in economic terms; as such they are to be seen as one fixed-interest loan. The periods for the securing relationships each respectively end at the loan‘s final due-date; at the balance sheet date the periods amount to no more than three years. The interest-rate-securing contracts constitute micro-hedge relationships; therefore their effectiveness is measured regularly, based on a simple comparison of conditions and parameters of the basic transactions and the securing transactions. A credit volume is secured, according to Section 254, Germans Commercial Code (HGB), by the valuation unit formed by the basic transaction and the securing transaction; as of the accounts‘ cut-off date, this credit volume comprises EUR 2.114 m. The market value of the interest-rate swaps contained comprises EUR -86 k, as of the accounts‘ cut-off date and was calculated on the basis of the mark-to-market method.

Annual Report 2014

Contracts securing currencies In the business year being reported, forward exchangetransactions were used in order to secure against changes in value of accounts receivable that are invoiced in USD. The company has secured for itself the supply of the repayment sums of these liabilities in USD for a fixed date in the future at a fixed exchange rate. The foundation for the currency-securing contracts is the basic transactions with comparable, counter-current risks (micro-hedge) on which identical factors exert an influence. The currency risks of the basic transactions are secured to the full extent by the securing transactions. The securing transactions are not characterised by any additional risks not contained in the underlying transaction. If the exchange rate changes, counter-current value changes emerge in the liability and in the securing transaction: these balance one another out. The respective periods for the securing relationships end on the due-date of the liabilities, and comprise less than one year as of the accounts‘ cut-off date. The interest-rate-securing contracts are micro-hedge relationships; therefore their effectiveness is measured, based on a simple comparison of conditions and parameters of the basic transactions and the securing transactions. A credit volume is secured, according to Section 254, Germans Commercial Code (HGB), by the valuation unit formed by the underlying transaction and the securing transaction; as of the accounts‘ cut-off date, this credit volume comprises EUR 6.016 m. The market value of the forward exchange-transactions included comprises EUR -196 k. as of the balance sheet date. 3. Number of employees As an average for the year, a total of 628 staff were employed (previous year: 556); these included 416 manufacturing staff (previous year: 359), 198 administrative staff (previous year: 181) and 14 trainees (previous year: 16) . 4. Auditor´s fee The total fee for the auditor‘s in 2014 amounts to EUR 840 k. (previous year: EUR 713 k.). Of this amount, EUR 215 k. are allotted to financial statements and auditing services (previous year: EUR 191 k); EUR 49 k. (previous year: EUR 0) to other confirmation services; EUR 102 k. to tax-advisor

55

services (previous year: EUR 53 k.); and EUR 474 k. to other services (previous year: EUR 469 k.). 5. Related party transactions The companies Texas Pellets, Inc. and Louisiana Pellets, Inc. respectively, neither of which belongs to the German Pellets Group, are to be viewed as related parties; this is because a close family member of German Pellets GmbH‘s principal shareholder is operating as the chief executive of those companies. There is a tenancy agreement for fixed assets between German Pellets Louisiana LLC and Louisiana Pellets, Inc., with a term that expires in 2039. The agreement begins with the final handover of the site; as of the date of presentation of these balance sheets, that handover has not yet taken place. German Pellets Texas LLC is operating the pellet facility in Woodville on the basis of a licensing contract concluded in July 2012 with Texas Pellets, Inc., with a term that expires in 2042. The annual license fee comprises USD 10. In addition a contract for the supply of pellets exists between the companies named; based on that contract, German Pellets Texas LLC sells the pellets manufactured at its facility to Texas Pellets, Inc. The annual volume of this contract depends on the quantity manufactured. In 2014 German Pellets Texas LLC achieved sales revenue from this contract, amounting to EUR 30.516 m. In connection with the financing of the pellet facilities in Texas and Louisiana, German Pellets GmbH has submitted guarantees to the trustee acting for the bond creditors with regard to the repayment of instalment sums. These are valued at USD 29.3 m. for the financing of the site in Texas, with a term that expires in 2038, and at USD 29.4 m. for the site in Louisiana, with a term that expires in August 2015. Because at the time that the loan contracts were concluded, a close family member of German Pellets GmbH‘s principal shareholder had a favoured position at the parent company of IPBG Pellets Beteiligungs GmbH, these are to be considered as transactions between companies close to one another. At year-end the nominal value of these loan contracts comprised USD 46.309 m. The interest rate charged is 8 % p.a. In order to secure the payment of the principal on the loan and the interest payment, at all

Annual Report 2014

times the loan‘s issuer is entitled to require the loan‘s recipient to transfer assets to the same amount. The contracts indicated above were not concluded on the basis of conditions customary in the market; this is because, on the one hand, the contracts make provision for profit margins that are smaller for the contracting partners outside the German Pellets Group than those that are customary, and on the other hand no remuneration is given for the guarantees provided by German Pellets GmbH. Beyond this, no related party transactions have come into being on the basis of conditions not customary in the market.

7. Other financial obligations The following obligations exist as of the cut-off date:

Rental and leasing expenses

2015

2016 2019

2020 et. seq. p.a

EUR k.

EUR k.

EUR k.

3,490

14,620

1,774

8. Liability as general partner The company is the personally-liable partner of German Pellets Supply GmbH & Co. KG, Wismar, Germany.

6. Transactions not included in the consolidated balance sheets German Pellets GmbH is guaranteeing the orderly fulfilment of a contract for the supply of pellets, in connection with the site in Texas, with a volume of 480,000 tonnes of wood pellets annually and a seven-year term that started in May 2013. In July 2012, German Pellets Texas LLC, belonging to the Group, concluded a contract for the supply of raw materials with Texas Pellets, Inc., securing the supply of raw materials to the Texas facility. So as to secure long-term the sales of the quantities produced by the pellet-producing facility in Louisiana (USA), German Pellets Louisiana LLC concluded a contract for the supply of pellets, with an annual volume of 480,000 tonnes of wood pellets and a five-year term.

56

Annual Report 2014

9. Holdings As of 31 December 2014, the ownership of holdings in German Pellets GmbH is as follows: Companies

Share of capital in %

Equity in EUR k.

Earnings in businessyear 2014 in EUR k.

German Pellets Wärme GmbH, Magdeburg

20.00

226

-54

German Pellets (Austria) GmbH, Wien (Austria)

40.00

-8

-15

German Pellets Italia Energia s.r.l., Bolzano (Italy)

40.00

-2,425

-2,590

German Pellets Holding Italia s.r.l., Bolzano (Italy)

49.00

-260

-351

100.00

38,860

35

FireStixx-Salzburg-Pelletproduktion GmbH, Abtenau (Austria)

16.67

3,288

2)

German Pellets Genussrechte GmbH, Wismar German Pellets GmbH, Wismar

Beteiligungs

100.00

60

31

best:Pellets Handelsgemeinschaft GmbH, Karlsruhe (Germany)

50.00

49

-1

German Pellets Logistics GmbH, Wismar

100.00

43

3

German Pellets Trading GmbH, Wismar

100.00

115

-29

1)

2)

German Horse Pellets GmbH, Wismar

100.00

1,477

549

Südpell GmbH, Wismar 1)

100.00

-2,807

-299

GmbH,

100.00

7,631

0

German Pellets Holding USA, Inc., Wilmington (USA)

100.00

-1,067

-801

German Pellets Czeska s.r.o., Klatovy (Czech Republik)

100.00

742

63

German Pellets Texas LLC, Woodville (USA)

100.00

12,559

5,498

German Pellets EPC s.r.l., Bolzano (Italy)

76.00

158

32

Glechner Beteiligungs GmbH, Mattighofen (Austria)

100.00

111

-132

Glechner (Austrria)

Mattighofen

100.00

2,601

12

Glechner Pellet-Produktion GmbH, Simbach am Inn

100.00

1,101

224

Reg-Energie Ingolstadt

GmbH,

100.00

11

2

Reg-Energie GmbH & Co. KG, Ingolstadt

100.00

-537

19

WOODOX Management GmbH, Leipzig

100.00

439

-226

FireStixx Trading GmbH, EssenbachAltheim

100.00

17

-2

German Pellets Louisiana LLC, Urania (USA)

100.00

4,638

4,251

German Pellets Sachsen GmbH, Torgau

100.00

-4,776

-7,742

HEIZWERT GmbH, Waldneukirchen (Austria)

100.00

133

-46

German Pellets Holding II USA, Inc., Woodville (USA)

100.00

0

0

FireStixx Holz-Energie Essenbach-Altheim

GesmbH,

Verwaltungs

GP Lumber, LLC, Woodville (USA)

100.00

0

0

GP Lumber Louisiana, LLC, Olla (USA)

100.00

0

0

German Pellets Holding IV USA, Inc., Wilmington (USA)

100.00

0

0

GP Logistics USA, LLC, Wilmington (USA)

100.00

76

70

57

Exemption from the requirement to produce consolidated balance sheets of its own, according to Section 264, Para. 3 Item 4 Up to the date on which the balance sheets were produced, there were not yet any approved balance sheets available.

The equity and the annual results of the foreign subsidiary companies include the differences that emerged due to the currency conversion. 10. Company Management In business year 2014, the Managing Director of the parent company was: - Mr Kaufmann Peter H. Leibold, Managing Director of German Pellets GmbH, Wismar. The managing director is authorised to represent the group by himself and is authorised to conclude legal transactions with himself in his own name or as a representative of a third party. Details of the compensation of management have not been reported with reference to Section 286, Para. 4, Germans Commercial Code (HGB).

German Pellets Trading GmbH Wismar, 27 April 2015

Signed: Peter H. Leibold Managing Director

Annual Report 2014

58

Annual Report 2014

4. Auditor´s Report We have audited the consolidated financial statements of German Pellets GmbH - comprising the consolidated balance sheet, the consolidated income statement, notes to the consolidated financial statements, the consolidated cash flow statement, the consolidated statement of changes in equity – and the group management report for the business year from January 1 to December 31, 2014. The preparation of the consolidated financial statements and the group management report in accordance with German commercial law and the supplementary provisions of the articles of association are the responsibility of the legal representatives of the company. Our responsibility is to express an opinion on the consolidated financial statements and on the group management report based on our audit. We conducted our audit of the consolidated financial statements in accordance with § 317 HGB (“Handelsgesetzbuch”: German Commercial Code) and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of the entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and

59

the group management report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not led to any reservations. In our opinion based on the findings of our audit the consolidated financial statements comply with the legal requirements of German commercial law and the supplementary provisions of the articles of association and give a true and fair view of the net assets, financial position and result of operations of the Group in accordance with these requirements. The group management report is consistent with the consolidated financial statements and as a whole provides a suitable view of the Group’s position and suitably presents the opportunities and risks of future development.

Fulda, April 30, 2015 alt GmbH Wirtschaftsprüfungsgesellschaft

Diplom-Kaufmann Hans-Dieter Alt Wirtschaftsprüfer

The foregoing audit opinion was taken from the German consolidated financial statements. The above balance sheet and profit and loss account comply with the German consolidated financial statements.

Fulda, April 30, 2015 alt GmbH Wirtschaftsprüfungsgesellschaft

Diplom-Kaufmann Hans-Dieter Alt Wirtschaftsprüfer

Annual Report 2014

German Pellets GmbH Am Torney 2a 23970 Wismar / Germany Tel.: +49 (0) 3841 - 303060 Fax: +49 (0) 3841 - 303069100 [email protected] www.german-pellets.de