dormakaba Holding AG Annual Report Financial statements, governance and compensation Financial Year 2016 / 2017 Communication devices Executive Report Financial statements, governance and compensation Sustainability Report My Access, customer magazine www.dormakaba.com Agenda 17 October 2017, Tuesday • Annual General Meeting 6 December 2017, Wednesday • Capital Market Day 6 March 2018, Tuesday • Half-year results: presentation for media and financial community • Publication of Interim Report 11 September 2018, Tuesday • Full-year results: presentation for media and financial community • Publication of Annual Report 23 October 2018, Tuesday • Annual General Meeting Contact Investor Relations Siegfried Schwirzer Phone + 41 44 818 90 28 investor@dormakaba.com Media Relations Germaine Müller Phone + 41 44 818 92 01 communications@dormakaba.com dormakaba Holding AG Hofwisenstrasse 24 8153 Rümlang, Switzerland Financial Year2016/2017dormakaba Holding AGExecutive Reportdormakaba Holding AGAnnual Report Financial statements, governance and compensationFinancial Year2016 / 2017dormakaba Sustainability Report Financial Year2016/201792058_Nachhaltigkeit_A4_EN.indd 105.09.17 13:37My AccessVirtual realityThe dormakaba Customer Magazine | No. 01/2017Building Information ModelingA planning method revolutionizing the construction industry.Integrated expertise in North AmericaRecent acquisitions make dormakaba a one-stop shop for customers.A smooth journey to good healthOne of the world’s most modern hospitals will open soon in Adelaide. dormakaba Annual Report 2016/2017 1 Table of Content Financial commentary 2 Information for investors 4 Financial statements 6 Group 7 Consolidated income statement 8 Consolidated balance sheet 9 Consolidated cash flow statement 10 Consolidated statement of changes in equity 11 Notes to the consolidated financial statements for financial year 2016 / 2017 40 Legal structure of the dormakaba Group 44 Report of the statutory auditor Financial statements 48 Holding 49 Holding Company balance sheet 50 Holding Company income statement 51 Notes to the financial statements 55 Appropriation of balance sheet profits 56 Report of the statutory auditor Corporate Governance 58 Compensation Report 74 2 Financial commentary Annual Report 2016/2017 dormakaba Sales and profitability targets achieved Sales The Group generated net sales of CHF 2,520.1 million in the financial year 2016 / 17, an increase of 9.4 %. There was a small negative impact of foreign currencies on growth in 2016 / 17 (– 0.2 %), while acquisitions contributed to growth by 5.4 %. Organic sales growth was 4.3 % compared to the same period of the previous year. Profitability EBITDA for the reporting period increased by CHF 54.6 mil- lion and came to CHF 387.3 million (+ 16.4 %). The impact of acquisitions on EBITDA was CHF 28.4 million and organic growth contributed CHF 26.4 million, while the impact of foreign currencies on EBITDA was CHF – 0.2 million. In these consolidated full-year financial statements, we provide two different sets of figures for the pre- vious year period 2015 / 16 as a result of the business combination of former Dorma and former Kaba, which became effective on 1 September 2015. As a result, the former Dorma Group’s entities were consolidated from 1 September 2015 (for ten months) in line with Swiss GAAP FER. The published previous year figures (2015 / 16) relate to the business activi- ties of the former Kaba Group for the entire period, while the former Dorma Group was only included for ten months (“as reported”). However, to increase in- terpretability, in addition separate pro forma figures for the previous year period 2015 / 16 are shown as if the Dorma Group would have been consolidated since 1 July 2015 already. Commentaries in the texts about the income statement refer to these pro forma figures. The EBITDA margin improved to 15.4 %, compared to 14.4 % in the same period of the previous year. The higher EBITDA margin for the Group was mainly driven by a very positive business development of AS APAC and AS AMER, a posi- tive effect from acquisitions and divestments as well as by sig nificant cost savings from the merger which overcom- pensated the additional integration- related IT and branding costs. EBIT during the period under review increased by 17.5 % compared to previous year and reached CHF 327.0 million, and the EBIT margin increased to 13.0 % from 12.1 % in the same period of the previous year. Financial result, ordinary result and income taxes dormakaba reported a net financial result of CHF – 31.8 mil- lion compared to CHF – 16.2 million in the same period of the previous year. The increase was driven by financial ex- penses of CHF 37.6 million due to financing costs related to the acquisitions of Mesker (Mesker Openings Group) and Best Access Solutions (Mechanical Security businesses of Stanley Black & Decker) as well as increased hedging costs and foreign exchange losses. The ordinary result came to CHF 295.2 million compared to CHF 262.0 million in the previous year (+ 12.7 %). In line with guidance provided at the time of the merger, a disclo- sure of an extraordinary result (CHF – 89.4 million) was limited to the financial year 2015 / 16, where the business combination of Dorma and Kaba took place. This previous year figure covered exclusively integration costs relating to the merger of dormakaba Group. The income tax rate for 2016 / 17 (23.9 %) was substantially below the previous year (32.1 %). While in the previous year the tax rate was negatively impacted by merger- related integration projects, in 2016 / 17 it was positively impacted by the utilization of tax loss carry forwards, which had not been recognized as deferred tax assets, and because of tax benefits from the acquisitions of Mesker and Best Access Solutions. The latter effect will be recurring for the next years. Net profit dormakaba generated a net profit of CHF 224.6 million com- pared to CHF 117.2 million in the previous year (+ 91.6 %). The increase was driven by an improved profitability and the lower dormakaba Annual Report 2016/2017 Financial commentary 3 4.3Organic sales growth 2016 / 2017 in % Sales in CHF million 2,600 2,500 2,400 2,300 2,200 2,100 2,000 1 . 0 2 5 , 2 7 . 4 4 2 , 2 6 . 2 0 3 , 2 2014 / 2015 pro forma 2015 / 2016 pro forma 2016 / 2017 EBITDA margin in % 13.5 14.4 2014 / 2015 pro forma 2015 / 2016 pro forma 15.4 2016 / 2017 EBITDA in CHF million 400 375 350 325 300 275 250 3 . 7 8 3 7 . 2 3 3 6 . 3 0 3 2014 / 2015 pro forma 2015 / 2016 pro forma 2016 / 2017 tax rate in 2016 / 17. Additionally, the previous year’s figure was impacted by the merger-related integration costs of CHF 89.4 million (extraordinary result). Net profit after minorities was CHF 116.4 million compared to CHF 60.4 mil- lion in the same period of the previous year (+ 92.7 %). Cash flow and balance sheet The acquisitions of US-based Mesker (closed on 12 Decem- ber 2016) and of Best Access Solutions (closed on 22 Feb- ruary 2017) had a significant impact on the cash flow profile and the balance sheet structure. In addition, cash flow was influenced by progress on post-merger integration, especially expenditures for restructuring projects and production footprint changes. Cash generated from opera- tions was CHF 354.7 million compared to CHF 327.6 million of the previous year. Free cash flow, driven by the acquisi- tions, was CHF – 699.2 million compared to CHF 268.8 mil- lion in the same period of the previous year. dormakaba reported total assets of CHF 1,909.0 million as at the bal- ance sheet date of 30 June 2017. Within current assets, cash and cash equivalents amounted to CHF 188.3 million and inventories to CHF 411.4 million, while trade receiv- ables amounted to CHF 461.4 million. Non-current assets consisted mainly of property, plant and equipment worth CHF 412.8 million. Liabilities totaled CHF 1,725.9 million, with total financial debt coming to CHF 815.9 million. As at 30 June 2017, the net debt position was CHF 627.6 million (prior year as at 30 June 2016: net debt of CHF – 159.1 mil- lion). Equity of the Group was at CHF 183.1 million, with an equity ratio of 9.6 %. Equity and equity ratio (previous year as at 30 June 2016: 43.2 %) declined significantly as acquisition-related goodwill of the Mesker and the Best Access Solutions acquisitions of in total CHF 650.0 million was offset against equity. Currency effects The Euro against the Swiss Franc compared to the previous year weakened by 0.6 % from CHF 1.087 to CHF 1.080, while the British Pound dropped by 13.5 % from CHF 1.454 to CHF 1.257. At the same time the US Dollar strength- ened by 1.1 % from CHF 0.980 to CHF 0.991 (all exchange rates being average rates). 4 Information for investors Annual Report 2016/2017 dormakaba Information for investors as at 30 June in CHF million, except where indicated 2016 / 2017 2015 / 2016 2014 / 2015 2013 / 2014 dormakaba Group Kaba Group Net sales Organic growth in % Earnings before depreciation and amortization (EBITDA) EBITDA in % of net sales Earnings before interest and tax (EBIT) EBIT in % of net sales Net profit 1) Net profit in % of net sales Net profit after minorities Basic earnings per share (in CHF) Diluted earnings per share (in CHF) Dividend per share (in CHF) Payout ratio in % 3) Cash generated from operations Net cash from operating activities Net cash from operating activities in % of net sales Net cash used in investing activities Free cash flow (net) before dividend Net cash flows from financing activities Of which dividends paid Personnel expenses Average number of full-time equivalent employees Personnel expenses per employee (in CHF) Total assets Net operating assets Return on net operating assets (RONOA) in % Asset structure Total assets in % of net sales Property, plant and equipment in % of net sales Inventories in % of net sales Receivables in % of net sales Net working capital (Current assets less cash and cash equivalents and current income tax assets, less trade payables, accrued and other current liabilities, provisions) Net working capital in % of net sales Net debt Net debt / EBITDA Net debt in % of equity Interest coverage Shareholders’ equity Shareholders’ equity in % of total assets Return on equity (ROE) in % Shareholders’ equity per share (in CHF) 2,520.1 2,302.6 * 1,085.2 1,003.5 4.3 * 387.3 15.4 327.0 13.0 224.6 8.9 116.4 27.8 27.7 14.0 2) 50 354.7 265.3 10.5 – 964.5 – 699.2 654.1 – 50.4 933.3 16,250 57,434 1,909.0 570.3 57.3 75.8 16.4 16.3 18.3 398.2 15.8 627.6 1.6 342.8 25.0 183.1 9.6 122.7 43.5 2.3 * 332.7 * 14.4 * 278.2 * 12.1 * 117.2 * 5.1 * 60.4 * 14.4 * 14.4 * 12.0 55 * 327.6 255.3 12.1 13.5 268.8 – 213.2 – 240.7 792.6 15,779 50,230 1,579.3 441.2 63.1 * 68.6 * 14.3 * 15.8 * 17.5 * 316.2 13.7 * – 159.1 – 0.5 * – 23.4 40.6 * 680.5 43.2 17.2 * 162.0 5.4 170.2 15.7 145.0 13.3 98.9 9.1 98.4 25.6 25.6 12.0 51 149.1 104.3 9.6 – 142.5 – 38.2 111.4 – 41.8 406.0 8,948 5.1 154.5 15.4 130.6 13.0 91.3 9.1 91.2 24.0 24.0 11.0 46 149.3 105.0 10.5 – 69.0 36.0 – 93.4 – 41.9 390.2 7,738 45,373 50,426 734.3 331.9 43.7 67.7 14.3 16.2 17.1 177.9 16.4 – 121.2 – 0.7 – 27.4 29.9 442.1 60.2 22.4 114.9 650.9 294.1 44.4 64.9 15.6 16.5 17.8 152.7 15.2 – 35.4 – 0.2 – 11.0 37.7 323.3 49.7 28.2 85.0 1) Only in 2015 / 2016: includes merger-related extraordinary expenses CHF 89.4 million. 2) In 2016 / 2017: proposal to the Annual General Meeting; in the form of a distribution of capital reserves. 3) Only in 2015 / 2016: payout ratio excludes extraordinary expenses CHF 89.4 million and the related tax impact. * Pro-forma-based (other items as reported) dormakaba Annual Report 2016/2017 Information for investors 5 Information for investors per share data Capital stock Registered shares at CHF 0.10 par value Outstanding shares at end of financial year Weighted average number of shares outstanding (diluted) Par value of average outstanding shares Par value of year-end outstanding shares Shareholders as at 30 June Figures per share (fully diluted) EBITDA per share (Group) Earnings per share (Group) Dividend (gross) per share Payout ratio 2) Shareholders’ equity per share (Group) Price per share – high – low – 31 December – 30 June Market capitalization – high – low – 30 June Dividend yield – low – high dormakaba Group Kaba Group 2016 / 2017 2015 / 2016 2014 / 2015 2013 / 2014 4,200,026 4,195,026 4,195,026 3,815,026 4,177,588 4,190,963 4,184,261 3,798,121 4,208,743 4,200,816 3,848,787 3,803,998 No No No CHF m CHF m No CHF CHF CHF % CHF CHF CHF CHF CHF 0.4 0.4 7,525 92.0 27.7 14.0 1) 50 43.5 888.0 659.0 757.0 833.0 CHF m CHF m CHF m 3,709.7 2,753.0 3,479.9 % % 1.6 2.1 0.4 0.4 7,181 79.2 * 14.4 * 12.0 55 * 162.0 693.5 543.0 683.5 679.5 2,906 2,276 2,848 1.7 2.2 0.4 0.4 0.4 0.4 6,683 6,750 44.2 25.6 12.0 51 114.9 630.0 413.8 502.5 556.5 2,636 1,731 2,329 1.9 2.9 40.6 24.0 11.0 46 85.0 446.8 356.0 433.5 438.5 1,697 1,352 1,665 2.5 3.1 1) In 2016 / 2017: proposal to the Annual General Meeting; in the form of a distribution of capital reserves. 2) Only in 2015 / 2016: payout ratio excludes extraordinary expenses CHF 89.4 million and the related tax impact. * Pro-forma-based (other items as reported or market rates) 6 Financial statements Group Annual Report 2016/2017 dormakaba Financial statements Group dormakaba Annual Report 2016/2017 Financial statements Group 7 Consolidated income statement in CHF million except per share amounts Net sales Cost of goods sold Gross margin Other operating income, net Sales and marketing General administration Research and development Operating profit (EBIT) Result from associates Financial expenses Financial income Ordinary result Extraordinary result Profit before taxes Income taxes Net profit Net profit attributable to minority interests Net profit attributable to the owners of the parent Basic earnings per share (in CHF) Diluted earnings per share (in CHF) Operating profit before depreciation and amortization (EBITDA) Note Financial year ended 30. 06.2017 in % Financial year ended 30. 06.2016 in % 5 6 16 8 9 20 10 3 3 27 2,520.1 100.0 – 1,445.0 – 57.3 1,075.1 11.5 42.7 0.5 – 402.6 – 16.0 – 259.4 – 10.3 – 97.6 327.0 2.7 – 3.9 13.0 0.1 – 37.6 – 1.5 0.1 11.7 0.0 11.7 – 2.8 8.9 3.1 295.2 0.0 295.2 – 70.6 224.6 108.2 116.4 27.8 27.7 2,115.9 100.0 – 1,222.7 – 57.8 893.2 14.8 42.2 0.7 – 360.9 – 17.1 – 9.7 – 3.8 12.3 0.1 – 0.9 0.2 11.7 – 4.2 7.5 – 2.6 4.9 – 204.4 – 81.1 261.6 2.5 – 19.1 3.9 248.9 – 89.4 159.5 – 54.8 104.7 50.8 53.9 12.9 12.8 387.3 15.4 311.4 14.7 The notes on pages 11 to 38 are an integral part of these consolidated financial statements. 8 Financial statements Group Annual Report 2016/2017 dormakaba Consolidated balance sheet Assets in CHF million Current assets Cash and cash equivalents Trade receivables Inventories Current income tax assets Other current assets Total current assets Non-current assets Property, plant and equipment Intangible assets Investments in associates Non-current financial assets Deferred income tax assets Total non-current assets Total assets Note Financial year ended 30. 06.2017 in % Financial year ended 30. 06.2016 in % 11 12 13 14 14 16 17 23 188.3 461.4 411.4 36.1 82.5 9.9 24.2 21.5 1.9 4.3 213.2 403.7 364.0 41.4 47.4 13.5 25.6 23.0 2.6 3.0 1,179.7 61.8 1,069.7 67.7 412.8 21.6 330.0 20.9 38.4 36.0 37.9 204.2 729.3 2.0 1.9 2.0 10.7 38.2 1,909.0 100.0 37.7 33.9 36.5 71.5 2.4 2.1 2.4 4.5 509.6 32.3 1,579.3 100.0 Consolidated balance sheet Liabilities and equity in CHF million Current liabilities Current borrowings Trade payables Current income tax liabilities Accrued and other current liabilities Provisions Total current liabilities Non-current liabilities Non-current borrowings Accrued pension costs and benefits Deferred income tax liabilities Total non-current liabilities Total liabilities Equity Share capital Additional paid-in capital Retained earnings Treasury stock Translation exchange differences Total equity owners of the parent Minority interests Total equity Total liabilities and equity Note Financial year ended 30. 06.2017 in % Financial year ended 30. 06.2016 in % 18 19 20 18 21 23 3 2.10, 15 814.6 151.8 38.7 328.4 76.9 1,410.4 1.3 285.1 29.1 315.5 1,725.9 42.7 8.0 2.0 17.2 4.0 73.9 0.1 14.9 1.5 16.5 90.4 0.4 811.3 0.0 42.5 – 619.1 – 32.4 – 17.9 – 1.1 173.6 9.5 183.1 – 0.9 – 0.1 9.1 0.5 9.6 52.6 120.1 47.9 290.2 88.6 599.4 1.5 275.0 22.9 299.4 898.8 3.3 7.6 3.0 18.4 5.6 37.9 0.1 17.4 1.4 18.9 56.8 0.4 807.6 0.0 51.1 – 347.8 – 22.0 – 1.6 – 15.8 442.8 237.7 680.5 – 0.1 – 0.9 28.1 15.1 43.2 1,909.0 100.0 1,579.3 100.0 The notes on pages 11 to 38 are an integral part of these consolidated financial statements. dormakaba Annual Report 2016/2017 Financial statements Group 9 Consolidated cash flow statement in CHF million Net profit Depreciation and amortization Income tax expenses Interest expenses Interest income (Gain) Loss on disposal of fixed assets, net Adjustment for non-cash items 1) Change in trade receivables Change in inventories Change in other current assets Change in trade payables Change in accrued pension cost Change in accrued and other current liabilities Cash generated from operations Income taxes paid Interest paid Interest received Net cash from operating activities Cash flows from investing activities Additions of property, plant and equipment Proceeds from sale of property, plant and equipment Acquisition of subsidiaries, net of cash acquired Acquisition of associates and joint ventures Sale of subsidiaries, net of cash sold Additions of intangible assets Change in other non-current financial assets and prepaid transaction costs Net cash used in investing activities Cash flows from financing activities Other proceeds from (repayment of) current borrowings, net Proceeds from (repayment of) non-current borrowings Change in other non-current liabilities Dividends paid to minority shareholders (Purchase) sale of treasury stock New shares issued Dividends paid to company’s shareholders Net cash flows from financing activities Translation exchange differences Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Net increase (decrease) in cash and cash equivalents Note Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 14 10 8 9 14 14 4 14 18 18 224.6 60.3 70.6 17.3 – 1.8 – 2.3 16.5 – 28.9 – 13.9 – 16.4 13.5 0.6 14.6 354.7 – 74.5 – 16.7 1.8 265.3 – 73.3 8.1 – 884.9 – 1.0 – 0.3 – 11.4 – 1.7 – 964.5 756.7 – 8.4 0.8 – 27.5 – 20.8 3.7 – 50.4 654.1 20.2 – 24.9 213.2 188.3 – 24.9 104.7 49.8 54.8 9.7 – 1.5 0.0 13.8 – 7.9 8.7 15.3 0.5 – 0.7 80.4 327.6 – 70.2 – 3.5 1.4 255.3 – 47.1 4.9 64.4 0.0 0.0 – 14.7 6.0 13.5 29.0 – 1.6 0.1 0.0 0.0 0.0 – 240.7 – 213.2 15.1 70.7 142.5 213.2 70.7 1) Only in 2015 / 2016: adjustments for non-cash items include impairments of intangible assets CHF 8.1 million and impairment of property, plant and equipment CHF 0.6 million. The notes on pages 11 to 38 are an integral part of these consolidated financial statements. 10 Financial statements Group Annual Report 2016/2017 dormakaba Consolidated statement of changes in equity in CHF millon Financial year ended 30. 06.2016 Balance at 30. 06.2015 Net profit for the reporting period Goodwill on acquisitions (see note 15) Fair value of Kaba business transferred Currency translation adjustments Dividend paid Minority interest on acquisition of subsidiary Shares awarded Balance at 30. 06.2016 Financial year ended 30. 06.2017 Balance at 30. 06.2016 Net profit for the reporting period Goodwill on acquisitions (see note 15) Currency translation adjustments Dividend paid New shares issued Shares awarded Treasury stock (purchased) re-issued Share capital Additional paid-in capital Retained earnings Treasury stock Cumul. translation adjustm. Minority interests Total equity 0.4 807.6 – 330. 6 53.9 – 982.2 1,158.8 – 240.7 – 9.3 2.3 0.4 807.6 – 347.8 0.4 807.6 3.7 – 347.8 116.4 – 346.1 – 50.4 0.7 8.1 – 4.3 – 33.7 2.7 50.8 17.9 8.4 175.8 2.7 – 1.6 – 15.8 237.7 – 1.6 – 15.8 14.7 – 1.1 5.1 – 21.4 – 17.9 237.7 108.2 – 313.2 12.4 – 27.5 – 8.1 9.5 442.1 104.7 – 982.2 1,158.8 26.3 – 240.7 166.5 5.0 680.5 680.5 224.6 – 659.3 27.1 – 77.9 3.7 5.8 – 21.4 183.1 Balance at 30. 06.2017 0.4 811.3 – 619.1 The notes on pages 11 to 38 are an integral part of these consolidated financial statements. dormakaba Annual Report 2016/2017 Financial statements Group 11 Notes to the consolidated financial statements for financial year 2016 / 2017 • Access Solutions AMER (AS AMER): The AS AMER segment includes dormakaba Group’s business activities for access solutions in North and South America. AS AMER also has overall responsibility across all segments for the global Product Clusters Services, Lodging Systems and Safe Locks. • Access Solutions APAC (AS APAC): This segment in- cludes dormakaba Group’s business activities for access solutions in the Asia-Pacific region. • Access Solutions DACH (AS DACH): The AS DACH segment includes the dormakaba Group’s business activ- ities for access solutions in Germany, Austria, and Switzerland. AS DACH also has cross-segment respon- sibility for the following global Product Clusters: Door Hardware, Interior Glass Systems and Entrance Systems, including the associated production facilities and compe- tence centers, in particular in Singapore, Suzhou (China), Melaka (Malaysia), and Sofia (Bulgaria). • Access Solutions EMEA (AS EMEA): This segment includes the dormakaba Group’s business activities for access solutions in Europe (excluding DACH), the Middle East, and Africa. AS EMEA also has cross-segment responsibility for the global Product Clusters Mechanical Key Systems and Electronic Access & Data, including the associated production facilities and competence centers, in particular in Wetzikon and Rümlang (Switzerland), Herzogenburg and Eggenburg (Austria), and Villingen- Schwenningen (Germany). • Key Systems: As a globally active segment Key Systems includes its established product categories Keys, Key Cutting Machines, and Automotive Solutions. • Movable Walls: The Movable Walls segment has global activities in the space-dividing systems sector. Movable Walls specializes in partitioning systems with its two product groups Acoustic Movable Partitions and Glass Horizontal Sliding Walls. It has production facilities in Germany, the U.S., and Malaysia. • Other: Operations involving contactless identification systems and trusted services that do not fit into the basic segment structure are included in this segment. These systems are based on Legic SmartCard and Connect technologies. 1. General information Description of business Strategy dormakaba Group is one of the leading companies in the global security and access solutions market. With its excellent product and solutions portfolio along the entire value chain, the Group provides its customers with prod- ucts, solutions and services for anything related to access to buildings and rooms from a single source. dormakaba has distribution channels and production facilities in all of the industries’ key markets and will accelerate global expansion through the strengthened presence in Europe, the Americas and Asia Pacific. dormakaba is a growth- oriented company with a strong anchor shareholder group that will ensure the long-term oriented strategy of dormakaba Group. In order to grow profitably and to maximize the creation of value for all its stakeholders, dormakaba focuses on a clearly defined strategy with the following elements: • Superior offering for needs along life cycle; • Expanded presence in markets and verticals; • Drive enterprise excellence along the value chain; • Leadership in innovation for superior customer value; • Optimized management of the business portfolio and disciplined M & A activities; • Have the right people at the right place. These strategic pillars are based on the two foundations of sustainability and enhancing the global brand power. Operating model dormakaba has divided the areas of business in which the company is globally active into six segments. Access Solutions (AS), which comprises four segments, is structured by region: AS AMER (North and South America), AS APAC (Asia-Pacific), AS DACH (Germany, Austria, and Switzerland) and AS EMEA (Europe, Middle East, and Africa). The two other globally focused segments are Key Systems and Movable Walls. In order to meet customers’ needs in the most effective way, dormakaba’s operating model is based on a matrix structure and therefore all four Access Solutions segments have a dual responsibility. The global Access Solutions product portfolio is arranged into eight global Product Clusters, and is assigned to specific segments along with the relevant production facilities, regardless of the geographic location (intercompany sales): Services, Lodging Systems, Safe Locks, Door Hardware, Interior Glass Systems, Entrance Systems, Mechanical Key Systems, and Electronic Access & Data. These global Product Clusters are complemented by local products in all Access Solutions segments. dormakaba operates in the following businesses on a worldwide basis: 12 Financial statements Group Annual Report 2016/2017 dormakaba Offering dormakaba stands for security, sustainability, and reliability and aims to develop products, solutions, and services that make life for its customers more simple and secure. dormakaba offers an expanded, comprehensive portfolio of products, solutions, and services for access to buildings and rooms from a single source – in hotels, shops, sporting venues, airports, hospitals, in the home or at the office. The product offering includes: • For the Access Solutions segments: The four AS segments AMER, APAC, DACH and EMEA include all hardware- and software-based components, products, and solutions for access solutions as well as relevant services. The offering includes the global Product Clusters Door Hard- ware, Entrance Systems, Electronic Access & Data, Interior Glass Systems, Lodging Systems, Mechanical Key Systems, Safe Locks and Services, as well as local products. The multifaceted portfolio ranges from door technology solutions, automatic door systems, a wide variety of fittings, door closers and stoppers, and locking systems – from cylinders, keys, and locks all the way up to fully networked electronic access solutions for compa- nies, public facilities, hotels, and many other applica- tions. The range also includes physical access systems, high-security locks, glass fittings, solutions for workforce management, as well as services for all these applications. • For the Key Systems segment: This global segment fea- tures a high-performance range of key blanks and mechanical, electronic and (semi-)industrial key-cutting and origination machines. In addition, the portfolio also covers solutions for the automotive industry, such as vehicle keys, transponders as well as key programming devices and duplication equipment. • For the Movable Walls segment: This global segment specializes in partitioning systems with its two product groups Acoustic Movable Partitions and Glass Horizontal Sliding Walls. Partitions are available from a manual application to fully automatic / electronic walls. Parent company of the Group The parent company of the Group is dormakaba Holding AG, which is a company limited by shares, incorporated and domiciled in Rümlang (Switzerland). The address of its registered office is: Hofwisenstrasse 24, 8153 Rümlang, Switzerland. The company is listed on the SIX Swiss Exchange (SIX). 2. Significant accounting policies 2.1 Basis of preparation The consolidated financial statements of dormakaba Group comply with Swiss law and have been prepared using the historical cost convention, except as disclosed in the accounting policies below, and in accordance with the entire existing guidelines of Swiss GAAP FER (Generally Accepted Accounting Principles FER / FER = Fachemp- fehlung zur Rechnungslegung). Furthermore, the account- ing complies with the provisions of the listing rules of the SIX and the Swiss company law. The financial statements are presented in Swiss Francs (CHF). dormakaba analyzed the new recommendations of the Swiss GAAP FER Framework concerning revenue recogni- tion as well as those in Swiss GAAP FER 3 and 6. The revised principles concerning revenue recognition had no impact on the disclosures in the consolidated balance sheet and income statement, as the accounting policies which have been applied by dormakaba in the past already comply with the new regulations of revenue recognition in Swiss GAAP FER in all material aspects. The most important revenue sources are disclosed in note 1 by segment and the corresponding revenue recogni- tion policy in note 2.13. The accounting policies have been applied consistently by Group companies. A summary of the significant accounting policies is provided below. 2.2 Basis of consolidation The consolidated financial statements of dormakaba Group include the operations of dormakaba Holding AG and all direct and indirect subsidiaries. The Group controls an entity when the Group is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The consolidated accounts are based on the annual financial statements of the individual subsidiaries. All companies follow uniform measurement and reporting practices prescribed by the Group. Applying the full consol- idation method, the assets, liabilities, income, and expenses of all subsidiaries are included in their entirety. Minority interests in equity and profit are disclosed separately. Sub- sidiaries are consolidated from the date on which control is acquired. The identifiable assets and liabilities are revalued and included according to the acquisition method. Any difference between the cost of acquisition and the fair value of the Group’s share of net assets acquired constitutes goodwill. Subsidiaries sold are excluded from consolidation from the date on which control ceases. All intercompany balances, transactions and intercompany profits are elimi- nated on consolidation. Investments in associates and joint ventures where dormakaba Group exercises significant influence, but does not have control, normally with an in- terest between 20 % and 50 %, are accounted for using the equity method of accounting. Under the equity method, investments in associated companies and joint ventures are initially recognized at cost, and the carrying amount is increased or decreased to recognize dormakaba Group’s share of the profit or loss of the investee after the date of acquisition. Profit or loss are attributed to the owners of the parent and to the minority interests. Profit and loss are attributed to the owners of the parent and to the minor- ity interests even if this results in a deficit balance. Invest- ments in which dormakaba does not have significant influ- dormakaba Annual Report 2016/2017 Financial statements Group 13 ence (usually in which dormakaba Group’s interest is less than 20 %) are recorded at cost. The Group treats transactions with minority interests that do not result in a loss of control as transactions with equity owners of the Group. A change in ownership inter- est results in an adjustment between the carrying amounts of the controlling and minority interests to reflect their relative interests in the subsidiary. 2.3 Use of estimates The preparation of financial statements in accordance with Swiss GAAP FER requires the use of estimates and assump- tions which have an effect on the reported value of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and on the re- ported value of revenues and expenses during the report- ing period. Although these estimates are based on the Management’s best knowledge of current events and actions dormakaba Group may undertake in the future, actual results may ultimately differ from those estimates. Such estimates are applied to the following balance sheet positions, among others: • Deferred tax assets are created for temporary differences provided that their utilization appears probable. The recoverable amount is therefore based on past perfor- mance and forecasts of the corresponding taxable entity over a period of several years. Deviations between actual and projected results can cause impairment losses. For information on carrying amounts see note 23. • dormakaba operates pension plans in various countries. The calculation of pension provisions from plans without own assets is based on actuarial assumptions that may differ from actual results. For information on carrying amounts see note 21. • When testing assets for impairment, the recoverable amount is determined on the basis of expected future cash flows. The main assumptions on which these cash flows are based include growth rates and expected useful life. The cash flows actually generated can differ considerably from the estimates. • In the course of their ordinary operating activities, Group companies can face claims from third parties. Provisions for pending claims are measured on the basis of the infor- mation available and a realistic estimate of the expected outflow of resources. The outcome of these proceedings may result in claims against the Group that cannot be met at all or in full through provisions or insurance cover. For information on carrying amounts see note 20. • A restructuring is a program that is planned and con- trolled by the Management and materially changes the manner in which that business is conducted. Restruc- turing provisions are created when detailed formal plans are established and decided. Significant judgment is required to determine the costs of restructuring plans. 2.4 Foreign currency translation The consolidated financial statements are presented in Swiss Francs (CHF), which is dormakaba Group’s presenta- tion currency. Items included in the financial statements of each dormakaba Group company are measured using the currency of the primary economic environment in which that company operates (the functional currency). Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such trans- actions and from the translation of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates are recognized in the income statement. Assets and liabilities of subsidiaries reporting in curren- cies other than CHF are translated at the rates of exchange prevailing at the balance sheet date. Income, expenses, cash flows, and other movement items are translated at average exchange rates for the period. All resulting ex- change differences are recognized in equity. On consolida- tion, exchange differences arising from the translation of the net investment in foreign companies and from bor- rowings and other currency instruments designated as hedges of such investments are taken to equity. When a foreign operation is sold, exchange differences that were recorded in equity are recycled to the income state- ment as part of the gain or loss on sale. Significant exchange rates are in the table below: rates in CHF for 1 foreign currency unit Exchange rate at 30. 06.2017 Exchange rate at 30. 06.2016 Average rate 2016 / 2017 Average rate 2015 / 2016 AED AUD BRL CAD CNY EUR GBP HKD INR NOK SEK SGD USD 0.260 0.735 0.289 0.735 0.141 1.094 1.243 0.122 0.015 0.114 0.113 0.693 0.956 0.267 0.729 0.303 0.756 0.148 1.089 1.317 0.126 0.015 0.117 0.116 0.727 0.981 0.270 0.748 0.308 0.747 0.146 1.080 1.257 0.128 0.015 0.118 0.112 0.712 0.991 0.267 0.713 0.266 0.739 0.152 1.087 1.454 0.126 0.015 0.117 0.116 0.705 0.980 2.5 Cash and cash equivalents Cash includes petty cash, cash at banks, and cash on deposit. Cash equivalents include term deposits with banks and short-term money market investments carried at market value, both with original maturity dates of three months or less. 14 Financial statements Group Annual Report 2016/2017 dormakaba 2.6 Financial assets Long-term held securities are recorded at fair value. All realized and unrealized gains and losses are recognized in the income statements. Other non-current financial assets are stated at amor- tized cost less valuation adjustments. 2.7 Trade receivables Short-term accounts receivable are stated at nominal value less allowance for doubtful accounts. The amount of the allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows. It is assessed based on maturity structure and identifiable solvency risks. 2.8 Inventories Inventories are valued at the lower of purchase / manu- facturing cost and net realizable value. Cost is determined using the weighted average method. Manufacturing cost includes direct labor and material as well as a commensu- rate share of related overhead cost. Allowances are made for obsolete and slow-moving items. 2.10 Intangible assets Intangible assets embodying future economic benefits, such as acquired licenses, patents and similar rights as well as qualifying development costs are capitalized at cost and amortized using the straight-line method over a period of 2 – 5 years. Goodwill represents the excess of the con- sideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date book value of any previous equity interest in the acquiree over the fair value of the Group’s share of the identifiable net assets acquired. Only intangible assets purchased separately are recognized as part of an acquisition. The positive or nega- tive goodwill resulting from acquisitions is offset in equity at the date of acquisition against retained earnings. If the purchase price contains elements that are depen- dent on future results, they are estimated as accurately as possible at the date of acquisition and recognized in the balance sheet. In the event of disparities when the defini- tive purchase price is settled, the goodwill offset in equity is adjusted accordingly. The consequences of a theoretical capitalization and amortization of goodwill are explained in note 15. Cash discounts from suppliers are treated as purchase On the disposal of an entity, the goodwill previously offset cost reductions. 2.9 Property, plant and equipment Property, plant and equipment are recorded at cost less accumulated depreciation. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Depreciation is computed using the straight-line method based on the following estimated useful lives: Buildings Machinery, equipment, installations and tools Other tangible fixed assets 20 – 50 years 4 – 15 years 3 – 15 years Land is not depreciated. Where an asset comprises various components having different useful lives, each component is depreciated separately. Items of minor value are charged directly to the income statement. All gains and losses on disposal of property, plant and equipment are recognized in the income statement. in equity is transferred to the income statement. All research costs are recognized in the income statement as incurred. Development costs are recognized as an asset when specific recognition criteria are met and the amount recognized is assessed to be recoverable through future economic benefits. 2.11 Impairment of assets Property, plant and equipment, goodwill offset against equity, intangible assets and other non-current assets are tested for impairment whenever events or changes in cir- cumstances indicate that the carrying amount may not be recoverable. For the purpose of testing impairment, goodwill, and other assets are grouped in cash-generating units for which cash flows are separately identifiable. The Group estimates the recoverable amount of those cash-gener- ating units, which generally represent their value in use. Value in use is assessed using the discounted cash flow method. The estimates used in these calculations are based on updated budgets and medium-term plans covering a period of three years. Cash flows beyond the projection period are extrapolated in perpetuity. When the carrying amount exceeds its recoverable amount, an impairment loss is recognized separately in the income statement. The recoverable amount is the higher of fair value less cost of disposal and value in use. As goodwill is fully offset against equity at the date of acquisition, an impairment of goodwill will not affect income, but only be disclosed in the notes to the consoli- dated financial statements. dormakaba Annual Report 2016/2017 Financial statements Group 15 2.12 Leases Assets acquired under leasing agreements which effec- tively transfer substantially all the risks and rewards incidental to ownership from the lessor to the lessee are classified as finance leases. Assets held under finance leases are recorded at the lower of the estimated net pres- ent value of the future minimum lease payments and their fair value at the inception of the lease. The estimated net present value of the future minimum lease payments is recorded correspondingly as a finance lease obligation. Assets under finance leases are amortized over their esti- mated useful lives. Operating lease payments are charged to income on a straight-line basis over the lease term. 2.15 Provisions Provisions are recognized • when the Group has a present obligation (legal or constructive) as a result of a past event; • when it is probable that a use of resources will be required to settle the obligation; and • when the amount of the obligation can be reliably estimated. Costs relating to restructuring plans or agreements, includ- ing the reduction of excess staffing, the discontinuation of certain activities or the streamlining of facilities and oper- ations and other restructuring measures, are recorded in the period in which the Group commits itself to a plan. 2.13 Net sales and revenue recognition Net sales include all sales of goods and related services, after deduction of any sales reductions including rebates, discounts, value-added taxes, and commissions. Sales from supplied goods and services are recognized upon performance. Sales of goods are recognized when dormakaba Group has delivered the products to the customer, the customer has accepted the products, and it is probable that future economic benefits will flow to the entity. Sales from long-term construction contracts are recog- nized using the percentage-of-completion method. The stage of completion is measured by reference to the pro- portion of contract costs incurred for work performed to date relative to the estimated total costs for the contract. Revenue from individual and separate definable perfor- mance obligations are assessed and recognized separately. 2.14 Retirement benefits There are various pension plans in existence within the Group which are individually aligned with local conditions in their respective countries. They are financed either by means of contributions to legally independent pension / insurance funds, or by recognition as liabilities in the balance sheet of the respective Group companies. An economical obligation or a benefit from Swiss pension schemes is determined from the statements made on the basis of Swiss GAAP FER 26 “Accounting of Pension Plans” and recognized in the balance sheet accordingly. The provision for pension plans of foreign subsidiaries which are not organized as an independent legal entity is determined based on the local valuation methods. 2.16 Financial liabilities Financial liabilities measured at amortized cost are initially recorded at fair value, net of transaction costs incurred and subsequently measured at amortized cost. Any differ- ence between the proceeds of disposal (net of transaction costs) and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest method. 2.17 Income taxes Current income taxes are based on taxable income for the current year and charged to income when incurred. Deferred income taxes are determined using the liability method, with the applicable substantially enacted income tax rates applied on a comprehensive basis to eligible temporary differences. Deferred income tax assets from temporary differences are only recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income taxes resulting from tax loss carryforwards appli- cable to future taxable income are only recognized to the extent of available deferred tax liabilities. 2.18 Earnings per share Basic earnings per share are calculated by dividing net profit attributable to owners of the parent by the weighted average number of shares outstanding during the report- ing period. Diluted earnings per share also include all poten- tially dilutive effects. 2.19 Derivative financial instruments Derivative financial instruments for hedging purposes of balance sheet items are valued at the same valuation prin- ciples as the underlying hedged positions. The fair value of derivative financial instruments for cash flow hedging purposes is disclosed in the notes. 16 Financial statements Group Annual Report 2016/2017 dormakaba Interest rate risk The dormakaba Group’s interest rate risk arises from its short-term borrowings. This interest rate risk is only hedged in limited cases. The Management strives for a well-bal- anced mix of long- and short-term interest rates considering the planned financing requirements. Financing and related interest are managed centrally. Cash and cash equivalents are invested on a short-term basis. Liquidity risk The liquidity risk is the risk that the dormakaba Group will be unable to meet its obligations when they fall due. The Group Treasury function ensures that optimal liquidity and credit lines are available to the Group’s operations at any time to meet its obligations and to finance its projects. Pro- curement of bank loans is managed centrally. Credit risk Credit risks arise from the possibility that the counterparty to a transaction is unable or unwilling to fulfill its obligations and that the dormakaba Group suffers financial damage as a result. Trade receivables are monitored on an ongoing basis locally and via Group management reporting procedures. The danger of cluster risks on trade accounts receivable is limited due to the large number and wide geographical spread of customers. The extent of the credit risk is deter- mined mainly by the individual characteristics of each customer. Assessment of this risk involves a review of the customer’s creditworthiness based on its financial situa- tion and past experience. Cash and cash equivalents are mainly held in the form of current accounts and current fixed-term deposits. Counter- party risks are monitored continuously and minimized by strictly limiting the associations to high-ranking banks. 2.20 Risk assessment and risk management The tasks of the Board of Directors include identifying risks, determining suitable measures, and implementing these measures or having them implemented. The Board of Directors of dormakaba Holding AG conducted a Group-wide risk assessment in the year under review and also determined the risks to be managed at particular management levels. The Board of Directors is closely involved in assessing strategic risks and through dialogue with the Executive Committee ensures that operating risks are given due attention and reported accordingly. This approach gives the Board a comprehensive overview of the key risks and measures. With this overview, the Group is able to prioritize and allocate the necessary resources. Financial risk policy The dormakaba Group is exposed to various risks in connec- tion with financial instruments, in particular to market risks of fluctuations in foreign exchange rates and interest rates. The Management monitors these risks on a regular basis. In managing the exposure resulting from such fluctuations, the dormakaba Group uses derivative financial instruments wherever the Management deems it appropri- ate to do so given the prevailing circumstances. The counter- parties involved are high-ranking financial institutions. The dormakaba Group enters only into financial trans- actions to hedge an associated risk out of balance sheet or highly probable future business transactions. No uncov- ered short transactions are entered. In addition, the dormakaba Group is exposed to liquidity risk and credit risk. Risk management also involves securing comprehensive and efficient insurance protection. Foreign exchange risk The dormakaba Group is active all over the world and is therefore exposed to fluctuations in foreign exchange rates. Foreign exchange risks arise when future commercial transactions, recognized financial assets and liabilities, and net investments in foreign operations are denominated in a currency that is not the entity’s functional currency. A lot of Group companies are exposed to foreign exchange risks. The intercompany invoicing concentrates the FX-risks to the manufacturing companies. The use of a group netting system with IC-payment terms of up to 60 days reduces the intercompany exposure and FX risk. The significant third party and intercompany cross-currency exposures are re- duced through natural hedges or hedged with financial in- struments. The FX exposures are derived from a 12 month rolling liquidity planning. Foreign exchange risks on intercompany loans are covered to a large extent by forward exchange contracts. The dormakaba Group does not actively manage the translation risk arising from net investment in foreign cur- rencies. dormakaba Annual Report 2016/2017 Financial statements Group 17 2.21 Segment reporting In accordance with the management organization and the reporting to the Group management level, the reporting segments consist of the businesses as described in note 1. This reporting forms the basis for assessing performance and allocating resources. Segment accounting is prepared up to the level of EBITDA / EBIT because these are the key figures used for management purposes. All operating assets and liabilities that are directly attributable or can be allocated on a reasonable basis are reported in the respective segments. With the exception of central costs, which are not allo- cated to the individual segments for internal reporting pur- poses, the segment results are based on the same accounting principles that are used to determine the oper- ating profit of the Group. Intersegment transactions are based on the arm’s length principle. 2.22 Share-based payments Stock award plans The fair value of the employee services received in exchange for shares is measured at fair value of the shares at the grant date and recognized as an expense with a correspond- ing entry in equity. Expenses for shares that vest imme- diately are recognized accordingly. Shares that are subject to future services are recognized over the vesting period. 2.23 Extraordinary result In the financial year 2015 / 16, the extraordinary result includes only cost related to the business combination between Dorma and Kaba, namely restructuring cost, im- pairment losses, and the cost of combining the brands into the dormakaba master brand. Restructuring cost are those necessarily entailed by the restructuring, and not associated with the ongoing activities of the entity, such as severance cost, early termination cost, and restruc- turing-related advisory cost. Business combination-related projects have been approved by the Board. 18 Financial statements Group Annual Report 2016/2017 dormakaba 3. Shares For basic number of shares Number of shares outstanding at beginning of financial year New shares issued Own shares (acquired) re-issued Number of shares outstanding at end of financial year Weighted average number of shares outstanding (basic) Profit applicable for calculation of earnings per share (basic and diluted) (in CHF million) Basic earnings per share (in CHF) For diluted number of shares Weighted average number of shares outstanding (basic) Eligible shares under stock award plans and shares awarded in acquisitions Weighted average number of shares outstanding (diluted) Profit applicable for calculation of earnings per share (basic and diluted) (in CHF million) Diluted earnings per share (in CHF) Dividend (in the form of a distribution of capital reserves) per share (in CHF) Conditional shares at beginning of financial year New conditional shares created New conditional shares issued Conditional shares at end of financial year Authorized shares Number of shares authorized but not yet issued Number of own shares held Earnings per share is calculated based on profit attributable to the owners of the parent only. Net profit attributable to minority interests is not taken into account. Minority shareholders hold 47.5 % of the shares of dormakaba Holding GmbH + Co. KGaA, which is a direct subsidiary of the Group parent dormakaba Holding AG, which holds the remaining 52.5 %. Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 Par value CHF 0.10 4,190,963 5,000 – 18,375 4,177,588 4,194,106 116.4 27.8 4,194,106 14,637 4,208,743 116.4 27.7 14.0 429,384 – – 5,000 424,384 419,000 419,000 22,438 Par value CHF 0.10 4,184,261 – 6,702 4,190,963 4,188,772 53.9 12.9 4,188,772 12,044 4,200,816 53.9 12.8 12.0 429,384 – – 429,384 419,000 419,000 4,063 dormakaba Annual Report 2016/2017 Financial statements Group 19 4. Business combinations Best Access Solutions On 22 February 2017, dormakaba acquired certain Mechanical Security businesses from Stanley Black & Decker in North America, Taiwan, and China. With this acquisition, dormakaba gains substantial scale in line with its stated strategy and can offer the full port- folio of door hardware and access control solutions to cus- tomers in the important North American market, which dormakaba considers to be the most attractive market in its industry. The following table summarizes the consideration paid for these businesses and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date. Mesker Openings Group On 12 December 2016, dormakaba acquired Mesker Openings Group, based in Huntsville (Alabama / USA). Mesker is a provider of commercial door hardware. With this acquisition, dormakaba strengthens its breadth of its product offering in North America. The following table summarizes the consideration paid for Mesker and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date. in CHF million Consideration at 12 December 2016 As at the acquisition date in CHF million Consideration at 22 February 2017 Cash paid Acquisition-related costs Total cash outflow Total consideration Identifiable assets and liabilities Cash and cash equivalents Trade receivables Inventories Current income tax assets Other current assets Property, plant and equipment Intangible assets Non-current financial assets Deferred income tax assets Trade payables Current income tax liabilities Accrued and other current liabilities Provisions Non-current borrowings Accrued pension costs and benefits Deferred income tax liabilities Total identifiable net assets Goodwill Total consideration As at the acquisition date Cash paid Acquisition-related costs Total cash outflow Total consideration 750.1 9.9 760.0 760.0 25.2 28.3 30. 2 0.4 2.2 Identifiable assets and liabilities Cash and cash equivalents Trade receivables Inventories Other current assets Property, plant and equipment Deferred income tax assets Trade payables Accrued and other current liabilities Provisions 57.7 Total identifiable net assets Goodwill Total consideration 142.7 0.9 143.6 143.6 1.9 10.3 10.4 0.3 11.6 18.2 – 2.7 – 2.5 – 0.1 47.4 96.2 143.6 0.1 0.3 116.9 – 19.8 – 1.3 – 13.0 – 5.8 – 7.9 – 5.1 – 2.2 206.2 553.8 760.0 Other acquisitions / divestments in the reporting period Acquisition of ATM Türautomatik GmbH, Austria On 1 July 2016, dormakaba acquired ATM Türautoma- tik GmbH (Gleisdorf / AT). ATM is a distributor of automatic doors in southern Austria and a major local player in entrance systems and service solutions. The acquired net assets amounted to CHF 0.9 million. Acquisition of Seca Solutions A / S, Norway On 28 February 2017, dormakaba acquired Seca Solu- tions AS, an expert in physical access control and airport solutions in Norway. The acquired net assets amounted to CHF 0.8 million. Divestment Ascot Doors Ltd, United Kingdom Ascot Doors Ltd (Bolton / UK) was divested on 31 Octo- ber 2016 as part of the post-merger process of the dormakaba business combination. Ascot is a manufacturer and installer of steel doors and shutters. The divested net assets amounted to CHF 3.6 million. Divestment of the sanitary business of Provitris GmbH, Germany The sanitary business of Provitris was divested on 20 February 2017 as part of the post-merger process of the dormakaba business combination. The divested net assets amounted to CHF 0.9 million. 20 Financial statements Group Annual Report 2016/2017 dormakaba Prior-year acquisitions Business combination with Dorma On 1 September 2015, Dorma and Kaba completed the business combination announced on 30 April 2015. Exclud- ing retained net assets of CHF 179.7 million, the trans- action involved the transfer of all other assets and liabilities of the former Kaba Group to the joint sub-holding com- pany, dormakaba Holding GmbH + Co. KGaA, which originally held all assets and liabilities of the former Dorma Group. In exchange, dormakaba Holding AG received 52.5 % of the ownership rights of this entity. Retained net assets mainly consisted of an intercompany loan. The following table summarizes the transaction. The identifiable assets and liabilities reflect the fair value at the date of the business combination. The value of the Kaba businesses was calculated based on the weighted average share price of Kaba on the SIX Swiss Stock Exchange during the last five trading days before closing the transaction, reduced by the value of retained net assets. in CHF million Consideration at 1 September 2015 Cash paid Acquisition-related costs Total cash outflow Fair value of Kaba business transferred Total consideration Identifiable assets and liabilities Cash and cash equivalents Trade receivables Inventories Current income tax assets Other current assets Property, plant and equipment Intangible assets Investments in associates Non-current financial assets Deferred income tax assets Current borrowings Trade payables Current income tax liabilities Accrued and other current liabilities Provisions Non-current borrowings Accrued pension costs and benefits Deferred income tax liabilities Other non-interest bearing liabilities Total identifiable net assets Minority interests on net assets Goodwill Total consideration As at the acquisition date 0.6 6.9 7.5 1,158.8 1,166.3 73.0 205.1 191.5 40.0 44.4 168.4 12.4 32.3 21.8 49.5 – 3.3 – 60.3 – 42.9 – 124.3 – 25.0 – 1.0 – 226.1 – 4.6 – 0.3 350.6 – 166.5 982.2 1,166.3 As per 1 September 2015, goodwill was increased by a net CHF 1.1 million due to the revaluation of accrued pension costs and benefits (CHF – 4.2 million, CHF – 2.5 million net of tax) and property, plant and equipment (CHF 3.6 million). dormakaba Annual Report 2016/2017 Financial statements Group 21 5. Net sales in CHF million Total net sales Additional information for long-term contracts applying the percentage-of-completion method Amounts included in net sales based on the percentage-of-completion method Cumulative progress invoices on contracts in progress Construction contracts in progress (assets) Billings in excess of cost of construction contracts (liabilities see note 19) Accumulated contract costs including recognized profits (losses) Advances for construction contracts (liabilities) Retentions on construction contracts in progress (assets) Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 2,520.1 2,115.9 70.4 20.4 10.4 – 1.3 29.5 – 5.4 0.0 73.3 21.8 9.9 – 0.6 31.1 – 4.0 0.1 Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 0.8 3.9 0.5 0.1 0.1 6.4 – 0.3 11.5 0.7 5.3 0.8 0.7 0.6 7.0 – 0.3 14.8 Financial year ended 30. 06.2017 in % Financial year ended 30. 06.2016 in % 758.4 145.7 6.7 20.4 1.2 0.9 933.3 16,965 16,250 793 3,400 3,366 3,292 5,399 5 21 21 20 33 639.1 120.8 4.9 20.6 6.3 0.9 792.6 15,786 15,779 799 3,523 3,457 2,813 5,187 5 22 22 18 33 16,250 100 15,779 100 6. Other operating income, net in CHF million Rent Gain from the sale of fixed assets / business units Re-invoiced cost Licence income Insurance reclaim Other revenues Other operating expense Total other operating income (net) 7. Personnel expenses in CHF million Salaries and wages Social security expenses Share-based payments Pension cost (see note 21) Employment termination expenses Other benefits Total personnel expenses Employees at balance sheet date Average number of full-time equivalent employees Average number of employees per geographic region Switzerland Germany Rest of EMEA Americas Asia Pacific Total 22 Financial statements Group Annual Report 2016/2017 dormakaba 8. Financial expenses in CHF million Interest expenses Foreign exchange losses / (gains) Other financial expenses Total financial expenses 9. Financial income in CHF million Interest income Other financial income Total financial income 10. Income taxes in CHF million Profit before taxes Weighted applicable tax rate Tax calculated at applicable tax rate Current income taxes Deferred income taxes Income taxes Difference between applicable and effective income taxes Impact of losses and tax loss carryforwards Tax-exempt income Non-deductible expenses Non-recoverable withholding tax expenses Tax charges (credits) relating to prior periods, net Other Difference between expected and effective income taxes Income taxes charged to equity The weighted applicable tax rate is calculated using the expected income tax rates of the individual Group companies in each jurisdiction. These rates vary significantly. The change in the weighted applicable tax rate from prior year is mainly due to the different contributions of individual Group companies to the total Group profit. The main difference between applicable and effective taxes in the period lies in the fact that dormakaba does not recognize deferred tax assets on tax loss carry-forwards regardless of the likelihood that such tax loss carry-forwards can be utilized in the future. Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 17.3 15.9 4.4 37.6 9.7 6.6 2.8 19.1 Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 1.8 1.3 3.1 1.5 2.4 3.9 Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 295.2 28.3 % 83.5 70.0 0.6 70.6 – 12.9 – 9.3 – 5.2 7.2 2.3 – 2.2 – 5.7 – 12.9 0.5 159.5 28.0 % 44.7 67.3 – 12.5 54.8 10.1 5.3 – 4.8 7.1 0.2 0.8 1.5 10.1 – 1.5 dormakaba Annual Report 2016/2017 Financial statements Group 23 11. Trade receivables in CHF million Accounts receivable from third parties Accounts receivable from associates Construction contracts in progress Total trade receivables, gross Allowance for doubtful accounts Total trade receivables, net in CHF million Maturity analysis of trade receivables Not yet due 1 – 30 day(s) overdue 31 – 60 days overdue 61 – 90 days overdue 91 – 120 days overdue 121 – 150 days overdue More than 150 days overdue Total trade receivables, gross The creditworthiness of not yet due and not impaired accounts receivable is considered good, based on the low losses in the past. in CHF million Details of allowance for doubtful accounts Allowance at beginning of financial year Additions Releases Usage Acquisition of businesses Translation exchange differences Allowance at end of financial year Accounts receivable are individually impaired in case of clear evidence of insolvency or other indications that collectability is severely endangered. In addition, allowances are made systematically based on overdue ageing and past experience. The Group does not hold material collateral as security for trade receivables. Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 477.1 0.3 10.4 487.8 – 26.4 461.4 421.7 0.1 9.9 431.7 – 28.0 403.7 Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 Gross 350.1 59.2 20.2 12.7 6.1 5.0 34.5 487.8 Gross 303.4 52.7 18.0 9.3 6.1 3.9 38.3 431.7 Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 – 28.0 – 11.0 8.5 5.0 – 1.5 0.6 – 26.4 – 5.6 – 3.8 2.0 2.7 – 23.0 – 0.3 – 28.0 24 Financial statements Group Annual Report 2016/2017 dormakaba 12. Inventories in CHF million Raw materials and supplies Semi-finished goods and work in progress Finished goods Prepayments to suppliers Total inventories, gross Allowance for obsolete and slow-moving items Total inventories, net Details allowance for obsolete and slow-moving items Allowance beginning of year Additions Acquisition of businesses Releases Usage Translation exchange differences Allowance end of year Allowances for inventories are made in cases of incongruity between inventory levels and expected consumption on an item-by-item basis. These allowances are released if and as soon as the requested consumption is reached. 13. Other current assets in CHF million Prepaid expenses Retentions Sales, withholding and other recoverable taxes Fair value of forward contracts (see note 26) Other receivables and miscellaneous Total other current assets Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 168.4 79.6 216.0 3.6 467.6 – 56.2 411.4 – 51.1 – 10.9 – 5.4 4.9 5.3 1.0 – 56.2 160.8 76.4 175.6 2.3 415.1 – 51.1 364.0 – 29.4 – 9.2 – 19.5 1.9 5.9 – 0.8 – 51.1 Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 18.8 2.1 36.0 23.4 2.2 82.5 15.0 1.3 26.3 2.6 2.2 47.4 dormakaba Annual Report 2016/2017 Financial statements Group 25 14. Property, plant and equipment / Intangible assets in CHF million Cost 30 June 2015 Additions Disposals Reclassifications Acquisition of businesses Translation exchange differences 30 June 2016 Accumulated depreciation 30 June 2015 Additions 1 Disposals Reclassifications Translation exchange differences 30 June 2016 Net book value as of 30 June 2015 net 30 June 2016 net Net carrying amount of assets under finance leases as of 30 June 2015 net 30 June 2016 net Cost 30 June 2016 Additions Disposals Reclassifications Acquisition of businesses Translation exchange differences 30 June 2017 Accumulated depreciation 30 June 2016 Additions Disposals Reclassifications Translation exchange differences 30 June 2017 Net book value as of 30 June 2016 net 30 June 2017 net Net carrying amount of assets under finance leases as of 30 June 2016 net 30 June 2017 net Land and buildings Plant, machinery and equipment Furniture and fixtures Prepayments Total property, plant and equipment Intangible assets 154.6 3.5 – 2.5 2.0 97.0 5.7 260.3 75.2 6.8 – 1.2 0.4 1.2 82.4 79.4 177.9 192.0 14.5 – 14.2 9.8 33.4 5.8 241.3 143.1 21.1 – 13.6 0.2 4.2 155.0 48.9 86.3 77.8 15.7 – 11.9 1.7 30. 1 2.6 116.0 58.8 14.6 – 9.4 – 0.6 2.1 65.5 19.0 50.5 0.3 1.3 260.3 241.3 116.0 14.3 – 4.2 11.6 36.2 – 4.1 14.1 – 9.2 4.8 25.8 – 5.6 18.1 – 8.2 – 2.8 9.1 – 1.4 314.1 271.2 130.8 82.4 8.5 – 0.9 – 0.1 – 0.6 89.3 177.9 224.8 155.0 22.9 – 8.5 0.8 – 3.2 167.0 86.3 104.2 0.2 65.5 18.2 – 6.4 – 0.2 – 0.7 76.4 50.5 54.4 1.3 1.8 7.6 13.4 – 0.5 – 13.5 7.9 0.3 15.2 0.0 0.0 0.0 0.0 0.0 0.0 7.6 15.2 15.2 26.9 – 0.5 – 13.8 2.3 – 0.7 29.4 0.0 0.0 0.0 0.0 0.0 0.0 15.2 29.4 432.0 47.1 – 29.1 0.0 168.4 14.4 632.8 277.0 42.5 – 24.2 0.0 7.5 302.8 155.0 330.0 0.3 1.3 632.8 73.3 – 22.3 0.0 73.4 – 11.7 745.5 302.8 49.7 – 15.3 0.0 – 4.5 332.7 330.0 412.8 1.3 2.0 54.1 14.7 – 6.5 0.0 12.4 1.8 76.5 28.1 15.9 – 6.5 0.0 1.3 38.8 26.0 37.7 76.5 11.4 – 1.6 0.0 0.1 – 0.8 85.6 38.8 10.7 – 2.1 0.0 – 0.2 47.2 37.7 38.4 1) Additions include impairments of intangible assets CHF 8.1 million and impairment of property, plant and equipment CHF 0.6 million. Intangible assets: additions to cost include CHF 1.4 million (2015 / 16 CHF 7.7 million) invested in research and develop- ment projects. 26 Financial statements Group Annual Report 2016/2017 dormakaba 15. Theoretical movement of goodwill in CHF million Cost Opening Additions from acquisitions Adjustments (earn-out, others) Translation exchange differences Closing Accumulated amortization Opening Additions Translation exchange differences Closing Theoretical book values, net Opening Closing Effect on the income statement in CHF million Operating profit (EBIT) EBIT in % of net sales Amortization goodwill Theoretical operating profit (EBIT) incl. amortization goodwill Theoretical EBIT in % of net sales Net profit Amortization goodwill Theoretical net loss / profit incl. amortization goodwill Effect on the balance sheet in CHF million Equity according to balance sheet Theoretical capitalization net book value goodwill Theoretical equity incl. net book value goodwill Equity in % of balance sheet total Theoretical equity incl. net book value goodwill in % of balance sheet total As described in note 2.10, goodwill resulting from acquisi- tions is offset in equity at the date of acquisition against retained earnings. These tables show the impact on equity and net profit based on the assumption that this goodwill had been capitalized and amortized over a period of five years. Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 1,153.2 657.0 – 2.2 – 37.7 1,770.3 255.2 270.6 – 4.9 520.9 898.0 1,249.4 175.0 982.2 0.0 – 4.0 1,153.2 59.8 196.3 – 0.9 255.2 115.2 898.0 Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 327.0 13.0 – 270.6 56.4 2.2 224.6 – 270.6 – 46.0 261.6 12.3 – 196.3 65.3 3.1 104.7 – 196.3 – 91.6 Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 183.1 1,249.4 1,432.5 9.6 45.4 680.5 898.0 1,578.5 43.2 63.7 dormakaba Annual Report 2016/2017 Financial statements Group 27 16. Investments in associates and joint ventures in CHF million Associates Beginning of year Acquisition of Dorma associate ISEO Serrature S.p.A. Acquisition of investments in associates Dividends received Share of profit / (loss) Translation exchange differences Total investments in associates Details of material investments in associates Entity name ISEO Serrature S.p.A., Pisogne / IT Assets Liabilities Revenues Profit / (Loss) Interest held in % Goodwill included in investments in associates 17. Non-current financial assets in CHF million Non-current financial assets Loans Pension-related assets Long-term prepaid expenses Prepaid financing cost Long-term held securities Total non-current financial assets Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 33.9 0.0 1.0 – 1.8 2.7 0.2 36.0 183.7 114.8 158.2 6.6 40.0 11.0 0.0 32.3 0.0 – 1.1 2.5 0.3 33.9 171.4 111.9 142.7 6.1 40.0 11.0 Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 4.0 22.8 7.6 0.0 3.5 37.9 0.1 22.7 8.6 0.0 5.1 36.5 28 Financial statements Group Annual Report 2016/2017 dormakaba 18. Borrowings in CHF million Current borrowings Bank overdrafts Short-term bank loans Current portion of debt Total current borrowings Bank overdrafts and short-term bank loans are repayable within one year and are subject to financial debt covenants. The short-term borrowings are fixed for a period of one to three months and the interest rates are based on LIBOR / EURIBOR. The carrying amounts of short-term financial borrowings approximate their fair value. in CHF million Non-current borrowings Bank loans Other long-term liabilities Finance lease obligation Total non-current borrowings in CHF million At year-end, maturities of debt were as follows: Within 1 year Within 2 to 5 years After 5 years Total debt Current portion of debt Total long-term debt 19. Accrued and other current liabilities in CHF million Advances from customers Billings in excess of cost of construction contracts Deferred income Sales, withholding and other tax payable Social security payable Payable to pension fund Accruals for vacation, overtime and other employee benefits Accrued interest Fair value of forward contracts (see note 26) Other accruals and current non-interest-bearing liabilities Total accrued and other current liabilities Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 10.6 797.3 6.7 814.6 9.1 6.6 36.9 52.6 Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 0.2 0.0 1.1 1.3 0.1 0.2 1.2 1.5 Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 6.7 1.3 0.0 8.0 6.7 1.3 36.9 1.5 0.0 38.4 36.9 1.5 Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 27.9 1.3 44.1 49.1 10.2 0.9 102.5 0.6 0.8 91.0 328.4 23.7 0.6 40.1 36.5 9.1 0.8 93.6 0.1 5.4 80.3 290.2 dormakaba Annual Report 2016/2017 Financial statements Group 29 20. Provisions in CHF million Financial year ended 30. 06.2016 Opening balance as at 01. 07. 2015 Additions Releases Usage Acquisition of businesses Translation exchange differences Balance at 30. 06.2016 Thereof due within 1 year Thereof due 2 to 5 years Total Financial year ended 30. 06.2017 Opening balance as at 01. 07.2016 Additions Releases Usage Acquisition of businesses Translation exchange differences Balance at 30. 06.2017 Thereof due within 1 year Thereof due 2 to 5 years Total Warranty and customer returns Restructuring Other Total 6.5 7.8 – 0.5 – 6.3 7.1 0.3 14.9 14.9 0.0 14.9 14.9 7.6 – 0.2 – 8.2 5.2 – 0.3 19.0 19.0 0.0 19.0 0.5 81.3 – 0.4 – 25.3 1.4 0.1 57.6 57.6 0.0 57.6 57.6 – 0.2 0.0 – 19.5 0.0 – 0.2 37.7 37.7 0.0 37.7 2.6 0.6 – 1.7 – 2.1 16.5 0.2 16.1 16.1 0.0 16.1 16.1 10.5 – 0.4 – 6.4 0.6 – 0.2 20.2 20.2 0.0 20.2 9.6 89.7 – 2.6 – 33.7 25.0 0.6 88.6 88.6 0.0 88.6 88.6 17.9 – 0.6 – 34.1 5.8 – 0.7 76.9 76.9 0.0 76.9 Warranty and customer return provisions In certain markets there are lock models installed for which dormakaba developed upgrades. dormakaba committed to offer the upgrades at no cost to its customers and as a result a provision amounting to CHF 15.1 million was recognized as per 30 June 2011. Due to customers making use of dormakaba’s offer, the provision has been reduced to CHF 1.5 million as per 30 June 2017, representing expected cash outflows in 2017 / 18 related to this initiative. Restructuring provisions Restructuring provisions include expected future cash out- flows related to restructuring plans that the Group has started to implement or announced. Restructuring plans mainly focus on optimizing administrative and manufac- turing processes. The major part of these restructuring provisions is due to post-merger integration projects following the merger between Kaba and Dorma as per 1 September 2015 which have been approved by the Board. These provisions mainly include severance cost, early termination cost, and restruc- turing-related advisory cost (as per accounting policy 2.23). Other provisions Other provisions include mainly environmental risks, litiga- tion and sales agents’ indemnities. 30 Financial statements Group Annual Report 2016/2017 dormakaba 20.2 285.1 18.2 275.0 9.3 0.6 – 1.8 22.2 20.4 20.6 21. Employee benefit liabilities in CHF million Financial year ended 30.06.2017 Financial year ended 30.06.2016 s e s s e n i s u B f o n o i t i s i u q c A n o i t a r o p r o C e h t f o t r a p l a c i m o n o c E n o i t a r o p r o C e h t f o t r a p c i m o n o c E n o i t a r o p r o C e h t f o t r a p c i m o n o c E s e c n e r e f f i d n o i t a l s n a r T n i d e z i n g o c e r r o d o i r e p r a e y r o i r p o t e g n a h C f o t l u s e r t n e r r u c e h t l y e v i t c e p s e r , d o i r e p e h t 264.9 256.8 9.3 0.6 – 1.8 Pension institutions with surplus Pension institutions with deficit Pension institutions w / o surplus / deficit Pension institutions without own assets Other long-term employee benefits Total in CHF million Contributions to pension institutions from Group entities Contributions to pension institutions from employer contribution reserves (ECR) Total contributions +/- Changes ECR from asset development, value adjustments, etc. Contributions and changes employer contribution reserves Increase / decrease economical benefit group from surplus Decrease / increase economical obligation group from deficit Decrease / increase economical obligation group from pension institutions without own assets Total changes economical effects from surplus / deficit Pension benefit expenses within personnel expenses in the period under review The expenses for pension institutions with surplus fully relate to pension plans in Switzerland. The Swiss plans are valued annually as per December and in line with Swiss GAAP FER 26. The pension institutions without own assets are assessed annually as per financial year end closing and relate mainly to pension liabilities of Group companies in Germany, Austria as well as Italy. Financial year ended 30.06.2017 Financial year ended 30.06.2016 s e s n e p x e l e n n o s r e p t i f e n e b n o i s n e P i n h t i w s e s n e p x e s e s n e p x e l e n n o s r e p t i f e n e b n o i s n e P i n h t i w s e s n e p x e i g n n r e c n o c s n o i t u b i r t n o C d o i r e p s s e n i s u b e h t 7.5 7.5 7.5 9.9 4.8 9.9 3.0 9.1 4.0 Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 17.4 0.0 17.4 0.0 17.4 0.0 0.0 3.0 3.0 20.4 16.6 0.0 16.6 0.0 16.6 0.0 0.0 4.0 4.0 20.6 dormakaba Annual Report 2016/2017 Financial statements Group 31 22. Lease commitments in CHF million Operating leases Expenses for operating leases amounted to Future minimum lease payments resulting from non-cancellable operating lease contracts are due as follows: Liabilities under leases up to 1 year Liabilities under leases 2 to 5 years Liabilities under leases over 5 years Total future payment commitments for operating leases Operating lease commitments mainly refer to the lease of buildings which are used for operational purposes. in CHF million Finance leases Expenses for finance leases amounted to Future minimum lease payments resulting from non-cancellable finance lease contracts are due as follows: Liabilities under leases up to 1 year Liabilities under leases 2 to 5 years Liabilities under leases over 5 years Total finance lease obligation including current portion (net present value) Less current portion Long-term finance lease obligation 23. Deferred income taxes in CHF million Expiration of tax loss carry-forwards not recognized as deferred tax assets Expiry in 1 year Expiry in 2 to 5 years Expiry after 5 years No expiry Balance of tax loss carry-forwards at end of financial year in CHF million Balance sheet presentation of deferred income taxes Deferred income tax assets Deferred income tax liabilities Total deferred income taxes, net Deferred tax assets are only recognized to the extent that it is probable that future taxable profit will be available against which the asset can be utilized. The increase in deferred tax assets is related to the acquisitions of Best Access Solutions and Mesker Openings Group described in note 4. It reflects future tax benefits from the amortization of goodwill. Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 36.3 33.8 64.9 22.1 120.8 33.4 36.6 43.6 17.2 97.4 Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 2.0 0.9 1.1 0.0 2.0 0.9 1.1 1.3 0.5 0.7 0.0 1.3 0.5 0.8 Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 3.4 16.1 3.3 154.9 177.7 5.9 10.4 2.7 170.0 188.9 Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 204.2 29.1 175.1 71.5 22.9 48.6 32 Financial statements Group Annual Report 2016/2017 dormakaba 24. Capital management Management of capital is governed by the following objec- tives: • securing sufficient liquidity to meet the Group’s needs to fulfil its financial obligations; • securing sufficient financing capacity for future invest- ments and acquisitions; • ensuring creditworthiness; • achieving a risk-adequate return for investors. Continuous monitoring and reporting of key financial figures and key performance indicators to the management ensure that appropriate action is taken as soon as required. The syndicated credit facility of CHF 500 million, estab- lished in March 2016 for a five-year period was temporarily increased to CHF 1,150 million until 31 December 2017. The options for prolongation of two additional years and increase of up to CHF 200 million are suspended as a result of the temporary increase. The options will be reac- tivated after the refinancing through different financial instruments. The only financial covenant is the net debt ratio (calcu- lated as the ratio of net debt to EBITDA). As of 30 June 2017 dormakaba complied with this financial covenant. The corresponding key figures as at 30 June 2017 and 30 June 2016 respectively are shown below: in CHF million, except where indicated Gearing Earnings before interest, taxes, depreciation and amortization (EBITDA) Net debt Net debt / EBITDA (Gearing) A portion of profits generated is paid out to the owners as dividends, taking into account the current financing needs and compliance with legal requirements. dormakaba envisages a dividend policy whereby the minimum payout ratio should be at 50 % of consolidated net profit after minority interests. The Group is not subject to externally imposed capital restrictions. Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 387.3 627.6 1.6 311.4 – 159.1 – 0.5 dormakaba Annual Report 2016/2017 Financial statements Group 33 25. Commitments and contingencies in CHF million Current endorsement liabilities Investments committed to purchase from third parties: Property, plant and equipment Intangible assets 26. Derivative financial instruments in CHF million The following forward contracts existed for hedging purposes on the balance sheet date: Currencies – Contract value – Fair value – held-for-trading, net The increase in forward contract value mainly relates to hedges of exposures from intercompany loans, which were established to finance acquisitions disclosed in note 4. Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 3.0 27.9 0.5 2.7 9.8 0.0 Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 1,195.3 22.6 515.1 – 2.8 34 Financial statements Group Annual Report 2016/2017 dormakaba 27. Segment reporting in CHF million Net sales third parties Intercompany sales Total sales Operating profit (EBIT) in % of sales Depreciation and amortization Operating profit before depreciation and amortization (EBITDA) in % of sales Result from associates Financial expenses Financial income Ordinary result Extraordinary result Profit before taxes Operating assets Operating liabilities Net operating assets Capital expenditure in CHF million Net sales third parties Intercompany sales Total sales Operating profit (EBIT) in % of sales Depreciation and amortization Operating profit before depreciation and amortization (EBITDA) in % of sales Result from associates Financial expenses Financial income Ordinary result Extraordinary result Profit before taxes Operating assets Operating liabilities Net operating assets Capital expenditure Access Solutions AMER Access Solutions APAC Access Solutions DACH Access Solutions EMEA Eliminations Access Solutions TOTAL Financial year ended 30.06.2017 Financial year ended 30.06.2016 1) Financial year ended 30.06.2017 Financial year ended 30.06.2016 1) Financial year ended 30.06.2017 Financial year ended 30.06.2016 1) Financial year Financial year Financial year Financial year Financial year Financial year ended ended ended ended ended ended 30.06.2017 30.06.2016 1) 30.06.2017 30.06.2016 1) 30.06.2017 30.06.2016 1) 656.2 28.8 685.0 134.4 19.6 % 9.6 144.0 21.0 % 446.8 31.2 478.0 98.8 20.7 % 5.7 104.6 21.9 % 412.7 22.4 435.1 47.0 10.8 % 6.8 53.8 12.4 % 320.1 18.0 338.1 26.1 7.7 % 4.0 30.1 8.9 % 496.4 304.6 801.0 132.7 16.6 % 16.9 149.5 18.7 % 467.4 245.1 712.4 113.0 15.8 % 13.7 126.6 17.8 % 619.8 113.1 732.9 35.9 4.9 % 13.6 49.4 6.7 % 576.2 110.1 686.3 32.9 4.8 % 15.5 48.4 7.1 % 0.0 – 460.1 – 460.1 – 0.2 % 0.7 0.0 0.7 – 0.2 % 0.0 2,185.1 1,810.5 – 399.6 – 399.6 8.8 4.7 2,193.9 1,815.2 0.0 0.0 % 0.0 0.0 0.0 % 350.7 16.0 % 46.8 397.5 18.1 % 270.7 14.8 % 39.0 309.6 17.1 % 341.6 – 119.6 221.9 11.7 274.2 – 80.0 194.2 7.6 227.0 – 92.5 134.6 10.8 180.4 – 60.5 119.9 6.4 312.4 – 362.6 – 50.1 27.8 299.4 – 355.8 – 56.4 14.8 315.0 – 137.1 177.9 10.5 346.9 – 140.8 206.0 14.2 – 15.4 0.1 – 15.3 0.0 – 14.5 0.5 – 14.0 0.0 1,180.7 – 711.7 469.0 60.7 1,086.3 – 636.6 449.7 43.0 Key Systems Movable Walls Other Corporate Eliminations Group Financial year ended 30.06.2017 Financial year ended 30.06.2016 1) Financial year ended 30.06.2017 Financial year ended 30.06.2016 1) Financial year ended 30.06.2017 Financial year ended 30.06.2016 1) Financial year Financial year Financial year Financial year Financial year Financial year ended ended ended ended ended ended 30.06.2017 30.06.2016 1) 30.06.2017 30.06.2016 30.06.2017 30.06.2016 214.4 2.8 217.2 31.9 14.7 % 5.8 37.6 17.3 % 205.3 3.2 208.5 30.1 14.4 % 5.2 35.3 16.9 % 107.0 7.6 114.6 8.0 7.0 % 1.8 9.8 8.6 % 87.1 8.5 95.6 9.9 10.4 % 1.1 11.0 11.5 % 131.7 – 47.6 84.1 7.9 129.1 – 43.8 85.3 8.3 41.3 – 26.5 14.7 0.7 40.5 – 25.1 15.3 1.2 13.6 3.2 16.8 0.1 0.4 % 0.2 0.3 1.5 % 14.9 – 3.1 11.8 0.3 13.1 1.7 14.8 – 1.0 – 6.8 % 0.2 – 0.8 – 5.8 % 17.5 – 2.6 14.9 6.4 0.0 0.0 0.0 – 63.7 0.0 % 5.8 – 57.9 0.0 % 0.0 0.0 0.0 – 48.1 0.0 % 4.3 – 43.7 0.0 % 0.0 – 22.4 – 22.4 0.0 0.0 % 0.0 0.0 0.0 % – 0.1 – 18.1 – 18.2 0.0 0.0 % 0.0 0.0 0.0 % 42.8 – 52.0 – 9.3 15.1 – 64.0 – 59.9 – 123.8 2.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2,520.1 2,115.9 0.0 0.0 2,520.1 2,115.9 327.0 13.0 % 60.3 387.3 15.4 % 2.7 – 37.6 3.1 295.2 - 295.2 1,411.2 – 840.9 570.4 84.7 261.6 12.3 % 49.8 311.4 14.7 % 2.5 – 19.1 3.9 248.9 – 89.4 159.5 1,209.4 – 768.1 441.4 61.8 Depreciation and amortization Operating profit before depreciation and amortization (EBITDA) in CHF million Net sales third parties Intercompany sales Total sales Operating profit (EBIT) in % of sales in % of sales Result from associates Financial expenses Financial income Ordinary result Extraordinary result Profit before taxes Operating assets Operating liabilities Net operating assets Capital expenditure in CHF million Net sales third parties Intercompany sales Total sales Operating profit (EBIT) in % of sales in % of sales Result from associates Financial expenses Financial income Ordinary result Extraordinary result Profit before taxes Operating assets Operating liabilities Net operating assets Capital expenditure Depreciation and amortization Operating profit before depreciation and amortization (EBITDA) 1) In order to enable a fair comparison with current-year data, certain expenses and intercompany transactions have been reclassified within the segments. dormakaba Annual Report 2016/2017 Financial statements Group 35 Depreciation and amortization Operating profit before depreciation and amortization (EBITDA) 27. Segment reporting in CHF million Net sales third parties Intercompany sales Total sales Operating profit (EBIT) in % of sales in % of sales Result from associates Financial expenses Financial income Ordinary result Extraordinary result Profit before taxes Operating assets Operating liabilities Net operating assets Capital expenditure in CHF million Net sales third parties Intercompany sales Total sales Operating profit (EBIT) in % of sales in % of sales Result from associates Financial expenses Financial income Ordinary result Extraordinary result Profit before taxes Operating assets Operating liabilities Net operating assets Capital expenditure Depreciation and amortization Operating profit before depreciation and amortization (EBITDA) Access Solutions AMER Access Solutions APAC Access Solutions DACH Access Solutions EMEA Eliminations Access Solutions TOTAL Financial year Financial year Financial year Financial year Financial year Financial year ended ended ended ended ended ended 30.06.2017 30.06.2016 1) 30.06.2017 30.06.2016 1) 30. 06.2017 30.06. 2016 1) Financial year ended 30.06.2017 Financial year ended 30.06.2016 1) Financial year ended 30.06.2017 Financial year ended 30.06.2016 1) Financial year ended 30.06.2017 Financial year ended 30.06.2016 1) 656.2 28.8 685.0 134.4 19.6 % 9.6 144.0 21.0 % 446.8 31.2 478.0 98.8 20.7 % 5.7 104.6 21.9 % 412.7 22.4 435.1 47.0 10.8 % 6.8 53.8 12.4 % 320.1 18.0 338.1 26.1 7.7 % 4.0 30.1 8.9 % 496.4 304.6 801. 0 132.7 16.6 % 16.9 149.5 18.7 % 467.4 245.1 712.4 113.0 15.8 % 13.7 126.6 17.8 % 619.8 113.1 732.9 35.9 4.9 % 13.6 49.4 6.7 % 576.2 110.1 686.3 32.9 4.8 % 15.5 48.4 7.1 % 0.0 – 460.1 – 460.1 0.7 – 0.2 % 0.0 0.7 – 0.2 % 0.0 2,185.1 1,810.5 – 399.6 – 399.6 8.8 4.7 2,193.9 1,815.2 0.0 0.0 % 0.0 0.0 0.0 % 350.7 16.0 % 46.8 397.5 18.1 % 270.7 14.8 % 39.0 309.6 17.1 % 341.6 – 119.6 221.9 11.7 274.2 – 80.0 194.2 7.6 227.0 – 92.5 134.6 10.8 180.4 – 60.5 119.9 6.4 312.4 – 362.6 – 50.1 27.8 299.4 – 355.8 – 56.4 14.8 315.0 – 137.1 177.9 10.5 346.9 – 140.8 206. 0 14.2 – 15.4 0.1 – 15.3 0.0 – 14.5 0.5 – 14.0 0.0 1,180.7 – 711.7 469.0 60.7 1,086.3 – 636.6 449.7 43.0 Key Systems Movable Walls Other Corporate Eliminations Group Financial year Financial year Financial year Financial year Financial year Financial year ended ended ended ended ended ended 30.06.2017 30.06.2016 1) 30.06.2017 30.06.2016 1) 30. 06.2017 30.06. 2016 1) Financial year ended 30.06.2017 Financial year ended 30.06.2016 1) Financial year ended 30.06.2017 Financial year ended 30.06.2016 Financial year ended 30.06.2017 Financial year ended 30.06.2016 214.4 2.8 217.2 31.9 14.7 % 5.8 37.6 17.3 % 205.3 3.2 208.5 30.1 14.4 % 5.2 35.3 16.9 % 107. 0 7.6 114.6 8.0 7.0 % 1.8 9.8 8.6 % 87.1 8.5 95.6 9.9 10.4 % 1.1 11.0 11.5 % 0.0 0.0 0.0 – 63.7 0.0 % 5.8 – 57.9 0.0 % 0.0 0.0 0.0 – 48.1 0.0 % 4.3 – 43.7 0.0 % 0.0 – 22.4 – 22.4 0.0 0.0 % 0.0 0.0 0.0 % – 0.1 – 18.1 – 18.2 0.0 0.0 % 0.0 0.0 0.0 % 1) In order to enable a fair comparison with current-year data, certain expenses and intercompany transactions have been reclassified within the segments. 131.7 – 47.6 84.1 7.9 129.1 – 43.8 85.3 8.3 41.3 – 26.5 14.7 0.7 40.5 – 25.1 15.3 1.2 42.8 – 52.0 – 9.3 15.1 – 64.0 – 59.9 – 123.8 2.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 13.6 3.2 16.8 0.1 0.4 % 0.2 0.3 1.5 % 14.9 – 3.1 11.8 0.3 13.1 1.7 14.8 – 1.0 – 6.8 % 0.2 – 0.8 – 5.8 % 17.5 – 2.6 14.9 6.4 2,520.1 2,115.9 0.0 0.0 2,520.1 2,115.9 327.0 13.0 % 60.3 387.3 15.4 % 2.7 – 37.6 3.1 295.2 - 295.2 1,411.2 – 840.9 570.4 84.7 261.6 12.3 % 49.8 311.4 14.7 % 2.5 – 19.1 3.9 248.9 – 89.4 159.5 1,209.4 – 768.1 441.4 61.8 in CHF million Net sales third parties Intercompany sales Total sales Operating profit (EBIT) in % of sales Depreciation and amortization Operating profit before depreciation and amortization (EBITDA) in % of sales Result from associates Financial expenses Financial income Ordinary result Extraordinary result Profit before taxes Operating assets Operating liabilities Net operating assets Capital expenditure in CHF million Net sales third parties Intercompany sales Total sales Operating profit (EBIT) in % of sales Depreciation and amortization Operating profit before depreciation and amortization (EBITDA) in % of sales Result from associates Financial expenses Financial income Ordinary result Extraordinary result Profit before taxes Operating assets Operating liabilities Net operating assets Capital expenditure 36 Financial statements Group Annual Report 2016/2017 dormakaba Reconciliation of assets and liabilities in CHF million Segment operating assets Cash and cash equivalents Current income tax assets Other current assets Investments in associates Non-current financial assets Deferred income tax assets Total assets Segment operating liabilities Current borrowings Current income tax liabilities Accrued and other current liabilities Non-current borrowings Deferred income tax liabilities Total liabilities 28. Segment reporting – key figures by region in CHF million Prior financial year ended 30. 06.2016 Switzerland Germany Rest of EMEA Americas Asia Pacific Total Financial year ended 30. 06.2017 Switzerland Germany Rest of EMEA Americas Asia Pacific Total Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 1,411.2 188.3 36.1 25.6 36.0 7.6 204.2 1,909.0 – 840.9 – 814.6 – 38.7 – 1.3 – 1.3 – 29.1 – 1,725.9 Net sales to third parties in % Non-current assets 155.8 300.1 728.4 583.0 348.6 7 14 35 28 16 2,115.9 100 167.2 324.0 775.7 830.0 423.2 7 13 30 33 17 2,520.1 100 64.7 210.0 72.6 99.4 62.8 509.6 209.8 210.5 66.4 137.5 105.1 729.3 in % 12 42 14 20 12 100 28 30 9 19 14 100 Capital expenditure 11.4 11.5 15.7 11.7 11.5 61.8 17.0 15.7 8.9 16.1 27.0 84.7 1,209.4 213.2 41.4 4.9 33.9 5.0 71.5 1,579.3 – 768.2 – 52.6 – 47.9 – 5.7 – 1.5 – 22.9 – 898.8 in % 18 19 25 19 19 100 20 18 11 19 32 100 dormakaba Annual Report 2016/2017 Financial statements Group 37 29. Stock award plans In 2012 the Executive Stock Award Plan “ESAP Plus” was introduced. Under the plan, participants were nominated each year by the Compensation Committee for an allo- cation of shares free of charge. (“Award Share[s]”) that are automatically subject to a three-year blocking period (“Blocking Period”). Provided that at the expiry of the Blocking Period (i) the participant is still under a contract of employment with a dormakaba Group company and (ii) no notice of termination has been given by either the employer or employee, the participant shall receive free of charge additional shares (“Matching Shares”) in the proportion of one additional share for every two Award Shares. The value of the Award Share corresponds to the closing price of the dormakaba Holding AG share at the SIX Swiss Exchange on the business day before the date of the allocation. In 2013, the Executive Stock Award Plan “ESAP Plus 3” was introduced for new participants. ESAP Plus 3 has the same design as ESAP Plus except that under ESAP Plus, existing ESAP 1 participants were entitled to choose between an allocation under ESAP 1 or under ESAP Plus. Under ESAP Plus 3, this choice is no longer available. ESAP 1 and ESAP Plus were discontinued from 2014 / 15 financial year onwards. In 2015, the Executive Stock Award Plan “ESAP 5” was introduced. Under ESAP 5, participants, nominated each year by the Compensation Committee, are granted Award Shares and Performance Share Units that are subject to a three-year vesting period (“Vesting Period”) conditional upon (i) the continuous employment of the participant with a dormakaba Group company at the end of the Vest- ing Period and (ii) the fulfilment of the Earnings per Share (“EPS”) performance condition during the Vesting Period, as determined in the ESAP 5 plan rules. At the vesting date, Performance Share Units are con- verted into shares (“Matching Shares”) based on a payout percentage of between 0 % and 200 % (0 to 2 Matching Shares for each Performance Share Unit based on the achieved EPS performance). On 22 September 2014, a total of 3,285 shares were allocated under ESAP Plus 3 (out of treasury shares) with an award value of CHF 440.50 each. On 21 September 2015, a total of 4,088 Award Shares were allocated under ESAP 5 (out of treasury shares) with an award value of CHF 653.00 each. On 21 November 2015, a total of 840 Matching Shares were allocated under ESAP Plus with an award value of CHF 664.00 each. On 21 September 2016, a total of 5,224 Award Shares under ESAP 5 and a total of 1,426 Matching Shares (of which 1,120 under ESAP Plus and 306 under ESAP Plus 3) were allocated (1,650 out of treasury shares and 5,000 out of conditional capital) with an award value of CHF 738.00 each. The impact on dormakaba’s 2016 / 17 income state- ment amounts to CHF 3,855,312 for the Award Shares and CHF 989,530 for the Matching Shares (2015 / 16: CHF 2,669,464 for Award Shares and CHF 557,760 for the Matching Shares). CHF 6,438.40 (divided into 64,384 registered shares with a par value of CHF 0.10) of conditional capital is reserved for stock award plans. 38 Financial statements Group Annual Report 2016/2017 dormakaba Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 0.6 2.2 0.3 0.3 0.6 1.9 0.1 0.1 30. Related parties in CHF million Transactions with associates Sales of goods and services Associates Purchase of goods and services Associates Accounts receivable Associates Accounts payable Associates 31. Events after the reporting period On 14 July 2017 dormakaba has acquired Canadian Skyfold Investment Inc. The company, which is based in Montreal, is a provider of automated vertical folding wall systems with a strong presence in the North American market. dormakaba has also acquired the Australian company Kilargo Pty Ltd as per 17 July 2017. Kilargo, which is based in Brisbane, complements dormakaba’s integrated port- folio of products, solutions and services for access to build- ings and rooms from a single source in the Pacific region. With effect as of 10 July 2017 the business of DORMA Beschlagtechnik GmbH was sold to Flacks Group, Miami (Florida / USA). 32. Release of consolidated financial statements for publication These consolidated financial statements have been approved for issue by the Board of Directors on 6 Sep- tember 2017 and will be presented for approval by the General Meeting of Shareholders of 17 October 2017. 40 Financial statements Group Annual Report 2016/2017 dormakaba Legal structure of the dormakaba Group as at 30 June 2017 List of substantial Group and associated companies dormakaba Holding AG, Rümlang / CH dormakaba Holding GmbH + Co. KGaA, Ennepetal / DE CHF EUR Share capital in local currency 420,002.60 Voting rights in % Participation of... Public Quoted Company 27,642,105.00 52.5 dormakaba Holding AG dormakaba Beteiligungs GmbH, Ennepetal / DE EUR 1,000,000.00 52.5 dormakaba Holding AG All of the following companies are directly or indirectly held by dormakaba Holding GmbH + Co. KGaA. Voting rights listed for these companies are the voting rights of this subholding. dormakaba Shareholders ultimately benefit with 52.5 % from the cash flows generated by these entities. dormakaba International Holding AG, Rümlang / CH CHF 101,000.00 100 dormakaba Holding GmbH + Co. KGaA Familie Mankel Industriebeteiligung GmbH + Co. KGaA 47.5 ADUK Products Ltd., Haslemere / UK Advanced Diagnostics Ltd., Haslemere / UK Aluminium Services Inc., Scituate / US ATM-Türautomatik GmbH, Gleisdorf / AT Bellwether Capital Ptv. Ltd., Singapore / SGP Best Access Solutions Inc., Delaware / US Computerized Security Systems Inc., Madison Heights / US Corporación Cerrajera Alba, S.A. de C.V., Edo. de México / MX Design Hardware, LLC, Delaware / US Dörken + Mankel Verwaltungs-Gesellschaft mit beschränkter Haftung, Ennepetal / DE DORMA Arabia Automatic Doors Company Ltd., Dammam / SA DORMA Beschlagtechnik GmbH, Velbert / DE DORMA Colombia S.A.S., Bogota / CO DORMA Door Controls Ltd., Mississauga / CA DORMA Door Controls Pty. Ltd., Hallam / AU DORMA Door Systems d.o.o. Beograd, Beograd / RS DORMA Finance B.V., Dodewaard / NL DORMA Ghana Limited, Accra / GH DORMA Gulf Door Controls FZE, Dubai / AE DORMA HUEPPE Pty. Ltd., Canberra / AU DORMA Hüppe Asia Sdn. Bhd., Senai, Johor / MY DORMA Hüppe Austria GmbH, Linz / AT DORMA Hüppe Raumtrennsysteme GmbH + Co. KG, Westerstede-Ocholt / DE DORMA Hüppe S.A., Marquain-lez-Tournai / BE DORMA Hüppe Schweiz AG, St. Gallen / CH DORMA India Private Ltd., Chennai / IN DORMA Ireland Ltd., Dublin / IE DORMA Kuwait for Ready Doors and Windows WLL, Kuwait / KW DORMA Middle East (LLC), Dubai / AE DORMA Movable Wall Verwaltungs-GmbH, Hagen / DE DORMA NZ Ltd., Auckland / NZ DORMA Philippines Corp., Makati City / PH DORMA Production GmbH + Co. Kommanditgesellschaft, Ennepetal / DE, Singapore / SGP DORMA Production GmbH, Ennepetal / DE DORMA Produktion International GmbH, Ennepetal / DE DORMA Sistemas de Controles Para Portas LTDA., Sao Paulo / BR DORMA Time + Access GmbH, Bonn / DE DORMA UK Ltd., Hitchin / GB DORMA Ukraine LLC, Kiev / UA GBP GBP USD EUR USD USD USD MXP EUR SAR EUR COP CAD AUD RSD EUR GHS USD AUD MYR EUR EUR EUR CHF INR EUR KWD AED EUR NZD PHP EUR EUR EUR BRL EUR GBP EUR 53.73 100.00 30,000.00 35,000.00 100 Kaba Holding (UK) Ltd. 100 ADUK Products Ltd. 100 DORMA USA Inc. 100 dormakaba Austria GmbH 85,828,000.00 100 dormakaba Singapore Pte. Ltd. 10.00 100 Kaba U.S. Holding Ltd. 50,000.00 100 Kaba Corporation 202,059,403.00 100 Kaba Ilco Inc. N / A 100 MDDH Holdings, LLC 30,000.00 100 dormakaba Holding GmbH + Co. KGaA 4,000,000.00 95 DORMA Vertrieb-International GmbH 5 DORMA Produktion International GmbH 5,120,000.00 100 dormakaba Holding GmbH + Co. KGaA 950,000,000.00 100 DORMA Vertrieb-International GmbH 10.00 100 dormakaba International Holding AG 910,700.00 100 DORMA Vertrieb-International GmbH 4,474,250.00 100 DORMA Vertrieb-International GmbH 100,000.00 100 dormakaba Holding GmbH + Co. KGaA 1,850,000.00 9,524,934.10 100 DORMA Vertrieb-International GmbH 100 DORMA Vertrieb-International GmbH 374,406.72 100 DORMA Door Controls Pty. Ltd. 2,510,000.00 146,000.00 DORMA Hüppe Raumtrennsysteme GmbH + Co. KG DORMA Hüppe Raumtrennsysteme GmbH + Co. KG 100 100 48,300,000.00 100 dormakaba Holding GmbH + Co. KGaA 3,300,000.00 100,000.00 DORMA Hüppe Raumtrennsysteme GmbH + Co. KG DORMA Hüppe Raumtrennsysteme GmbH + Co. KG 100 100 808,197,260.00 100 DORMA Vertrieb-International GmbH 1,500,002.54 100 DORMA Vertrieb-International GmbH 10,000.00 100 DORMA Vertrieb-International GmbH 7,700,000.00 100 DORMA Vertrieb-International GmbH 25,000.00 384,000.00 100 dormakaba Holding GmbH + Co. KGaA 100 dormakaba Nederland B.V. 18,000,000.00 100 DORMA Vertrieb-International GmbH 2,560,000.00 100 dormakaba Deutschland GmbH 50,000.00 60,000.00 100 dormakaba Deutschland GmbH 100 dormakaba Deutschland GmbH 35,160,684.00 100 dormakaba International Holding AG 500,000.00 250,000.00 100,000.00 100 dormakaba Holding GmbH + Co. KGaA 100 dormakaba Nederland B.V. 99 DORMA Vertrieb International GmbH 1 dormakaba Deutschland GmbH dormakaba Annual Report 2016/2017 Financial statements Group 41 List of substantial Group and associated companies DORMA Uruguay S.A, Montevideo / UY DORMA USA Inc., Delaware / US DORMA Vertrieb-International Gesellschaft mit beschränkter Haftung, Ennepetal / DE DORMA-Glas GmbH, Bad Salzuflen / DE dormakaba (Thailand) Ltd., Bangkok / TH dormakaba Access Indonesia, PT, Jakarta / IN dormakaba Access Solutions LLC, Doha / QA dormakaba Australia Pty. Ltd., Hallam / AU dormakaba Austria GmbH, Herzogenburg / AT dormakaba Belgium N.V., Bruges / BE dormakaba Bulgaria Ltd., Sofia / BG dormakaba Cesko s.r.o., Praha / CZ dormakaba China Ltd, Suzhou / CN dormakaba Danmark A / S, Rodovre / DK dormakaba Deutschland GmbH, Ennepetal / DE dormakaba EAD GmbH, Heiligenhaus / DE dormakaba España S.A.U., Madrid / ES dormakaba Eurasia LLC, Moscow / RU dormakaba Finance AG, Rümlang / CH dormakaba Finance GmbH, Ennepetal / DE dormakaba France S.A.S., Certeil / FR dormakaba Hong Kong Limited, Hong Kong / CN dormakaba Hrvatska d.o.o., Zagreb / HR dormakaba International Holding GmbH, Ennepetal / DE dormakaba Italia Srl., Milano / IT dormakaba Japan Co. Ltd., Yokohama / JP dormakaba Kapi Ve Güvenlik Sistemleri Sanayi Ve Ticaret A.S., Istanbul / TR UYU USD EUR EUR THB IDR QAR AUD EUR EUR EUR CZK CNY DKK EUR EUR EUR RUB CHF EUR EUR HKD HRK EUR EUR JPY TRY Share capital in local currency Voting rights in % Participation of... 10,800.00 100 DORMA Vertrieb-International GmbH 1,000.00 100 Kaba U.S. Holding Ltd. 110,000.00 520,000.00 100 dormakaba Deutschland GmbH 100 DORMA Beschlagtechnik GmbH 13,490,000.00 100 DORMA Vertrieb-International GmbH 1,136,300,000.00 90 DORMA Vertrieb-International GmbH 200,000.00 10,702.00 1,460,000.00 2,416,273.79 1,314,147.96 10 DORMA Produktion International GmbH 100 DORMA Vertrieb-International GmbH 100 DORMA Door Controls Pty. Ltd. 100 dormakaba International Holding AG 100 dormakaba International Holding AG 100 DORMA Vertrieb-International GmbH 100,000.00 100 DORMA Vertrieb-International GmbH 127,759,074.00 100 DORMA Vertrieb-International GmbH 696,000.00 100 dormakaba International Holding AG 126,780,000.00 100 dormakaba Holding GmbH + Co. KGaA 819,100.00 600,000.00 100 dormakaba Holding GmbH + Co. KGaA 100 dormakaba International Holding AG 213,000,000.00 100 DORMA Vertrieb-International GmbH 100,000.00 25,000.00 100 dormakaba Holding GmbH + Co. KGaA 100 dormakaba Holding GmbH + Co. KGaA 5,617,200.00 100 dormakaba International Holding AG 100,000.00 100 dormakaba Nederland B.V. 5,650,000.00 1,000,000.00 100 DORMA Vertrieb-International GmbH 100 dormakaba Holding GmbH + Co. KGaA 260,000.00 100 dormakaba Schweiz AG 120,000,000.00 100 dormakaba Schweiz AG 3,750,000.00 99 DORMA Vertrieb-International GmbH 1 dormakaba Deutschland GmbH dormakaba Kenya Limited, Nairobi / KE KES 40,000,000.00 99 DORMA Vertrieb-International GmbH dormakaba Korea Inc., Seongnam Ciy / KR dormakaba Luxembourg S.A., Wecker / LU dormakaba Magyarorszàg Zrt., Budapest / HU dormakaba Malaysia SDN BHD, Kuala Lumpur / MY dormakaba Management AG, Rümlang / CH dormakaba México, S. de R.L. de C.V., Mexico City / MX KRW EUR HUF MYR CHF MXN 1 dormakaba Deutschland GmbH 150,000,000.00 100 DORMA Vertrieb-International GmbH 15,191,560.72 100 dormakaba International Holding AG 251,000,000.00 100 dormakaba Luxembourg S.A. 200,000.00 100 dormakaba Nederland B.V. 50,000.00 3,000.00 100 dormakaba International Holding AG 97 DORMA Vertrieb-International GmbH 3 dormakaba Deutschland GmbH dormakaba Morocco S.A.R.L., Casablanca / MA MAD 2,000,000.00 100 DORMA Vertrieb-International GmbH dormakaba Nederland B.V., Dodewaard / NL dormakaba Norge A / S, Oslo / NO dormakaba Polska sp.z.o.o., Konstancin-Jeziorna / PL dormakaba Portugal, Unipessoal Lda., Lisbon / PT dormakaba Production Malaysia SDN. BHD., Melaka / MY dormakaba Romania S.R.L., Bucharest / RO dormakaba Schweiz AG, Wetzikon / CH dormakaba Singapore Pte, Singapore / SGP dormakaba Slovensko s.r.o, Bratislava / SK dormakaba South Africa (Pty.) Ltd., Southdale / ZA dormakaba Suomi Oy, Vantaa / FI dormakaba Sverige AB, Västra Frölunda / SE Dorset Kaba Security Systems Pvt. Ltd., New Delhi / IN DOR-TECH Automation Ltd., Burlington / CA Farpointe Data Inc., Sunnyvale / US EUR NOK PLN EUR MYR RON CHF SGD EUR ZAR EUR SEK INR CAD USD dormakaba Deutschland GmbH 11,662.00 100 DORMA Vertrieb-International GmbH 1,754,500.00 100 dormakaba International Holding AG 14,255,500.00 100 dormakaba International Holding AG 50,000.00 100 DORMA Vertrieb-International GmbH 5,000,000.00 100 DORMA Vertrieb-International GmbH 4,705,845.65 6,800,000.00 100 DORMA Vertrieb-International GmbH 100 dormakaba International Holding AG 500,000.00 100 DORMA Production GmbH + Co. KG 6,639.00 950.00 67,275.17 500,000.00 100 DORMA Vertrieb-International GmbH 100 DORMA Vertrieb-International GmbH 100 DORMA Vertrieb-International GmbH 100 dormakaba Nederland B.V. 59,630,770.00 74 dormakaba International Holding AG 100.00 100 DORMA Door Controls Ltd. 1,701,734.88 100 DORMA USA Inc. 42 Financial statements Group Annual Report 2016/2017 dormakaba List of substantial Group and associated companies Fermetures GROOM S.A.S., Fougères / FR Forponto Informática S.A., São Paulo / BR H. Cillekens & ZN BV, Roermond / NL HMX, LLC, Phoenix / US ISEO Serrature S.p.A., Pisogne / IT Jiangsu Tongfeng Hardware Co. Ltd., Shanghai / CN Joint Prosperity Investment Private Ltd., Singapore / SGP Kaba (China) Technologies Ltd., Shenzhen / CN Kaba Corporation, Rocky Mount / US Kaba Delaware, LLC, Wilmington / US Kaba do Brasil Ltda., São Paulo / BR Kaba Finance Corp., Wilmington / US Kaba Gallenschütz GmbH, Bühl / DE Kaba Holding (UK) Ltd., London / GB Kaba Holding AG, Rümlang / CH Kaba Ilco Corp., Rocky Mount / US Kaba Ilco Inc., Montreal / CA Kaba Immobilien GmbH, Villingen-Schwenningen / DE Kaba Jaya Security Sdn. Bhd., Kuala Lumpur / MY Kaba Ltd., Hong Kong / HK Kaba Ltd., Tiverton / GB Kaba Mas LLC, Lexington / US Kaba New Zealand Ltd., Auckland / NZ Kaba U.S. Holding Ltd., Wilmington / US Kaba Workforce Solutions, LLC, Wilmington / US Keyscan Inc., Whitby / CA Lasservice Midt-Norge A / S, Drammen / NO Legic Identsystems AG, Wetzikon / CH Mauer Thüringen GmbH, Bad Berka / DE MDDH Holdings, LLC, Delaware / US Mesker Door, LLC, Delaware / US Mesker Holdings, LLC, Delaware / US EUR BRL EUR EUR USD USD CNY USD BRL USD EUR GBP CHF USD CAD EUR MYR HKD GBP USD NZD USD USD CAD NOK CHF EUR Share capital in local currency Voting rights in % Participation of... 1,500,000.00 100 dormakaba France S.A.S. 10,000.00 15,882.31 100 Task Sistemas de Computação S.A. 100 dormakaba Nederland B.V. N / A 100 MDDH Holdings, LLC 23,969,040.00 40 DORMA Vertrieb International GmbH 3,180,000.00 1,050,000.00 100 Bellwether Capital Ptv. Ltd. 100 Bellwether Capital Ptv. Ltd. 69,500,000.00 100 Kaba Ltd. (HK) 201,731,000.00 100 Kaba Finance Corp. N / A 100 dormakaba Schweiz AG 22,514,978.00 100 dormakaba International Holding AG 1,400.00 100 Kaba U.S. Holding Ltd. 2,560,000.00 100 dormakaba Holding GmbH + Co. KGaA 173,000.00 100,000.00 100 dormakaba International Holding AG 100 dormakaba International Holding AG 56,897,640.00 100 Kaba Corporation 1,000.00 50,000.00 100 dormakaba International Holding AG 100 dormakaba Holding GmbH + Co. KGaA 350,000.00 70 dormakaba Schweiz AG 30 dormakaba International Holding AG 560,250,000.00 100 dormakaba Schweiz AG 6,300,000.00 100 Kaba Holding (UK) Ltd. 880,679.00 100 Kaba Corporation 3,365,000.00 100 DORMA NZ Ltd. 93,000,000.00 97 Kaba Delaware, LLC 3 dormakaba Schweiz AG 19,712.76 100 Kaba U.S. Holding Ltd. 533.00 100 Kaba Ilco Inc. 100,000.00 500,000.00 255,700.00 N / A N / A N / A 100 dormakaba Norge A / S 100 dormakaba Schweiz AG 100 dormakaba EAD GmbH 100 Mesker Holdings, LLC 100 MDDH Holdings, LLC 85.66 DORMA USA Inc. 14.34 PRT Blocker LLC Minda Silca Engineering Pvt. Ltd., New Delhi / IN INR 107,510,000.00 65 dormakaba International Holding AG Modernfold Inc., Greenfield Indiana / US Modernfold of Nevada LLC., Las Vegas / US Path Line (China) Ltd., Hong Kong / HK provitris GmbH, Rietberg / DE PRT Blocker LLC, Pennsylvania / US Rafi Shapira & Sons Ltd., Rishon LeZion / IL Rutherford Controls Int’l Corp., Virginia Beach / US Rutherford Controls Int’l Inc., Cambridge / CA Seca Solutions A / S, Stavanger / NO Shanghai East Iron Hardware Co. Ltd., Shanghai / CN Silca GmbH, Velbert / DE Silca Key Systems S.A., Barcelona / ES Silca Ltd., Crawley / GB Silca S.A.S., Porcheville / FR Silca S.p.A., Vittorio Veneto / IT USD USD HKD EUR ILS USD CAD NOK USD EUR EUR GBP EUR EUR 1.00 1.00 35 Minda Group 100 DORMA USA Inc. 100 Modernfold Inc. 113,900,000.00 100 Kaba Ltd. (HK) 52,000.00 100 dormakaba Holding GmbH + Co. KGaA N / A 143.00 100 DORMA USA Inc. 70 Rafi Shapira 30 DORMA Vertrieb International GmbH 54,300.00 100 DORMA USA Inc. 1.00 100 dormakaba International Holding AG 3,000,000.00 5,500,000.00 358,000.00 162,296.90 411,050.00 797,670.00 100 dormakaba Norge A / S 100 Bellwether Capital Ptv. Ltd. 100 dormakaba Holding GmbH + Co. KGaA 100 dormakaba Luxembourg S.A. 100 Kaba Holding (UK) Ltd. 100 dormakaba France S.A.S. 10,000,000.00 97 dormakaba Luxembourg S.A. 3 dormakaba Schweiz AG Silca South America S.A., Tocancipa / CO COP 4,973,013,775.00 64.42 dormakaba International Holding AG 32.52 dormakaba Schweiz AG dormakaba Annual Report 2016/2017 Financial statements Group 43 List of substantial Group and associated companies Task Sistemas de Computação S.A., Rio de Janeiro / BR Tung Lung Hardware Manufacturing Co. Ltd., Taiwan / TWN Wah Mei (Toishan) Hardware Co., Ltd., Taishan / CN Wah Yuet (Ng’s) Overseas Co. Ltd., Tortola / VG Wah Yuet Industrial Co. Ltd., Hong Kong / HK Yantai DORMA Tri-Circle Lock Co. Ltd, Yantai City / Shandong / CN BRL TWD USD USD HKD CNY Share capital in local currency Voting rights in % Participation of... 26,438,731.00 100 dormakaba International Holding AG 665,000,000.00 100 dormakaba International Holding AG 15,000,000.00 100 Path Line (China) Ltd. 13,289,000.00 100 Kaba Ltd. (HK) 1,000,000.00 100 Kaba Ltd. (HK) 10,000,000.00 60 DORMA Vertrieb-International GmbH 40 Yantai Tri-Circle Intelligent Lock Co. Ltd. Apart from dormakaba Holding AG in Rümlang, there are no companies in the dormakaba Group’s scope of consolidation whose securities are listed on a stock exchange. The registered shares of dormakaba Holding AG are traded on the Swiss Reporting Standard board of the SIX Swiss Exchange (security no. / ISIN: 1179595 / CH 001179595 9; ISIN: 28214814 / CH 028214814 4). As at 30 June 2017, the company’s market capitalization was CHF 3,479.9 million. 44 Financial statements Group Annual Report 2016/2017 dormakaba Report of the statutory auditor to the General Meeting of dormakaba Holding AG, Rümlang Report on the audit of the consolidated financial statements Opinion We have audited the consolidated financial statements of dormakaba Holding AG and its subsidiaries (the Group), which comprise the consolidated balance sheet as at 30 June 2017 and the consolidated income statement, consolidated cash flow statement and consolidated statement of changes in equity for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the consolidated financial statements (pages 7 to 43) give a true and fair view of the consolidated financial position of the Group as at 30 June 2017 and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with Swiss GAAP FER and comply with Swiss law. Our audit approach Overview Basis for opinion We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Our responsibilities under those provisions and standards are further described in the “Auditor’s responsibilities for the audit of the consolidated financial statements” section of our report. We are independent of the Group in accordance with the provisions of Swiss law and the requirements of the Swiss audit profession and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is suffi- cient and appropriate to provide a basis for our opinion. Overall Group materiality: CHF 14.75 million We concluded full scope audit work at 55 reporting units in 21 countries. Our audit scope addressed over 66 % of the Group’s revenue and 71 % of the Groups’ assets. In addition, specified procedures were performed for 3 reporting units in 2 countries addressing a further 9 % of the Group’s revenue and 5 % of the Group’s assets. Limited reviews were per- formed for 51 reporting units in 24 countries addressing a further 14 % of the Group’s revenue and 18 % of the Group’s assets. As key audit matter the following area of focus has been identified: Acquisition accounting Audit scope We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates. The Group is divided into six business segments: Access Solutions AMER, Access Solutions APAC, Access Solutions DACH, Access Solutions EMEA, Key Systems and Movable Walls. In establishing the overall approach for the Group audit, we determined the type of work that needed to be performed by us, as the Group audit team and by com- ponent auditors from the different PwC network firms operating under our instructions. The Group consolidation, financial statement disclosures, acquisition accounting and the valuation of deferred tax assets are audited by the Group audit team. Where the work was performed by component auditors, we determined the level of involvement we needed to have in the audit work for those reporting units to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our audit opinion on the Group’s financial statements as a whole. The Group audit team’s involvement included conference calls with component auditors, site visits to review their working papers and discuss their audit findings as well as to par- ticipate in meetings with the component’s management. dormakaba Annual Report 2016/2017 Financial statements Group 45 Materiality The scope of our audit was influenced by our application of materiality. Our audit opinion aims to provide reasonable assurance that the consolidated financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material, if indi- vidually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate, on the consolidated financial statements as a whole. Overall Group materiality CHF 14.75 million How we determined it 5 % of profit before tax Rationale for the materiality benchmark applied We chose profit before tax as the benchmark because, in our view, it is the benchmark against which the performance of the Group is most commonly measured, and it is a generally accepted benchmark. We agreed with the Audit Committee that we would report to them misstatements above CHF 625,000 identified during our audit as well as any misstatements below that amount which, in our view, warranted reporting for quali- tative reasons. Report on key audit matters based on the circular 1 / 2015 of the Federal Audit Oversight Authority Key audit matters are those matters that, in our profes- sional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Acquisition accounting Key audit matter During the financial year, the Group made a number of acquisitions with the following two being the main acquisi- tions: • on 22 February 2017, the Mechanical Security businesses from Stanley Black & Decker and • on 12 December 2016 the Mesker Openings Group. Accounting for business combinations and the allocation of the purchase price to assets and goodwill involves signif- icant judgements and estimates, and has a significant impact on the current and future year financial statements. Management determined that the fair value of the net identifiable assets acquired is CHF 253.6 million which in- cludes an amount of CHF 135.1 million relating to deferred tax assets. In doing so, Management engaged external experts for the appraisal of property and plants and for the assessment of deferred tax assets. The Goodwill arising from the acquisitions amounts to CHF 650 million. In line with the dormakaba accounting policy the goodwill is fully offset against equity. The consequences of a theo- retical recognition and subsequent amortization is dis- closed in the notes to the consolidated financial statements. Refer to page 19 – note 4 Business combinations and page 26 – note 15 Theoretical movement of goodwill. How our audit addressed the key audit matter To assess the appropriateness of the identifiable assets acquired and liabilities assumed at the acquisition date we assessed the procedures performed by management to identify the assets and liabilities and considered the claus- es laid out in the Purchase Agreements. In particular, we performed the following audit procedures on the purchase price allocation prepared by management: • We evaluated the professional competence and objec- tivity of Management’s experts. • We assessed the completeness of identifiable assets and liabilities against our expectations formed from discus- sions with Management, the review of the due diligence reports prepared during the acquisition and industry knowledge. • We compared the valuation of land and buildings to appraisals prepared by management’s experts in order to assess the appropriate valuation of these assets. • We challenged management’s assessment on the recog- nition of the deferred tax asset and management’s assumptions in the business plan used for the valuation of deferred tax assets by comparing them to the past performance of the Group. • We verified the accuracy of the calculations performed including mathematical correctness. • We assessed whether the transaction was accounted for and disclosed in the consolidated financial statements in accordance with the provisions of Swiss GAAP FER 30. Based on the procedures performed, the valuation of opening balance of the acquired business is supportable and the related disclosures are appropriate. 46 Financial statements Group Annual Report 2016/2017 dormakaba Responsibilities of the Board of Directors for the consolidated financial statements The Board of Directors is responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with Swiss GAAP FER and the provisions of Swiss law, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as appli- cable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of as- surance, but is not a guarantee that an audit conducted in accordance with Swiss law and Swiss Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. • As part of an audit in accordance with Swiss law and Swiss Auditing Standards, we exercise professional judg- ment and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstate- ment resulting from fraud is higher than for one result- ing from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made. • Conclude on the appropriateness of the Board of Direc- tors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to con- tinue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or con- ditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the Board of Directors or its relevant committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Board of Directors or its relevant committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Board of Directors or its relevant committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regula- tion precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a mat- ter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on other legal and regulatory requirements In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists which has been designed for the prep- aration of consolidated financial statements according to the instructions of the Board of Directors. We recommend that the consolidated financial state- ments submitted to you be approved. PricewaterhouseCoopers AG Zurich, 6 September 2017 Beat Inauen Audit expert Auditor in charge Reto Tognina Audit expert 48 Financial statements Holding Annual Report 2016/2017 dormakaba Financial statements Holding dormakaba Annual Report 2016/2017 Financial statements Holding 49 Holding Company balance sheet Assets in CHF million Current assets Cash and cash equivalents Receivables: third parties Receivables: Group companies Accruals Total current assets Non-current assets Investments Loans to Group companies Prepaid expenses Total non-current assets Total assets Liabilities and equity in CHF million Current liabilities Other current liabilities: third parties Total current liabilities Long-term provisions Equity Share capital Legal capital reserves – reserve from capital contribution Legal reserves Reserves for own shares Treasury shares Statutory-retained earnings – available earnings carried forward Net profit / loss for the year Total equity Total liabilities and equity Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 0.1 0.0 0.0 0.0 0.1 704.9 170.1 0.0 875.0 875.2 0.1 0.0 0.0 0.0 0.1 704.9 184.2 0.0 889.1 889.2 Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 0.6 0.6 14.0 0.4 280.7 261.0 17.6 – 1.0 270.6 31.3 860.6 875.2 1.0 1.0 13.9 0.4 327.5 261.0 0.0 – 2.8 288.7 – 0.5 874.3 889.2 50 Financial statements Holding Annual Report 2016/2017 dormakaba Holding Company income statement in CHF million Operating revenues Income from investments – Dividend income – Other income from investments – Income from services provided Interest from Group loans Other financial income Total operating revenues Operating expenses Financial expenses Cost of services provided by Group companies Personnel expenses Other operating expenses Direct taxes Total operating expenses Net profit / loss for the period Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 32.8 0.0 0.0 1.8 0.3 35.0 – 0.0 – 0.0 – 2.2 – 1.1 – 0.4 – 3.7 31.3 0.0 0.0 0.3 2.2 1.1 3.6 – 0.2 – 0.0 – 1.9 – 1.5 – 0.4 – 4.1 – 0.5 dormakaba Annual Report 2016/2017 Financial statements Holding 51 Notes to the financial statements 1. Principles 1.1 General These annual financial statements were prepared in accor- dance with the provisions of the Swiss accounting law (Title 32 of the Swiss Code of Obligations). The main valua- tion principles applied that are not prescribed by law are described below. In accordance with the provisions of the Swiss accounting law (article 961d para. 1 CO), the company does not pro- vide additional information in the notes, a cash flow state- ment or an annual report, referring instead to the conso- lidated financial statements of dormakaba Holding AG for the relevant information. 1.2 Loans to Group companies and other financial assets Loans granted to Group companies and other financial in- vestments in foreign currencies are valued at the market rate on the actual closing date. The valuation is at nominal values, taking into consideration any impairment required. 1.3 Investments Investments are valued in line with the principle of individual valuation. General value adjustments can be applied. 1.4 Dividend income Dividend income is booked when payment is received. 2. Information on balance sheet positions 2.1 Investments: company, domicile dormakaba Holding GmbH + Co. KGaA, Ennepetal / DE dormakaba Beteiligungs GmbH, Ennepetal / DE There are no changes to the Investments. 2.2 Loans to Group companies Share capital in local currency Voting rights in % EUR EUR 27,642,105 1,000,000 52.5 52.5 Counterparty Currency Interest rate Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 dormakaba International Holding AG, Rümlang / CH CHF 1 % Total loans to Group companies 2.3 Long-term provisions This provision relates to general risks. 170.1 170.1 184.2 184.2 52 Financial statements Holding Annual Report 2016/2017 dormakaba 2.4 Share capital As of 30 June 2017, share capital amounted to CHF 420,002.60 divided into 4,200,026 registered shares at a par value of CHF 0.10. Conditional capital as of 30 June 2017 amounted to CHF 42,438. In accordance with the resolution of the Annual General Meeting of 20 October 2015, the Board of Directors is authorized to increase the share capital, until no later than 20 October 2017, by a maximum amount of CHF 41,900 by issuing a maximum of 419,000 fully paid-in registered shares with a nominal value of CHF 0.10 each. The increase may be made in partial amounts. No shares were issued out of authorized capital in the year under review. 2.5 Principal shareholders Pool shareholders 1) Public shareholders Other public shareholders Total public shareholders Members of the Board of Directors and Members of the Executive Committee Members of the Board of Directors (non-executive) Members of the Executive Committee Total members of the Board of Directors and Members of the Executive Committee Less double-counting in respect of Pool shareholders who are members of the Board of Directors 2) Total shares As at 30. 06.2017 No of shares at CHF 0.10 par value in % As at 30. 06.2016 No of shares at CHF 0.10 par value in % 1,153,191 27.5 1,152,885 27.5 3,021,712 3,021,712 71.9 71.9 3,017,962 3,017,962 71.9 71.9 477,192 12,528 489,720 11.4 0.3 11.7 431,452 9,024 440,476 10.3 0.2 10.5 – 464,597 – 11.1 4,200,026 100.0 – 416,297 – 9.9 4,195,026 100.0 1) The following persons are party to the pool agreement dated 29 April 2015: Familie Mankel Industriebeteiligungs GmbH + Co. KGaA / Ennepetal, Mankel Family Office GmbH / Ennepetal, KRM Beteiligungs GmbH / Ennepetal, Christine Mankel-Madaus / Ennepetal, Stephanie Brecht-Bergen / Hamburg, Karl-Rudolf Mankel / Ennepetal as well as Martina Bössow / Dubai (UAE), Anja Bremi / Zollikon, Ulrich Bremi / Zollikon, Balz Dubs / Zurich, Karina Dubs-Kuenzle / Zurich, Kevin Dubs / Zurich, Linus Dubs / Zurich, Anja Flückiger / Forch, Christian Forrer / Bern, Karin Forrer / Muri, Anna Katharina Kuenzle / Thalwil, Clive Kuenzle / Zurich, heirs of Creed Kuenzle, Michael Kuenzle / Meilen, Alexandra Sallai / Worb, Christoph Sallai / Worb, Andrea Ullmann / Zollikon, Sascha Ullmann / Zollikon, Adrian Weibel / Meilen and Tonia Weibel / Meilen. 2) The shareholdings of Pool shareholders who are also members of the Board of Directors are included under Pool Shareholders and Members of the Board of Directors. 2.6 Treasury shares Treasury shares at the beginning of the period Purchased / revalued / sold Treasury shares at the end of the period Treasury shares held in other Group entities Total Treasury shares at the end of the period 30.06.2017 in CHF million 30.06.2017 Number 30.06.2016 in CHF million 30.06.2016 Number 2.8 – 1.7 1.0 17.6 18.7 4,063 – 2,803 1,260 21,178 22,438 6.0 – 3.2 2.8 0.0 0.0 10,765 – 6,702 4,063 0 0 dormakaba Annual Report 2016/2017 Financial statements Holding 53 3. Information on the income statement 3.1 Dividend income The dividend income for the year was CHF 32.8 million (previous year: CHF 0 million). 3.2 Financial income The financial income came primarily from interest income on the loans granted to Group companies. 3.3 Financial expenses The financial expenses primarily are related to bank fees. 3.4 Other operating expenses The main expense items related to external consulting services and marketing expenses. 3.5 Direct taxes Direct taxes are comprised of capital taxes and for the prior year also income taxes. 4. Other information 4.1 General information dormakaba Holding AG is incorporated and domiciled in Rümlang (Switzerland). The address of its registered office is: Hofwisenstrasse 24, 8153 Rümlang, Switzerland. The company is listed on the Swiss Stock Exchange (SIX). 4.2 Full-time equivalents As of 30 June 2017, dormakaba Holding AG did not employ any personnel. 4.3 Contingent liabilities in CHF million Guarantees Of which used The dormakaba companies in Switzerland are treated for VAT purposes as one single entity (Group taxation article 15 Swiss VAT law). If one company is unable to meet its payment obligations to the taxation authorities, the other Group companies within the tax group are jointly and severally liable. 5. Conditional and authorized capital 30.06.2017 30.06.2016 0.0 0.0 0.0 0.0 Conditional capital at the end of the period Authorized capital at the end of the period 42,438 41,900 424,384 419,000 42,938 41,900 30.06.2017 CHF 0.10 par value 30.06.2017 Number 30.06.2016 CHF 0.10 par value 30.06.2016 Number 429,384 419,000 Conditional capital of CHF 36,000 (CHF 36,000 in the prior year) is earmarked for the coverage of convertible bonds and warrant bonds, plus CHF 6,438.40 (CHF 6,938.40 in the prior year) for shares or share options to associates and members of the Board of Directors of which CHF 0 (CHF 0 in the prior year) were exercised in financial year 2016 / 17. The authorized capital at year-end amounts to CHF 41,900 (CHF 41,900 in the prior year). 54 Financial statements Holding Annual Report 2016/2017 dormakaba 6. Shareholdings of members of the Board of Directors and the Executive Committee As at the respective reporting date, the individual members of the Board of Directors and the Executive Committee (including related parties) held the following number of shares in dormakaba Holding AG. None of the members of the Board of Directors and the Executive Committee held any options. Board of Directors Brecht-Bergen Stephanie Chiu Elton SK Daeniker Daniel Dörig Rolf Dubs-Kuenzle Karina Graf Ulrich Gummert Hans Ludwig Hess Hans Heppner John Mankel-Madaus Christine Total Board of Directors Executive Committee Brinker Bernd Cadonau Riet Gaspari Roberto Häberli Andreas Jacob Christoph Kincaid Michael Lee Jim-Heng Lichtenberg Jörg Malacarne Beat Sichelschmidt Dieter Zocca Stefano Total Executive Committee 7. Events after the balance sheet date None. Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 Number of shares Number of shares 189,868 189,768 683 1,305 2,153 84,861 6,476 198 1,270 510 189,868 477,192 250 3,930 2,238 1,185 72 714 1,146 167 1,425 150 1,251 12,528 583 1,160 4,553 36,761 7,276 76 1,133 374 189,768 431,452 0 3,050 1,900 885 0 655 498 0 1,025 0 1,011 9,024 dormakaba Annual Report 2016/2017 Financial statements Holding 55 dormakaba Holding AG: Appropriation of balance sheet profits Proposal for appropriation of available retained earnings as at 30 June 2017 in CHF million Unappropriated retained earnings at the beginning of the period Allocation to reserves for own shares Unappropriated retained earnings at the beginning of the period Net profit / loss for the period Unappropriated retained earnings at the end of the period Allocation from reserve from capital contribution 1) Total at the Annual General Meeting’s disposal 1) Reserve from capital contribution will only be released in the amount of the resolution of the Annual General Meeting. 2017 288.2 – 17.6 270.6 31.3 301.9 58.8 360.7 2016 288.7 0.0 288.7 – 0.5 288.2 50.4 338.6 The Board of Directors will propose the following appropri- ation of balance sheet profits to the shareholders at the Annual General Meeting of 17 October 2017: distribution from reserve from capital contribution of CHF 58,800,364 (CHF 50,377,836 in the prior year) on the share capital of CHF 420,002 (CHF 419,503 in the prior year), no contribu- tion to other reserves (CHF 0 in the prior year). Proposal for the distribution to the shareholders in CHF million Proposed distribution from reserve from capital contribution 2) To be carried forward Total at the Annual General Meeting’s disposal Proposal to the Annual General Meeting 2017 Proposal to the Annual General Meeting 2016 58.8 301.9 360.7 50.4 288.2 338.6 2) After approval of the Annual General Meeting the amount will be paid out free of Swiss withholding tax from capital contribution reserve. After approval of this proposal by the Annual General Meeting the distribution from reserve of capital contri- bution will be paid out on 23 October 2017 as follows according to instructions received: CHF 14.00 (CHF 12.00 in the prior year) gross per listed registered share at CHF 0.10 par value. 56 Financial statements Holding Annual Report 2016/2017 dormakaba Report of the statutory auditor to the General Meeting of dormakaba Holding AG, Rümlang Report on the audit of the financial statements Opinion We have audited the financial statements of dormakaba Holding AG, which comprise the balance sheet as at 30 June 2017, income statement and notes for the year then ended, including a summary of significant account- ing policies. In our opinion, the financial statements (pages 49 to 55) as at 30 June 2017 comply with Swiss law and the company’s articles of incorporation. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the over- all materiality for the financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit pro- cedures and to evaluate the effect of misstatements, both individually and in aggregate, on the financial statements as a whole. Basis for opinion We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Our responsibilities under those provisions and standards are further described in the “Auditor’s responsibilities for the audit of the financial statements” section of our report. We are independent of the entity in accordance with the provisions of Swiss law and the requirements of the Swiss audit profession and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is suffi- cient and appropriate to provide a basis for our opinion. Our audit approach Audit scope We designed our audit by determining materiality and assessing the risks of material misstatement in the finan- cial statements. In particular, we considered where sub- jective judgements were made; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inher- ently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud. Materiality The scope of our audit was influenced by our application of materiality. Our audit opinion aims to provide reasonable assurance that the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material, if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. Overall Group materiality CHF 4,376,000 How we determined it 0.5 % of total assets Rationale for the materiality benchmark applied We chose total assets as benchmark because, in our view, it is a relevant benchmark for a holding company and it is a generally accepted benchmark for holding companies. We agreed with the Audit Committee that we would report to them misstatements above CHF 430,000 identified during our audit as well as any misstatements below that amount which, in our view, warranted reporting for quali- tative reasons. Report on key audit matters based on the circular 1 / 2015 of the Federal Audit Oversight Authority We have determined that there are no key audit matters to communicate in our report. Responsibilities of the Board of Directors for the financial statements The Board of Directors is responsible for the preparation of the financial statements in accordance with the provisions of Swiss law and the company’s articles of incorporation, and for such internal control as the Board of Directors determines is necessary to enable the preparation of finan- cial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Board of Directors is responsible for assessing the entity’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going con- cern basis of accounting unless the Board of Directors either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do so. dormakaba Annual Report 2016/2017 Financial statements Holding 57 From the matters communicated with the Board of Direc- tors or its relevant committee, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communi- cation. Report on other legal and regulatory requirements In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists which has been designed for the preparation of financial statements according to the instructions of the Board of Directors. We further confirm that the proposed appropriation of available earnings complies with Swiss law and the com- pany’s articles of incorporation. We recommend that the financial statements submitted to you be approved. PricewaterhouseCoopers AG Zurich, 6 September 2017 Beat Inauen Audit expert Auditor in charge Reto Tognina Audit expert Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law and Swiss Auditing Standards will always detect a material misstatement when it exists. Misstate- ments can arise from fraud or error and are considered material if, individually or in the aggregate, they could rea- sonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with Swiss law and Swiss Auditing Standards, we exercise professional judgment and maintain professional scepticism through- out the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made. • Conclude on the appropriateness of the Board of Direc- tors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity’s ability to con- tinue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the entity to cease to continue as a going concern. We communicate with the Board of Directors or its relevant committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Board of Directors or its relevant committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. 58 Corporate Governance Corporate Governance Annual Report 2016/2017dormakaba Corporate Governance 59 Group structure and shareholders Group structure dormakaba Group’s organizational structure consists of the following six segments: • The four regional segments within Access Solutions (AS) • AS AMER (North and South America) • AS APAC (Asia-Pacific) • AS DACH (Germany, Austria, Switzerland) • AS EMEA (rest of Europe, Middle East, Africa) • Key Systems and • Movable Walls The companies that lie within the Group’s scope of consoli- dation are listed from page 40 of the Financial statements. General framework This report on corporate governance sets out the principles of management and control at the highest level of the dormakaba Group in accordance with the SIX Swiss Ex- change Directive on Information Relating to Corporate Governance (Directive Corporate Governance, DCG). Unless otherwise stated, the information in this report for the 2016/17 financial year is as of 30 June 2017. dormakaba Group’s corporate governance largely follows the guidelines and recommendations set out in the Swiss Code of Best Practice for Corporate Governance of July 2002 and revised editions of 2007 and 2014. dormakaba Group has made some adjustments and simplifications to suit its manage- ment and shareholder structure and medium size. dormakaba Group’s principles and rules regarding corpo- rate governance are set out in its Articles of Incorporation1), its Organizational Regulations and in the regulations of its Board committees. 1) The Articles of Incorporation are published on the dormakaba website at www.dormakaba.com/corporate-governance. Executive Committee dorma kaba Group as of 30 June 2017 Riet Cadonau Chief Executive Officer (CEO) Bernd Brinker Beat Malacarne Andreas Häberli Jörg Lichtenberg Chief Financial Officer (CFO) Chief Integration Officer (CIO) Chief Technology Officer (CTO) Chief Manufacturing Officer (CMO) Michael Kincaid Jim-Heng Lee Dieter Sichelschmidt Roberto Gaspari Stefano Zocca Christoph Jacob Chief Operating Officer (COO) AS AMER Chief Operating Officer (COO) AS APAC Chief Operating Officer (COO) AS DACH Chief Operating Officer (COO) AS EMEA Chief Operating Officer (COO) Key Systems Chief Operating Officer (COO) Movable Walls Annual Report 2016/2017dormakaba 60 Corporate Governance Shareholders Pool shareholders 1) Public shareholders Other public shareholders Total public shareholders Members of the Board of Directors and members of the Executive Committee Members of the Board of Directors (non-executive) Members of the Executive Committee Total members of the Board of Directors and members of the Executive Committee Less double-counting in respect of Pool shareholders who are members of the Board of Directors 2) Total shares As at 30. 06.2017 No of shares at CHF 0.10 par value in % As at 30. 06.2016 No of shares at CHF 0.10 par value in % 1,153,191 27.5 1,152,885 27.5 3,021,712 3,021,712 71.9 71.9 3,017,962 3,017,962 71.9 71.9 477,192 12,528 489,720 11.4 0.3 11.7 431,452 9,024 440,476 10.3 0.2 10.5 – 464,597 – 11.1 4,200,026 100.0 – 416,297 – 9.9 4,195,026 100.0 1) The following persons are party to the pool agreement dated 29 April 2015: Familie Mankel Industriebeteiligungs GmbH + Co. KGaA / Ennepetal, Mankel Family Office GmbH / Ennepetal, KRM Beteiligungs GmbH / Ennepetal, Christine Mankel-Madaus / Ennepetal, Stephanie Brecht-Bergen / Hamburg, Karl-Rudolf Mankel / Ennepetal as well as Martina Bössow / Dubai (UAE), Anja Bremi / Zollikon, Ulrich Bremi / Zollikon, Balz Dubs / Zurich, Karina Dubs-Kuenzle / Zurich, Kevin Dubs / Zurich, Linus Dubs / Zurich, Anja Flückiger / Forch, Christian Forrer / Bern, Karin Forrer / Muri, Anna Katharina Kuenzle / Thalwil, Clive Kuenzle / Zurich, heirs of Creed Kuenzle, Michael Kuenzle / Meilen, Alexandra Sallai / Worb, Christoph Sallai / Worb, Andrea Ullmann / Zollikon, Sascha Ullmann / Zollikon, Adrian Weibel / Meilen and Tonia Weibel / Meilen. 2) The shareholdings of Pool Shareholders who are also members of the Board of Directors are included under Pool Shareholders and members of the Board of Directors. This Anchor Shareholder Group undertakes to exercise its voting rights in concert when voting on significant Annual General Meeting resolutions. The members of the Anchor Share holder Group also grant each other the right of first refusal if they intend to sell shares in dormakaba Holding AG. Finally, if they sell 27 % or more of dormakaba Holding AG voting rights, members of the Anchor Shareholder Group undertake to commit the buyer to make a public takeover offer to all dormakaba Holding AG shareholders at the same price as that at which the members of the Anchor Shareholder Group are selling. This is designed to prevent any price discrimination against minority shareholders. The pool agreement lasts until 29 April 2030. As far as dormakaba Holding AG is aware, there are no shareholder agreements or other agreements between the major share- holders mentioned that involve the dormakaba Holding AG shares they own or the exercise of the shareholder rights these shares confer. Cross-shareholdings dormakaba Group has not entered into any capital or voting cross-shareholdings with other companies. Major shareholders The above table sets out dormakaba Holding AG’s share- holder structure on the balance sheet date and lists the names of shareholders who have reported holding a stake of 3 % or more of voting rights in dormakaba Holding AG. With regard to the stock exchange reporting obligations that apply on reaching, exceeding or falling below certain thresholds, in financial year 2016/17 the following shareholder made disclosure notifications to dormakaba Holding AG and the SIX Swiss Exchange (more details are available via the search feature provided by the Disclo- sure Office of the SIX Swiss Exchange at www.six- exchange-regulation.com/en/home/publications/significant- shareholders.html): • Norges Bank (the Central Bank of Norway), Oslo, Norway: 26 April 2017 3.11% • Norges Bank (the Central Bank of Norway), Oslo, Norway: 9 May 2017 2.66% • UBS Fund Management (Switzerland) AG, Basel, Switzerland: 20 May 2017 3.02% • UBS Fund Management (Switzerland) AG, Basel, Switzerland: 25 May 2017 below 3% The Mankel/Brecht-Bergen Family and the Kaba Family Shareholders (collectively referred to as the Anchor Share- holder Group) have concluded a pool agreement that governs the mutual rights and obligations of the Kaba Family Shareholders and the Mankel/Brecht-Bergen Family. The pool agreement states that the Anchor Shareholder Group can propose a maximum of five representatives to the General Meeting for election to the Board of Directors. Annual Report 2016/2017dormakaba Corporate Governance 61 Capital structure Capital dormakaba Holding AG’s share capital as at 30 June 2017 is CHF 420,002.60, divided into 4,200,026 fully paid-up regis- tered shares with a nominal value of CHF 0.10 each. As at 30 June 2017, dormakaba Holding AG has authorized capital of CHF 41,900 (corresponding to 9.98% of the share capi- tal), divided into 419,000 registered shares with a nominal value of CHF 0.10 each, and conditional capital of maxi- mum CHF 42,438.40 (corresponding to 10.10% of the share capital) for issuing bonds or similar instruments (up to a maximum of CHF 36,000, divided into 360,000 registered shares with a nominal value of CHF 0.10 each) and for employee participation programs (maximum CHF 6,438.40, divided into 64,384 registered shares with a nominal value of CHF 0.10 each). Conditional capital The share capital of dormakaba Holding AG may be in- creased by an amount not exceeding CHF 36,000 by issuing up to 360,000 registered shares, to be fully paid up, with a nominal value of CHF 0.10 each, through the exercise of con version and/or option rights that have been granted in connection with the issue of bonds or similar instruments by dormakaba Holding AG or a Group company, and/or through the exercise of option rights that have been confer- red on shareholders. If bonds or similar instruments are issued in connection with conversion and/or option rights, the subscription rights of existing shareholders are exclud- ed. The right to subscribe to the new registered shares falls to the respective holders of conversion and/or option rights. The purchase of registered shares by exercise of conversion and/or option rights, as well as every subsequent transfer of registered shares, is subject to the restrictions set out in the Articles of Incorporation. The Board of Directors is entitled to limit or abolish the pre-emptive subscription right of shareholders in connec- tion with the issue of bonds or similar instruments with con- version and/or option rights if such instruments are issued for the purpose of financing the acquisition of companies, parts of companies or equity interests. The share capital of dormakaba Holding AG may be increased by no more than CHF 6,438.40 by issuing to employees and members of the Board of Directors of dormakaba Holding AG and of Group companies no more than 64,384 registered shares with a nominal value of CHF 0.10 each, which must be fully paid up. The subscrip- tion rights of existing shareholders to such new shares are excluded. Registered shares or option rights in this respect will be issued to employees or members of the Board of Directors subject to one or more sets of regulations to be defined by the Board of Directors and taking into account performance, function and level of responsibility. The group of beneficiaries and the principles of allocation are disclosed in the Compensation Report (see page 74). Said registered shares or option rights may be issued to employees or mem- bers of the Board of Directors at a price below the market price. In connection with the issue of option rights to employ ees and members of the Board of Directors, the pre-emptive subscription rights of existing shareholders are excluded. The purchase of shares within the context of employee share ownership schemes, as well as any subse- quent transfers of such shares, are subject to the restrictions set out in the Articles of Incorporation. Authorized capital The Annual General Meeting of 20 October 2015 created authorized capital and authorized the Board of Directors of dormakaba Holding AG to increase the share capital of the company by no more than CHF 41,900 through the issue of a maximum of 419,000 fully paid-up registered shares with a nominal value of CHF 0.10 each by 20 October 2017 at the latest. An increase in installments is allowed. Sub- scription to and acquisition of new shares and each subse- quent transfer shall be subject to the restrictions set out in the Articles of Incorporation. The Board of Directors de- termines the date of issue of new shares, the issue price, type of payment, conditions of exercising subscription rights and the start date for dividend entitlement. The Board of Directors can issue new shares by having a bank or third party underwrite them all and then making an offer to exist- ing shareholders. The Board of Directors is authorized to set the issue price of new shares as close as possible to the market value of the shares. The Board of Directors is authorized in this case to restrict or exclude trading with subscription rights. The Board of Directors can let unex- ercised subscription rights lapse or can take these rights, or the shares for which these rights are granted but not exercised, and place them at market conditions or use them in some other way in the interests of dormakaba Holding AG. The Board of Directors is also authorized to restrict or remove and allocate to third parties shareholders’ sub- scription rights if the shares are being used in connection with the acquisition of companies, parts of companies or participations, or if shares are being placed to finance or refinance such transactions. The Board of Directors will propose to the General Meet- ing on 17 October 2017 to slightly increase and renew the existing authorized capital, which will expire on 20 October 2017, if not renewed. If the Annual General Meeting agrees to this proposal, the Board of Directors will be authorized until no later than 17 October 2019 to increase the share capital of the company by a maximum of CHF 42,000 through the issuance of not more than 420,000 fully paid-up registered shares with a nominal value of CHF 0.10 each. Changes in capital in the last four financial years As a result of an increase from authorized capital, which was renewed by the Annual General Meeting of 28 October 2014, the share capital of dormakaba Holding AG increased as at 28 May 2015 by CHF 38,000 from CHF 381,502.60 to CHF 419,502.60; the authorized capital (divided into 380,000 registered shares with a nominal value of CHF 0.10 each) was cancelled accordingly. This capital increase was carried out in connection with the merger between Kaba Group and Dorma Group and was not dependent on completion of the merger. The 380,000 shares issued from authorized capital were subscribed by Familie Mankel Industriebeteili- gungs GmbH + Co. KGaA. Due to the allocation and issue of shares under the (i) Directive regarding the compensation for the members of the Board of Directors of dormakaba Holding AG and (ii) Executive Stock Award Plan, the share capital of dormakaba Holding AG increased as at 30 June 2017 by CHF 500 from CHF 419,502.60 to CHF 420,002.60 through the issue of 5,000 registered shares with a nominal value of CHF 0.10 each; conditional capital declined by CHF 500 from CHF 42,938.40 to CHF 42,438.40 (represented by 424,384 registered shares with a nominal value of CHF 0.10 each) accordingly. Annual Report 2016/2017dormakaba 62 Corporate Governance Shares and non-voting shares (Partizipationsscheine) Each share entitles the holder to one vote at the General Meeting of dormakaba Holding AG. Voting rights can only be exercised if the shareholder is registered with voting rights in dormakaba Holding AG’s share register. The shares of dormakaba Holding AG are not physical but are issued purely as security rights. They are registered as book-entry securities. Shares carry full dividend rights. There are no outstanding shares with privileged dividend rights or other preferential rights. dormakaba Holding AG has not issued any non-voting shares (Partizipationsscheine). Profit-sharing certificates (Genussscheine) dormakaba Holding AG has not issued any profit-sharing certificates (Genussscheine). Limitations on transferability and nominee registrations Transfers of shares of dormakaba Holding AG require the approval of the company’s Board of Directors. Approval may be refused if the acquirer of the shares does not expressly declare that these were acquired in its own name and for its own account. The Board of Directors will register individ- ual persons who do not expressly declare that they hold the shares for their own account (“nominees”) in the share register with the right to vote provided the nominee has entered into an agreement with the Board of Directors with respect to its position and if the nominee is subject to rec- ognized banking or financial market supervision. Otherwise, such shares held by nominees can be registered in the share register without voting rights. Convertible bonds and options Neither dormakaba Holding AG nor any of its Group compa- nies have issued any convertible bonds or warrants that are still outstanding, or any options. This does not include the allocation of shares to employees under the stock award plans, details of which are given in the Compensa- tion Report on page 81. Board of Directors The duties and responsibilities of the Board of Directors of dormakaba Holding AG are defined by the Swiss Code of Obligations, the Articles of Incorporation and the Organiza- tional Regulations. Members of the Board of Directors The Board of Directors of dormakaba Holding AG has ten non-executive members. No members of the Board of Direc- tors have sat on the Executive Committee of dormakaba Holding AG, Kaba Group or Dorma Group at any time in the last five financial years. No members of the Board of Directors have significant business relations with dormakaba Holding AG. The maxi- mum number of mandates that members of the Board of Directors are allowed to take on the governing bodies of legal entities outside the dormakaba Group is regulated in section 27 of the Articles of Incorporation (www.dormakaba.com/corporate-governance). The following table lists the name, year of birth and date of joining of the individual members of the Board of Directors. In the year under review the Board of Directors granted Members of the Board of Directors as of 30 June 2017 no exemptions from the transfer restrictions. Cancelling or changing the limitations on the transferabil- Name/Position Year of birth ity of shares requires a resolution by the General Meeting supported by at least two-thirds of the votes represented. Book-entry securities based on dormakaba Holding AG shares cannot be transferred by assignment. Neither can collateral be placed by assignment on these book-entry securities. The transfer of such book-entry securities follows the stipulations of the Federal Intermediated Securities Act. Ulrich Graf (Chairman) Rolf Dörig (Vice-Chairman) Stephanie Brecht-Bergen Elton SK Chiu Daniel Daeniker Karina Dubs-Kuenzle Hans Gummert John Heppner Hans Hess Christine Mankel-Madaus Changes of capital of dormakaba Holding AG within the last four financial years 1945 1957 1985 1957 1963 1963 1961 1952 1955 1982 Entry 1989 2004 2015 2010 2010 2001 2015 2013 2012 2015 in CHF million Equity Share capital Reserve from capital contribution Legal reserves Reserves for own shares Treasury shares Unappropriated retained earnings Total equity 30.06.2017 30.06.2016 30.06.2015 30.06.2014 0.4 280.7 261.0 17.6 – 1.0 301.9 860.6 0.4 327.5 261.0 0.0 – 2.8 288.2 874.3 0.4 568.2 261.0 0.0 – 6.0 288.7 1,112.3 0.4 433.5 261.0 0.0 – 7.4 223.7 911.2 Annual Report 2016/2017dormakaba Members of the Board of Directors as of 30 June 2017 Corporate Governance 63 Ulrich Graf, Chairman Chair Nomination Committee Rolf Dörig, Vice-Chairman Chair Compensation Committee, Member Nomination Committee Stephanie Brecht-Bergen Swiss citizen Swiss citizen German citizen Education: Degree in electrical engineering from the Swiss Federal Institute of Technology (ETH) (CH) Education: Dr. iur., attorney-at-law (CH), Advanced Management Program Harvard Business School (USA) Education: Dr. rer. pol., EBS University (DE); M. Sc. in General Manage ment, EBS University (DE); MBA, Pepperdine University (CA/USA) Career: 1989–2006 CEO Kaba Group ¹) (CH) and President Kaba Holding AG; 1976–1989 various executive positions at Kaba Group ¹) (CH) External activities and interests: Chairman of the Board of Directors of Dätwyler Holding AG ¹) (until March 2017); Chairman of the Board of Directors of Griesser Group (CH); member of the Board of Directors Feller AG (CH); Chairman of the Board of Trustees of Rega (Swiss Air Rescue) (CH); member of the Supervisory Board Dekra e.V. (until April 2017) Career: 2002–2008 CEO, 2008 Delegate and since 2009 Chairman of the Board of Directors Swiss Life ¹) (CH); 1986–2002 various executive positions at Credit Suisse ¹) (CH); 2000–2002 member of the Executive Board and responsible for Swiss corporate and retail banking External activities and interests: Since 2009 Chairman of the Board of Directors Swiss Life ¹) (CH) and Adecco Group ¹) (CH); member of the Supervisory Board of Danzer Holding AG (AT), member of the board of Emil Frey Holding AG (CH) and Chairman Swiss Insur- ance Association (CH) Career: Since 2014 Management Board Member of Mankel Family Office GmbH (DE); since 2009 shareholder of dormakaba Holding GmbH + Co. KGaA (DE); 2010–2013 research assistant, EBS University (DE) External activities and interests: Since 2008 Management Board member of the foundation “Rudolf Mankel Stiftung” (DE) Elton SK Chiu Daniel Daeniker Chair Audit Committee Karina Dubs-Kuenzle Chinese citizen, residing in Hong Kong Swiss citizen Swiss citizen Education: Dr. iur. University of Zurich (CH), Zurich bar; LL.M. at the Law School of the University of Chicago (IL/USA) Career: Since 2013 Managing Partner at Homburger AG (CH), where he became Part- ner in 2000 and which he joined in 1991; lecturer in law at the University of Zurich (CH) External activities and interests: Member of the Supervisory Board Rothschild & Co SCA ¹) (FR) Education: Swiss federal certificate of higher vocational education and training in adver- tising (incl. International Advertising Associa- tion’s Advertising Diploma) Career: Since 2009 partner Fehba Import Export AG (CH); 1997–2016 partner of Dubs Konzepte AG (CH); advertising assistant at Wirz Werbeberatung AG (CH) and at Heiri Scherer Creative Direction (CH) External activities and interests: Member of the Board of Directors of Fehba Import Export AG (CH) Education: Higher diploma in accountancy at Hong Kong Polytechnic (HK); Corporate Fi - nancial Management Program at the University of Michigan (USA) Career: Since 2003 President ELP Business Advisory Ltd. (founded by Chiu) and Vice-Chairman Centurylink International Investment Ltd. as well as member of the Board of Advisors of CW, Certified Public Accountants (HK/CN); 1989–2003 various management positions JT International (China) Ltd. (HK/CN) and its predecessor com- panies, most recently as General Manager; 2006–2017 non-executive member of the Board of the dormakaba affiliate Wah Yuet Group (HK/CN) External activities and interests: Fellow member of the Hong Kong Institute of Certi- fied Public Accountants (FCPA, practicing), the Association of Chartered Certified Accountants of United Kingdom (FCCA) and the Institute of Chartered Accountants, England and Wales (FCA) 1) listed company Annual Report 2016/2017dormakaba 64 Corporate Governance Hans Gummert Member Audit, Nomination and Compensation Committees John Heppner Hans Hess Member Audit, Nomination and Compensation Committees German citizen American citizen Swiss citizen Education: Universities of Tübingen and Bonn (DE); attorney-at-law, admitted to the bar in 1990 Education: Bachelor of Science University of Wisconsin-Milwaukee (WI/USA), MBA University of Wisconsin-Milwaukee (WI/USA) Career: Partner since 1991 and Managing Partner since 2008 of the law and tax consultancy firm Heuking Kühn Lüer Wojtek (DE/BE/CH) External activities and interests: Member of the Board ISEO Serrature S.p.A. (IT); Member of the shareholders committee Hoberg & Driesch GmbH (DE); Member of the Board of Directors Chiron-Werke SE (DE); Member of the advisory board Coroplast Fritz Müller GmbH & Co. KG (DE); Chairman of the Super- visory Board of dormakaba Holding GmbH + Co. KGaA (DE); Chairman of the Supervisory Board of Familie Mankel Indus- triebeteiligungs GmbH + Co. KGaA (DE); Board member of Zaplox AB (SE); member of the Supervisory Board of ara AG (DE); Board member of Schüco Middle East Win- dows & Façade Systems LLC (UAE) Career: 2006–2013 President and CEO Fortune Brands Storage and Security (USA) with global responsibility for Master Lock Company LLC and Waterloo Industries; 2000–2006 Chief Operating Officer Master Lock Company LLC (USA); 1998–2000 Executive Vice President Sales + Marketing Master Lock Company LLC (USA); 1996–1998 Marketing + New Business Master Lock Company (USA); 1992–1996 Vice President Logistics and Corporate Controller Master Lock Company LLC (USA) External activities and interests: Member of the National Association of Corporate Directors (USA) Education: Master’s Degree in Material Science and Engineering ETH Zurich (CH); Master of Business Administration (MBA) from the Univer- sity of Southern California (USA); Stanford Executive Program at Stanford University (USA) Career: Since 2006 owner of Hanesco AG (CH); 1996–2005 President and CEO Leica Geo- systems AG¹) (CH); 1993–1996 President Leica Optronics Group (CH); 1989–1993 Vice President Leica Microscopy Group (CH); 1983–1988 Head of Polyurethane Business Unit Huber + Suhner AG¹) (CH); 1981–1983 Development Engineer Sulzer¹) (CH) External activities and interests: Chairman of the Board of Directors Comet Holding AG ¹) (CH) and Reichle & De-Massari Holding AG (CH); member of the Board of Directors Burckhardt Compression Holdings AG ¹) (CH); Chairman of Swissmem (CH); Vice-Chairman of Economiesuisse (CH) Christine Mankel-Madaus German citizen Education: Diplomkauffrau, EBS University (DE) Career: Since 2014 Management Board Member of Mankel Family Office GmbH (DE); since 2009 shareholder of dormakaba Holding GmbH + Co. KGaA (DE); 2006–2009 audit assistant, BDO AG Wirtschaftsprüfungs- gesellschaft (DE) External activities and interests: Since 2008 Management Board member of the founda- tion “Rudolf Mankel Stiftung” (DE) 1) listed company Annual Report 2016/2017dormakaba Corporate Governance 65 Committees The Board of Directors has formed an Audit Committee, a Compensation Committee and a Nomination Committee. Members of the Compensation Committee are elected at each Annual General Meeting. Each committee has written terms of reference that define its tasks and responsibilities. The chairs of these committees are chosen by the Board of Directors. The committees meet regularly and are obliged to produce minutes as well as recommendations to the reg- ular Board meetings. Committee meeting agendas are defined by the committee chair. Members of the commit- tees receive documentation prior to the meetings so they can prepare for discussion of agenda items. Audit Committee The Audit Committee is composed of three non-executive members of the Board of Directors, who have professional or other experience of financing and accounting: Daniel Daeniker (Chair) Hans Gummert Hans Hess The Board of Directors has specified that members of the Audit Committee must meet certain requirements with regard to independence and skills and that they must not be members of the Executive Committee. The term of office is one year or until the conclusion of the next Annual General Meeting; members may be re-elected. The Audit Committee meets at least twice a year, but will be convened by the chair as often as business requires. During the 2016/17 financial year the Audit Committee met five times, with each meeting lasting at least one hour. All members of the Audit Com- mittee attended each meeting. The CFO takes part in the meetings in an advisory capacity, as do, where necessary, the CEO, representatives of the audit firm, representatives of Internal Audit and of the Accounting Department, and the General Counsel. In the 2016/17 financial year, represen- tatives of the audit firm participated in three meetings, the General Counsel, representatives of Internal Audit and Accounting in five and external consultants in four. The Audit Committee minutes the deliberations and decisions taken during meetings. The principal responsibilities of the Audit Committee are to evaluate risk management and account- ing processes, monitor financial reporting and internal auditing, and assess external audits. With regard to external audits, the Audit Committee has the following responsibili- ties: • Approval of the audit priorities; • Acceptance of the audit report and of any recommen- dations made by the auditors prior to the submission of the annual accounts (individual and consolidated financial statements) to the whole Board of Directors for approval; • Proposing to the whole Board of Directors which external auditor should be recommended to the General Meeting; • Assessing the external auditor’s performance, pay and independence, and checking that audit activities do not clash with any consultancy mandates. Elections and terms of office The Board of Directors of dormakaba Holding AG is elected by the Annual General Meeting, with each member standing for election individually. The Articles of Incorporation state that the Board of Directors shall have between five and ten members. Prospective members shall be elected for a one-year term of office up to the conclusion of the next Annual General Meeting. Members of the Board of Directors can be re-elected. When they reach 70 years of age, mem- bers of the Board of Directors normally resign at the next General Meeting. The Board of Directors has decided not to apply the age limit it voluntarily included in the Organiza- tional Regulations to the Board of Directors member Ulrich Graf because it wants to continue to use his experience (especially his significant integration knowledge with regard to the Unican takeover) and support during the implemen- tation and integration work associated with the merger of Kaba Group with Dorma Group. The Board of Directors is proposing to the Annual General Meeting on 17 October 2017 that all serving members of the Board of Directors be re- elected and that Ulrich Graf be re-elected as Chairman of the Board. Internal organization According to the Swiss Code of Obligations and dormakaba Holding AG’s Articles of Incorporation and Organizational Regulations, the main responsibilities of the Board of Direc- tors are: • The strategic direction and management of dormakaba Group; • Structuring the accounting system, the financial controls and the financial planning; • Appointing and dismissing members of the Executive Committee; • Overall supervision of business activities; • Preparation of the Annual Report, preparation of the General Meeting and implementation of its resolutions; • Approving the signing authority of dormakaba Holding AG employees; • Approving the purchase and sale of companies, business areas or other assets worth more than CHF 10 million; • Approving investments, purchases and disposals of real estate worth more than CHF 5 million. The relevant decisions are taken by the whole Board of Directors. The CEO and CFO regularly participate in meet- ings of the Board of Directors in an advisory capacity. Other members of the Executive Committee are brought in to advise on individual items of the agenda. The Board of Direc- tors held eight meetings during the 2016/17 financial year; these lasted between one hour and a whole working day. All members of the Board of Directors attended each meet- ing except one Director who was excused for one meeting. In addition, the Board’s committees met 13 times in total. The agendas for Board meetings are defined by the Chair- man at the CEO’s request. Each member of the Board of Directors may propose agenda items. Members of the Board of Directors always receive documentation prior to Board meetings so they can prepare for discussion of each item on the agenda. The Board of Directors holds discus- sions with the company’s managers and visits one or more dormakaba Group locations, usually on an annual basis. Annual Report 2016/2017dormakaba 66 Corporate Governance The Audit Committee’s tasks relating to internal audits include: • Approving the rules on internal audit’s organization and responsibilities; • Approving audit plans; • Checking the results of the audits and implementing the recommendations of the internal or external auditor; • Transferring (if necessary) internal auditing activities to third parties or to the external auditor in an expansion of its audit activities; • Monitoring the existing Internal Control System (ICS). Compliance with Management Information System (MIS) guidelines, compliance with guidelines on limiting legal risk, and optimizing the risk profile through insurance. In individual cases, external specialist auditors may be brought in to help; • Auditing the compliance report; • Monitoring outstanding legal proceedings; • Evaluating and monitoring business and financial risks. The risk management system periodically records legal, operational, financial and business risks. Legal risks include current or potential legal disputes; operational risks include scenarios such as operational failures and natural disasters; whereas business risks include for instance payment defaults or general negative market developments. Risks are quanti- fied and weighted with regard to their likelihood and their possible financial and/or business impact. Preventative measures that have been planned or already implemented are also subject to review. Risks are recorded if they have a potential financial impact of CHF 2.5 million or more. The Audit Committee regularly reports to the Board of Direc- tors as a whole about its activities, and it notifies the Board of Directors immediately about important matters. Nomination Committee The Nomination Committee consists of four members, the majority of Committee members must be non-executive members of the Board of Directors: Ulrich Graf (Chair) Rolf Dörig Hans Gummert Hans Hess The term of office for each member is one year or until the conclusion of the next Annual General Meeting; members may be re-elected. The Nomination Committee meets at least once a year. During the 2016/17 financial year the Nomination Committee met three times, with each meeting lasting at least two hours. All members of the Nomination Committee attended each meeting. The CEO also usually takes part in the meetings in an advisory capacity, the only member of the Executive Committee to do so. The Nomina- tion Committee sets out the principles for appointing and re-electing members of the Board of Directors and submits proposals to the Board of Directors about its composition. The Nomination Committee also recommends the appoint- ment and de-selection of members of the Executive Com- mittee; the final decisions on appointments and de-selec- tions are taken by the Board of Directors as a whole. The Nomination Committee minutes its deliberations and deci- sions and regularly reports to the whole Board of Directors. Compensation Committee The organization and members of the Compensation Committee as well as the details of dormakaba Group’s compensation policy are set out on pages 76 et seq. of the Compensation Report. All members of the Compensa- tion Committee attended each meeting. In the financial year 2016/17, the Compensation Committee held four meetings and one telephone conference of approximately one to two hours each. Powers and responsibilities Management organization The Board of Directors has the highest responsibility for business strategy and supervises management of the dormakaba Group. It has the highest decision-making au- thority and sets the strategic, organizational, financial planning and accounting rules that dormakaba Group must follow. The Board of Directors has delegated management of ongoing business to the Executive Committee under the leadership of the CEO. Therefore, the CEO is responsible for overall management of the dormakaba Group. The pow- ers and functions of the Executive Committee are set out in the Organizational Regulations of dormakaba Holding AG. The CFO, the CIO (Chief Integration Officer), the COOs, the CTO (Chief Technology Officer) and the CMO (Chief Manu facturing Officer) report to the CEO, who is respon- sible for overall management and for cooperation across segments and functions. These roles have a seat on the Executive Committee. Chief Executive Officer (CEO) The CEO manages dormakaba Group. He is responsible for all the things that are not allocated to other company bodies by law, by the Articles of Incorporation or by the Organi- zational Regulations. After consulting with the Executive Committee, the CEO submits the strategy, the long- and medium-term objectives and the management guidelines for the dormakaba Group to the Board of Directors for approval. In response to a proposal by the CEO, the whole Board of Directors decides on the annual budget (consoli- dated), individual projects, the consolidated financial state- ments and the financial statements of dormakaba Holding AG. The CEO submits recommendations to the Nomination Committee about personnel issues at the Executive Com- mittee level. The CEO also makes proposals to the Compen- sation Committee regarding the remuneration of members of the Executive Committee (including allocation of shares from the share allocation plans). The CEO regularly reports to the whole Board of Directors about business perfor- mance, anticipated important business issues and risks, as well as about changes in management at the operating segment level. Members of the Board of Directors may re- quest and examine further information. The CEO must inform the Chairman of the Board of Directors immediately about any important unexpected developments. Annual Report 2016/2017dormakaba Corporate Governance 67 Members of the Executive Committee as of 30 June 2017 Name/Position Riet Cadonau CEO Bernd Brinker CFO Beat Malacarne Chief Integration Officer Michael Kincaid COO Access Solutions AMER Jim-Heng Lee COO Access Solutions APAC Dieter Sichelschmidt COO Access Solu- tions DACH Roberto Gaspari COO Access Solutions EMEA Stefano Zocca COO Key Systems Christoph Jacob COO Movable Walls Andreas Häberli Chief Technology Officer Jörg Lichtenberg Chief Manufacturing Officer Year of birth Entry Executive Committee 1961 1965 1962 1961 1962 1951 1959 1963 1962 1968 1964 2011 2015 2011 2013 2014 2015 2006 2011 2015 2011 2015 Members of the Executive Committee The table above gives the name, year of birth, position and date of joining of each Executive Committee member. The maximum number of mandates that members of the Executive Committee are allowed to take on the governing bodies of legal entities outside the dormakaba Group is regulated in section 27 of the Articles of Incorporation. Information from and control over the Executive Committee dormakaba Group’s Management Information System (MIS) works as follows: monthly, quarterly, semi-annual and annual financial statements (balance sheet, income state- ment and cash flow statement) are prepared of the Group’s individual reporting units. These figures are consolidated for each segment and for the Group as a whole. The financial figures are compared with the prior year and the budget. The achievability of the budget, which shows the first year of a three-year medium-term plan for each reporting unit, is assessed against the quarterly statements and in the form of a forecast. The CEO and CFO submit monthly writ- ten reports to the Board of Directors about progress against the budget and comparisons with the prior year. At monthly meetings (monthly performance reviews) the segment heads (COOs) inform the CEO and the CFO about business performance and notable events based on written reports about e.g. achievement of budget targets. At Board of Directors meetings, a summary of these reports is dis- cussed and assessed with the CEO and the CFO. Executive Committee Management philosophy The dormakaba Group delegates entrepreneurial responsi- bility for operational business to segment level. The corre- sponding management organization is based on decentral- ized responsibility where appropriate and therefore rapid decision-making structures situated close to local markets. This helps to keep activities focused on the customer. Group functions like Accounting, Communications, Controlling, Human Resources, IT and Legal define and monitor Group- wide standards and are responsible for functional, Group- wide projects. The CFO is responsible for the Group’s financial affairs. All the integration tasks associated with the merger to dormakaba are controlled by the CIO (Chief Integration Officer). The COOs are responsible for the business activities of their respective segments, including development, production, sales and services. The Group Innovation Management area focuses on digitization as well as Intellectual Property Management and Quality Manage- ment and is strategically managed at Executive Committee level by the CTO (Chief Technology Officer). The CMO (Chief Manufacturing Officer) is responsible for the global purchasing as well as the supplier control and advises and supports the operating segments optimize the production and supply chain. Annual Report 2016/2017dormakaba 68 Corporate Governance Members of the Executive Committee as of 30 June 2017 Riet Cadonau Chief Executive Officer Bernd Brinker Chief Financial Officer Beat Malacarne Chief Integration Officer Swiss citizen German citizen Swiss citizen Education: Degree in Business Administration (Diplom-Kaufmann) from the University Cologne (DE) Career: Since 2015 CFO and member of the Executive Committee of dormakaba Group ¹) (CH); 2014–2015 Chief Financial Officer of Dorma Group (DE); 2006–2014 Evonik Indus- tries ¹) (DE): 2009–2014 Head of Corporate Portfolio Management and M&A, 2006–2008 Head of Investor Relations; 2001–2006 Head of Finance and Investor Relations Degussa AG ¹) (DE); 1991–2001 various management positions at VIAG AG1) (today E.ON, DE) and its subsidiary SKW Trostberg AG ¹) (DE), lastly as Head of Finance Education: Swiss certified accountant Career: Since 2015 Chief Integration Officer and member of the Executive Committee of dormakaba Group ¹) (CH); 2011–2015 Chief Financial Officer and member of the Executive Committee of Kaba Group ¹) (CH); 2009–2011 Chief Financial Officer, member of the Exe- cutive Board SBB Cargo AG (CH); 2006–2009 Project Manager Internal Control System (ICS) and Deputy Manager Holcim Group Support Ltd.¹) (CH); 2005–2006 Chief Financial Officer and member of the Executive Board ACC Ltd.¹) (IN); 2004–2005 Project Manager Financial Integration India Holcim Group Support Ltd.¹) (CH); 1999–2004 Chief Financial Officer and member of the Executive Board Siam City Cement Public Company Ltd.¹) (TH); 1997–1999 Vice President Finance and member of the Asian Executive Board Hilti Asia Ltd. (CN) Education: Master of Arts in economics and business administration from the University of Zurich (CH); Advanced Management Program at INSEAD (FR) Career: Since 2015 CEO and member of the Executive Committee of dormakaba Group ¹) (CH); 2011–2015 CEO and member of the Executive Committee Kaba Group ¹) (CH); 2007–2011 CEO Ascom Group ¹) (CH); until 2007 Managing Director ACS Europe + Trans- port Revenue (today a Xerox company); 2001–2005 member of the Executive Board Ascom Group, from 2002 Deputy CEO and General Manager of the Transport Revenue Division, which was acquired by ACS at the end of 2005; 1990–2001 various management positions at IBM Switzerland, lastly as a member of the Management Board and Direc- tor of IBM Global Services External activities and interests: Since 2016 member of the Board of Directors of Georg Fischer AG ¹) (CH) and since 2013 member of the Board of Directors of Zehnder Group ¹) (CH); 2006–2011 member of the Board of Directors Kaba Group and Griesser Group (CH); 2004–2009 President of the Swiss Man- agement Association (www.smg.ch) Roberto Gaspari Chief Operating Officer Access Solutions EMEA Stefano Zocca Chief Operating Officer Key Systems Italian citizen Italian citizen Education: Economics Degree from the Bocconi University (IT) Education: Economics Degree from the Bocconi University (IT) Career: Since 2015 COO Access Solutions EMEA and member of the Executive Commit- tee of dormakaba Group ¹) (CH); 2014–2015 Head of Division Access + Data Systems EMEA and member of the Executive Commit- tee Kaba Group ¹) (CH); 2011–2014 Head of Division Access + Data Systems EMEA and APAC and member of the Executive Commit- tee Kaba Group¹) (CH); 2006–2011 Head of Division Key Systems Europa/Asia Pacific and member of the Executive Board Kaba Group ¹) (CH); 2002–2011 General Manager Silca S.p.A. (IT); 1997–2002 Managing Director Italy and France Watts Industries Inc. (USA); 1988–1997 Managing Director Cisa S.p.A. (IT) Career: Since 2015 COO Key Systems and member of the Executive Committee of dormakaba Group ¹) (CH); 2011–2015 member of the Executive Committee of Kaba Group¹) (CH), since 2013 Head of Division Key Systems and 2011–2013 Head of Division Key Systems EMEA/AP/SAM; 1988–2011 various positions at Whirlpool EMEA (IT): 2004–2011 General Manager Middle East, Africa + Turkey, since 2010 also of Central Europe, 2000–2004 Customer Service Regional Director, South, Central + East Europe, Middle East + Africa, 1994–2000 European Procure- ment Manager; 1988–1994 various positions in industrial and logistics operations; 1986–1988 Procurement and Planning Assistant Imbal (IT) 1) listed company Annual Report 2016/2017dormakaba Corporate Governance 69 Michael Kincaid Chief Operating Officer Access Solutions AMER Jim-Heng Lee Chief Operating Officer Access Solutions APAC Dieter Sichelschmidt Chief Operating Officer Access Solutions DACH US citizen Singaporean citizen German citizen Education: Bachelor of Mechanical Engineering, Master of Business Administration Career: Since 2015 COO Access Solutions AMER and member of the Executive Commit- tee of dormakaba Group ¹) (CH); 2013–2015 COO Access+Data Systems Americas and member of the Executive Committee of Kaba Group ¹) (CH); 2012–2013 Senior Vice President North American Sales of ADS Americas and Deputy Head of Division; 2007–2012 Vice President and General Manager Access Con- trol, Kaba Ilco Corp. (USA); 2003–2007 Vice President and General Manager Access Con- trol Regional Marketing Organization, Kaba Ilco Corp. (USA); 1998–2003 Vice President Sales and Marketing Unican Electronics Divi- sion, Montreal (CA); 1984–1998 various techni- cal and management positions at divisions of Unisys and SNC Lavalin Education: Diploma in Business Studies (Finance) at Ngee Ann Polytechnic Singapore (SG); Certified Public Accountant at Institute of Certified Public Accountants of Singapore (SG); Chartered Certified Accountant at University of Huddersfield (UK); MBA in Marketing at Uni- versity of Strathclyde (UK) Career: Since 2015 COO Access Solutions APAC and member of the Executive Committee of dormakaba Group ¹) (CH); 2014–2015 Head of Division Access + Data Systems Asia Pacific and member of the Executive Committee Kaba Group¹) (CH); 2012–2014 Vice President and General Manager of Materials Group China, Avery Dennison Corporation¹) (CN); 1996–2011 various senior management posi- tions at Assa Abloy ¹): e.g. 2010–2011 Vice President Asia Pacific (HK); 2006–2010 Presi- dent China Door Group (CN); 2003–2005 Vice President Mergers & Acquisitions (HK) Education: Degree in Mechanical Engineering from the Chamber of Commerce and Industry Dortmund (DE) and further education in Mar- keting Management at St.Gallen Marketing School (CH), in Competitive Strategies at ZFU, and in General Management at USB Career: Since 2015 COO Access Solutions DACH and member of the Executive Commit- tee of dormakaba Group ¹) (CH); 2011–2015 Area President Asia Pacific & Australia at Dorma (CN); 2001–2010 Director Division Door Control at Dorma (DE); 1993–2010 Head of Product Management Door Control, Sales Manager OEM Business Germany at Dorma (DE); 1991– 1993 Product Manager Division Door Closer at Dorma (DE); 1988–1991 Head of PQS Door Control at Dorma (DE); 1973–1988 Employee Development / Product Quality Assurance at Dorma (DE) Christoph Jacob Chief Operating Officer Movable Walls Andreas Häberli Chief Technology Officer Jörg Lichtenberg Chief Manufacturing Officer German citizen Swiss citizen German citizen Education: Master of Civil Engineering from the University of Applied Sciences Cologne (DE), Advanced Management Program Harvard (USA) Education: Master’s Degree in electrical engi- neering ETH Zurich (CH); PhD in micro-engineer- ing ETH Zurich (CH); financial management for executives St.Galler Business School (CH) Career: Since 2015 COO Movable Walls and member of the Executive Committee dormakaba Group ¹) (CH); 2011–2015 Area President MMA at Dorma (DE); 2004–2010 Regional Director Emerging Markets & South Europe at Dorma (DE); 2002–2004 Regional Director Emerging Markets at Dorma (DE); 2000–2002 different management positions and consulting / CEO at CASEA AG (DE); 1997–1999 Group Managing Director at Dorf- ner Group of companies (DE); 1994–1997 General Manager at Quick-mix Berlin/Bran- denburg GmbH & Co. KG (DE); 1990–1994 Assistant to the Board at Hebel AG (DE); 1987–1990 Project Sales Manager at Schlag- mann Baustoffwerke GmbH & Co. KG (DE) Career: Since 2015 Chief Technology Officer and member of the Executive Committee dormakaba Group ¹) (CH); 2011–2015 Chief Technology Officer and member of the Execu- tive Committee Kaba Group ¹) (CH); 2003–2010 Head of Development and member of Man- agement Board Kaba AG (CH), from 2009 also of Kaba GmbH (AT); 1999–2003 member Management Board Sensirion (CH); 1997–1999 Chip Design Engineer Invox (CA/USA) External activities and interests: Since May 2017 member of the Board of Directors of Komax Holding AG ¹) (CH) Education: Degree in engineering, Degree in economic engineering Universities of Hannover and Brunswick (both DE) Career: Since 2015 Chief Manufacturing Officer and member of the Executive Committee of dormakaba Group ¹) (CH); 2014–2015 Vice President Global Operations Industrials Group Gardner Denver (DE); 2007–2014 Director Group Logistics and Production Strategy resp. Director Operations Area North Eastern Europe resp. Director Operations Division Auto- matics Dorma GmbH & Co. KG (DE); 2003– 2007 CEO Schiffer Dental Care Products LLC (USA); 1999–2002 member of the Executive Committee Lindal Group Lindal Ventil GmbH (DE); 1993–1999 Factory Manager resp. Business Development Manager Automatics Dorma GmbH & Co. KG (DE); 1991–1993 Kienbaum Consulting (DE) Annual Report 2016/2017dormakaba 70 Corporate Governance Events after the balance sheet date Dieter Sichelschmidt, COO of the Access Solutions DACH segment and member of the Executive Committee, is retiring on 31 December 2017. The Board of Directors of dormakaba Holding AG has designated Alwin Berninger as his successor. Alwin Berninger designated COO Access Solutions DACH as of 1 January 2018 German citizen Education: Mechanical Apprenticeship Osram GmbH in Augsburg (DE), MSc (Diplom- Ingenieur FH) University of Applied Science in Augsburg (DE), MBA Rotterdam School of Management Erasmus University (NL) Career: Since 2016 Chief Executive Officer Kuka Industries (DE), 2015 Spokesman of the Managing Directors/CSO Strategy and Sales Kuka Industries, 2014 Managing Director Reis Maschinenfabrik (DE), 2010–2014 Managing Director Asia/Pacific Kuka Robotics China (CN), 2009–2010 Managing Director Operations Kuka Roboter (DE), 2006–2009 Director Global Customer Services Kuka Roboter (DE), 2003– 2005 Director Customer Support Germany Kuka Roboter (DE), 2001–2003 Director Devel- opment Kuka Roboter (DE), 1999–2001 Man- ager Mechanical Development Kuka Roboter (DE), 1998–1999 Team Leader Function Pack- aging Kuka Roboter (DE), 1998 Design Engi- neer Kuka Roboter (DE) 1996–1998 Design Engineer IMA Engineering Services (DE) Management contracts Neither dormakaba Holding AG nor its Group companies have entered into any management contracts with third parties. Compensation The compensation policy and all the information relating to the compensation paid to the company’s management bodies are shown in the Compensation Report (page 74 et seq). Sections 22–25 and 28 of the Articles of Incorporation contain rules relating to compensation principles, loans to governing bodies and General Meeting votes on compensa- tion. Compliance Compliance principles are set out in the dormakaba Group Code of Conduct, as well as in the dormakaba Group rules and regulations such as Group Directives and Directives. Ad- herence to these rules is extremely important to dormakaba Group as a globally active, listed company. Major compliance focus areas include bribery and corruption, antitrust and competition law as well as safeguarding the employees’ per- sonal integrity. The Code of Conduct and all dormakaba Group rules and regulations are available to dormakaba Group’s employees on the Group Intranet. Furthermore, all dormakaba Group rules and regulations are aligned with the Compliance Strategy. The Compliance Strategy is based on both prevention and detection. Preventive measures include the three main ele- ments “Awareness”, “Consultation” and “Solution”, and in- clude a structured roll-out of rules and regulations, training, helpdesk, etc. The company’s compliance mechanisms are reviewed reg- ularly and are adjusted where necessary to the changing business environment. Code of Conduct and Supplier Code of Conduct The dormakaba Group Code of Conduct, which applies Group-wide, contains standards and rules on bribery and corruption, equal employment opportunities, workplace harassment, conflicts of interest, antitrust and competition law and procedures for reporting misconduct; it also refers to the company’s values. The Code of Conduct is available to employees of the dormakaba Group in various languages and in electronic and printed form. When employees join the company they confirm in writing that they have received and taken note of the Code of Conduct. Senior managers, general managers of local companies and so called Compli- ance Ambassadors are responsible for implementation and enforcement of the Code of Conduct and are trained in dealing with the Code. The Compliance Officer within the Group Legal Department monitors these processes and, alongside line managers, is one of the defined contacts for reporting infringements of the Code of Conduct. dormakaba Group also implemented a Supplier Code of Conduct in order to extend the company’s expectations and values into the supply chain. The company’s aim is to ensure its own ethical and environmental standards are main- tained in the production and preparation of the raw materi- als and components it purchases and uses to make the products. Further, dormakaba is fully aware of the importance of the UK Modern Slavery Act 2015 and highly appreciates this valuable approach to eradicate slavery and human traffick- ing from all areas of life. dormakaba is fully committed to uphold the principles of and adherence to international con- ventions, laws and its internal rules and regulations. Its core values and principles are defined in the aforementioned dormakaba Group Code of Conduct, covering human rights, forced, compulsory and child labor, environmental respon- sibility and ethical behavior. The company’s full Modern Slavery Act Statement is available online: www.dormakaba.com/sustainability-reporting Values of the dormakaba Group The Executive Committee and senior management of dormakaba Group have clearly defined the corporate val- ues. Under the name “dormakaba values” these corporate values have been implemented from 1 July 2016 and rolled out across the whole Group. These are: Customer First, Curiosity, Courage, Performance and Trust. These values are the foundations on which dormakaba Group employees work and take and implement decisions; they also serve as guiding principles for conduct and collaboration within the Group and for dormakaba Group’s approach to addressing customer needs. Annual Report 2016/2017dormakaba Shareholders’ participation rights Changes of control and defense measures Corporate Governance 71 Voting-rights and proxy voting At dormakaba Holding AG’s General Meetings, each regis- tered share entitles the owner to one vote. A shareholder may arrange for another shareholder to represent him or her with a written power of proxy or may be represented by the independent proxy. Majorities required by the Articles of Incorporation For resolutions covering the following, a majority of at least two-thirds of the votes represented is required: • The conversion of registered shares into bearer shares, • The dissolution of the company (including as a result of a merger), • Changes to the Articles of Incorporation provisions on opting out, decision-making by the General Meeting and applicable quora, the number and terms of office of members of the Board of Directors and the process of Board of Directors decision-making, • The introduction of voting right restrictions and • Capital increases. Otherwise the General Meeting of dormakaba Holding AG passes its resolutions and decides its elections by a majority of votes cast, irrespective of the number of shareholders present or votes represented. These rules are subject to overriding statutory provisions and section 36 paragraph 4 of the Articles of Incorporation. Convocation of the General Meeting of Shareholders and agenda General Meetings are convened as stipulated in law. The Board of Directors of dormakaba Holding AG is obliged to include items on the agenda of the General Meeting if these items are requested by shareholders who together represent 0.5% of the share capital, and if the request is made in writ- ing at least four weeks before the General Meeting. Items must be included in writing with details of the matter con- cerned and the proposals. Entries in the share register/invitation to the General Meeting of 17 October 2017 Shareholders who are entered in the share register with voting rights by 9 October 2017 will receive a direct invita- tion to the Annual General Meeting of 17 October 2017 together with the proposals of the Board of Directors. Once they have sent back the response form they will receive their entry ticket and voting material. Shareholders who sell their shares before the General Meeting are no longer enti- tled to vote. If they sell some of their shares, or buy more, they should swap their entry ticket at the information desk on the day of the General Meeting. No entries will be made in the share register between 10 and 17 October 2017. All the information about the General Meeting can be found at www.dormakaba.com/agm. Compulsory offer Section 5a of the Articles of Incorporation of dormakaba Holding AG includes a formal selective opting-out. The text of the formal selective opting-out is as follows (translation of the German version): In the following cases, Familie Mankel Industriebeteiligungs GmbH + Co. KGaA and Mankel Family Office GmbH as well as their respective direct or indirect quota holders – individually or together with shareholders of the company with whom they entered into a pool agreement (Share- holder Pool) in connection with the combination of Kaba Group with Dorma Group – are exempted from the obli- gation to make an offer pursuant to Article 32 paragraph 1 of the Swiss Federal Act on Stock Exchanges and Securities Trading of 24 March 1995 (Article 135 paragraph 1 of the Swiss Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading of 19 June 2015): (a) Combination of KABA Group with DORMA Group pur- suant to the transaction agreement dated 29 April 2015 between Familie Mankel Industriebeteiligungs GmbH + Co. KGaA and Mankel Family Office GmbH on the one hand and the company on the other hand; (b) Transactions in shares of the company between par- ties of the Shareholder Pool and/or with third parties that result in changes of the majorities within the Shareholder Pool, changes in the composition of the Shareholder Pool or changes in the direct overall participation of the parties to the Shareholder Pool in the company, as long as such a direct overall participation does not exceed 33⅓% of the voting rights in the company; (c) Dissolution of the Shareholder Pool; (d) Consummation of the transfer agreement described in § 36 of the Articles of Incorporation. Clauses on changes of control If control of dormakaba Holding AG changes hands, dormakaba International Holding AG (joint liability with dormakaba Holding AG) is obliged to pay two members of the senior management (who are not members of the Executive Committee) a compensation to improve their pension entitlement in the amount of one year’s salary (incl. variable salary component) if their employment contracts are terminated within a year of the change of control or if they resign within a year of the change of control. The rules of the ESAP 1, ESAP Plus, ESAP Plus 3 and ESAP 5 stock award plans state that if there is a change in the control of dormakaba Holding AG (as defined in the regulations) the share blocking period will be lifted if this is permitted by law. If there is a change in the control of dormakaba Holding AG (as defined in the regulations), under the ESAP Plus, ESAP Plus 3 and ESAP 5 rules parti- cipants have the right to a cash payment in compensation for their right (detailed in the regulations) to a (loyalty- based) allocation of additional shares (“matching shares”), provided the plan participants concerned still have an employment contract (that is not under notice) with dormakaba Group when the change of control occurs. Section 36 of the Articles of Incorporation of dormakaba Holding AG states that according to the transfer agree- ment (called transfer agreement), which was concluded on 29 April 2015 related to the merger of Kaba Group and Dorma Group, if there is a change of control of dormakaba Annual Report 2016/2017dormakaba 72 Corporate Governance Holding AG, the Mankel/Brecht-Bergen Family has the right to buy back a 2.6% stake in dormakaba Holding GmbH + Co. KGaA and dormakaba Beteiligungs-GmbH in order to regain control (50.1%) of these companies. A change of control of dormakaba Holding AG happens if a third party (i) holds 33⅓ % or more of voting rights in dormakaba Holding AG in shares, (ii) holds 33⅓ % or more of voting rights in dormakaba Holding AG in purchase positions and the responsible Swiss authority has decided with legal effect that a mandatory offer has been trig- gered, or (iii) publishes the end result of a voluntary offer which, when completed, will give it at least 33⅓ % of the voting rights of dormakaba Holding AG. The Mankel/ Brecht-Bergen Family can only exercise the rights pursuant to the transfer agreement if dormakaba Holding AG re- ceives a written statement of assurance that (i) nobody associated with the Mankel/Brecht-Bergen Family sup- ports the change of control or has ever been involved in it, and (ii) the Mankel/Brecht-Bergen Family holds a stake of at least 47.5 % of dormakaba Holding GmbH + Co. KGaA and dormakaba Beteiligungs-GmbH. The price according to the transfer agreement is based on the market price or nominal value of the shares and in the former case is cal- culated using a fixed formula agreed by the parties in the transfer agreement. Under certain conditions and for a specific period of time, dormakaba Holding AG has the right to buy back the said 2.6 % stakes. The transfer agreement is annulled if the Mankel/Brecht-Bergen Family’s stake in dormakaba Group falls below 25 %. Approval of the transfer agreement can be cancelled by resolution of the General Meeting. Such a decision to cancel must be taken (i) following the publication of a public takeover of- fer to acquire all of the outstanding shares of dormakaba Holding AG and before the end of the offer period and (ii) with the following majority requirements: up to the end of 31 December 2018 with a majority of at least 75 % of the votes represented and from 1 January 2019 with a majori- ty of at least 50 % of the votes represented. The transfer agreement and its performance were declared valid under takeover law by the Swiss Takeover Board on 22 April 2015. The transfer agreement is available for shareholders to inspect at the dormakaba Holding AG’s head office. Auditors Duration of mandate and term of office of Head Auditor PricewaterhouseCoopers AG, Zurich, has been the auditor for dormakaba Holding AG since 1907, and Group auditor of the dormakaba Group since 1982. The responsible lead auditor took on this function in the 2016/17 financial year. In accor- dance with the rules on terms of office pursuant to the Swiss Code of Obligations, latest from financial year 2023/24 a new lead auditor will be responsible for auditing the annual and consolidated accounts of dormakaba Holding AG. Auditing fees and additional fees The fee paid to audit firm PricewaterhouseCoopers for ser- vices relating to the audit of the annual financial statements of dormakaba Holding AG and Group companies and the consolidated financial statements of dormakaba Group came to around CHF 3.27 million in the 2016/17 financial year. In financial year 2016/17 dormakaba Group also paid expenses in the amount of around CHF 1.31 million for other consul- tancy services from PricewaterhouseCoopers. Approximate- ly CHF 1.11 million of this was for general advisory services relating to acquisition projects and other consulting projects, and around CHF 0.10 million for taxation services (direct and indirect taxes). Another CHF 0.10 million was spent on sup- port for subsidiaries relating to changes and/or implementa- tion of new accounting practice rules or accounting ques- tions and other projects. Information pertaining to external auditors Each year, the Board of Directors’ Audit Committee assesses the performance, fees and independence of the auditor and suggests to the Board of Directors which external auditor should be proposed to the Annual General Meeting for selec- tion. Each year the Audit Committee also assesses the scope of external auditing, the audit plans and the relevant pro- cesses and discusses the results of the audit with the exter- nal auditors. You can find more information about the Audit Committee from page 65 et seq. Information policy This reporting on financial year 2016/17 and the financial statements as at 30 June 2017 include the Executive Report, the Annual Report with Financial Statements, the Corporate Governance Report, the Compensation Report, the Group Management Report and the Sustainability Report. The Ex- ecutive Report is sent to shareholders before the Annual General Meeting; the other publications can be ordered using the order form enclosed in the invitation to the Annual General meeting or online at www.dormakaba.com/ news-service. The share price, business publications, media releases and presentations may also be downloaded from www.dormakaba.com. Media and analyst conferences take place at least once a year, but usually twice a year. The dormakaba Group typically holds a Capital Market Day once a year at which financial analysts and investors can gain a deeper insight into the Group by meeting members of the Executive Committee and management as well as seeing product presentations. In addition, the CEO, the CFO and the Head of Investor Relations regularly take part in various external investor meetings. dormakaba Holding AG publishes price-sensitive information in accordance with its disclosure obligations under the rules of the SIX Swiss Exchange AG (Listing Rules, Art. 53, and rules on ad hoc publicity). dormakaba Holding AG informs its shareholders in writing about the course of its business every half year. The infor- mation on how the business is performing is available at www.dormakaba.com/media-releases and www.dormakaba. com/publications. The notifications, reports and presenta- tions of dormakaba Group are not continually updated by the company; the statements and data contained therein are therefore valid as of the relevant date of publication. For those wishing to obtain current information, dormakaba Holding AG recommends that they do not refer solely to past publications. A list of the most important dates in the finan- cial year can be found at www.dormakaba.com/agenda. Annual Report 2016/2017dormakaba 74 Compensation Report Compensation ReportAnnual Report 2016/2017dormakaba 75 Basic principles of compensation The compensation system of dormakaba reflects the com- mitment to attract, engage and retain the best talent within the industry. It is designed to engage executives and employees to implement the company’s strategy, to achieve the company’s short-term and long-term business objectives and to create sustainable shareholder value. The compensation system for the members of the Executive Committee is built on the following key principles: Reward for short-term and long-term performance An important part of compensation is paid as variable incentives linked mainly to the overall performance of dormakaba. Those incentives are well-balanced between rewarding for short-term results (short- term incentive) and sustainable success (long-term incentive). Fairness and transparency Compensation decisions are transparent and fair. The target level of total compensation is based on the function. The global grading system based on Hay Group methodology ensures that functions are evaluated in a consistent manner across the organization. Alignment to shareholders‘ interest The share-based compensation delivered under the long-term incentive plan encourages the sustainable commitment of executives and management mem- bers, and aligns their interests to those of the share- holders. Competitiveness The structure and levels of compensation take into account the market practice (benchmarks based on Hay Group data). Compensation for the members of the Board of Directors consists exclusively of a fixed payment in cash and shares. This ensures that the Board of Directors remains indepen- dent in exercising its supervisory duties towards the Execu- tive Committee. The Compensation Report describes the principles underly- ing the compensation policy, and provides information about the steering process and the compensation actually paid to the Board of Directors and Executive Committee of dormakaba Holding AG. It meets the requirements of Articles 14 to 16 of the Ordinance Against Excessive Pay at Publicly Listed Companies of 20 November 2013 (VegüV), Article 663c of the Swiss Code of Obligations, the SIX Swiss Exchange’s Directive on Information relating to Corporate Governance, and economiesuisse’s Swiss Code of Best Practice for Corporate Governance. Introductory notes from the Compensation Committee The 2016/17 financial year has been the first full joint finan- cial year following the merger of Dorma and Kaba to be- come dormakaba. It was a very good year for dormakaba with an organic growth of 4.3%, an increase of the EBITDA margin by 1%-point and a significant increase in net profit. The company continued its post-merger integration pro- cess, realizing important cost and top line synergies, as well as operational progress. Further, dormakaba strengthened its market position by two major acquisitions in the USA, Mesker (Mesker Openings Group) and Best Access Solu- tions (Mechanical Security businesses of Stanley Black & Decker). Both acquisitions were successfully completed during the reporting year and allowed the company to be- come one of the top three providers in the North American market. The Compensation Report explains how these re- sults impacted the variable incentive payments made to the members of Executive Committee under the different compensation plans. The purpose of the compensation programs of dormakaba is to attract, engage and retain executives and employees, to drive performance and to encourage behaviors that are in line with dormakaba’s values as well as with the long- term interests of the company’s shareholders. In the report- ing year, the Compensation Committee conducted a thor- ough review of the compensation system of the Board of Directors and of the Executive Committee. The conclusions of the review and the decisions taken as a result of it are explained in this report. Additionally, the Compensation Committee performed its regular activities throughout the financial year such as the propositions of compensation for the members of the Board of Directors and Executive Committee, as well as the preparation of the Compensa- tion Report and the binding say-on-pay votes at the Annual General Meeting of Shareholders (AGM). At the upcoming AGM, our shareholders will again be asked to prospectively approve the aggregate maximum amounts of compensation of the Board of Directors for the period until the following AGM and of the Executive Com- mittee for the financial year 2018/19. Further, our sharehold- ers will have the opportunity to express their opinion about our compensation system and the compensation awarded to the Board of Directors and to the Executive Committee by way of a consultative vote on the 2016/17 Compensation Report. Looking ahead, we will continue to regularly review our compensation policy in order to promote sustainable perfor- mance, alignment to the long-term interests of our share- holders and employees’ engagement, while being compliant with the regulatory environment. The Board of Directors would like to thank our shareholders for their valuable feed- back on our approach to executive compensation. Annual Report 2016/2017Compensation Reportdormakaba 76 Managing compensation Compensation Committee In accordance with the Articles of Incorporation and the Or- ganizational Regulations of dormakaba Holding AG, the Board of Directors is responsible for the principles underlying the compensation policy and for the steering process; it is supported in this work by the Compensation Committee. The Compensation Committee consists of three members of the Board of Directors who are elected annually and individually by the AGM for a period of one year. At the AGM of 2016, the shareholders elected Rolf Dörig (chair), Hans Gummert and Hans Hess as members of the Compensation Committee. The Compensation Committee’s main tasks are to: The Compensation Committee meets as often as business requires but at least once a year. In the financial year 2016/17, the Compensation Committee held four meetings and one telephone conference of approximately one to two hours each. All meetings were attended by all members. The Chairman of the Compensation Committee reports to the Board of Directors after each meeting on the activi- ties of the committee. The minutes of the committee’s meetings are available upon request to the members of the Board of Directors. As a general rule, the Chairman of the Board of Directors, the CEO and the Senior Vice President Group Human Resources attend the Compensation Commit- tee meetings in advisory capacity. They do not attend the meeting, or parts thereof, when their own compensation and/or performance are being discussed. • Propose and periodically review the compensation policy The Compensation Committee may decide to consult ex- and regulations for the attention of the Board of Directors; • Propose to the Board of Directors the specific design of the fundamental compensation elements and the deter- mination of the compensation-related performance objectives; • Propose to the Board of Directors the maximum aggre- gate compensation amount of the Board of Directors and of the Executive Committee to be submitted to the shareholders’ vote at the AGM; • Propose to the Board of Directors the compensation to be paid to its members within the limits approved by the AGM; • Decide on the terms of appointment, significant changes in existing employment contracts and compensation for the members of the Executive Committee within the limits approved by the AGM; • Decide on the share-based compensation to be awarded to the members of the Executive Committee and the Senior Management; • Propose to the Board of Directors the Compensation Report. Compensation for the Executive Committee as well as the Senior Management is set as part of an annual process. ternal advisors on specific compensation matters. As in previous years, Hay Group, an internationally recognized consulting firm, has been appointed to provide benchmark- ing data on compensation of Executive Committees of comparable companies. Agnès Blust Consulting, a company specialized in executive compensation in Swiss listed com- panies, has been appointed to provide independent advice in specific compensation and governance matters. These consulting firms do not have any non-Human Resources re- lated mandate with dormakaba. Shareholders’ involvement The Board of Directors values the dialogue with sharehold- ers and wants to know and understand their views about executive compensation. In this context, the Board of Direc- tors already started holding a consultative vote on the Compensation Report in the financial year 2012/13. This vote allows shareholders to express their opinion on the compensation policy and systems applicable to the Board of Directors and the Executive Committee. Since the 2015 AGM, the Board of Directors also seeks an annual prospec- tive binding approval from shareholders of the maximum aggregate amount of compensation of the Board of Direc- tors and the maximum aggregate amounts of fixed and variable compensation of the Executive Committee. Annual process and responsibilities for compensation of the Board of Directors and Executive Committee Compensation policy review and compensation principles for next financial year Compensation plans, budget and share award plan design Maximum aggregate compensation amount of the Board and EC for next compensation period Compensation structure and level of Board of Directors for next compensation period Individual target compensation of EC members for next financial year* Individual short-term incentive payments EC members for previous financial year* Individual share awards EC members and Senior Management* Compensation Report June Aug Oct Feb CC BoD CC BoD CEO CC CC CC BoD CC BoD CEO CC CEO CC CC BoD AGM AGM AGM: Annual General Meeting, BoD: Board of Directors, CC: Compensation Committee, CEO: Chief Executive Officer ■ body which recommends ■ body which reviews ■ body which approves * Proposals related to the CEO compensation are prepared by the Chairman of the Compensation Committee and approved by the Compensation Committee Compensation ReportAnnual Report 2016/2017dormakaba 77 1. Composition of compensation The compensation paid to the Board of Directors comprises a cash payment of CHF 90,000 and a fixed award of 100 shares of dormakaba Holding AG, or in the case of the Chair- man of the Board of Directors, 300 shares. Additional fees are paid for specific functions such as chairmanship of the Board of Directors, chairmanship and/or membership in a committee of the Board of Directors or for performing spe- cial additional tasks assigned by the Board of Directors. The Chairman of the Board of Directors is not eligible to addi- tional compensation for his participation in the committees. The members of the Board of Directors may decide to receive part of the cash payment in the form of shares of the company. The number of shares awarded is calculated using the average closing share price for the last five trading days of the last month of the relevant compensation period. The awarded shares are restricted for a period of three years; this blocking period remains in place if a member leaves the Board of Directors. In addition, a shareholding ownership guideline is in place, requiring Board members to hold a minimum of 500 shares of dormakaba. This can be built up over a period of three years after the implementation of the guideline (in October 2014) or within three years after the election to the Board of Directors (in case of new members). Compensation is paid on a pro-rata basis to Board mem- bers twice a year. For the financial year 2016/17, the first compensation period ended on 30 April 2017, the second will end on 31 October 2017. Actual expenses incurred are only reimbursed for travel and journeys outside Switzerland or as caused by special additional tasks performed on behalf of and assigned by the Board of Directors. As at 30 June 2017, in compliance with the Articles of Incor- poration, there were no outstanding loans or credit facilities between dormakaba and current or former members of the Board of Directors, or parties closely related to them. Invest- ments held by members of the Board of Directors or related persons (including conversion and option rights) – if any – are listed on page 82 et seq. and on page 54 in the appendix to the balance sheet. The Articles of Incorporation include the principles of com- pensation applicable to the Board of Directors and to the Executive Committee. Those provisions can be found under www.dormakaba.com/en/investor-relations/corporate- governance and include: • Principles of compensation of the Board of Directors (Article 23); • Principles of compensation of the Executive Committee (Article 24); • Binding vote at the AGM (Article 22); • Additional amount for new members of the Executive Committee (Article 25); • Credits and loans (Article 28). Compensation architecture for the Board of Directors Members of the Board of Directors only receive a fixed com- pensation based on the responsibilities and time require- ment of their function, without any entitlement to perfor- mance-related compensation. This ensures that the Board of Directors remains independent while exercising its super- visory duties towards the Executive Committee. The amount of compensation for each function of the Board of Direc- tors is determined annually considering the market compen- sation trends and comparisons with other listed Swiss industrial companies which operate internationally. In the reporting year, a benchmarking analysis was conducted with the support of an external consultant, Agnès Blust Consulting. For this purpose, a peer group of Swiss multina- tional companies of the industrial sector listed on the Swiss Stock Exchange (SIX) had been selected for the bench- marking analysis. The peer group consists of Autoneum, Bucher Industries, Burckhardt Compression, Clariant, Dätwyler, Georg Fischer, Lonza, OC Oerlikon, Rieter, Schweiter Technologies, Sika, Sonova, Sulzer and Zehnder Group, and is well-balanced in terms of market capitali- zation, revenue size and headcount. The result of this analy- sis showed that overall the compensation of the Board of Directors is slightly below market practice. Yet, the Board of Directors decided to keep the compensation structure and levels unchanged, with the exception of the fixed number of shares for the Chairman of the Board, which has been increased from annually 200 shares to 300 shares. The com- pensation system and levels are documented in a compen- sation directive. Basic compensation p.a. Additional compensation for Chairman roles p.a. Additional compensation for committee membership roles p.a. All amounts in CHF Chairman BoD Chairman Audit Committee Chairman Compensation Committee Chairman Nomination Committee Member Audit Committee Member Compensation Committee Member Nomination Committee Ordinary BoD member 90,000 240,000 60,000 45,000 45,000 – – – – – – – – 15,000 10,000 10,000 – Share award p.a. Additional payments Reimbursement of expenses 300 Actual expenses for travel or journeys outside Switzerland or as caused by special work done by members on behalf of the Board of Directors Compensation for special tasks commissioned by Board of Directors 100 Annual Report 2016/2017Compensation Reportdormakaba 78 2. Assessment of actual compensation paid to the Board of Directors in the 2016/17 financial year The increase in actual compensation paid to the Board of Di- rectors compared to the previous year is due to the fact that the fixed number of shares awarded to the Chairman of the Board has been increased from annually 200 shares to 300 shares and to the increase in the share price of 27% (on aver- age). The compensation system of the Board of Directors has otherwise not been changed compared to the previous financial year. At the AGM 2016, the shareholders approved a maximum aggregate amount of CHF 2,750,000 for the Board of Direc- tors for the compensation period from the AGM 2016 until the AGM 2017. The compensation effectively paid for the portion of this term of office included in this compensation report (October 2016–30 June 2017) is within the limit ap- proved by the shareholders. A conclusive assessment for the entire period will be included in the Compensation Report 2017/18. At the AGM 2015, the shareholders approved a maximum aggregate amount of CHF 2,510,000 for the Board of Directors for the compensation period from the AGM 2015 until the AGM 2016. The compensation effectively paid was CHF 2,111,590 and is within the limit approved by the shareholders. Compensation architecture for the Executive Committee The compensation awarded to members of the Executive Committee is primarily driven by the success of the com- pany. In addition to a competitive fixed compensation there is a performance-related component that rewards for per- formance and allows members of the Executive Committee to participate in the company’s long-term value creation. The overall compensation consists of the following elements: • Annual base salary; • Benefits (such as retirement benefits); • Short-term incentive; • Long-term incentive (share-based compensation). To ensure consistency across the organization, roles within the organization have been evaluated using the job grading methodology of Hay Group. The grading system is the basis for compensation activities such as benchmarking and de- termination of compensation structure and levels. For com- parative purposes dormakaba refers to external compensa- tion studies that are conducted regularly by Hay Group in most countries. Overall, these studies include the compen- sation data of 2,500 technology and industrial companies, including listed and privately held competitors in the securi- ty sector that are comparable with dormakaba in terms of annual revenues, number of employees and complexity in the relevant national or regional market. Consequently, there is no pre-defined peer group of companies that is used globally. Rather, the benchmark companies will vary from country to country based on the database of Hay Group. –20% to +35% of this figure. The variable component of compensation (= short- and long-term incentives) is target- ed to make up for at least 50% of the overall compensation. 1. Annual base salary Members of the Executive Committee receive an annual base salary for fulfilling their functional role. It is based on the following factors: • Content, responsibilities and complexity of the function; • External market value of the respective role: amount paid for comparable positions in the industrial sector in the country where the member works; • Individual profile in terms of skills set, experience and seniority. 2. Benefits As the Executive Committee is international in its nature, the members participate in the benefits plans available in their country of employment. Benefits consist mainly of retirement, insurance and health care plans that are de- signed to provide a reasonable level of protection for the participants and their dependents in respect to the events of retirement, disability, death and illness/accident. The members of the Executive Committee with a Swiss employ- ment contract participate in the occupational pension plans offered to all employees in Switzerland, which consist of a basic pension fund and a supplementary plan for manage- ment positions. The pension fund of dormakaba in Switzer- land is in line with benefits provided by other Swiss multina- tional industrial companies. Members of the Executive Committee under foreign em- ployment contracts are insured commensurately with market conditions and with their position. Each plan varies in line with the local competitive and legal environment and is, as a minimum, in accordance with the legal requirements of the respective country. Further, members of the Executive Committee are also provided with certain executive perquisites such as company car or car allowance, representation allowance and other benefits in kind according to competitive market practice in their country of employment. 3. Variable compensation The variable compensation consists of a short-term incentive (STI) and long-term incentive (LTI). 3.1 Short-term incentive The short-term incentive is defined annually as a cash pay- ment and aims to motivate the participants to meet and exceed the company’s measurable financial objectives, which are defined in line with the Group’s strategy. Pursuant to the Article of Incorporation 24 the short-term incentive may not exceed 150% of the individual annual base salary for the members of the Executive Committee (cap). Following the “We are ONE company” principle, the indi- The compensation paid to the Executive Committee must in principle be based on the market median in the relevant national or regional market, and must be within a range of vidual short-term incentive paid to the members of the Executive Committee is strictly based on Group and seg- ment financial objectives and not on individual goals. The Fixed compensation and benefits Variable compensation (target of at least 50 % of total compensation) Annual base salary Benefits Short-term incentive Long-term incentive Purpose Reflects the function (scope, responsibilities), experience and skills of the individual Establish a level of risk pro- tection for the participants and their dependents Rewards company and seg- ment performance Rewards individual and com- pany performance, aligns to shareholders’ interests Compensation ReportAnnual Report 2016/2017dormakaba 79 CEO, CFO, CIO, CTO, CMO Share in Group’s results COOs Share in segment’s results Variable share in activity of own segment x x + Result growth factor = Payment as short-term incentive Sales growth factor Variable share in Group’s results x NWC factor = Variable share in activity of own segment = Payment as short-term incentive business results are compared to the previous year’s results, in order to drive a continuous improvement of the business achievements, year after year. The incentive formulas for all members of the Executive Committee are built around the following principle: the short-term incentive consists of a pre-defined share of prof- it (as a percentage of Group net income or segment EBIT) multiplied by growth factors (see illustration to the right). This formula is aligned to the business strategy of profitable growth because it rewards for bottom-line results (Group net income or segment EBIT) and for top-line contribution (sales growth multiplier). Further, for the COOs responsible for a segment, the formula also includes a net working capi- tal factor (NWC factor), which reflects the focus on efficient management of the company’s financial resources. The pre-defined profit share (in percentage of profit) is deter- mined for each function individually. For the CEO and other Executive Committee members (CFO, CIO (Chief Integration Officer), CTO (Chief Technology Officer), CMO (Chief Manufacturing Officer)), the incentive formula relates exclusively to Group results. For the COOs, it relates to segment results and Group results as follows: Group Segment Rationale Movable Walls Key Systems 30 % 70 % Access Solutions (AS) 10 % 30 % all AS segments 60 % own AS segment Movable Walls and Key Systems are independent global segments, the 30–70 % split between Group’s and segment’s results is well balanced in terms of rewarding the collective performance of the Group and the individual performance of the segments. AS segments (AMER, APAC, DACH, EMEA) are interdependent, therefore the weighting strongly encourages collaboration between the AS segments and rewards for the AS collective performance and the individual performance of each AS segment in a balanced manner. The calculation of the short-term incentives is based – just as the audited financial statements of the Group – on the actual figures recorded in the financial reporting system. Special effects that have a material impact on the financial results, such as significant acquisitions and divestments or extraordinary result representing merger-related integration costs, are excluded so that the financial results are compa- rable to previous year. Considering the profit-sharing nature of the STI, no formal “target” STI amount is set. However, for members of the Executive Committee a payout of 85% of the annual base salary (on average) corresponds to the level of expected performance for the financial year 2016/17. 3.2 Long-term incentive The purpose of the long-term incentive is to give the Execu- tive Committee an ownership interest in dormakaba and a participation in the long-term performance of the company and thus to align their interests to those of the shareholders. At the beginning of the long-term incentive plan cycle (grant date), Executive Committee members are awarded restricted shares and performance share units (former matching shares) of dormakaba on the basis of the follow- ing criteria: • External benchmark: typical grant size of long-term incentive for a similar function in the relevant market and positioning of the individual’s total direct compensation compared to that benchmark. Total direct compensation includes fixed base salary plus short-term incentive plus allocation under the long-term incentive plan; • Individual performance: measured against pre-defined priorities in the financial year prior to the grant, as docu- mented within the performance management process. The long-term incentive is the only compensation program that takes into consideration the individual performance of the Executive Committee members. For each member, a list of individual strategic priorities is determined before the start of each financial year based on the mid-term plan of the Group, segment or function. At the end of each financial year, the individual performance of the member is evaluated against those strategic priorities and will be considered for the determination of the grant size of the long-term incentive in the following financial year. The list of strategic priorities of the CEO for the financial years 2015/16 (impact on the grant in financial year 2016/17) is provided in the illustration on page 80; • Strategic importance: evaluate the Executive Committee member's projects to the long-term company's success; • Retention: desire to retain the person to the company and to its overall long-term value creation by offering restrict- ed shares and performance share units subject to a three-year vesting period. Annual Report 2016/2017Compensation Reportdormakaba 80 Individual grant based on: ∙ Typical grant size and positioning of total compen- sation versus benchmark ∙ Individual performance in previous year ∙ Business importance of participant’s projects ∙ Desire to retain participant to company Strategic priorities of the CEO (financial year 2015/16) (This information is disclosed in summarized form for confidentiality reasons) Business /operational performance in line with guidance Implementation of strategic projects as per strategic plan Post-Merger Integration (PMI): ∙ Culture and people: form new leadership teams, succession planning and retention of key talents ∙ Processes and structures: implement operating model and corresponding processes and structures ∙ Integration work-streams: ∙ Implementation of Value Driver Initiatives to achieve the defined business targets ∙ Implementation of Core Projects (infrastructure) ∙ Change Management: strengthen leadership behaviors, as a basis for a joint culture Group business development: selectively establish further acquisitions /divestments in accordance with strategic priorities Innovation: launch of exivo and finalization of "Legic Connect" The strategic priorities of the CEO have been implemented successfully. Based on the performance achieved and on the scope of the CEO role after the merger, the LTI grant size has been increased compared to the previous year. Based on the above criteria, the CEO formulates a pro- posal for long-term incentive awards of the individual Execu- tive Committee members and other members of Senior Management, which is subject to approval by the Compen- sation Committee. For the CEO, the Chairman of the Com- pensation Committee formulates a proposal that is subject to the approval of the Compensation Committee. Pursuant to the Article of Incorporation 24 the fair value of the LTI may not exceed 150% of the individual annual base salary for the members of the Executive Committee (cap). The long-term incentive award is split into two compo- nents: two-thirds are granted in form of restricted shares of dormakaba subject to a three-year blocking period. This component of the award is designed to provide parti- Overview of outstanding long-term incentive awards Performance share units 3-year vesting period ∙ drive future EPS performance Shares unrestricted p t u o y a % 0 0 2 – 0 Restricted shares 3-year blocking period ∙ provide ownership interest Shares unrestricted cipants an ownership interest in the long-term value creation of the company by making them shareholders. The remain- ing third of the award is granted in form of performance share units (former matching shares) of dormakaba subject to a three-year performance-based vesting period. This component of the award is designed to reward participants for the future performance of the earnings per share (EPS) of the company over the three-year vesting period. The re- muneration may range from 0% to a maximum of 200% of the original number of units granted (maximum 2 shares for each performance share unit originally granted). In summary, while the long-term incentive award is grant- ed on the basis of factors related to the function (strategic importance) and the individual (positioning versus bench- mark, performance, retention need), the vesting of the per- formance share units depends on future company perfor- mance (measured by EPS development). Restricted shares and performance share units are usually awarded annually at the end of September. In case of volun- tary termination by the participant or termination for cause by the company, restricted shares remain blocked and the performance share units are forfeited without any compen- sation. In case of termination without cause, retirement or disability, restricted shares remain blocked and the per- formance share units are subject to an accelerated pro-rata vesting on the basis of target performance (100%). In case of death or change of control, the blocking period of the shares is lifted and performance share units are subject to an accelerated pro-rata vesting (death) or full vesting (change of control) at target performance (see also Corpo- rate Governance Report, page 71, “Changes of control and defense measures”). The conditions for the award of shares and share units are governed by the stock award plans of dormakaba and are identical for all participants. An overview of the terms and conditions of the shares and share units awarded under the current and discontinued plan (outstanding awards) is provided in the illustration below. Entry into force Name Plan design Plan purpose/criteria Notes Award of restricted shares and performance share units (matching shares) conditional upon EPS performance during a three-year vesting period • Reward long-term company performance through the award of performance share units subject to EPS performance condition • Align to shareholders’ interest and enable employees to participate in the company’s long-term success through the award of restricted shares • Reward individual performance through the award grant size • Retain participants to the company through the three-year vesting and restriction periods on the award Executive Stock Award Plan ESAP 5 2015 Executive Stock Award Plan ESAP Plus 3 Award of restricted shares and matching shares (one for two) subject to a three-year vesting period 2013 • Align to shareholders’ interest and enable employees to participate in the company’s long-term success through the award of restricted shares • Reward individual performance through the award grant size • Retain participants to the company through the three-year restriction period From 2015/16 finan- cial year onwards, all LTI awards are made solely under ESAP 5 plan In 2014/15 financial year, all LTI awards are made solely under the ESAP Plus 3 plan ESAP Plus 3 has been discontinued as of 2015/16 financial year Compensation ReportAnnual Report 2016/2017dormakaba 81 All shares awarded in recent years have come from treasury shares and to a small extent from conditional capital. The company’s shares awarded under stock award plans Date Number of shares awarded 14 August 2009 16 August 2010 15 August 2011 4,100 shares under ESAP 1 Award value: CHF 225.80/share 4,220 shares under ESAP 1 Award value: CHF 298.25/share 3,610 shares under ESAP 1 Award value: CHF 277.00/share 22 November 2012 20 September 2013 22 September 2014 21 September 2015 2,570 shares, of which 310 under ESAP 1 and 2,260 under ESAP Plus Award value: CHF 373.00/share 3,272 shares, of which 310 under ESAP 1, 2,310 under ESAP Plus and 652 under ESAP Plus 3 Award value: CHF 398.00/share 3,285 shares under ESAP Plus 3 Award value: CHF 440.50/share 4,088 shares under ESAP 5 Award value: CHF 653.00/share 21 November 2015 840 matching shares under ESAP Plus Award value: CHF 664.00/share 21 September 2016 1,426 matching shares, of which 1,120 under ESAP Plus and 306 under ESAP Plus 3 5,224 shares under ESAP 5 Award value: CHF 738.00/share The long-term incentive plan is currently under review. While the new design is not yet finalized, dormakaba considers to refine the performance indicator(s) for instance through introduction of a relative indicator and to change the mix between restricted shares and performance share units to- wards more performance share units in order to further align to market practice and to shareholders’ expectations. Further details on the long-term incentive plan redesign will be provided in the Compensation Report for financial year 2017/18. 4. Employment contracts The members of the Executive Committee are employed under employment contracts of unlimited duration that are subject to a notice period of up to 12 months. Members of the Executive Committee are not contractually entitled to termination payments or any change of control provi- sions other than the accelerated vesting and/or unblocking of share awards mentioned above. 5. Shareholding ownership guideline The members of the Executive Committee are required to own at least a minimum multiple of their annual base salary in dormakaba shares within five years of hire or promotion to the Executive Committee, as set out in the table below. CEO 300% of annual base salary Member of the Execu- tive Committee 200% of annual base salary To calculate whether the minimum holding requirement is met, all vested shares are considered regardless of whether they are restricted or not. However, unvested performance share units are excluded from the calculation. The Compen- sation Committee reviews compliance with the share own- ership guideline on an annual basis. In the event of a sub- stantial rise or drop in the share price, the Board of Directors may, at its discretion, review the minimum ownership re- quirement. 6. Assessment of actual compensation paid to the Execu- tive Committee in the 2016/17 financial year The following comments can be made about the actual compensation paid to the Executive Committee in the 2016/17 financial year. In comparison to the previous year, total direct compensation (TDC) rose by 18%. This is mainly due to the following factors: • The target compensation levels of the Executive Commit- tee members have not been changed compared to the previous financial year, however certain members of the Executive Committee were reported for 10 months in the previous financial year (versus full year in the report- ing year); • The STI payout of the Executive Committee members reflects the very good underlying financial performance in the reporting year, especially the increase in Group net income which is the main driver of the STI payout for the CEO and other members of the Executive Committee (CFO, CIO, CTO, CMO). The financial performance of the segments (COOs) as a whole in terms of profitability, sales growth and net working capital management met expectations overall, with the strongest outperformance by AS APAC and the weakest development by Movable Walls. Consequently, the STI was 107% of annual base salary on average (previous year: 84%); • The four members who were elected to the Executive Committee in the previous financial year received their first long-term incentive grant in this reporting year (no grant in the previous financial year). Further, the value of the shares of the company allocated under the long- term incentive plan has increased by 13% compared to the previous year; • Variable compensation forms a major part of TDC. The percentage of overall compensation paid to the Executive Committee as variable compensation in the reporting year was 64% (excluding cash-value benefits and social security contributions), which constitutes an increase year-to-year (previous year: 54%); • Variable compensation paid out in shares of the company accounted to 24% of TDC (previous year: 13%). First priority is to increase this proportion up to 30% of total compensation in coming years by applying future compen- sation increases on the long-term incentive component rather than on the other compensation elements. At the AGM 2015, the shareholders approved a maximum aggregate amount of CHF 17,250,000 for the Executive Committee for the financial year 2016/17. The compensa- tion effectively awarded of CHF 13,026,134 is within the limits approved by the shareholders. The principles stated in the compensation regulations approved by the Board of Directors in the financial year 2013/14 were again proven to be very effective in the re- porting year. Rigorous implementation of these regulations guarantees consistent and transparent compensation practice based on uniform principles and criteria. As at 30 June 2017, in compliance with the Articles of Incorporation, there were no outstanding loans or credit facilities between dormakaba and current or former members of the Executive Committee, or parties closely related to them. Investments held by members of the Executive Com- mittee or related persons (including conversion and option rights) – if any – are listed on page 82 et seq. and in the appendix to the balance sheet on page 54. Annual Report 2016/2017Compensation Reportdormakaba 82 Compensation to the Board of Directors and Executive Committee Financial year 2016/2017 Board of Directors Brecht-Bergen Stephanie Chiu Elton SK Daeniker Daniel Chair Audit Committee Dörig Rolf Vice-Chairman of the Board Chair Compensation Committee Member Nomination Committee Dubs-Kuenzle Karina Graf Ulrich Chairman of the Board Chair Nomination Committee Gummert Hans Member Audit Committee Member Compensation Committee Member Nomination Committee Heppner John Hess Hans Member Audit Committee Member Compensation Committee Member Nomination Committee Mankel-Madaus Christine Total Board of Directors Compensation1) Basic compensation Additional compensation (committees, special tasks) Social benefits Total (CHF) of which in shares (CHF)2) 167,770 167,770 167,770 – 5,905 60,000 – 11,563 15,398 167,770 185,238 243,168 77,770 77,770 115,642 167,770 55,000 15,464 238,234 77,770 167,770 540,260 20,000 20,000 13,009 32,578 200,779 592,838 77,770 210,260 167,770 132,236 167,770 167,770 40,000 35,000 – – 13,818 300,006 96,285 207,770 216,588 108,068 108,909 167,770 2,050,190 – 368,141 – 101,832 167,770 2,520,163 77,770 1,028,014 1) Compensation for the employer representatives on the Swiss pension fund (Ulrich Graf, Karina Dubs-Kuenzle) of CHF 20,000 each, compensation for membership of the Board of Directors of Wah Yuet Group Holdings Limited (Chiu Elton SK) of CHF 5,905 and compensation for the membership of the Supervisory Board of dormakaba Holding GmbH + Co. KGaA and ISEO (Hans Gummert) of CHF 97,236 are included in the compensation (additional compensation). Business expenses are not included. 2) The compensation for the reporting period is paid out in three installments. The valuation of the shares is based on the share price at respective grant dates and can therefore vary. The shares for the last installments will be transferred in November 2017. Due to the significant increase of the share price in the last months, the Board of Directors decided to cap the value of the shares transferred for the compensation period from the 2016 AGM until the 2017 AGM to CHF 240,000 for the Chairman of the Board and to CHF 80,000 for the other Board members. The disclosed amount of share compensation for financial year 2016 / 17 is based on a share price of CHF 691.50 for the compensation period July until October 2016 and on the capped amount for the compensation period November 2016 until June 2017. The number of shares cannot be calculated yet, as it will depend on the share price used to convert the compensation amount (average closing share price of the last five trading days in October 2017, as per compensation directive). Fixed compensation Variable compensation Total CHF Fixed basic payment Benefits and social /pension contributions3) Total aggregate amount STI4) LTI5) Social / pension contributions Total aggregate amount Executive Committee Cadonau Riet 782,002 152,195 934,197 1,200,000 816,547 315,133 2,331,680 3,265,877 Other Executive Committee 3,245,050 766,818 4,011,868 3,118,975 1,878,275 751,139 5,748,389 9,760,257 Total Executive Committee 4,027,052 919,012 4,946,065 4,318,975 2,694,822 1,066,272 8,080,069 13,026,134 3) Includes contributions to social security and occupational pension plans as well as fringe benefits. Contributions to social security and occupational pension plans are the contributions effectively paid in the reporting year and relate to the fixed and variable compensation that were effectively paid out in the reporting year. Fringe benefits include elements such as private use of company car, service anniversary or housing contributions. Fringe benefits amount to CHF 29,988 for the CEO and CHF 322,833 for the other members of the Executive Committee. 4) The short-term incentive reported will be paid after the end of the reporting years. 5) The CEO receives a guaranteed allocation of 550 shares (worth CHF 476,460) which are blocked for three years. These shares are not yet included in the shares held as of 30 June 2017 as listed on page 84. However, they have been included in the long-term incentive compensation figure with a share price of CHF 866.29 (average closing price of May / June 2017). Compensation ReportAnnual Report 2016/2017dormakaba 83 Financial year 2015/2016 Board of Directors Brecht-Bergen Stephanie (since September 2015) Chiu Elton SK Daeniker Daniel Chair Audit Committee Dörig Rolf Vice-Chairman of the Board Chair Compensation Committee Member Audit Committee (until August 2015) Member Nomination Committee Dubs-Kuenzle Karina Graf Ulrich Chairman of the Board Chair Nomination Committee Compensation1) Basic compensation Additional compensation (committees, special tasks) Social benefits Total (CHF) of which in shares (CHF)2) 127,821 153,100 153,100 0 9,435 60,000 1,749 10,643 14,258 129,570 173,178 227,358 52,191 62,884 115,238 153,100 57,500 14,479 225,080 83,447 153,100 216,201 20,000 260,000 12,489 27,812 185,589 504,013 62,884 160,813 Gummert Hans (since September 2015) 127,821 94,413 2,180 224,413 58,449 Member Audit Committee Member Compensation Committee Member Nomination Committee Heppner John Hess Hans Member Audit Committee Member Compensation Committee Member Nomination Committee Mankel-Madaus Christine (since September 2015) Pleines Thomas (until August 2015) Member Compensation Committee (until August 2015) 153,100 153,100 0 35,000 – 14,798 153,100 202,899 96,375 94,174 127,821 25,281 – 1,667 1,749 1,811 129,570 28,758 52,191 10,179 Total Board of Directors 1,543,546 538,015 101,969 2,183,530 848,826 1) Compensation for the employer representatives on the Swiss pension fund (Ulrich Graf, Karina Dubs-Kuenzle) of CHF 20,000 each, compensation for membership of the Board of Directors of Wah Yuet Group Holdings Limited (Chiu Elton SK) of CHF 9,435 and compensation for the membership of the Supervisory Board of dormakaba Holding GmbH + Co. KGaA (Hans Gummert) of CHF 65,246 are included in the compensation (additional compensation). Business expenses are not included. 2) The compensation for the reporting period is paid out in three installments. The valuation of the shares is based on the share price at respective grant dates and can therefore vary. The shares to be transferred in November 2016 are recognized at CHF 648.87, which is the average share price in May and June 2016. Fixed compensation Variable compensation Total CHF Fixed basic payment3) Benefits and social /pension contributions4) Total aggregate amount STI5) LTI6) Social /pension contributions Total aggregate amount Executive Committee Cadonau Riet 785,841 133,570 919,410 1,187,817 Other Executive Committee 3,406,739 882,876 4,289,615 2,322,225 480,333 983,021 261,648 1,929,798 2,849,208 621,198 3,926,444 8,216,059 Total Executive Committee 4,192,580 1,016,446 5,209,026 3,510,042 1,463,354 882,846 5,856,242 11,065,267 3) In the reporting year 2015 / 16, a member of the Executive Committee received a fixed number of shares as part of his fixed basic compensation. 4) Includes contributions to social security and occupational pension plans as well as fringe benefits. Contributions to social security and occupational pension plans are the contributions effectively paid in the reporting year and relate to the fixed and variable compensation that were effectively paid out in the reporting year. Fringe benefits include elements such as private use of company car, service anniversary or housing contributions. Fringe benefits amount to CHF 10,311 for the CEO and CHF 262,307 for the other members of the Executive Committee. 5) The short-term incentive reported here will be paid after the end of the reporting years. 6) The CEO receives a guaranteed allocation of 550 shares (worth CHF 356,879) which are blocked for three years. These shares are not yet included in the shares held as of 30 June 2016 as listed on page 84, however they have been included in the long-term incentive compensation figure with a share price of CHF 648.87 (average closing price of May / June 2016). Annual Report 2016/2017Compensation Reportdormakaba 84 Shares held by Board of Directors and Executive Committee As at the respective call date, the individual members of the Board of Directors and the Executive Committee (includ- ing related parties) held the following number of shares in dormakaba Holding AG. Board of Directors Brecht-Bergen Stephanie Chiu Elton SK Daeniker Daniel Dörig Rolf Dubs-Kuenzle Karina Graf Ulrich Gummert Hans Hess Hans Heppner John Mankel-Madaus Christine Total Board of Directors Executive Committee Brinker Bernd Cadonau Riet Gaspari Roberto Häberli Andreas Jacob Christoph Kincaid Michael Lee Jim-Heng Lichtenberg Jörg Malacarne Beat Sichelschmidt Dieter Zocca Stefano Total Executive Committee Financial year ended 30. 06.2017 Financial year ended 30. 06.2016 Number of shares Number of shares 189,868 189,768 683 1,305 2,153 84,861 6,476 198 1,270 510 189,868 477,192 250 3,930 2,238 1,185 72 714 1,146 167 1,425 150 1,251 12,528 583 1,160 4,553 36,761 7,276 76 1,133 374 189,768 431,452 0 3,050 1,900 885 0 655 498 0 1,025 0 1,011 9,024 Compensation ReportAnnual Report 2016/2017dormakaba 85 Report of the statutory auditor to the General Meeting dormakaba Holding AG, Rümlang Opinion In our opinion, the Compensation Report of dormakaba Holding AG for the year ended 30 June 2017 complies with Swiss law and Articles 14–16 of the Ordinance. PricewaterhouseCoopers AG Zurich, 6 September 2017 Beat Inauen Audit expert Auditor in charge Reto Tognina Audit expert We have audited the accompanying Compensation Report of dormakaba Holding AG for the year ended 30 June 2017. The audit was limited to the information according to Articles 14–16 of the Ordinance against Excessive Compen- sation in Stock Exchange Listed Companies (Ordinance) contained in the tables on pages 82 to 84 of the Compensa- tion Report. Board of Directors’ responsibility The Board of Directors is responsible for the preparation and overall fair presentation of the Compensation Report in accordance with Swiss law and the Ordinance against Excessive Compensation in Stock Exchange Listed Compa- nies (Ordinance). The Board of Directors is also responsible for designing the remuneration system and defining individ- ual remuneration packages. Auditor’s responsibility Our responsibility is to express an opinion on the accompa- nying Compensation Report. We conducted our audit in accordance with Swiss Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Compensation Report complies with Swiss law and articles 14–16 of the Ordinance. An audit involves performing procedures to obtain audit evidence on the disclosures made in the Compensation Report with regard to compensation, loans and credits in accordance with articles 14–16 of the Ordinance. The pro- cedures selected depend on the auditor’s judgment, includ- ing the assessment of the risks of material misstatements in the Compensation Report, whether due to fraud or error. This audit also includes evaluating the reasonableness of the methods applied to value components of remuneration, as well as assessing the overall presentation of the Com- pensation Report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Annual Report 2016/2017Compensation Reportdormakaba Imprint Editor dormakaba Holding AG, www.dormakaba.com Project lead Germaine Müller, Deputy Vice President External Communications Copyrights © dormakaba Holding AG, 2017 Communications design and integrated production Linkgroup AG, Zurich Print Neidhart + Schön Print AG, Schwerzenbach Picture credits © Günter Bolzern, Zurich (pages 63 – 64, 68 – 69) © Georges De Kinder / Art & Build Architects (Cover picture) This communication contains certain forward-looking statements including, but not limited to, those using the words “believes”, “assumes”, “expects” or formulations of a similar kind. Such forward- looking statements are made on the basis of assumptions and ex- pectations that the company believes to be reasonable at this time, but may prove to be erroneous. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks, uncertainties and other factors which could lead to substantial differences between the actual future results, the financial situation, the development or performance of the company or the Group and those either expressed or implied by such statements. Such factors include, but are not limited to: • general economic conditions, • competition from other companies, • the effects and risks of new technologies, • the company’s continuing capital requirements, • financing costs, • delays in the integration of the merger or acquisitions, • changes in the operating expenses, • currency and raw material price fluctuations, • the company’s ability to recruit and retain qualified employees, • political risks in countries where the company operates, • changes in applicable law, • and other factors identified in this communication Should one or more of these risks, uncertainties or other factors materialize, or should any underlying assumption or expectation prove incorrect, actual outcomes may vary substantially from those indicated. In view of these risks, uncertainties or other factors, readers are cautioned not to place undue reliance on such forward- looking statements. Except as required by applicable law or regu- lation, the company accepts no obligation to continue to report or update such forward-looking statements or adjust them to future events or developments. It should be noted that past performance is not a guide to future performance. Please also note that interim results are not necessarily indicative of the full-year results. Persons requiring advice should consult an independent adviser. This communication does not constitute an offer or an invitation for the sale or purchase of securities in any jurisdiction. dormakaba®, dorma+kaba®, Kaba®, Dorma®, Ilco®, La Gard®, LEGIC®, Silca®, SAFLOK®, BEST®, phi® etc. are registered trade marks of the dormakaba Group. Due to country-specific constraints or marketing considerations, some of the dormakaba Group products and systems may not be available in every market. www.dormakaba.com dormakaba Holding AG Hofwisenstrasse 24 8153 Rümlang Switzerland