MIPA SE

Essenbach, Federal Republic of Germany

Consolidated Financial Statements for the financial year from 01.01.2017 to 31.12.2017

Consolidated balance sheet as of 31 December 2017

assets

Consolidated Income Statement for the period from January 1 to December 31, 2017

Notes to the consolidated financial statements for the 2017 financial year

A. Preliminary remarks

I. General

The consolidated financial statements of MIPA SE, Essenbach, were prepared as of 31.12.2017 in accordance with the group accounting rules of §§ 290 ff. HGB.

Pursuant to Section 299 (1) HGB, the consolidated financial statements were prepared as at the reporting date of the parent company's annual financial statements and cover the period from January 1 to December 31, 2017. The annual financial statements of the subsidiaries included in the consolidated financial statements were also prepared at this time.

After the conversion from a German into a European stock corporation on January 12, 2015, the parent company was entered in the commercial register at Landshut district court under number B 9854 as MIPA SE.

The profit and loss account was prepared according to the total cost method.

The consolidated financial statements were prepared in EUR.

In order to improve the clarity of presentation, individual items of the balance sheet and the income statement are combined. These items are shown and explained separately in the notes.

In addition to MIPA SE, the consolidated financial statements include all German and foreign companies in which the company directly or indirectly holds a majority of the voting rights, except for the separately listed companies:

The following companies were not included in the consolidated financial statements due to their minor significance pursuant to Section 296 (2) HGB:

The translation of the equity of companies marked with ^*) is carried out at the closing rate, the conversion of the annual result with the annual average rate.

In accordance with Section 294 (2) HGB, additional information was omitted to improve the comparability of the consolidated financial statements.

The safeguard clause pursuant to § 313 (2) no. 4 HGB i. V. m. Section 313 (3) sentence 4 HGB was used for three companies. Due to the imminent emergence of disadvantages with regard to competitors with regard to significant losses in sales and the impairment of the market position, the name, registered office and share capital were not disclosed.

The subsidiary MIPA Direkt GmbH, Landshut, makes use of the facilitation possibilities of section 264 (3) HGB.

With reference to § 311 (2) HGB, the participations under c) are of minor importance for providing a true and fair view of the net assets, financial position and results of operations of the Group.

In April 2017, MIPA Holding France SAS acquired the company RCV Peinture SAS, with a permanent establishment in Lyon, France. Likewise, the Lille-based sister company Car En Ciel SAS was acquired. The Mipa Group each holds 100% of subscribed capital i. H. v. 84 TEUR or 10 TEUR. Both companies are not included in the consolidated financial statements.

To the minority shareholders of Mipa Lacke + Farben AG, a sum of TCHF 30 was distributed.

II. Consolidation, accounting and valuation methods

The consolidation of the Mipa Group was based on the individual financial statements of the individual companies. Separate financial statements of the foreign subsidiaries were prepared in accordance with the prevailing national accounting principles. All financial statements of the consolidated companies have been adjusted, if necessary, to the uniform accounting policies applied in the consolidated financial statements in accordance with Sections 300 and 308 HGB. The structure of the balance sheet is in accordance with § 266 HGB, the structure of the profit and loss account in accordance with § 275 para. 2 HGB.

The capital consolidation was carried out for all companies that had to be consolidated for the first time prior to the application of the BilMoG provisions, using the book value method pursuant to Section 301 (1) sentence 2 no. 1 HGB aFiV and Article 66 (3) EGHGB. Thus, at the time of initial inclusion in the consolidated financial statements, the offsetting of the cost of acquisition of the investment with the proportionate equity attributable to the parent company must be taken into account.

For new acquisitions and first-time consolidations under BilMoG, capital consolidation was carried out by applying the revaluation method in accordance with section 301 (1) sentence 2 HGB. The acquisition costs of the shares in the consolidated subsidiaries are offset against the respective pro rata net assets on the basis of the fair values ​​of the acquired assets and liabilities of these companies at the time of acquisition. Any remaining goodwill remaining after offsetting is recognized as goodwill and a negative goodwill as the difference from capital consolidation.

For minority interests in companies included in the consolidated financial statements, a non-controlling interest equal to their share of equity under the corresponding name was recognized separately within equity in accordance with Section 307 (1) HGB.

Receivables and liabilities between the companies included in the consolidated financial statements have been offset.

The intercompany profits generated by trade in goods and services between Group companies were taken into account in the year under review.

In the Consolidated Income Statement, both revenues and other income from trade in goods and services between the companies included were offset against the expenses attributable to them and interest income and expenses.

Capital assets

Intangible assets acquired for a consideration are valued at cost of acquisition, reduced by scheduled straight-line depreciation and, if there is expected to be a permanent impairment, write-downs. The respective useful life is based on the term of the underlying contract or the anticipated consumption of the potential benefit of the intangible asset (10-15 years).

Property, plant and equipment are valued at acquisition or production cost, less scheduled depreciation. Useful lives have been determined according to economic and technical consumption.

Financial assets are generally recognized at cost or at their lower value.

Assets with acquisition costs of up to EUR 410 are recognized as GWG in the year of acquisition and fully depreciated in the year of acquisition.

current assets

The valuation of raw materials, consumables and supplies is carried out at acquisition cost, taking into account the lower of cost or market principle. Goods are stated at the cost of acquisition including ancillary costs. Devaluations for inventory risks resulting from the storage period and reduced usability are made to an appropriate extent.

Work in progress and finished goods are valued at production cost. In addition to the direct costs, these also include reasonable parts of the material overheads, production overheads and depreciation of the fixed assets. The lowest value principle is observed. Inventory risks resulting from the storage period, reduced usability, etc. are taken into account through devaluations. The lower fair values ​​are mainly determined by the conditions on the procurement market and the sales market, but taking into account the potential uses of the stocks.

The advance payments made are stated at the nominal amount.

Receivables and other assets are valued at their nominal value or at the lower value to be recognized on the balance sheet date. Identifiable risks are taken into account through value adjustments. In addition to individual value adjustments for specifically known exposure risks, general loan loss provisions are recognized. The lump-sum valuation allowance and the depreciation of trade receivables are made on the basis of sound commercial judgment.

For assets that serve exclusively to settle obligations arising from pension commitments and are beyond the reach of all other creditors, they are measured at fair value. This is offset against the respective underlying obligations in accordance with section 246 (2) HGB. Accordingly, the related expenses and income from interest rate effects and the assets to be offset are used and reported in the financial result. An excess of liability is recognized under provisions. If the value of the assets exceeds the obligations

Cash and cash equivalents are stated at nominal value.

Prepaid expenses were formed and prepayments for future periods were accrued pro rata temporis.

Deferred taxes

According to the balance sheet liability method, deferred taxes are recognized for all temporary differences between the tax and trade balance sheet valuations as well as for temporary consolidation measures.

The deferred tax liabilities recognized in the balance sheet i. H. v. EUR 371 thousand results from the merger and offsetting of the values ​​from the individual financial statements with the taxes resulting from consolidation processes. The elimination of intercompany profits results in deferred tax assets i. H. v. 434 kEUR.

Deferred taxes are calculated on the basis of the tax rates that apply or are expected under the current legal situation in the individual countries at the time of realization. The country-specific tax rates of the individual relevant Group companies range between 0.35% and 33.33%.

equity

The subscribed capital is recognized at nominal value.

The statement of changes in equity includes the development of equity, including minority interests.

accruals

The pension provisions are based on actuarial reports (partial value method). For the domestic Group companies, the 2005 G mortality tables by Klaus Heubeck were used. The underlying interest rate is 3.68% pa. The pension commitments concluded are independent of future salary increases, so no salary dynamics were taken into account. Annual pension increases were based on 1.5%.

Instead of determining individual discount rates for each individual obligation, a lump-sum remaining term of all obligations of 15 years is assumed based on § 253 (2) sentence 2 HGB.

Other provisions are formed to the extent that there is a legal or constructive obligation from a past event to third parties that is likely to lead to a future outflow of resources and can be reliably estimated.

Provisions are recognized for identifiable risks and contingent liabilities at the amount that represents the best estimate of the expenses required to settle the present obligation. Claims for recourse are not taken into account. The settlement amount also includes the discernible cost increases as of the balance sheet date. Provisions with maturities of more than twelve months are discounted at the prevailing market interest rate. The discount rate is a pre-tax rate, which reflects current market expectations of the time value of money and the risks specific to the liability. Discounting is recognized as interest expense.

Tax provisions were formed taking into account the advance payments made in the amount of the expected back payments.

liabilities

Liabilities are generally recognized at their repayment amount (settlement amount).

The payments received in the respective financial year are accrued as deferred income insofar as they relate to the following year.

currency translation

Conversions of the annual financial statements of foreign subsidiaries outside the euro area, prepared in local currencies, were carried out using the mean spot exchange rate for the balance sheet items.

Expense and income items were translated at the average rate for the year.

The functional currency of the parent company is the euro. Foreign currency financial statements were translated for all items of the balance sheet and the income statement as of the respective reporting date.

Income from foreign exchange gains i. H. v. approx. EUR 392 thousand and exchange rate losses i. H. v. approx. EUR 380,000 has no material impact on the earnings position.

B. Explanatory notes to the consolidated balance sheet

(1) Fixed assets

The development of the individual items of fixed assets is shown on page 12 of this annex. The schedule of changes shows the detailed development of intangible assets as well as property and financial assets.

Property, plant and equipment totaled EUR 28,556 thousand (previous year: EUR 24,031 thousand). These are mainly land, rights equivalent to land and buildings, including buildings on third-party land.

(2) Inventories

(3) Receivables and other assets

The receivables from companies in which a participation exists are mainly attributable to trade in goods and services and Group financing. The remaining term of the receivables and other assets is less than one year.

In addition, other assets mainly include receivables from sale and lease back, tax receivables and other other receivables. The significant increase in receivables from sale and lease back i. H. v. approx. EUR 6.2 million is due to the parent company.

(4) Equity

The shareholders' equity in the share capital of the sole shareholder, additional paid-in capital, other revenue reserves, net income, the currency adjustment item and minority interests are reported at nominal value.

The development of the consolidated equity and the presentation of the consolidated statement of comprehensive income are shown on page 13.

The subscribed capital of the parent company is EUR 1,000,000.00. This corresponds to the capital of the Mipa Group. It consists of 100,000 ordinary shares issued as no-par bearer shares. The ordinary shares are in the name.

Under equity in a separate item, the negative goodwill resulting from capital consolidation is i. H. v. EUR 2,182 thousand.

Other changes in equity result from exchange rate fluctuations.

At the end of the financial year, distribution-restricted amounts i. H. v. EUR 289 thousand and is attributable to the difference between the calculation of the pension provision and the surplus amount between deferred tax assets and liabilities (section 253 (6) HGB).

(5) Provisions

The settlement amount of the pension obligation offset against the plan assets amounted to EUR 1.6 million. The fair value of the reinsurance policy corresponds to the cover capital demonstrated by the insurer and thus the acquisition costs.

The other provisions cover all identifiable risks and other uncertain obligations. They mainly include provisions for archiving, vacation entitlements and complaints as well as audit and acquisition costs. Long-term provisions were measured at matching maturities.

(6) Liabilities

The residual terms of the liabilities as at 31.12.2017 are as follows:

The long-term liabilities compared to Banks, which mainly consist of building financing, are secured by mortgages of the respective companies and additional guarantees of the parent company. The non-current other liabilities consist of other loan liabilities of Streicolor AG.

C. Notes to the consolidated income statement

(7) Sales

In the German market, approx. 36.3% of sales generated. With approx. 41.6% of sales were Europe's highest-revenue region. The revenues generated in the other regions, measured in terms of total revenue, amounted to approx. 22.1%.

(8) Other operating income

The main components of other operating income include compensation for damages and insurance compensation i. H. v. approx. 1,210 TEUR, withdrawals of other services i. H. v. EUR 262 thousand and proceeds from the disposal of property, plant and equipment i. H. v. approx. 45 kEUR. The non-period income amounts to approx. 192 kEUR.

(9) Cost of materials

(10) Personnel expenses

(11) Depreciation

(12) Other operating expenses

The other operating expenses mainly comprise costs of goods i. H. v. EUR 10,879 thousand, rental and room expenses i. H. v. EUR 5,380 thousand, advertising and travel expenses i. H. v. EUR 3,990 thousand, lease obligations i. H. v. 2,212 TEUR, repair and maintenance costs i. H. v. 1,838 TEUR and vehicle costs i. H. v. EUR 1,206 thousand. The expenses relating to other periods amount to approx. 87 kEUR.

(13) Other interest and income

Other interest and income i. H. v. TEUR 149 in 2017 essentially comprise other other interest i. H. v. EUR 108 thousand, interest from affiliated non-consolidated companies i. H. v. 41 kEUR.

(14) Interest and similar expenses

Interest and similar expenses i. H. v. EUR 460 thousand mainly includes bank interest on loans and credits as well as commitment interest of the parent for loans.

Other interest and similar expenses include the net expense from the compounding of pension provisions (EUR 60 thousand) after offsetting against the income from plan assets (EUR 58 thousand).

(15) Taxes on income

Corporate income tax, trade tax and solidarity surcharge are reported as taxes on income. With the exception of deferred tax liabilities, they relate exclusively to the result of ordinary business activities. Tax expenses and tax income from the annual financial statements of the domestic and foreign Group companies determined in accordance with the respective state law, ranging between 0.35% and 33.33%, are reported.

Taxes on income include deferred tax liabilities in the amount of EUR 142 thousand and deferred tax assets in the amount of EUR 190 thousand

D. Notes to the consolidated cash flow statement

In the year under review, the net income for the year of EUR 11,331 thousand could not be increased compared to the previous year. Cash flow from operating activities amounted to EUR 8,654 thousand. Cash flow from investing activities amounted to TEUR -9,031 and cash flow from financing activities to TEUR -3,251. At the end of the reporting year, cash and cash equivalents amounted to EUR 14,539 thousand.

E. Contingent liabilities, other financial obligations

Collateral for third-party liabilities is provided by the parent company. They were given exclusively to affiliates for credit and real estate purchases. The risk of claiming is assessed as low. This assessment is based above all on the credit ratings of the primary debtors and on the findings of previous financial years. In 2017, the guarantees amounted to EUR 11,506 thousand. Other financial obligations pursuant to Section 251 HGB exist in 2017 in total i. H. v. 15th

F. Fee for the final exam

Expenses in the 2017 financial year for the statutory annual audit are i. H. v. 52 TEUR.

G. Other information

(16) employees

The average total number of employees in the Group in the 2017 financial year was 1,094 (including 60 apprentices).

In the previous year, 1,007 people were employed (including 50 apprentices).

(17) Total remuneration of the management

The total remuneration of the management amounted to EUR 842,067.41 (previous year: EUR 803,746.78).

(18) Remuneration of former board members

The safeguard clause pursuant to Section 286 (4) HGB is used.

(19) Remuneration of the Supervisory Board

The total remuneration of the Supervisory Board amounted to EUR 30,000.00.

(20) Supervisory Board

Mr. Berndt Fritzsche, Dipl. Kaufmann, Landshut
Chairman
Former CEO of MIPA SE

Prof. Dr. Josef Weindl, Geisenhausen
Lawyer

Mr. Rudolf Greiner, Rottenburg
tax consultant

(21) Board

Mr. Markus Fritzsche, Dipl. Kaufmann, Landshut, Chairman

Mr. Klaus Fritzsche, Magister Artium, Landshut

Dr. Uwe Rohr, Dipl. Chemist, Mirskofen

Mr. Robert Jungwirth, Dipl. Betriebswirt (FH), Schierling

(22) Proposal for the treatment of retained earnings

The Management Board proposes to carry forward the net profit of the parent company to new account.

(23) Significant events after the balance sheet date

There were no events of special significance after the balance sheet date.

Group fixed assets for the period from 1 January to 31 December 2017

Consolidated cash flow statement 2017

Mipa group

Group Equity

Group management report for the 2017 financial year

I. Business Group and Economic Environment

1. Presentation of the Group

In Europe, the Mipa Group is one of the largest paint and paint manufacturers with just under 1100 employees working at several production and sales locations worldwide. In addition to MIPA SE in Essenbach, Bavaria, there are 6 further production sites in Germany, Austria, Switzerland and the Czech Republic. A list of shareholdings is shown in Appendix III.

High-quality automotive coatings, industrial and construction paints, wood and carpenter paints and fillers are to be found in the product portfolio of the Mipa Group. In the highly developed Car Refinish segment, the professional user will find, in addition to several thousand "Made in Germany" shades, various products, from the primer to the clearcoat, which cover the entire painting process. In order to safeguard and ensure product development primarily domestically, the area of ​​research and development is being continuously expanded.

Homogeneous products can be ordered by our customers from currently more than 100 countries on all continents from decentralized competence and logistics centers worldwide. In-house and commercial goods are sold directly from our locations via our distribution partners and our own branch network in Germany, Hungary and Austria.

Not only independent dealers, large industrial consumers and professional end users in industry and trade but also discerning private customers are among our diversified customer structure. The successful 2017 financial year also shows that the Mipa Group has established itself as one of the most important paint and varnish manufacturers in Europe, above all in the Car Refinish segment.

We support and accompany our customers in all stages of the coating process through a variety of services, such as training in the Mipa training and competence centers, use of color-matching systems and many other services. The structure of the Mipa Group enables a timely and reliable development of customer-oriented solutions for specific requirements.

2. Development of the overall economy

According to the International Monetary Fund (IMF), growth in global gross domestic product (GDP) was around + 3.7%. The average growth of + 3.2% in the previous year was thus clearly exceeded and the global economy has developed more dynamically than originally forecast.

The extraordinarily low level of money market rates in the year under review is due both to the unchanged key interest rates (0.0%) and to the continued expansive monetary policy of the European Central Bank. The deposit rate continued to be negative i. H. v. -0.40% occupied.

Despite a growth rate of +6.4%, the Asian region did not quite reach the increase of 2016 (+6.6%) in the 2017 reporting year. China, the largest economic zone, achieved economic growth of +6.9% (previous year +6.7%) in the past financial year, thus accelerating growth for the first time in seven years. Following an increase of +7.9% in the previous year, the economy in India grew by only +6.7% in 2017.

After a weak start to the year, the US recorded GDP growth of +2.3% in 2017. Although this increase was only on average over the last five years, the positive development from the previous year (+1.5%) was clearly exceeded. This increase was mainly attributable to private consumption (+ 2.7%) and industrial production (+ 1.8%).

Above all, the recovery of the economy in Brazil enabled a rise of +1.3% (previous year: -2.5%) in the South American economy. Key austerity measures enabled Brazil to grow by +1.0% after a decline of -3.6% in the previous year.

Although the trend has been negative in recent years, the Russian economy increased by +1.5% in 2017 (previous year: -0.2%). Notwithstanding the decline in the price of oil and the sanctions of the West, the main drivers of this increase were agriculture, manufacturing, as well as sectors such as transport, storage and information.

Both in the European Union (EU) and in the eurozone, economic output rose by + 2.5% in the year under review (previous year: + 1.9%). As a result, the economy in the eurozone grew at the highest rate last year, most recently in 2007, before the financial crisis. Responsible for this upturn is the new economic strength of France, whose economy increased by +1.9% (previous year: + 1.1%). French growth was supported by more corporate investment and strong private consumption in 2017, although unemployment remained at a virtually flat high level.

Despite uncertainties among investors and consumers due to the Catalan crisis, Spain's GDP rose by + 3.1%, with the Spanish economy slowing somewhat at the end of 2017. For the first time in nine years, the economy in Greece has risen sharply again (+1.4%), after the GDP has developed negatively year-on-year, except in 2014.

However, despite the UK experiencing the weakest growth since 2012, it was possible to fend off a projected recession, contrary to the horror scenarios of many economists due to the Brexit referendum in June 2016 and the Brexit negotiations in 2017. Because compared to the previous year Great Britain recorded economic growth i. H. v. +1.5% in 2017. In addition to the global demand and the economic development of the European Union, the domestic growth of the manufacturing industry also contributed to this positive development.

As in the previous year, the positive development in Eastern Europe in 2017 is not negligible. Countries such as Hungary (+ 4.1%) or Poland (+ 4.8%) experienced a very positive economic development. Romania achieved the highest GDP growth rate in the EU in 2017 (+7.3%).

Compared to the previous year, real gross domestic product growth in Germany rose from +1.9% to +2.2%. Thus, the German economy also remained on a growth course in the past financial year. In addition to the consumer appetite and increased investment by many companies, the main drivers of this growth were the strong global economy, which pushed demand for "Made in Germany" products. This also led to a price-adjusted increase of +2.0% in private consumption and +1.4% higher government spending, which was below average.

Higher energy prices had led to a significant increase in consumer prices of + 1.8% in the past fiscal year, the highest level in five years. These increased by + 3.1% in 2017 compared to 2016, after falling in prices over the last three years. Price increases for light heating oil (+16.0%) and fuels (+6.0%) were the main reasons for this. Increasing wages have led to a further increase in consumer purchasing power despite higher consumer prices. According to the Federal Statistical Office, German exports continued to grow at an annual rate in 2017, with price-adjusted exports of goods and services growing at a rate of 1. H. v. + 4.7% did not increase as much as imports (+ 5.2%) over the same period. The positive effect of the resulting external contribution on GDP growth was calculated at +0.2 percentage points.

The automotive industry made another decisive contribution to the positive development of the German economy in 2017 as well. In the automotive industry, approx. 64.2% of total revenue i. H. v. EUR 422.8 billion, according to the Association of the Automotive Industry Abroad. The export earnings are approx. +6.0% and German domestic sales by approx. + 2.0% up. As a result of this positive development, the number of employees employed in the German automotive industry has increased by approx. +1.4%. According to the German Federal Motor Transport Authority (Kraftfahrt-Bundesamt), the number of vehicles has not increased by more than 1.7% in 2017, with an increase of more than one million,

A similar development could also be observed in mechanical engineering in 2017. In addition to the increase in the number of employees in the mechanical engineering sector by +1.4% compared to the previous year, sales of approx. + 4.1%, reaching a new record level for the fourth consecutive year. Parallel to the automotive industry, foreign sales of the German mechanical engineering industry rose by almost six percent (+5.7%). Sales in Germany only achieved growth of +1.4%.

Overall, as in 2016, the entire German labor market developed positively in 2017. As in the last 5 years, the unemployment rate has fallen again, reaching a historically low level of 5.7% (previous year: 6.1%) in 2017, with the number of employees again increasing by +1.5% Record high of 44.3 million (previous year: 43.7 million). Due to the high employment rate, rising wages and salaries and the low level of interest rates, a record surplus was again recorded in the state budget after 2014, 2015 and 2016. With a surplus of EUR 36.6 billion (prev.

3. Development of the paint and paint industry

With an increase in growth to + 4.2% in volume terms and + 5.0% in value terms, the development of global paint consumption in 2017 was significantly more dynamic than in the previous year and was higher than that of global GDP. The main drivers were the increased construction activity in many regions worldwide. More than 40 million tonnes of paint and varnish were used in 2017. The global coatings industry saw good growth in 2017, with Asia accounting for 45% of the global paint market and contributing significantly to overall growth due to faster growth compared to other regions.

Despite positive economic fundamentals, only average results of the German coatings and printing ink industry were achieved last year and thus only a very mixed fiscal year. Although total volume sales of paints, coatings and printing inks decreased by -1.4% compared to the previous year, sales nevertheless rose slightly by + 0.2%. The partial transfer of the high raw material costs to the customers led mainly to this development. The number of employees of approx. 300 mainly medium-sized stamped paints, coatings and printing inks manufacturer remained with approx. 25th 000 workers largely at a constant level. Despite the increase in construction activity in Europe by +3.5% in 2017, volume sales of decorative paints in Germany, Europe's largest market for paints and coatings, fell again in the past 2017 financial year by -1.5% (previous year -2, 1 %). Sales stagnated at EUR 1.7 billion. again in the past financial year 2017 by -1.5% (previous year: -2.1%). Sales stagnated at EUR 1.7 billion. again in the past financial year 2017 by -1.5% (previous year: -2.1%). Sales stagnated at EUR 1.7 billion.

The development in the automotive and industrial coatings, however, could not quite be compared with that in the field of decorative coatings. Automotive and industrial production grew more slowly in 2017 than the construction sector worldwide. Due to the high correlation between auto-OEM coatings and the construction of automotive units, the demand for series paints was up by around 1.7% for the past financial year on the basis of an increase in the total number of cars produced worldwide. +1.7% in volume and +3% in value.

The general industry sector increased in volume by + 3.0% (previous year + 2.0%), with an increase in value i. H. v. + 3.7% in the past fiscal year. Above all, sectors such as steel and light metal construction, manufacturing of household appliances and of agricultural and forestry machinery have contributed to this trend in paint consumption.

Especially the record level of raw material prices in the course of the year 2017 led to a rather declining economy in the German paint and printing ink industry. Due to the negative development of the German furniture industry in 2017, the entire wood-lacquer market in Germany recorded a decrease in volume and value of -1.0%.

In 2017, foreign trade in paints and varnishes developed as expected. In terms of volume, imports fell by -1.4%, while exports rose by + 0.3%. In Germany, the consumption of paints and varnishes, at -0.7% in terms of volume, was exactly at the same level as in the previous year, whereas a value increase of +1.1% was achieved.

After solvents have been reduced by approx. +15% and the purchase prices for pigments reached highs in the autumn of 2017, supply bottlenecks additionally aggravated the situation regarding the indispensable white pigment titanium dioxide and led to an increase of up to almost 40% of the price of this raw material since the summer of 2016. For other pigments such as zinc dust, purchase prices have been in excess of +20.0% since autumn 2017. V. z. Summer 2016 has risen.

A compensation of such dramatic price increases usually does not follow at the same time. The only approx. +2.0% higher producer prices result from the late passing on of cost increases to end customers.

II. Situation of the Group

1 General

The Mipa Group operates worldwide as a steadily growing manufacturer of high-quality coatings. Professional processors in trade and industry, with consistently high standards of quality, readiness to deliver and reliability are the target customers of our products.

A fulfillment of the customer's wishes is sustainably ensured by the continuous cooperation with long-standing trade and distribution partners. The focus of our business activities is the development, production and distribution of coating products for all stages of the coating process. The main products consist of numerous varieties of shades and glosses, which are realized by mixing or tinting systems.

Not only highly developed markets but also developing countries can be supplied to market due to constantly new product developments. To complement or combine additional by-products are offered.

By gaining new customers in Germany and abroad, by far the strongest business segment Automotive Coatings in the Mipa Group has continued to grow and its market position in Europe and also worldwide could be strengthened again. The main driver of this development, as in previous years, was the permanent improvement of our products and processes.

The area of ​​industrial coatings, which has been growing strongly in recent years, is continuously gaining a higher position, especially with regard to corrosion protection. In Germany alone, corrosion causes industry costs of up to € 90 billion. Corrosion protection is given values, for example in sports stadiums or bridges, whereby depending on the load different requirements regarding longevity and safety are made. Based on international standards such. B. ISO 12944 are also in the Mipa group planning, selection,

In certain regions, the growing construction activity and consumerism of the population provide for high sales potential. In order to continue to establish contacts with potential new customers from previously unexplored countries, the frequency of participation in selected fairs of international significance is steadily increasing.

Furthermore, our sales network, especially in Eastern and Southeastern Europe, is being continually expanded successfully.

2. Performance indicators of the Group

The result of the business activity, which corresponds to the net income according to commercial law, is the key performance indicator in the Mipa Group.

The development of the market and the material usage ratio have a major influence on the result.

Another key indicator is the cash flow from operating activities.

In order to ensure the planned development in the group, a sufficiently high liquidity and credit rating is of great importance.

Our employees ensure the steady growth of the Mipa Group. In order to further strengthen this non-financial performance indicator, the focus is on the professionalism of the recruitment process, as well as the subsequent improvement in the level of training and qualification of employees.

Furthermore, with the utmost commitment in the group, the protection of the environment and natural resources is met at all stages of the development, production and marketing of our products.

3. Presentation of the course of business

In the past financial year, compared with 2016, growth in the amount of 1. H. v. +2.6%, whereby our slightly positive sales development from the previous year's forecast was thus achieved. Sales and output volume continued to develop positively. The additional sales compared to the previous year amounted to approx. EUR 4.6 million.

Revenues in our 3 sales regions were similarly distributed in 2017 as in the previous year. In Germany, sales amounted to approx. 36.3% of total sales. In the EU Member States approx. 41.6% of sales. In the rest of the world, 22.1% of Group sales were realized. The German companies generated the lion's share of Group revenues.

Material procurement was again hampered by massive price increases. Our business was burdened by a sharp increase in raw material prices. At a cost of materials ratio i. H. v. approx. 50% of the described raw material price increases are responsible for a +4.8% increase in the cost of materials. The price increases on the commodities market expected in the previous year for the financial year neutralized the benefits realized in 2015 and 2016 on new procurement markets.

4. Sales and earnings position of the Group

The consolidated group companies were consolidated on 31.12.2017. The consolidated companies have a marketing year consistent with the parent company. The following table shows the earnings situation of the Group:

The Mipa Group was able to increase sales by approx. +2.6% to approx. Increase of EUR 181,527 thousand. In the field of automotive refinish coatings, approx. 50.0% of sales. The return on sales in the past financial year was 6.2% (previous year: 7.1%).

Other operating income increased by approx. + 67.8% due to the insurance compensation (about EUR 1.1 million) for a major fire caused by arson at Herlac Coswig GmbH. Other operating expenses increased by + 0.5% compared to 2016.

The cost of materials increased by approx. +4.8%. Compared with the decline in the previous year, the cost of materials ratio increased slightly to 49.4% in 2017.

The annual personnel expenses i. H. v. approx. KEUR 44,549 has been reduced by approx. + 6.2%. This is due to significant pay adjustments and the deployment of highly qualified employees, which are required by the advancing internationalization and increasing professionalization. As in the previous year, the number of employees was increased to a new high of an average of 1,094 people.

New investments in the Group again led to an increase in depreciation and amortization from EUR 2,895 thousand in 2016 to EUR 3,143 thousand in the past financial year, of which EUR 151 thousand was attributable to current assets.

With a decrease of 7.0%, EBIT was down on the previous year's level at TEUR 16,136 (previous year: TEUR 17,346). The EBIT margin amounted to approx. 8.9%.

The financial result i. H. v. EUR -310 thousand is slightly below the previous year's level compared to 2017.

After the expense for income taxes due to deferred tax assets declined in the previous year to EUR 4,396 thousand, this increased slightly in 2017 by + 0.3% to EUR 4,496 thousand.

The result i. H. v. KEUR 11,331 remained with a decrease of approx. -10.0% below the previous year's level.

5. Net assets of the Group

The financial position of the Group has once again developed very positively. Exchange rate effects, mainly due to the rise in the Swiss franc, did not show any significant effects. The working capital ratio increased from 2.9 to 3.1 in the past financial year. The liquidity position of the Mipa Group remains very good. In 2017, the balance sheet total increased to EUR 109,477 thousand (previous year: EUR 97,666 thousand). The main currencies within the Mipa Group continue to be the euro and the Swiss franc.

Compared with 2016, receivables and other assets increased by approx. 5% due to a massive increase in the sale and lease back transactions. 33.7% of the balance sheet total to approx. +31.2% to EUR 36,891 thousand.

As of December 31, 2017, cash and cash equivalents amounted to approx. EUR 14,539 thousand.

The investment intensity in 2017 is 30.9%. Roughly 21.7% of the balance sheet total is inventories. Property, plant and equipment amounted to EUR 28,556 thousand in 2017 (previous year: EUR 24,031 thousand) and thus increased by + 18.8% compared to the previous year. The financial assets of the Mipa Group grew even more strongly with an increase of + 43.0% and amounted to EUR 2,893 thousand in 2017 (previous year: EUR 2,023 thousand).

As in the previous year, the net profit for the year influenced the significant increase in equity capital i. H. v. EUR 11,635 thousand to EUR 78,451 thousand.

The financial structure of the Mipa Group was again boosted by an increase in the equity ratio of more than three percentage points from approx. 68.4% to approx. 71.7% will be improved.

In the future, in order to be able to use further options that are available on the market within the framework of possible cooperation or takeover bids, sufficient equity resources will be required for further growth in the Group in the future.

The return on equity in the current financial year is 14.4% below the previous year's level (18.8%). Return on capital employed fell to 10.8% in 2017 (previous year: 13.4%).

In the past financial year, the companies invested approx. EUR 9.1 million in property, plant and equipment and intangible assets.

On the liabilities side, provisions decreased in 2017 by -1.8% to EUR 6,215 thousand. Trade payables and other liabilities increased by 16.6% in comparison to the previous year.

However, liabilities to banks were reduced by -25.1% from € 10,874 thousand to € 8,146 thousand (€ 3,509 thousand ≤1 year, € 2,061 thousand> 1 year and <5 years and € 2,577 thousand ≥5 years).

6. Financial position of the Group

The net income of € 11,331 thousand was down 10.0% on the previous year.

Operating cash flow amounted to EUR 8,654 thousand in the past fiscal year. As in the previous year, current business activity is financed by the freely available funds. Furthermore, the cash flow from investing activities in 2017 amounted to TEUR -9,031. The cash flow from financing activities amounts to EUR -3,251 thousand. Investment activities were further increased and liabilities to banks significantly reduced in the year under review.

Changes in cash and cash equivalents i. H. v. TEUR -3,628 resulted from the cash flows mentioned above.

Capital requirements are secured by our still high liquidity reserves as well as bank loans and credit lines. Extensive credit lines, which are granted to the parent company and the Group companies, are available almost unused. Due to the aforementioned liquidity compensation in the Group as well as the long-term partnerships with our banks, the liquidity risk is considered to be very low.

There are no negative effects on the financial and liquidity position due to repayment obligations.

7. Investments

Investment projects are continuously subject to the process of analysis, evaluation and implementation. In order to counter further growth within the Group, necessary investments are implemented in all divisions using our strategic investment planning. Investments of considerable scope in our machinery and equipment park, in the EDP infrastructure as well as in industrial trucks and motor vehicles are the main component of our annually necessary replacement and expansion investments.

After a successful test phase, the commissioning of the dilution production at the main location in Essenbach at the end of June officially took place. Thus, in the new production building with tank farm and newly designed distillation unit, solvents can be processed and mixed. This section is supplemented by a full-fledged filling line, which efficiently and quickly fills the produced dilutions into all common container sizes. When equipping the hall, its own ventilation system was installed and a modern LED lighting concept implemented to ensure a pleasant working environment.

On May 5, 2017, the 11th direct market of the Group subsidiary Mipa Direkt GmbH was opened in Rosenheim, Bavaria. The 200 m ² specialist market for paints and coatings enables the further successful expansion of the regional presence and can convince not only the private user but also the professional craft of the products of MIPA SE.

After years of negotiations, it has been possible to expand the Mipa Group in France. In April, the Mipa dealer RCV Peinture SAS was acquired in Lyon. Likewise, another dealer, Car En Ciel SAS, was acquired in Lille, where no Mipa products have been distributed yet. In order to facilitate the processing of the regional market, in particular in the field of industrial coatings with additional storage space, the company has moved to new premises in Greater Lille. These investments are part of a long-term growth strategy in our neighboring country.

At Mipa Coating France SAS, a new warehouse was completed this summer. From the acquisition of the neighboring property over a transformation of the land area together with the community of Bitche due to unbuildable partial areas up to the planning of the new building, in the past 3 years numerous partial steps to this extension were achieved. The completion now completed doubles the previous storage area.

Increasing lack of space in the previously rented buildings of the dependent subsidiary of MIPA SE in Tramin, Italy and the ever-increasing need for on-site product training were decisive for the decision to move into a new building. In addition to modern office space and extended storage facilities, which will help serve Mipa customers in Italy even faster and in marketable packaging units, a fully equipped training center has been integrated. So is a full-bodied spray booth with 7 meters in length,

In 2017, work started on the construction of the new fully automatic high-bay warehouse at the main site of MIPA SE in Essenbach. Together with the wide aisle warehouse, which was completed in 2015, the warehouse volume will be increased to just under 15,000 pallet spaces starting in the spring of 2018. The pallets intended for the high-bay warehouse are to be picked up from the packaging tape by self-propelled forklift trucks and transported to the warehouse. There, the stacker cranes receive the pallets via conveyor belts, store them and save the parking space. By eliminating time-consuming routine work, the time pressure and thus the risk of accidents should decrease. The entire new plant will be equipped with state-of-the-art safety technology. All pallet locations are covered by a sprinkler system in each shelf level. The sprinkler heads set the automatic extinguishing system specifically for the area of ​​heat development in motion. The sprinkler center will have three mains-independent high-performance pumps and a water supply of 1.7 million liters as well as a dosing unit for extinguishing foam. The entire new plant will be equipped with state-of-the-art safety technology. All pallet locations are covered by a sprinkler system in each shelf level. The sprinkler heads set the automatic extinguishing system specifically for the area of ​​heat development in motion. The sprinkler center will have three mains-independent high-performance pumps and a water supply of 1.7 million liters as well as a dosing unit for extinguishing foam. The entire new plant will be equipped with state-of-the-art safety technology. All pallet locations are covered by a sprinkler system in each shelf level. The sprinkler heads set the automatic extinguishing system specifically for the area of ​​heat development in motion. The sprinkler center will have three mains-independent high-performance pumps and a water supply of 1.7 million liters as well as a dosing unit for extinguishing foam. The sprinkler heads set the automatic extinguishing system specifically for the area of ​​heat development in motion. The sprinkler center will have three mains-independent high-performance pumps and a water supply of 1.7 million liters as well as a dosing unit for extinguishing foam. The sprinkler heads set the automatic extinguishing system specifically for the area of ​​heat development in motion. The sprinkler center will have three mains-independent high-performance pumps and a water supply of 1.7 million liters as well as a dosing unit for extinguishing foam.

After already in 2016, the total investment volume compared to the previous year at approx. EUR 7.4 million in 2017, approx. EUR 11.7 million invested almost + 60% more than in the previous financial year.

We will continue to invest in machinery and equipment in the coming financial years to increase our production and filling capacities. By purchasing the new shipping warehouse, vacated storage areas will be used for expansion. Additional investments in refurbishment and the extension of existing buildings in several locations are planned. These ongoing investment activities as well as significant maintenance and upkeep costs can ensure the planned future growth. At the same time, the production location Germany remains of great importance for the Mipa Group. For financial year 2018, more than EUR 18.3 million are planned for new and replacement investments.

8. Research and Development

The development and market introduction of new products and current technologies as well as ongoing color coding for mixed systems are indispensable results of the continuous optimization work in the research and development area of ​​the Mipa Group.

In order to meet customer requirements sustainably and ecologically correct, the product portfolio is continuously revised and adapted. Continued successful market activity can be secured by further developments in the area of ​​low-solvent and -free coating systems due to constant changes in the legal regulations.

Expenditure on research and development and quality management amounted to EUR 4.9 million in 2017.

As in previous years, the departments Colorics, Quality and Product Management as well as Application Engineering will continue to provide research and development in 2017 as well as providing innovative and high-quality products as well as customer-specific formulations of shades, especially for professional users with the highest demands.

9. employees

In view of the steady growth of the Mipa Group, continuous professionalism in the personnel development process and the subsequent improvement of the level of training and qualification of the employees is required. Continuous development of the second and third management levels follows the development due to internationalization, globalization and legal requirements as well as cost and innovation pressure.

Investments in the recruitment and retention of graduates or qualified staff with comparable training will continue to be made. The increasing shortage of skilled workers is counteracted by sustainable personnel management in the Mipa Group. Employees in both commercial and technical areas are regularly trained not only internally but also externally.

The awareness of the Mipa Group as an employer should continue to be increased by various measures worldwide. In 2017, the establishment and expansion of apprenticeships with the subsequent takeover of the young employees, both in commercial and technical areas, continued to be part of our sustainable HR strategy.

Occupational health and safety and employee health care beyond statutory requirements will continue to have a significant impact on the consistently below-average sickness rate and low absenteeism.

The headcount in 2017 averaged 1,094 (previous year: 1,007) people. At the end of the year, there were a total of 60 (previous year: 50) trainees in various training occupations in the Mipa Group.

10. Environmental management

We are aware of our responsibility towards the environment, our customers and our employees as a globally active group.

Through our ongoing environmental management system according to DIN EN ISO 14001: 2015, we make a significant contribution to reconciling ecology, economy and social aspects. The parent company is certified for the first time by LGA Intercert GmbH in the 2017 financial year. Further subsidiaries of the Mipa Group have begun with preparatory measures regarding the planned future introduction at additional locations. Processes were analyzed, evaluated and adjusted accordingly.

The weather conditions can have a strong influence in different areas of the paint and lacquer industry. The weather in 2017 was warmer than in the long-term average. Extreme storms were less noticeable than in the previous year. Through continuous expansion of sales activities worldwide, the Mipa Group is constantly trying to minimize the risk of negative climatic effects on sales figures.

We consider the protection of the environment and natural resources in the development, production and marketing of our products far beyond the requirements of the legislator. On the basis of a procedural instruction, group-wide attempts are made to record, examine, assess and document environmentally relevant processes as well as significant environmental effects in addition to the group parent company. In addition, the definition of significant environmental impacts is based on the continuous determination of resource consumption and emissions.

The protection of the painted object can be guaranteed not only through the use of the most environmentally friendly raw materials and paint systems, but also through the use of state-of-the-art technologies. Above all, permanent investments in exhaust air purification and ventilation systems with regenerative afterburning, groundwater cooling systems and low-emission forklifts are to be mentioned from a technical point of view. In elaborate recycling processes polluted solvents are cleaned and reused. Via the subsequent supply to the post-combustion plant, inter alia, container laundries can be operated largely emission-free.

Regular training of our employees helps to raise awareness of corporate environmental protection and to make an active contribution to environmental and climate protection.

III. Expected development of the company, significant risks and opportunities of future development

1. Expected development

In the coming year, economic activity may lose some momentum and the uncertain geopolitical situation may lead to a weakening of consumer purchasing power. According to forecasts, inflation in 2018 will be +1.4%. The development of raw material and energy costs, complex environmental regulations as well as predominantly saturated markets in the western industrial nations present the paint and coatings sector with great challenges and create difficult conditions.

For 2018, we expect growth to be subdued compared to 2017, with the major drivers of the global coatings market being gross domestic product, construction, as well as automotive and industrial production. Individually, these drivers are expected to deliver a positive development in 2018 global market growth for coatings. With an estimated increase of +3.1% and +4.5%, however, the figures for the previous year will not be fully achieved in 2018.

The main driver of total demand for coatings remains industrial production, which is expected to slow slightly to between +1% and +2% in the EU in 2018. Also in the construction industry, similar developments are expected for 2018.

After estimated positive development of the worldwide number of automobiles i. H. v. +1.7% for the year 2017, an increase of +2% to +3% is forecast in the next few years. In the EU and North America, an estimated upward trend in automobile production of up to + 2.0% is expected in 2018. The annual production of new vehicles has reached a record level of around 100 million units, with new production facilities still being built by car manufacturers. The research of new color variants by pigment manufacturers,

The continuously observable consolidation process among refinishers and suppliers leads to increases in productivity and enables paint and varnish manufacturers to produce new technologically advanced coating products. The development of new color effects is accelerated by the use of new recyclable materials as well as investments of the OEM's in new painting processes. A key role is played by the quick availability of the most up-to-date color formulas.

High-quality standard and refinish coatings as well as the continuous increase in efficiency in repair processes lead to a steady decline in demand without any prospect of a positive development. Despite a decrease in volume of approx. -2.0%, a value increase of approx. + 2.0% expected. An average growth rate (CAGR) i. H. v. + 3.2% is forecasted for the demand for automotive coatings by 2021. In Europe, on average, growth i. H. v. + 2.3% expected, whereas Asia-Pacific is expected to grow by + 4.6% on average. The main focus of the OEM manufacturer over the next few years will be on simplifying the painting process. As a result, the growing demand for specialty basecoats will counteract the decline in the consumption of water-based products as a primer layer.

In the following years, an annual growth rate of the world market for automotive refinish coatings of approx. +2.5% and thus a muted forecast for 2018 expected. Roughly one third of the total automotive paint requirement consists of repair paints. In view of the fact that the average age of a vehicle has risen to 9.4 years in 2017 (previous year: 9.3 years) and the European average has even risen by approx. 10 years, a growing demand for car refinish coatings is expected in 2018 as well.

Nevertheless, we must not rely too heavily on the generally positive general conditions. Furthermore, we must ensure that our products and our service can be even more adapted to customer requirements compared to our competitors. Global demand for Mipa products is expected to increase again next year.

In order to expand our market share, customer base and sales area as planned in the coming financial year, solid and sustainable financial management as well as cost orientation in the Group are still required. Existing credit lines with our long-standing partner banks, cooperation with our financial partners and suppliers as well as our high liquidity reserves ensure that our ambitious goal of maintaining very low liquidity risk in 2018 remains economically independent.

We expect our asset and capital structure and liquidity to remain at a constant level in 2018. Although the challenges are increasing from year to year, we anticipate slightly positive sales development in all areas in 2018, but earnings will continue to decline in the face of rising raw material prices. Nevertheless, due to our deep product portfolio as well as continuous innovations, we can look optimistically towards a sustainable and future-oriented development within the Mipa Group.

2. Risks

The objective of the Mipa Group is to enable the early detection and finding of countermeasures through the continuous analysis of key risks and the potential dangers for the Mipa Group. In all areas specific, risky aspects are constantly considered.

Appropriate insurances minimize insurable risks. Contractual components are regularly reviewed for adjustment needs. In the past financial year, the risk assessment had not to be adjusted with regard to the environment, transport or even production and existing general market risks. There was no change to our risk assessment.

As a producer of paints and coatings, the Mipa Group is initially confronted with risks of failure in the production process, which is why further developments in the raw materials sector and the energy market are being monitored very closely. Due to the ongoing search for alternative solutions, bottlenecks in materials procurement are being addressed. In recent years, the complexity of the global commodities market has increased and makes exact estimates regarding further development impossible. For paint manufacturers, price developments in the raw materials sector and the energy market are an important factor. Material usage rates from 50.0% to over 60, 0% can be heavily influenced by price increases in raw materials margin and premium rate. As a rule, these can not be passed on to the market at short notice.

As a result of this growth, risks related to dependency on suppliers of raw materials in the group can be minimized and new procurement opportunities can be exploited. Delivery bottlenecks, which can lead to loss of sales or even loss of customers, should be avoided through correspondingly higher purchase volumes or pricing arrangements with suppliers and the development of new procurement markets. The strategic measures taken in 2015 also have some positive effects on the use of materials and can help us achieve further savings in 2018.

At the beginning of the past financial year, the sector was again challenged by changes in the chemicals legislation. In the update of the Chemicals Prohibition Ordinance, the restrictions, prohibitions and release regulations of certain dangerous substances and mixtures in Germany are regulated in order to adapt the regulation to the many updates in the chemicals legislation, in particular from the REACH and the CLP regulation.

Due to the lengthy process of obtaining regulatory approval, all feed materials available under REACH (Registration, Evaluation, Authorization and Restriction of Chemicals) should be known. The REACH list of chemicals regularly complements other chemical substances with questionable properties. Due to future changes in legislation in the area of ​​chemicals legislation, Mipa is constantly required to substitute raw materials and supplies for new specifications.

These extensive control, information and documentation obligations can regulate the delivery of certain products. In response to the increased administrative burden and potentially far-reaching consequences for certain products, Mipa is developing new ranges that are no longer covered by the Chemicals Prohibition Regulation. Thus, a possible production stop can be prevented and certain products continue to be offered. Furthermore, service lives are kept very low by the maintenance area and potential loss risks and associated additional costs are noticeably reduced. The seamless supply of customers can thus be ensured on a large scale.

In order to prevent the increased threat of potential unauthorized access to data or misuse of data, the IT landscape is under constant review. Furthermore, hardware and software investments are regularly made. Ensuring the ability to run required core services can be compensated by the special design and use of emergency generators and our ability to act is guaranteed.

In the paint and coatings industry, environmental influences are among the risk factors that can regularly cause adverse effects on earnings. With diverse sales channels, a broad customer base on all continents and a constant order situation, Mipa has a broad range of services with a global focus. Sales and turnover fluctuations can thus be better compensated.

A consistent quality policy in the group is ensured by our ongoing quality management. The quality management system according to DIN EN ISO 9001 has been certified by LGA Intercert GmbH since 1996. Group and group certification takes place via matrix certification. As a guide, a Group-wide quality management documentation with uniform quality policy and common quality objectives applies to all companies. Since 2010, sampling has been used to test all Mipa Group production sites. Audit reports Corrective measures and their assessments as well as the evaluation of the quality management system are made available to the certification body. The certificate according to DIN EN ISO 9001: 2015 valid until 17 December 2018 will be renewed as part of a recertification audit.

Bad debt, which can be categorized as general market risk, is kept at a very low level by rigorous credit checks and a regulated dunning strategy. Depending on the prevailing market situation and customer quality, payment terms and credit limits continue to be adjusted and reviewed. Securing liquidity and maintaining capital are, as in previous years, of utmost importance for the Mipa Group. Other special business risks, which include price risks,

Exposure-threatening risks for the British Group companies due to the impending Brexit and generally for the entire Mipa Group are not seen due to the broad positioning in all areas and the high level of equity financing.

3. Opportunities

Accelerated business processes are the result of the progressive digitization in the form of Industry 4.0, which represents a major challenge. Rising demands of existing customers as well as opportunities to successfully position themselves in growth markets require modern sales and service concepts or a comprehensive digitization of industrial production. Due to a lack of location risks, we will continue to invest in the expansion of our main location in the future, taking into account our risk-oriented approach. The planned extensions in the form of new buildings,

The broad product portfolio and the worldwide customer base in approx. 100 countries on all continents ensure further growth with relatively constant order books, although forecasts for submarkets may well be different. That's why, as an international supplier, we always have to take different perspectives and adjust the product range variably. Our research and development department is constantly working to expand and optimize our product portfolio.

For the financial year 2018, we see potential in all markets, especially in the industrial sector. Major international projects such as the construction and renovation of football stadiums or railway bridges towards the end of the financial year point to a positive development in the demand for corrosion protection products of the Mipa Group in 2018. In order to continue the further growth course of the Mipa Group both nationally and internationally, further future mergers are planned, also in view of synergy effects. Positive impulses, which will have a positive effect on such planned investments, as in the previous year, will result from the still low level of interest rates. Growth in the Mipa Group should also be ensured through the further expansion of the field sales force, the branch network of direct markets, the acquisition of new customers worldwide and the further development of existing customers.

As in previous years, Germany continues to consolidate its decisive role in the automotive sector and in the paint sector worldwide. This is also evidenced by the annual sales of paints and varnishes in the EU. We continue to see good opportunities in expanding market share and consolidating our previous successes in the economically strong region of Germany, where we were able to increase our sales by another + 5.4% in the past fiscal year. In order to achieve further growth in the domestic market in the future, an even more efficient and faster delivery process is planned.

In the field of coating systems, new opportunities are constantly opening up within the framework of international competition. Above all, innovations with regard to high-quality coatings for the sustainable extension of the lifespan of investment and consumer goods as well as buildings can be offered to our customers. However, the exploitation of opportunities of this kind will also depend on different climatic, legal and country-specific requirements in the future. We see it as a great challenge, properly assess economic and political developments in some regions and countries. The timely meeting of effects through economic sanctions, currency and interest rate developments with suitable alternatives will continue to be of great importance in the future.

Changes to key chemical laws and regulations, such as REACH, VOC (Volatile Organic Compounds) and Decopaint not only mean greater demands for us, but also the opportunity for substitution products with intensive research and development activities, the ongoing expansion and optimization of the product portfolio or to react promptly to the group structure. Through the new and continuous expansion of training opportunities for theory and practice, we continue to be able to offer our partners optimal support in all necessary processes. Not only extensive training courses but also trainings on product and system solutions are regularly offered in the training centers. This enables us to significantly secure the global competitiveness and implementation of specific customer-oriented requirements through the exchange of information.

An increasing number of jobs with a simultaneous decline in the unemployment rate, as experts predict in Germany in 2018, presents us with the great challenge of finding qualified employees. As in the previous year, we are trying to counter this trend by continuously increasing the attractiveness of jobs in the Mipa Group. The focus will continue to be on social networks, new apprenticeships, training, motivation and employee responsibility, flexible working hours and attractive salary systems.

The negative effects of Brexit are also faced with opportunities. The business relocation to the EU, the favorable outsourcing to the UK and the purchase of cheaper intermediate inputs from there are seen as potentially positive developments in the upcoming UK exit from the EU, with a prediction of competition from UK companies in the Internal Market.

4. Forecast of current business activity

The further development of the global economy, which from today's perspective appears increasingly difficult to assess, is influenced by geopolitical conflicts, climatic changes or the behavior of strong market participants. The commercial dispute, fueled by the new US leadership with Europe or Asia - and China in particular - may also influence the business of the Mipa Group.

Despite difficult conditions and uncertain forecasts, we expect a further increase in revenue for the 2018 financial year. In addition to growth of the parent company MIPA SE, which is planned at around +3%, slight increases are also planned for many Group companies. On the other hand, for a few companies, we also have to expect stagnation or a slight decline in sales due to market policy and structural factors.

At our two English companies, for example, further development depends heavily on the further progress of the Brexit negotiations. Should Britain actually leave the EU, this is likely to lead to a muted market development on the island. This will certainly have an impact on sales in England. However, until the final clarification of the Brexit issue, we expect the market participants' uncertainty in the run-up to a positive development and increasing sales figures.

Based on our forecasts and the predicted macroeconomic developments, we are confident that we will be able to increase our consolidated revenue by at least +2.5% to +3.0% in the coming financial year. The European Economic Area, and especially the German market, will remain our main sales area, but also our sales activities in regions and countries in which we have not or only to a limited extent were represented, should lead to planned growth. For us, the development in Russia or in the Middle East will be interesting,

In terms of products, the automotive coatings sector will certainly remain the strongest sales segment, but we hope to be able to continue the positive development of the past years in the Industrial Coatings segment and continue to generate disproportionate growth. The building paints and wood coatings segments should continue to develop at a constant level, as does the non-paints sector.

From the earnings point of view, as in 2017, we expect tangible earnings burdens, which are largely due to special factors affecting the parent company. In addition to many sales activities, which are unlikely to be noticeable until the following years, this will be reflected in spending on our new multi-million euro ticket system and the sharp increase in leasing spending due to expansion investments in recent years clear. Also, the expansion of the staff, coupled with the significant increases in pay in recent years, press on the monetary success. Last but not least, the positive effects that have had an impact on the realignment of Strategic Purchasing, especially in 2015 and 2016, are now largely priced in. The trend in commodity prices, which had been disproportionately strong since around the second half of 2017, will also ensure high purchasing values ​​in 2018. We assume a somewhat disproportionate increase in the use of materials. Last but not least, the positive effects that have had an impact on the realignment of Strategic Purchasing, especially in 2015 and 2016, are now largely priced in. The trend in commodity prices, which had been disproportionately strong since around the second half of 2017, will also ensure high purchasing values ​​in 2018. We assume a somewhat disproportionate increase in the use of materials. Last but not least, the positive effects that have had an impact on the realignment of Strategic Purchasing, especially in 2015 and 2016, are now largely priced in. The trend in commodity prices, which had been disproportionately strong since around the second half of 2017, will also ensure high purchasing values ​​in 2018. We assume a somewhat disproportionate increase in the use of materials. The trend in commodity prices, which had been disproportionately strong since around the second half of 2017, will also ensure high purchasing values ​​in 2018. We assume a somewhat disproportionate increase in the use of materials. The trend in commodity prices, which had been disproportionately strong since around the second half of 2017, will also ensure high purchasing values ​​in 2018. We assume a somewhat disproportionate increase in the use of materials.

The years with disproportionately strong earnings are likely to be followed by years in which there is a "normal" relationship between revenue and earnings. Even though earnings are unlikely to show such high rates as in previous years, we still expect a continued good earnings situation. Coupled with this development, a corresponding normalization of the values ​​is to be expected also for the cash flow.

Supervisory Board Report

The Supervisory Board of MIPA SE, consisting of Berndt Fritzsche (Chairman), Prof. In 2017, Josef Weindl and Rudolf Greiner met 2 times on 01.08.2017 and 18.12.2017 at the business premises of MIPA SE in Essenbach.

In both meetings, the Management Board of MIPA SE informed the members of the Supervisory Board about the current business development of MIPA SE and the economic development of the individual companies of the Mipa Group. The status of current investments was also reported, and future investment projects were discussed and approved by the Supervisory Board.

Mr. Berndt Fritzsche was also informed in a timely and detailed manner throughout the year through regular participation in board meetings on current topics and the development of the company and the entire group.

The annual financial statements and management report for the 2017 financial year were prepared by the Management Board of MIPA SE. There is agreement between the Management Board and the Supervisory Board regarding the situation and the further development of the company and the entire Group.

Following a positive review of the annual financial statements, the management report and the proposal for the appropriation of profits by the auditing firm SL Revision GmbH, Landshut, the Supervisory Board raises no objections.

In conclusion, it should be noted that in the 2017 financial year, too, the consistently positive development of the Mipa Group has been maintained for many years.

On behalf of the Supervisory Board, the Chairman thanked the Executive Board, executives and all employees for their commitment and good results in the year under review.

Auditors' report

We have audited the consolidated financial statements prepared by MIPA SE, Essenbach - comprising the balance sheet, income statement, notes, cash flow statement and statement of changes in equity - and the group management report for the financial year from 1 January 2017 to 31 December 2017. The preparation of the consolidated financial statements and the Group management report in accordance with German commercial law is the responsibility of the legal representatives of the Company. Our responsibility is to express an opinion on the consolidated financial statements and the group management report based on our audit.

We conducted our audit of the consolidated financial statements in accordance with § 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW). Accordingly, the audit must be planned and conducted in such a way that any inaccuracies and violations that have a material effect on the presentation of the net worth, financial and earnings position as conveyed by the consolidated financial statements in compliance with generally accepted accounting principles and the group management report are sufficiently certain be recognized. When determining the audit procedures, account will be taken of knowledge of the Group's business, economic and legal environment and expectations of possible errors. 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 the assessment of the annual financial statements of the companies included in the consolidated financial statements, the definition of the scope of consolidation, the accounting and consolidation principles used and significant estimates made by management, as well as the overall presentation of the consolidated financial statements and 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 and give a true and fair view of the net assets, financial position and results of operations of the Group in compliance with generally accepted accounting principles. The Group management report is in line with the consolidated financial statements, provides a true picture of the Group's position and accurately presents the opportunities and risks of future development.