4 1 0 2 T R O P E R L A U N N A X A M O K Annual Report 2014 2014 Geschäftsbericht THE WAY TO MAKE IT THE WAY TO MAKE IT E S I C E R P CORPORATE GOVERNANCE 53 COMPENSATION REPORT 67 CONTENTS FINANCIAL REPORT Consolidated financial statements 82 Financial statements of Komax Holding AG 141 Corporate structure 150 FURTHER INFORMATION Glossary 154 Five-year overview 155 ANNUAL REPORT In brief 2 Shareholders’ letter 6 Locations 8 Business model and strategy 10 Board of Directors and Executive Committee 16 Business Unit Wire 18 Business Unit Medtech 26 Sustainability and social responsibility 34 Information for investors 40 40 years Komax Wire 45 2014 KO MAX GROUP ANN UA L REPORT 1 COMPANY IN BRIEF The Komax Group is a globally active tech- nology company specializing in automation solutions for selected processes in the automotive and pharmaceutical industries. Its core competency is mechatronics, i.e. the interdisciplinary interaction of precision engineering, electronics and information technology. With its innovative and high- quality solutions for the wire-processing industry and systems for the assembly of self-medication instruments, Komax helps its customers implement economical and safe manufacturing processes, especially in the automotive supply and pharmaceutical sectors. e Komax Wire offers a comprehensive range of automated, intelligent solutions for all wire-processing applications. Standard and customer-specific systems are supplemented by an extensive range of quality assurance modules, testing devices, and networking solutions for the reliable and efficient production of wire harnesses. Moreover, a sophisticated ser- vice offering supports customers around the world after their systems have been commissioned, thereby ensuring high avail- ability and low impairment for their in- vestment. e Komax Medtech develops complex customer-specific systems for the auto- matic assembly of medical instruments for self-medication, such as inhalers and insulin delivery or injection systems. It offers its clients solutions at all develop- ment levels of a project, from the con- cept phase through to large-volume line production. Integral validation concepts that are geared to internationally accepted standards and a wide range of service options complete the offering. 2 KOMAX GROUP ANNUAL REPORT2014 363.3m Revenues in CHF +12.2% EBIT margin 13.2% Equity ratio 73.2% 29.2m Net cash in CHF 65% Payout ratio 3.2% Dividend yield Net sales by segment 19% Medtech �� 81% Wire S E R U G F I S T C A F D N A C OMPANY IN BRIEF 3 KOMAX GROUP ANNUAL REPORT2014 COMPANY IN BRIEF Key figures in TCHF Order intake Revenues2 Gross profit in % of revenues EBITD in % of revenues Operating profit (EBIT) in % of revenues Group profit after taxes from continuing operations in % of revenues Group profit after taxes (EAT) in % of revenues Cash flow from operating activities Investments in non-current assets Free cash flow Research and development in % of revenues Basic earnings per share in CHF Headcount (at year-end) No. Total assets Non-current assets Current assets Intangible assets Net cash Shareholders’ equity3 in % of total assets 2014 20131 + / − in % 367 702 343 894 363 338 323 959 220 188 196 634 6.9 12.2 12.0 60.6 60.7 57 663 52 577 9.7 15.9 16.2 48 102 43 297 11.1 13.2 13.4 43 660 35 064 24.5 12.0 10.8 27 743 25 129 10.4 7.6 30 295 15 566 14 412 25 776 7.1 7.64 1 498 7.8 31 734 8 032 –4.5 93.8 24 545 –41.3 24 908 3.5 7.7 7.33 4.2 1 282 16.8 388 052 357 591 145 562 136 616 242 490 220 975 47 368 29 211 49 518 22 616 284 168 263 985 73.2 73.8 8.5 6.5 9.7 –4.3 29.2 7.6 1 Prior-year figures restated in accordance with Note 10 of the consolidated financial statements. 2 Revenues: net sales + other operating income. 3 Equity attributable to equity holders of the parent company. 4 KOMAX GROUP ANNUAL REPORT2014 Operating profit (EBIT) Shareholders’ equity in TCHF in TCHF 0 0 0 0 4 0 0 0 0 2 0 0 1 0 2 1 1 0 2 2 1 0 2 4 3 1 0 2 4 1 0 2 EBIT EBIT in % of revenues1 Group profit after taxes (EAT) in TCHF 0 0 0 0 4 0 0 0 0 2 0 0 1 0 2 1 1 0 2 2 1 0 2 4 3 1 0 2 4 1 0 2 % 0 . 4 1 % 0 . 7 % 0 % 0 . 0 1 % 0 . 5 % 0 0 0 0 0 0 2 0 0 0 0 0 1 0 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 Shareholders’ equity2 Equity in % of total assets Net working capital (NWC) in TCHF 0 0 0 0 5 1 0 0 0 5 7 0 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 % 0 . 0 6 % 0 . 0 3 % 0 % 0 . 0 6 % 0 . 0 3 % 0 EAT EAT in % of revenues1 NWC 3 NWC in % of revenues1 1 Revenues: net sales + other operating income. 2 Equity attributable to equity holders of the parent company. 3 Net working capital: receivables + inventories . /. current liabilities. 4 Prior-year figures restated in accordance with Note 10 of the consolidated financial statements. C OMPANY IN BRIEF 5 KOMAX GROUP ANNUAL REPORT2014 In view of the very pleasing results, the company’s financial strength and the positive outlook, the Board of Directors is proposing to the Annual General Meeting a distribution increase to CHF 5.00, of which CHF 2.50 will be distributed as a dividend and CHF 2.50 from capital contribution reserves. The payout ratio therefore amounts to an investor-friendly 65%. The dividend yield on the date of the Board resolution stood at an attractive 3.2%. Dividend payments from the capital contribution reserves are tax-free for natural persons living in Switzerland who hold shares as part of their private assets. Komax Wire Komax Wire once again surpassed its prior-year results. After a pleasing first half of the year, demand continued to pick up in the second half, buoyed by the healthy state of the automotive industry. Other end consumer markets such as the household goods, electronics, and tele- communications equipment industries likewise developed positively, albeit without matching the momentum of the automotive industry. The Europe, Africa and Asia regions generated the strongest growth in 2014. Order intake increased by 12.5% to CHF 302.6 million (2013: CHF 268.9 million). Net sales rose by 15.1% to CHF 295.0 million (2013: CHF 256.2 million), or CHF 280.6 million after adjustment for acquisi- tion effects. Internal growth amounted to around 12%. EBIT came in at CHF 55.3 million (2013: CHF 47.6 million). The partnership with SLE quality engineering is developing in a very satisfying way. Komax Wire will continue to systematically pursue its current growth strategy with a view to further expanding its leading market position. ANNUAL REPORT SHAREHOLDERS’ LETTER Dear Shareholders, The last financial year was characterized by strong growth and impressive profitability. The Komax Group’s consolidated revenues increased to CHF 363.3 million (2013: CHF 324.0 million). This equates to growth of 12.2%, of which acquisition effects contributed 4.4% and currency influ- ences –1.7%. Internal growth thus amounted to a high 9.5%. Operating profit (EBIT) increased by 11.1% to CHF 48.1 million (2013: CHF 43.3 million). Operating responsibility for the Solar business was transferred to the management of Xcell Automation on 1 October 2014 following a management buyout. For the time being, Komax is retaining a minority stake of 25%. Komax Solar’s contribution is therefore not included in these figures. Group profit after taxes from continuing oper- ations amounted to a very pleasing CHF 43.7 million (2013: CHF 35.1 million). Result from discontinued operations amounted to CHF –15.9 million (2013: CHF –9.9 million). The lion’s share of this figure (CHF 9 million) comprises non-cash charges for valuation adjustments on technology, goodwill and current assets in connection with the sale of the Solar business. Overall, Group profit after taxes amounted to CHF 27.7 million (2013: CHF 25.1 million), resulting in an increase in basic earnings per share to CHF 7.64 (2013: CHF 7.33). The Komax Group remains in extremely robust financial health. On the balance sheet date, share- holders’ equity stood at CHF 284.2 million (2013: CHF 264.0 million) while the equity ratio stood at 73.2% (2013: 73.8%). Towards the end of the year, we managed to acquire a building plot adjacent to the Dierikon site, thereby securing the possibility of expanding the company’s headquar- ters. Moreover, we have started to upgrade the Group’s ERP system. Despite the significant in- vestment that these developments involve, free cash flow nonetheless amounted to a high CHF 14.4 million (2013: CHF 24.5 million). Net cash increased to CHF 29.2 million (2013: CHF 22.6 million). 6 KOMAX GROUP ANNUAL REPORT2014 Komax Medtech Komax Medtech experienced considerable regional differences in its business in 2014. North America enjoyed another good year, with an environment conducive to growth. Business in Malaysia likewise developed positively after a stagnant 2013. By contrast, business perfor- mance in Switzerland was affected by subdued demand in Europe, as pharmaceutical compa- nies and their suppliers postponed investment decisions. This resulted in excess capacity, which in turn weighed on profitability. Order in- take amounted to CHF 65.1 million (2013: CHF 75.0 million), while net sales came in at CHF 68.6 million (2013: CHF 68.1 million). Thanks to further efficiency improvements and a relatively high proportion of repeat business, EBIT nonetheless amounted to CHF 1.2 million (2013: CHF 3.1 million). Relations with our shareholders and thanks On 1 January 2014, the Ordinance against Excessive Remuneration in Listed Companies Limited by Shares entered into force. You approved the corresponding changes to the company’s Articles of Association at the Annual General Meeting of 7 May 2014. Furthermore, we decided upon a number of adjustments to the compensation system in 2014. These will now be implemented in 2015. In particular, these include discontinuation of the allocation of share options to members of the Board of Directors and the Executive Committee, and the introduction of a performance-related, share- based, long-term incentive system for members of the Executive Committee. The agenda for the 2016 Annual General Meeting is to include an advisory vote on the compensation paid in 2015. The pleasing business result for 2014, which surpassed that of 2013, was in no small part at- tributable to the strong motivation and impres- sive commitment of all Komax Group employees, who deserve our thanks for their exemplary performance. We would also like to thank our customers and business partners for their confidence and constructive partnership. Last but not least, we also thank you, our valued shareholders, for your ongoing commitment to our company. ANN UA L REPORT SHAR EH OLDERS’ LETTER Outlook We currently find ourselves in a volatile and un- certain environment that presents both opport- unities and risks. Opportunities will arise above all as a result of the innovative strength and pro- nounced customer focus of the Komax Group. A particular challenge will be the strength of the Swiss franc, which has appreciated since the SNB abandoned its cap on the minimum euro-franc exchange rate. We believe that we can master this difficult situation with intensified measures aimed at further increasing productiv- ity and efficiency, so that current currency loss- es can be largely offset in the medium term. We will continue to seize any opportunities that arise to further the company’s development. From today’s standpoint, we are expecting the Komax Group to once again post a good result for 2015, although the conversion of the various curren- cies into Swiss francs is likely to act as a damper on both growth and profitability. Leo Steiner Chairman of the Board of Directors Beat Kälin Chief Executive Officer 7 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT LOCATIONS The Komax Group has a presence in all key production centres of its customers. It has its finger on the pulse of industry and develops needs-driven, high-value and innovative automation solutions for local requirements in global markets by drawing on its 40 years’ experience. e Komax produces in Europe, North and South America, Asia and Africa, and provides sales and service support in some 60 countries through its subsidiaries and independent agents. 8 KOMAX GROUP ANNUAL REPORT2014 ANN UA L REPORT LOCATIONS Net sales by region Europe 49% Asia 23% Africa 9% Headquarters: Komax Holding AG Dierikon, Switzerland North / South America 19% D N U O R A D L R O W E H T Komax production, sales and service Komax sales and service Sales representative 9 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT BUSI NESS MODEL AND STRATE GY The Komax Group is a globally active technology company specializing in automation solutions for selected processes in the automotive and pharmaceutical industries. Its core competency is mechatronics, i.e. the interdisciplinary interaction of pre- cision engineering, electronics and information technology. e The Solar business unit was sold in the year under review as part of a man- agement buyout, as the risk profile of this business no longer corresponded to cor- porate strategy, and its activities tied up significant resources. Operational respon- sibility for the business was transferred to Xcell Automation Inc. as of 1 October 2014. Komax continues to hold a 25% stake in this company for the time being. e The Komax Group’s operating business consists of the two segments (business units) Komax Wire and Komax Medtech. These operate as largely au- tonomous, self-contained brands in differ- ent markets and fields of application: – Komax Wire offers innovative solutions for all wire processing applications, as well as for testing harnesses and ready-to-install vehicle modules. Komax Medtech develops sophisticat- ed, customer-specific systems, pri- marily for the automatic assembly of medical devices, such as insulin pens and syringes. – 10 KOMAX GROUP ANNUAL REPORT2014 Revenues +12.2% 57.7m EBITD in CHF +9.7% S S E N I S U B L E D O M Headcount 1 498 AN NUA L REPORT B USINESS MODEL AND STR ATEGY 46% Europe Net sales by region 23% Asia 19% North / South America Net sales by industry 3% Africa Switzerland 9% ���� �� 15% Others 70% Automotive 15% Medtech 11 KOMAX GROUP ANNUAL REPORT2014 � ANNUAL REPORT BUSI NESS MODEL AND STR ATEG Y e Strategy geared to profitability and growth Komax is keen to create sustainable value for all stakeholder groups, and aims to combine com- mercially successful business activity with environmentally and socially responsible conduct. Based on these premises, the Group pursues a strategy that targets above-average profitability and further growth. The individual activities within the portfolio should generate value for the Group across business cycles. The strategy manifests itself primarily in a strong focus on the core business of wire processing. Group strategy is implemented by way of individually defined measures in the business units. These measures are set out in more detail on pages 23 and 30 of this Annual Report. e Sales growth and EBIT margin targets As part of its transparent information policy, Komax has announced measurable medium-term net sales growth and EBIT margin targets for the two business units. These should be viewed as guides for internal performance management purposes and for the financial markets. The two business units have different targets. These take into account the different growth mo- mentum of the corresponding end-customer markets, as well as differences in market position- ing, business model and capital employed. In the year under review, Komax Wire increased net sales by 15.1% and achieved an EBIT margin of 18.7%. The net sales growth target of 3 to 5% was therefore once again substantially exceed- ed. Internal growth amounted to around 12%, while at 18.7%, the EBIT margin was within the target area of around 20%. This level of profitability, which is extraordinarily high by the stand- ards of the machining industry, reflects the competitiveness of the customer solutions offered and the efficiency of the business unit’s operating activities. It is also the result of ongoing im- provements to processes and pronounced cost awareness. The consistently high operating prof- it margin is all the more impressive as the business model of Komax Wire has changed in recent years. This business unit has made a number of substantial and strategically important acquisi- tions of companies whose EBIT margins at the time of purchase were around half that of Komax Wire. Additional pressure on margins arose through the disadvantageous development of key foreign exchange rates. No growth target was defined for Komax Medtech, as the development of sales and profitability depends almost entirely on projects for sophisticated customer-specific systems. The decisive criterion for success here is the ability to select the right projects and implement them efficiently. Despite inadequate capacity utilization at the Swiss site, this business unit recorded positive EBIT. This result can be seen as proof that the measures taken to improve profitability and sta- bilize earnings are taking effect. e Selective acquisitions Komax’s main focus is on internal growth. In addition, potential candidates and opportunities for acquisitions are carefully examined as part of a clearly defined acquisition strategy. Komax Wire intends to consolidate its leading market position with further strategy-compliant acquisitions and participations. 12 KOMAX GROUP ANNUAL REPORT2014 Recently completed acquisitions complement the activities of Komax Wire perfectly and open up interesting growth opportunities. R&D expenses 7.1% of revenues 396 employees in R&D and engineering ANN UA L REPORT BUSINESS MOD EL AND STRATEGY e Global production, local distribution and service network Komax has 13 production sites worldwide, namely in Switz- erland, Germany, the US, Brazil, Tunisia, Turkey, China, Ma- laysia and Japan. Furthermore, the Group provides sales and service support in around 60 countries through subsidiaries and independent agents. It can therefore provide efficient and competent support to its customers, most of whom op- erate globally, at all times. Komax is steadily expanding its presence in the emerging economies in line with the rise in demand from these markets, as customer proximity is a de- cisive factor. This allows Komax to keep its finger on the pulse of industry and develop needs-driven, high-value and innovative automation solutions for local requirements in global markets by drawing on 40 years’ experience. More- over, with its global sales and service organization, Komax guarantees short supply and response times. e High degree of innovation For many years now, Komax has been continuously investing in innovations to optimize its existing product range, as well as in new developments with the aim of increasing the effi- ciency and safety of customer processes. All activities are systematically geared to customer needs and expectations. That is why Komax typically employs interdisciplinary teams – consist- ing of marketing experts, product managers and development engineers – on innovation projects. For example, skilfully combining different processes and technologies reduces interfaces and lead times and also increases processing reliability. In recent years, Komax invested around 8% of Group revenues in research and development, and employed no less than 150 staff in this area in 2014. In addition, around 246 engineers make a substantial contribution to innovation at Ko- max thanks to experience gained in developing customer-specific applications. Furthermore, the Komax Group’s partnerships with universities and knowledge transfer activities put it at the fore- front of technological progress. e Markets and customers Komax Wire currently generates around 90% of its net sales through customers in the automo- tive industry. Market estimates indicate that some 60% of globally processed wiring is used in automotive manufacturing. This high proportion is explained by the fact that the automotive in- dustry is peerless when it comes to standardization and automation. The high volume of wires needed for large-batch processing and the stringent requirements in place with regard to finish quality make automated solutions the favoured option for this sector. 13 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT BUSI NESS MODEL AND STR ATEG Y The markets served by Komax enjoy a profile of structural growth. The global need for automation solutions will increase further. Around 20% EBIT margin at Komax Wire Global demand forecasts for automobiles suggest continued growth during the years ahead. The market research institute IHS Global Insight expects the number of vehicles produced and sold to grow at around 3% annually for the next few years. However, the demand for automation solutions to pro- cess the individual wires and wire harnesses installed in ve- hicles is only partly determined by the number of cars pro- duced and sold. More relevantly, technical innovations such as increasingly complex functionalities and security equip- ment, as well as optimized or new drive systems, are driving the trend towards more electronic components in vehicles. In an increasing number of areas, drivers will be able to relin- quish a part of their traditional control. Over the coming years, the number of ancillary systems installed in standard production models will therefore grow significantly. The so- called electronification of vehicles is proceeding at a rapid pace, and is heading in the direction of autonomous vehicles. At the same time, the ongoing process of miniaturization is leading to demand for ever thinner wires and smaller housings, which remain difficult to process and insert by hand. Developments of this kind, together with the ongoing rise in quality demands from automotive manufacturers, are driving supplier companies’ investments in automation solutions even more strongly than vehicle manufacturing volume growth. Komax Wire is benefiting from these developments. In the past, the business unit has grown around a third faster than the automotive industry itself. Furthermore, the increasingly widespread principle of zero-error tolerance is driving up demand for testing systems capable of ensuring that the wire harnesses and assemblies installed in ve- hicles work perfectly. This is understandable, as defective wire harnesses and components re- quire considerable time and expense – at the cost of productivity and profitability – to repair or replace once they have been fitted in a vehicle. Furthermore, functional defects in the electronic systems of delivered vehicles can result in serious reputational damage. The other markets serviced by Komax Wire, such as the aerospace industry, industrial appliances (control cabinet manufacturing), consumer goods, computer and office equipment, and teleph- ony and data communication, today account for a relatively small proportion of the unit’s net sales. Komax Wire is seeking to increase penetration in these markets, as they offer attractive growth opportunities in the longer term. A further step in this direction was taken in January 2015 with the acquisition of a 20% holding in the French company Laselec. Laselec develops laser- assisted cable stripping and marking solutions as well as intelligent forming boards for wire har- ness production, which are currently used primarily in the aerospace industry. Komax Wire is very well positioned in the market for wire processing machinery. Its market share is almost twice that of its nearest competitor. Together these two companies account for more than half the global market. Komax Wire serves all the globally active wire-processing companies, and is well represented in the fragmented market for small business customers. The recent ac- quisitions of TSK Group, MCM Cosmic and SLE quality engineering have substantially strength- ened its market position once more. These companies’ products ideally complement Komax Wire’s product range. 14 KOMAX GROUP ANNUAL REPORT2014 AN NUA L REPORT B USINESS MODEL AND STR ATEGY Komax Medtech primarily advises and supplies customers from the pharmaceutical industry, i.e. pharmaceutical companies and their suppliers. Final demand for medical devices is enjoying a long-term growth trend. This is due partly to general demographic developments, and partly to the increasing trend towards the injection of medications and self-medication. Demand for auto- mation solutions for the assembly of devices is linked to the investment behaviour of the pharma- ceutical industry. However, demand does not grow in a linear fashion, and is therefore difficult to predict. As a rule, new projects are awarded as part of invitations to tender. In the majority of cases, these are for solutions that are developed for a specific customer or product. Success in this business depends very heavily on careful project selection and the establishment of a bal- anced project portfolio. A well-structured project portfolio contains a substantial proportion of projects providing repeat business, plus some new projects with the potential for repeat business. Net sales by region 2014 20131 + / − in % in TCHF Switzerland Europe (incl. Africa) North / South America Asia Total Sales growth targets in % Komax Wire Komax Medtech EBIT margin targets in % Komax Wire Komax Medtech 10 314 6 414 200 455 173 436 60.8 15.6 70 274 81 810 78 842 –10.9 64 809 26.2 12.2 362 853 323 501 Target ~3–5 –2 15.1 0.7 ~20 ~5 18.7 1.7 12.2 36.8 18.6 4.5 1 Prior-year figures restated in accordance with Note 10 of the consolidated financial statements. 2 The Medtech business unit is in the systems business, i.e. it mainly manufactures complex, customer-specific systems. In this business, targeted selection of the projects to be acquired is more important than sales growth per se. For that reason, no sales growth target has been defined for this unit. 15 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT BOARD OF DIRECTORS Board of Directors Hans Caspar von der Crone (1957) Roland Siegwart (1959) Non-executive, independent member of Non-executive, independent member the Board of Directors since 1997, elect- of the Board of Directors since 2013, ed until 2015, Swiss national, resident elected until 2015, Swiss national, resi- in Zurich, member of the Board of Direc- dent in Schwyz. Leo Steiner (1943) Non-executive, independent member of the Board of Directors since 1997, Chair- man of the Board of Directors since 2007, elected until 2015, Swiss national, resident in Steinhausen. Leo Steiner holds a degree in engineer- ing from ETH Zurich. Before joining Komax, he worked at Hayek Engineering & Management Consulting, Zurich; Landis & Gyr, Zug; and Sulzer-Escher Wyss, Zurich. From 1992 to 2007 he was CEO of the Komax Group. In the last three years, Leo Steiner has not been a member of the Executive Committee or had any material business relation- ships with the Komax Group. tors of Heineken Beverages Switzerland AG, Chur, and Heineken Re AG, Zug, a Swiss subsidiary of the Heineken Group. Hans Caspar von der Crone is an attorney-at-law. Following his studies, he lectured at the University of Zurich and was an employee and later a partner at law firm Homburger Rechtsanwälte, Zurich. Since 1997, he has been a Professor of Private, Commercial and Corporate Law at the University of Zurich. He is also a partner at law firm von der Crone Rechtsanwälte AG, Zurich. In the last three years, Hans Caspar von der Crone has not been a member of the Executive Committee or had any material business relation- ships with the Komax Group. Roland Siegwart has been Professor of Robotics at ETH Zurich since July 2006 and Co-Director of the newly-founded Wyss Translational Center Zurich, a joint research centre of ETH Zurich and the University of Zurich, since 2015. He holds a master’s degree in mechanical engineering and a doctorate from ETH Zurich. Following a research stay at Stanford University and the establish- ment of a spin-off company, he was professor at EPFL Lausanne from 1996 to 2006. He was Vice-President of Research and Corporate Relations at ETH Zurich from 2010 to 2014. In the last three years, Roland Siegwart has not been a member of the Ex- ecutive Committee or had any material business relationships with the Komax Group. Kurt Haerri (1962) Non-executive, independent member of the Board of Directors since 2012, elected until 2015, Swiss national, resident in Birrwil. Kurt Haerri holds a degree in mechanical engineering from Lucerne University of Applied Sciences and graduated from the University of St. Gallen with an Ex- ecutive MBA HSG. He has been working for Schindler since 1987, and was based in China from 1996 to 2003. Today, he is responsible for Global Marketing and Sales at Schindler Management AG. From 2006 to 2013, Kurt Haerri was the President of the Swiss-Chinese Cham- ber of Commerce. He is also a lecturer at ETH Zurich, where he is responsible for the Asia module of an executive MBA programme. In the last three years, Kurt Haerri has not been a member of the Executive Committee or had any material business relationships with the Komax Group. David Dean (1959) Non-executive, independent member of the Board of Directors since 2014, elected until 2015, Swiss national, resident in Meilen. David Dean has been CEO of the Bossard Group since 2005. He was the company’s CFO from 1998 to 2004, and its Corporate Controller before that. David Dean is an expert in accounting and controlling. He holds a federal diplo- ma and is a certified accountant. Fur- thermore, he has also completed man- agement training at Harvard Business School and IMD Lausanne. In the last three years, David Dean has not been a member of the Executive Committee or had any material business relation- ships with the Komax Group. Daniel Hirschi (1956) Non-executive, independent member of the Board of Directors since 2005, Vice-Chairman since 2014, elected until 2015, Swiss national, resident in Biel, Chairman of the Board of Directors of list- ed company Schaffner Holding AG, Luter- bach, and member of the Board of Dir- ectors of listed company Gavazzi Holding AG, Steinhausen, and the privately owned company Benninger AG, Uzwil. Daniel Hirschi holds a degree in engin- eering. From 1983 to 2005 he held vari- ous management functions at Saia- Burgess in Murten, where he was CEO from 2001, and Delegate of the Board of Directors from 2003. From 2006 to 2009, Daniel Hirschi was CEO and Delegate of the Board of Directors of Benninger AG, Uzwil, and he has been a member of the Board of Directors of the same company since March 2009. In the last three years, Daniel Hirschi has not been a member of the Executive Com- mittee or had any material business rela- tionships with the Komax Group. 16 KOMAX GROUP ANNUAL REPORT2014 AN NUA L REPORT EXE CUTIVE COMMITTEE Matijas Meyer (1970) Walter Nehls (1957) Head Business Unit Wire since 2010, Head Business Unit Solar until at Komax since 2007, Swiss national, 30 September 2014, German national, resident in Ebikon. resident in Udligenswil. Matijas Meyer holds a degree in engin- eering from ETH Zurich and an MBA from Cranfield University (UK). Prior to his current position, he was Head of the site in Rousset (FR). Before joining Komax, he worked at Tornos SA in Moutier and Unaxis / ESEC in Cham. Following the sale of Komax Solar, Walter Nehls stepped down from the Executive Committee and will leave the Komax Group in 2015. Walter Nehls holds a bachelor’s degree from the University of Applied Sciences and Arts Northwestern Switzerland and an MBA from Lucerne University of Applied Sciences and Arts. Before joining Komax, he worked at ESEC in Cham, Schindler AG in Ebikon, Forbo / Siegling in Hanover (Germany) and Mania Technol- ogie AG in Weilrod (Germany). René Ronchetti (1968) Head Business Unit Medtech and at Komax since 2012, Swiss national, resident in Murten. René Ronchetti holds a degree in engin- eering (computer science) from Berne University of Applied Sciences. He is also a qualified industrial engineer and holds an MBA from Strathclyde University (UK). His most important po- sitions before joining Komax were at RUAG in Berne and Geneva, Oerlikon Balzers in Paris, and Ascom Autelca in Berne and Paris. Executive Committee Beat Kälin (1957) Chief Executive Officer (CEO) since 2007, at Komax since 2006, Swiss national, resident in Birmensdorf, Chairman of the Board of Directors of listed company Huber + Suhner AG, Pfäffikon (ZH). Beat Kälin holds a master’s degree and a doctorate in engineering from ETH Zurich. He also holds an MBA from INSEAD. Up until 1999, he held various management positions in the Elektrowatt Group, from 1999 to 2004 he was a member of the Group Executive Board of SIG Schweizerische Industrie- Gesellschaft Holding AG, Neuhausen, and from 2004 to 2006 a member of the Board of Management responsible for the Packaging Technology Division at Robert Bosch GmbH, Stuttgart (DE). Andreas Wolfisberg (1958) Chief Financial Officer (CFO) since 1996, at Komax since 1991, Swiss national, resident in Adligenswil. Andreas Wolfisberg is a Swiss Certified Expert in Accounting and Controlling. Before joining Komax, he worked at von Moos Stahl AG in Lucerne. 17 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT BUSI NESS UNIT W IRE Komax Wire had an excellent year in 2014, recording accelerated growth and continued high profitability. The EBIT margin remained within the target area. commissioned, Komax Wire provides a full range of services to guarantee installations’ performance and preserve their value. Komax Wire is the global leader in its field, with a market share more than twice that of its nearest competitor. Market estimates in- dicate that some 60% of globally processed wiring is used in automotive manufacturing. Komax Wire therefore generates around 90% of its sales through customers in the auto- motive industry. The high degree of stand- ardization, the huge quantities of wires and cables to be processed, and the high quality demands that are typical of the industry all favour automated and system-based produc- tion processes and methods. Furthermore, Komax Wire systems are used by manufac- turers of household appliances, in consumer electronics and office devices, by producers of telephone and data communications equipment, and in control cabinet manufac- turing. Komax Wire differentiates itself from its competitors through its high degree of in- novation, leading technologies, comprehen- sive range of wire processing solutions and test systems, and a global service and distri- bution network. e Komax Wire specializes in automated intelligent solutions for all modern wire processing applications. The emphasis is on processes such as measuring, cutting, stripping and fitting contacts and con- nector housings to cables, and on the testing of wire harnesses. Standard and customer-specific systems are supple- mented by an extensive range of quality assurance modules and networking solu- tions for the reliable and efficient produc- tion of wire harnesses. In addition, the functions of mechatronic assemblies, such as doors, seats and cockpits, are measured using testing systems that examine not only electrical parameters but also a wealth of physical properties. Thanks to this spectrum, Komax Wire can provide its customers with a comprehen- sive offering of efficient and reliable auto- mation solutions. Here Komax Wire relies not only on proprietary developments, but also on the expertise of established part- ners through acquisitions or the creation of networks. This regularly bolsters Komax Wire’s leading market position. Komax Wire produces standardized (off- the-shelf) products for wire processing at two locations in Switzerland, as well as in China and Japan. The TSK brand of test systems is manufactured in Germany, Tur- key, the US, Brazil, China and Tunisia, in order to ensure short supply times for test adapters. This business area, which en- compasses customer-specific systems (value-added business), has centres in Switzerland, Germany, the US and China. Once systems and equipment have been 18 KOMAX GROUP ANNUAL REPORT2014 AN NUA L REPORT BUSINESS UNIT WIRE EBIT margin 18.7% Headcount 1 177 Order intake in CHF 302.6m 295.0m Net sales in CHF +15.1% 55.3m EBIT in CHF 43% Europe ����� Net sales by region 24% Asia 2% Switzerland 20% North / South America 11% Africa S S E N I T S U B I N U E R W I 19 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT BUSI NESS UNIT W IRE e Market trends and business performance With the global automotive industry again exhibiting robust health in 2014, Komax Wire enjoyed another excellent year. Demand proved particularly strong in the Europe / Africa and Asia regions. The order intake of CHF 302.6 million once again exceeded the previous year’s figure significant- ly (2013: CHF 268.9 million), while net sales increased by 15.1% to CHF 295.0 million (2013: CHF 256.2 million). Internal growth (i.e. adjusted for acquisition and currency effects) amounted to around 12%. The book-to-bill ratio at the end of the year was 1.03. Moreover, the business unit closed the year with a strong order book. There was a broad-based spread of business with re- spect to both the product and the customer mix. Komax Wire was able to expand its partnerships with major customers, who accounted for an increased proportion of total business. Another pleasing development was the further increase in market penetration among local – and in par- ticular Chinese – wire harness manufacturers. The efforts of customers to increase the level of automation in their production activities was reflected visibly in the product mix. The business with crimp-to-crimp machines and the associated accessories proved strong as usual. Thanks to the installed base of machines, both the spare parts business and the service business again performed strongly. The business with value-added projects likewise developed pleasingly. This revolves around the development of tailor-made solutions for individual customers on the basis of standard machinery. EBIT in the year under review amounted to CHF 55.3 million (2013: CHF 47.6 million). The EBIT margin came in at 18.7% (2013: 18.6%), and is therefore still within the target area. In view of the strong growth in the year under review and the impressive level of investment in market expan- sion, this result is very noteworthy. Moreover, the high EBIT margin is a reflection of the high level of innovation of the business unit, the competitiveness of its range of solutions, and its high productivity. e Operations At an operational level, the focus of the year under review was on the further integration of the six production sites of TSK Group and of SLE quality engineering into Komax Wire’s production network, and the introduction of lean management concepts at these sites. These concepts were consistently implemented in the upgrading and expansion of TSK Turkey into a reference factory for wire testing systems. Further measures to increase operating efficiency were implemented at the other locations too. Capacity utilization was generally high in the year under review. Thanks to flexible working time models and access to a large pool of contract employees, the organiza- tion was able to handle spikes in demand. e Marketing and sales Customer proximity and a focus on customer needs are among the core values of Komax Wire. Processes and systems for recording and analyzing customer feedback were therefore system- atically refined in an effort to promptly evaluate and further increase customer satisfaction. More- over, the spectrum of services was enhanced substantially through the launch of an e-Commerce solution and a training programme for customers’ employees. 20 KOMAX GROUP ANNUAL REPORT2014 Measures are continuously being implemented to boost both productivity and efficiency. Book-to-bill ratio 1.03 EBIT margin remained within target area. ANN UA L REPORT B USINESS UNIT WIRE The Marketing and Sales areas refined their targeted focus on existing customer segments and markets. A number of new members were added to the partner companies network. Another focus took the form of initiatives to profile Komax Wire as a professional and efficient partner to companies outside the automotive industry. At this year’s Inhouse Show, the business unit presented its solutions for the automotive industry, telecom / datacom, industrial applications and the value-added business in a newly focused visual identity. In addition, it participated in some 30 trade fairs and gave a convincing demonstration of its extensive competencies and the strength of its network. e Innovation The value that Komax Wire attaches to innovation is ex- pressed in its innovation vision statement. It sensitizes all employees to the strategic significance of innovation and motivates them to continue to focus all their activities on solutions that will deliver strong added value for customers. Komax Wire therefore pursues innovation in interdisciplinary teams that include not only development engineers, but also marketing experts and product managers. Research and development expenditure in 2014 amounted to some 8% of net sales. In the year under review, Komax Wire employed some 145 staff worldwide in this area, which once again came up with a number of pioneering innovations. These were also based on extensive customer feedback and regular experience-sharing with professional communities within the industry, as well as with educational institutions. A major contribution to the innovative power of this business unit is made by the employees of the Marketing department and Product Management, as well as by 130 engineers in Application Development with their experience of developing custom-specif- ic applications. 21 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT BUSI NESS UNIT W IRE e Trends Developments in vehicle construction are leading to a lasting increase in demand for automation solutions. Market leader Market share is around twice that of its nearest competitor. Internal growth of around 12% The development trends that have emerged in recent years are likely to accelerate and intensify in the future. The auto- motive industry is increasingly demanding subsystems and components that deliver more, weigh less, take up less space, and operate extremely reliably, while at the same time being cheap to procure. These demands are not only con- fronting direct suppliers to the automotive industry but also upstream suppliers and business partners. For a group like Komax, which continually operates at the forefront of tech- nological development, these increasing demands first and foremost represent opportunities and potential growth drivers. The electrical systems in today’s premium passenger cars are made up of as many as 1 000 cables, with a good 2 000 crimp contacts. Developments in vehicle construction, new functionalities, and an ever-rising fit-out level in all vehicle classes are leading to a further increase in demand for cables and crimp contacts. Furthermore, the individual sub- systems and assemblies, particularly harnesses, are becom- ing ever more complex. At the same time, given the growing trend towards miniaturization with a view to reducing manu- facturing costs, weight and fuel consumption, the individual components to be processed are becoming ever smaller, which makes manual processing more difficult – or even im- possible. A large part of the wire harness manufacturing process is still done by hand, but inexorably rising wage costs are making it worthwhile to invest in automation solutions. As systems become in- creasingly complex, the potential sources of error in manual wire processing and assembly be- come more numerous. Manual processes are becoming less capable of meeting these demands. Intelligent automation solutions, quality assurance tools, and systems for testing harnesses be- fore they are installed in assemblies and vehicles help to guarantee and increase the efficiency and reliability of the production process. This has been recognized by automotive manufacturers, who are increasingly calling on their suppliers to further automate their production processes. Furthermore, wire processing is required in numerous other sectors of industry too. Particularly in sectors that use largely standardized, high-volume processes, the challenges are similar to those faced by the automotive industry. With its know-how, the market proximity of its product range, and its marketing expertise, Komax Wire is extremely well positioned to make further in- roads into these markets. 22 KOMAX GROUP ANNUAL REPORT2014 ANN UA L REPORT B USINESS UNIT WIRE e Strategy In addition to the goal of continuously increasing operating performance and efficiency, Komax Wire pursues four key strategic priorities. First, it pursues further development of existing busi- ness along the value chain. This involves fully automatic and semi-automatic solutions with inte- grated quality assurance. Solutions for increasing availability and testing the productivity of in- stalled systems are as much a part of this priority as new intelligent software interfaces and expanded quality testing capabilities. In the development of innovations, the second strategic priority, Komax Wire focuses on new solutions for the demands of the wire-processing industry and on optimizing the product portfolio with a clear product platform strategy. Under the third and fourth strategic priorities, Komax Wire will further strengthen its position in the Asian markets in particular and break into new application areas outside the automotive industry. Komax Wire’s offering covers the most capital-intensive and critical processes of its customers’ value creation chains. Customers receive single-source solutions for the key wire processing applications from Komax Wire, a feature that makes the business unit unique in the world. The multifaceted competencies that are united under a single roof at Komax Wire will give rise to new innovative production concepts, which in turn will further simplify the processes of wire harness assembly. e Outlook Supported by the momentum of the automotive industry, the ongoing trend towards automation of production processes, and the increased quality demands that original equipment manufactur- ers are making of their suppliers, end demand should continue to be strong from today’s per- spective. However, the conversion of the various currencies into Swiss francs will impair the business unit’s growth and profitability. From today’s standpoint, therefore, last year’s results are unlikely to be matched in 2015. Key figures in TCHF Order intake Net sales Operating profit (EBIT) in % EBIT margin As at 31 Dec. Headcount 2014 20131 + / − in % 302 610 268 895 294 964 256 186 55 292 47 578 12.5 15.1 16.2 18.7 18.6 1 177 1 006 17.0 1 Prior-year figures restated in accordance with Note 10 of the consolidated financial statements. 23 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT BUSI NESS UNIT W IRE The way to make the best connection Measuring / cutting Stripping Twisting Connector insertion Harness sub-assembly Crimping Cables Contacts Housings Komax Wire systems t Measuring / cutting Stripping Crimping Twisting Connector insertion e Cutting Preprocessing t Harness sub-assembly e Final assembly Component manufacturer e Wire harness manufacturer 24 t Harness test systems Module test systems e Testing e Warehouse Shipping Installation Assembly e e Original equipment manufacturer (OEM) KOMAX GROUP ANNUAL REPORT2014 Machinery description Low order volumes and just-in-time pro- duction are hallmarks of today’s wire manufacturing industry. The Komax Alpha 355 takes account of these requirements with its short set-up and retooling times. Integrated quality measurement and high performance are further strengths of this system. It was also designed for single- and double-sided crimping and sealing, and can also process double crimp con- nections of different lengths and the same wires. Quality Komax possesses a wide range of innova- tive monitoring solutions that test the quality of crimp connections during pro- duction and document the corresponding test results. In addition, TSK brand testing systems test the reliability of wire harness- es and mechatronic assemblies such as seats, bumpers and cockpits. ANN UA L REPORT B USINESS UNIT WIRE e Wires, contact parts and housings (connectors) are vendor parts for wire harness manufacturers. The latter are specialized companies (typically sup- pliers) that serially process individual wires to create wire harnesses for vehicle electrical systems, elec- tronic devices and applica- tions for a host of different industries, sectors and end-users. Komax Wire supplies these companies with systems for automat- ed and efficient wire pro- cessing, as well as with systems for testing wire harnesses and mechatron- ic assemblies prior to final installation. Komax solu- tions are used in custom- ers’ value creation chains for preprocessing, final as- sembly and testing. The wire harness manufacturer then supplies the OEM (original equipment manu- facturer), which integrates the wire harness into the final product. Komax Wire systems Measuring / cutting Stripping Crimping Twisting Connector insertion Harness sub-assembly t e t e e Cables Contacts Housings Cutting Preprocessing Final assembly Component manufacturer Wire harness manufacturer t Harness test systems Module test systems e Testing e Warehouse Shipping e Installation Assembly e Original equipment manufacturer (OEM) 25 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT BUSI NESS UNIT M EDTECH 2014 was a challenging year for Komax Medtech. Customers in Europe were hesitant about making investment deci- sions, which had an impact on the site at La Chaux-de-Fonds. Thanks to the meas- ures initiated over the last three years to stabilize profitability, EBIT remained postive despite these overall adverse conditions. e Komax Medtech develops customer- specific machine systems for the automat- ic assembly of medical products. The products assembled on Komax machines include inhalers and insulin delivery or in- jection systems. Komax Medtech also produces systems for the efficient mass production of inkjet printer cartridges and assembly of clutches. The purchase price of such systems ranges between a few hundred thousand and several million Swiss francs, depending on their com- plexity. Medical devices in particular are subject to especially rigorous cleanliness, quality and safety requirements. Komax Medtech has many years of experience in this field, and has standardized and certified valid- ation processes in place to ensure that its systems comply with all relevant stand- ards. It also complies with the require- ments of Good Automated Manufacturing Practice, an internationally recognized set of guidelines. Komax Medtech has production facilities in Switzerland, the US and Malaysia. With production sites in the most important market regions of the world, the business unit is well positioned to meet the expec- tations of its customers, who are increas- ingly demanding that suppliers have a local presence. 26 KOMAX GROUP ANNUAL REPORT2014 Headcount 307 AN NUA L REPORT B USINESS UNIT MEDTECH Order intake in CHF 65.1m 68.6m Net sales in CHF 1.2m EBIT in CHF Net sales by region 63% Europe ���� 17% North / South America 14% Asia 6% Switzerland 27 S S E N I T S U B I N U H C E T D E M KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT BUSI NESS UNIT M EDTECH e Market trends and business performance Regional business development in 2014 presented a mixed picture. North America enjoyed an- other good year. The environment was conducive to growth, a significant proportion of which stemmed from new customers. Business in Malaysia likewise developed positively after a stag- nant year in 2013. By contrast, the site in Switzerland suffered from the restrained demand in Europe, as pharmaceutical companies and their suppliers postponed investment decisions. This resulted in excess capacity, which in turn weighed on profitability. Net sales amounted to CHF 68.6 million (2013: CHF 68.1 million). A substantial proportion of these sales were generated with major customers in Ireland, Scandinavia, Germany and the US. Given the relatively high proportion of value creation in Switzerland, Komax Medtech continued to suffer from the strength of the Swiss franc. The measures to increase efficiency and the rela- tively high share of repeat business nonetheless kept EBIT in positive territory at CHF 1.2 million (2013: CHF 3.1 million). e Operations The measures initiated in previous years to stabilize profitability were systematically continued in 2014. The key areas of focus included important project and risk management activities in the systems business, cost transparency and controlling, and ongoing improvements to internal pro- cesses. A further milestone in efforts to enhance efficiency was reached with the appointment of a Master Black Belt at La Chaux-de-Fonds. A Master Black Belt acts as coach and trainer for the technical and organizational implementation of Six Sigma programmes, a management system for process improvements and quality management method. Procurement was optimized in a number of ways, including the expansion of the range of strategic suppliers, particularly for key feeding systems. At the site in Rockford (USA), the persistently strong order situation and high level of capacity utilization resulted in space becoming a problem. Ideal premises were found in a nearby indus- trial estate, and these will become operational in the spring 2015. Thanks to robust demand for assembly systems for inkjet printer cartridges, capacity utilization at the Penang site (Malaysia) proved healthy. e Marketing and sales Komax Medtech was present at five trade fairs and numerous medical technology conferences in 2014, where it systematically interviewed its customers on their expectations and current trends in technical workshops. Moreover, it expanded distribution structures in the US and Europe in order to increase market penetration. 28 KOMAX GROUP ANNUAL REPORT2014 North America and Malaysia enjoyed a good year. Measures initiated in previous years to stabilize profitability wer sys- tematically continued. Positive EBIT despite insufficient capacity utilization at the Swiss site ANN UA L REPORT BUSINESS UNIT MEDTECH e Innovation In the customer-specific systems business, a significant pro- portion of value is created by engineering services that model handling and process solutions in a variety of combi- nations. Efficiency and reliability in both implementation and operational use are crucially important to customer and man- ufacturer alike. For this reason, Komax Medtech analyses its handling and processing solutions on a continuous basis, and channels the results of its ongoing customer surveys into solutions. This process resulted in numerous new devel- opments and optimizations in 2014. For example, a handling system was developed which specifically caters for the in- creasing miniaturization of medical devices and the assem- bly of components in ultra-small spaces. Furthermore, Komax Medtech launched a new software plat- form with a 3-D graphic user interface. This has been well received by the market, and has already been successfully used in several projects. The use of state-of-the-art technol- ogy combined with high development and architecture standards have increased the flexibility and stability of the software, which makes incorporate customer-specific modifications. it much easier to Furthermore, the customer feedback on future market requirements that has been collected over the last few months has already been integrated into the innovation strategy. This has given rise to numerous innovation projects for which implementation is now planned. Among other things, the need for more flexible platforms for smaller production volumes has been taken on board. 29 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT BUSI NESS UNIT M EDTECH e Trends and strategy Trend towards self- medication is set to continue. Komax Medtech is a global leader in its niche. The markets in which Komax Medtech is active are primar- ily driven by two growth factors. On the one hand, an in- creasing number of medications are injected, while on the other, the number of cases of diabetes and the number of asthma patients will unfortunately continue to rise over the coming years. In January 2015, the World Health Organiza- tion (WHO) estimated that 347 million individuals world- wide are already affected by the former condition, with a further 6 million new cases occurring every year. The main drivers of this trend are high-fat diets, obesity and a lack of physical activity. The number of asthma sufferers, which according to a WHO report of November 2013 is around 235 million people, is also expected to rise. Diabetes and asthma patients are already able to treat their conditions themselves, and the trend towards self-medication is set to continue, as new applications and treatments make this form of administration ever simpler and safer. The unrelenting pressure to contain health care costs and efforts to increase the quality of life of the affected individuals are driving forward the develop- ment of new applications for administering treatments, which is in turn increasing the demand for medical product assembly systems. The global market for automation solutions for self-medica- tion applications is therefore likely to grow further. Investment volumes can fluctuate heavily from year to year, however, as these are dependent on the rate of innovation in end products, the approval processes of national authorities, and the need to renew existing assembly lines. With its many years of experience and strong technical expertise, Komax Medtech is one of the recognized global market leaders in systems for the manufacture of insulin delivery applications and inhalers. Komax Medtech is determined to preserve this position. In order to smooth out market fluctuations more effectively, the business unit will increasingly be using existing plat- forms, processes and competencies to target further niche markets. Stabilizing profitability is Komax Medtech’s top priority. This cannot be achieved through sales growth alone, however, because in the customer-specific systems business, an increasing num- ber of projects can have the effect of multiplying rather than diversifying risks unless sufficient care is exercised in project selection. Commercial success therefore hinges on selecting the projects to be acquired with utmost care and on processing them efficiently. 30 KOMAX GROUP ANNUAL REPORT2014 AN NUA L REPORT B USINESS UNIT MEDTECH e Outlook The commercial environment remains challenging for Komax Medtech. Another surge in the value of the Swiss franc is confronting the business unit with severe challenges at its Swiss location. By contrast, we regard the environment in the United States and Malaysia as favourable. Here we are expecting a good business performance and good results. Komax Medtech will systematically pursue the measures it has ushered in to increase efficiency and stabilize profitability. Under current conditions, an improvement in profitability in the short term poses a very great challenge. Key figures in TCHF Order intake Net sales Operating profit (EBIT) in % EBIT margin As at 31 Dec. Headcount 2014 2013 + / − in % 65 092 68 640 1 200 74 999 –13.2 68 133 0.7 3 053 –60.7 1.7 4.5 307 262 17.2 2014 KOM AX GROUP AN NUA L REPORT 31 ANNUAL REPORT BUSI NESS UNIT MEDTECH The way to make engineered solutions for medical device projects Komax Medtech systems t t Final assembly and insertion of drug Pre-assembly of devices – Aligning and placing – Gluing – Welding – Printing – ... t – Flow test – Density test – Visual controls – … Pre-assembly Final assembly Testing Packaging Final product t e Raw material for device assembly e Drug q Device development q Drug development 32 KOMAX GROUP ANNUAL REPORT 2014 ANN UA L REPORT BUSINESS UNIT MEDTECH e Medical devices are products used in treatment and therapy. Many of these devices contain active substances or medicinal products that patients with certain conditions or symptoms can self-administer or inject. Before a new medical product that is combined with a medical instrument can be launched, it has to undergo preclinical and clinical trials and gain approval from the relevant regulatory authority. Komax Medtech plays an important role in this process: The business unit plans and builds systems that integrate various combina- tions of handling and process solutions so that they can semi-automatically or fully automati- cally assemble the components of medical products (individual parts and pre-filled medi- cines) in several steps. Komax Medtech’s systems then test and package the fully assembled final product (device plus active substance) and prepare it for shipping. By using standard- ized and certified validation processes, Komax Medtech also ensures that its systems fulfil all standards, and that the expected results are delivered at the end of the process. Pre-assembly Final assembly Testing Packaging Final product t 2014 KOM AX GROUP AN NUA L REPORT 33 Komax Medtech systems t Pre-assembly of devices – Aligning and placing – Gluing – Welding – Printing – ... t Final assembly and insertion of drug t – Flow test – Density test – Visual controls – … e q Raw material for device assembly e Drug q Device development Drug development ANNUAL REPORT SUSTAI NABILITY AND SOCI AL R ESP O NSIB I LI TY The Komax Group upholds its responsi- bilities towards its stakeholder groups. This is expressed through the products and services it provides on the one hand, and through the objectives and approach the company adopts on the other. Komax regards sustainability and social responsibility as an integral part of its corporate strategy. The basic tenets underlying the Komax Group’s business practices are set out in its guid- ing principles. It exercises responsi- bility towards people and the environment, and is keen to continuously develop its competencies in matters relating to sus- tainability and social responsibility. 34 KOMAX GROUP ANNUAL REPORT2014 Headcount 1 498 ANN UA L REPORT SUSTAINA BIL ITY AND SO CI AL RE SP O NS IBILITY Employees by area of activity 25% Marketing and sales 9% Administration Y T I L I B A N I A T S U S Y T I L I B I L A I S N O P S E R C O S D N A Production Engineering 16% 10% 40% Research and development ����� Asia ����� Employees by region 18% 41% 14% North / South America Switzerland 4% Africa 23% Europe 35 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT SUSTAINABILITY AND SOCI AL RES P O N S IB I L ITY e Group-wide code of conduct The way Komax is perceived by customers and suppliers, other business partners, shareholders and the general public, and the respect for and confidence in the company that these groups feel, is dependent to a significant degree on the conduct of Komax’s employees. In 2009 Komax therefore introduced a code of conduct which applies to all Group employees. These principles are periodically reviewed to ensure that they are up to date. The code of conduct defines general ethical rules of behaviour and guidelines on how to act towards the Group’s business partners and competitors. All employees are given training on the code of conduct when they join the company. The same applies to the employees of acquired companies. Furthermore, in another code of conduct drawn up specially for suppliers, Komax obliges its suppliers to comply with legislation and to act in an environmentally aware and ethical way. Compliance with these defined guidelines is reviewed on a regular basis through supplier audits. If violations are uncov- ered, a supplier partnership may be immediately terminated as a result. e Product sustainability The systems developed by Komax are characterized by their exceptionally high quality and lon- gevity. The Group’s global service network ensures that these systems are professionally main- tained. This has a positive impact on their performance, value retention and lifespan, as well as saving resources. Thanks to their modular construction, the systems can usually be adapted to new technological developments or changing needs. The Wire business unit supplies solutions for wire processing applications, in particular for the automotive supply industry. These solutions are also used to process wiring for new fuel-saving propulsion concepts such as electric and hybrid vehicles. Moreover, the innovative technologies used by Komax mean that ever smaller wire cross-sections can be machine-processed, thereby contributing to a reduction in vehicle weight and, as a result, fuel consumption. The Medtech business unit, which develops systems for medical device manufacturing, is indirectly helping to reduce health care costs, improve access to medicines and thereby increase people’s quality of life. e Sustainability in production Since the Komax Group’s business focuses mainly on the production of machines and systems, it generates few emissions in comparison to other industries. Around half of value creation is procured externally, i.e. the majority of production consists of component assembly. State-of- the-art production facilities also ensure the efficient use of resources. Around 40% of the pro- duction equipment at our sites in Central Switzerland has been newly acquired during the last five years. Komax generally works with lean management concepts, the aims of which include the avoidance of errors and minimization of rejects. Wherever possible, Komax uses renewable energies such as solar or hydroelectric power. For example, the Group obtains green power from Central Switzerland’s RegioMix scheme and has its own photovoltaic power plant on the roof of its production building in Rotkreuz. Moreover, Komax encourages its employees to use public transport. Waste materials from production activities, such as swarf and operating materials waste, are separated out and disposed of or recycled appropriately. Waste volumes are continu- ously reduced as part of optimization programmes. Komax’s products do not contain any ecologically harmful components. The company favours suppliers which demonstrate an environ- mentally aware approach and whose products conform to sustainability criteria. 36 KOMAX GROUP ANNUAL REPORT2014 The environment, health protection, and occupa- tional safety are all viewed as a holistic system. 59 apprentices globally Staff turnover rate less than 9% ANN UA L REPORT SUSTAINA BIL ITY AND SO CI AL RE SP O NS IBILITY The key sites of the Komax Group, which are located in Swit- zerland, the US, Germany, Turkey, and Brazil, are all ISO 9001 certified. Certification of the Shanghai site is planned for 2015. Furthermore, Komax AG’s two sites in Dierikon and Rotkreuz, TSK in Porta Westfalica, and SLE quality engineer- ing in Grafenau have all obtained ISO 14001 certification. These four sites, which together employ more than 600 peo- ple, have integrated management systems that encompass all company processes, the environment, health protection, and safety at work. Furthermore, in collaboration with the En- ergy Agency for the Economy (Energie-Agentur der Wirtschaft, EnAW), Komax has established resource and energy savings targets for 2017 and 2020 for the Dierikon and Rotkreuz sites. For example, the target is to reduce energy consumption by a further 5% by 2017. EnAW pursues a systematic approach to help some 3 000 manufacturing firms, industrial plants and service companies increase energy efficiency and reduce their CO2 emissions. e Contribution to regional development Komax has been firmly rooted in the Canton of Lucerne since 1975, and is one of the canton’s biggest employers. The Group is committed to Switzerland as a business location because it offers an ideal environment and facilitates very high productivity. Its other operating facilities worldwide have been based at the same sites since their establishment, and this has generated a strong sense of identification with the local area. Among other things, this manifests itself in the fact that a large number of employees can be recruited regionally and preference can be given to local suppliers wherever this is feasible and makes commercial sense. e Attractive employer At the end of 2014, Komax employed 1 498 staff worldwide (2013: 1 282). This increase is essen- tially attributable to the first-time consolidation of SLE quality engineering and the further expan- sion of Komax Wire’s organization. Personnel expenses in the year under review amounted to CHF 118.5 million (2013: CHF 103.7 million). The companies of the Komax Group ensure that their employees enjoy equal opportunities, equal treatment and fair employment conditions, receive pay that is in line with the market, and bene- fits that are in line with national and industry standards. Participation in the pay comparison survey conducted by industry association Swissmem showed that pay at both of the Wire busi- ness unit’s Swiss production sites is in line with market averages and that men and women re- ceive equal pay. The proportion of women in the Group’s global workforce stood at around 16% in 2014 (2013: 18%). Komax is not alone within the industry in having a relatively low proportion of women in its workforce. This main reason for this phenomenon is the large number of technical positions within the company, for which the recruitment potential among women is limited. 37 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT SUSTAI NABILITY AND SOC I AL RE S P O N S IB I LI TY The Group’s staff turnover rate in 2014 was gratifyingly low. As in previous years, it amounted to less than 9%. Komax has a very good reputation as an attractive employer. Among other things, this is highlighted by the fact that vacancies can be filled quickly, even in the tight market for management and skilled staff. As part of an active staff development policy, Komax organizes regular management seminars and training for its employees, as well as providing financial support for individual training activ- ities. Komax also encourages international exchanges to allow its staff to gain new experiences and career perspectives. At the same time, Komax invests in tomorrow’s workforce. In 2014, 45 apprentices were undergoing training in seven professions at the Swiss locations (2013: 47). Employee satisfaction is systematically measured and evaluated in the course of annual per- formance review meetings. Komax uses the results of regular employee surveys as a valuable basis for developing and implementing improvement measures. The results of the surveys con- ducted in conjunction with external partners in 2014 were very positive, and far above the indus- try average. It goes without saying that Komax satisfies all legal requirements with respect to working conditions in the countries it operates in. Komax management attaches great impor- tance to employee health and safety, and internal processes are regularly examined for health and safety risks. As in previous years, reported absences due to accidents in 2014 were mainly the result of accidents suffered by employees while engaging in leisure activities. Komax active- ly encourages employees at site level to pursue a healthy lifestyle through initiatives such sport and exercise offerings. e Certification status Komax Group Country Company Certification Switzerland Komax AG Komax Systems LCF SA USA Komax Corp. TSK Innovations Co. Germany TSK Prüfsysteme GmbH ISO 9001 ISO 9001 ISO 9001 ISO 9001 ISO 9001 ISO 14001 OHSAS 18001 ISO 14001 SLE quality engineering GmbH & Co. KG ISO 9001 ISO 14001 DE AEOC 104360 Brazil Turkey TSK do Brasil Ltda. TSK Test Sistemleri Ltd. Sti. ISO 9001 ISO 9001 38 KOMAX GROUP ANNUAL REPORT2014 AN NUA L REPORT SUSTA INAB IL ITY AND SOC IAL RES PON SIBILITY Environmental indicators1 Electric power consumption in MWh Electric power consumption per head in MWh Water consumption (potable and industrial water) in m3 Water consumption (potable and industrial water) per head in m3 Employees by business unit Komax Wire Komax Medtech Corporate Total Employees by area of activity Production Research and development Engineering Marketing and sales Administration Total Employees by region Switzerland Europe Africa North / South America Asia Total 2014 5 896 4.5 20132 5 915 5.3 12 108 11 731 9.2 10.5 1 177 1 006 307 14 262 14 1 498 1 282 597 150 246 376 129 486 136 198 336 126 1 498 1 282 622 345 58 210 263 575 243 55 194 215 1 498 1 282 1 Covering the production sites in Dierikon (CH), Rotkreuz (CH), La Chaux-de-Fonds (CH), Porta Westfalica (DE), Grafenau (DE), Ergene (TR), Tunis (TN), El Paso (US), Rockford (US), Colombo (BR), Shanghai (RC) and Penang (MY). 2 Prior-year figures restated in accordance with Note 10 of the consolidated financial statements. 39 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT INFORMATION FOR I NVESTOR S As in 2013, the stock markets were heavily influenced by the interventions of central banks in 2014. In addition, equities were bolstered by positive economic develop- ments in the United States, the further de-escalation of the euro crisis, and the low interest rate environment. On the other hand, reports of political unrest, the strong decline in the price of oil which was inter- preted as a sign of a weak global economy and continually resurgent fears over a re- newed flare-up of the debt crisis in Europe resulted in a number of – occasionally strong – price fluctuations. 40 KOMAX GROUP ANNUAL REPORT2014 ANN UA L REPORT INFOR MATIO N FOR INVESTORS 520.9m Market capitalization in CHF Payout ratio 65% Dividend yield 3.2% High free float 94% I N O T A M R O F N I S R O T S E V N I R O F 41 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT INFORMATION FOR I NVES TORS Following its stellar rise of more than 90% the previous year, Komax shares continued to rise in 2014, ending the year up 7%. The year-end closing price on 30 December 2014 was CHF 144.50 (2013: CHF 135.30). e Share price development in CHF 170 150 130 110 90 70 50 2010 2011 2012 2013 2014 2015 Komax Vontobel Small Cap Index On 15 January 2015, the Swiss National Bank made the surprise announcement that it was scrapping the guaranteed minimum exchange rate of CHF 1.20 against the euro with immediate effect. Both the foreign exchange markets and the stock markets reacted immediately and dra- matically. Komax’s share price slumped temporarily by around 17%. The scale of this correction failed to take account of the fact that Komax is capable of cushioning the effects of exchange rate changes and safeguarding the Group’s profitability. Komax has already demonstrated its ability to do so on several occasions in the past. It has now taken further steps to actively in- crease the congruence between income and expenditure in the various currencies and strength- en natural currency hedging. e Listing Komax is listed on SIX Swiss Exchange. Market capitalization at the end of 2014 was CHF 520.9 million. CH0010702154 1070215 KOMN SW KOMN.S ISIN Security number Bloomberg code Thomson Reuters code 42 KOMAX GROUP ANNUAL REPORT2014 AN NUA L REPORT INFORMATION FOR INVESTORS e Geographical distribution of shareholdings Switzerland Other countries Cleared shares 64% 12% 24% The majority of shares not held in Switzerland are held in the United Kingdom, Luxembourg and the United States. e Significant shareholders Information on significant shareholders can be found on page 54 of this report. e Breakdown of shareholders by number of registered shares held 1–100 101–1 000 1 001–10 000 10 001–50 000 > 50 000 e Free float 1498 1311 200 38 7 The free float as defined by SIX Swiss Exchange stands at 94%. e Dividends The Board of Directors is keen to adhere to its attractive dividend policy, and will propose to the Annual General Meeting a dividend of CHF 5.00, of which CHF 2.50 will be distributed as a dividend and CHF 2.50 from capital contribution reserves. The payout ratio is therefore 65%. The dividend yield on the date of the Board resolution stood at an attractive 3.2%. Dividend pay- ments from the capital contribution reserves are tax-free for natural persons living in Switzerland who hold shares as part of their private assets. e Information on the Komax registered share Further information on the Komax registered share can be found on the Internet at www.komaxgroup.com. 43 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT INFORMATION FOR I NVESTOR S e Disclosure of shareholdings Under Art. 20 of the Swiss Federal Act on Stock Exchanges and Securities Trading (Stock Ex- change Act) and the Stock Market Ordinance of the Swiss Financial Market Supervisory Author- ity (SESTO-FINMA), anyone who acquires or sells equity securities on their own account and thereby attains, falls below or exceeds the threshold of 3, 5, 10, 15, 20, 25, 331⁄3, 50 or 662⁄3% of the voting rights in a company (whether or not such rights may be exercised), is subject to a re- porting obligation. This obligation applies to anyone who directly, indirectly or in concert with third parties acquires or disposes of shares in a company incorporated in Switzerland whose equity securities are listed in whole or in part in Switzerland. Disclosure shall be made to the company and stock exchange(s) on which the equity securities in question are listed. e Financial calendar Annual General Meeting Dividend payment First information on the year 2015 Preview of results for 2015 Media briefing / presentation to analysts of 2015 financial statements Annual General Meeting e Key data Komax registered share 8 May 2015 15 May 2015 18 August 2015 19 January 2016 22 March 2016 12 May 2016 Share capital as at 31 Dec. in TCHF Number of shares as at 31 Dec. Average number of outstanding shares Par value per share Basic earnings per share EBITD per share EBIT per share Shareholders’ equity per share Dividend per share High Low Closing price as at 31 Dec. Average daily trade volume P / E (price-earnings ratio) as at 31 Dec. Dividend yield as at 31 Dec. No. No. CHF CHF CHF CHF CHF CHF CHF CHF CHF No. % 2014 361 2013 352 2012 344 2011 340 2010 340 3 605 101 3 523 780 3 443 789 3 400 880 3 400 880 3 552 840 3 458 379 3 404 850 3 375 217 3 349 278 0.10 7.64 15.99 13.34 78.82 5.002 152.40 124.60 144.50 8 613 18.9 3.52 0.10 7.33 14.921 12.291 74.92 4.50 138.00 72.35 135.30 9 999 18.5 3.3 0.10 2.81 6.44 3.95 68.56 2.00 97.10 61.25 71.00 6 608 25.3 2.8 0.10 11.68 16.14 13.98 72.63 4.00 0.10 5.31 10.72 8.56 62.49 2.00 120.00 103.00 59.00 68.75 8 383 5.9 5.8 73.10 102.00 6 173 19.5 2.0 1 Prior-year figures restated in accordance with Note 10 of the consolidated financial statements. 2 Proposal of the Board of Directors of Komax Holding AG: distribution of CHF 5.00 per registered share. 44 KOMAX GROUP ANNUAL REPORT2014 ANN UA L REPORT 40 YE ARS KOMAX WIRE Far ahead of its time in terms of precision Established 1975 A pioneer- ing and innovative spirit has always been an integral part of Komax’s corporate culture. S R A E Y 0 4 X A M O K E R W I 2014 KOM AX GROUP AN NUA L REPORT 45 ANNUAL REPORT 40 YEARS KOMAX WIRE A cause for celebration! In 1975, not far from Lucerne, Max Koch founded a small engineering practice whose ideas and concepts would change the world of wire processing. Even back then, business success was built on a pioneering and inventive spirit. The first cable-cutting machine – the Komax 20 – which the young company sprang on the market in 1976, was years ahead of its time, both in terms of precision and processing quality. e Quality control of a circuit board in the electrical laboratory. ( 2 ) t Max Koch assembling a Komax 20, the first automatic Komax machine for cutting wires to length. ( 1 ) 2 1 46 KOMAX GROUP ANNUAL REPORT2014 AN NUA L REPORT 40 YEAR S KO MAX WIRE 3 e Stripping blades were manufactured with the profile grinding machine. ( 3 ) t In 1982, the Komax 40 became the first model to enter series production at the Dierikon production site. ( 4 ) 4 47 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT 40 YEARS KOMAX WIRE e Visionary and innovative Space at the production site in Lucerne soon started to run out. In a vision- ary and entrepreneurial step, Max Koch began planning his move into a generously proportioned factory site. Work began at the site in Industri- estrasse in Dierikon in 1981, and the company moved into the new building just a few months later. This move was more than just a change of postal address; the new premises had been designed especially for series produc- tion. The first series-production machine was the Komax 40. In 1982, Ko- max launched the world’s first electronically controlled automatic crimping machine. The year 1994 then saw the launch of the Komax Alpha series, while the world’s first fully automatic crimping machine with wire twisting was rolled out in 1999. The company launched its Zeta range for fully auto- mated wire harness manufacture in 2004. The product range has been con- sistently refined since then, and innovative, pioneering solutions that meet customer needs to a very large level are constantly making their market de- buts. It is no coincidence that Komax is the undisputed global market lead- er in its field today. Technological dynamism has gone hand in hand with geographic expansion. The founding of a Komax branch in the United States in 1981 was followed by a targeted global expansion of the company’s foreign presence over the next few years. The sale of the company to management in 1996 and its IPO eight months later opened up new development opportunities for Komax. The funds from the public flotation were used to finance further expansion. Through a com- bination of acquisitions and the founding of subsidiary companies and branches, Komax has evolved into a global operation. Komax acquired TSK Group in 2012 and the majority holding in SLE quality engineering in 2014. At the beginning of January 2015, a minority holding in the French company Laselec was acquired. Today Komax Wire employs some 1 200 staff and is the global market leader in wire processing, particularly in the automotive sector. All of this is due to the entrepreneurial initiative and innovative drive of our company founder, Max Koch. However, we also owe our extraordinary market position to sub- sequent management generations and our workforce. Only by working to- gether has it been possible to embed the Komax spirit of the early days in our corporate culture and ensure that it remains alive to this day. 48 KOMAX GROUP ANNUAL REPORT2014 Component manufacturing in Dierikon 1 q A milling centre in Component Manufac- turing at the Dierikon site. ( 1 ) e The WT80 was developed at the start of the 1980s, when the age of the video recorder began, for manufacturing wire harnesses for IDC cables. ( 2 ) AN NUA L REPORT 40 YEAR S KO MAX WIRE Assembly of a WT80 in 1983 2 49 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT 40 YEARS KOMAX WIRE Machinist Stefan Wyrsch Manager R&D Dominik Staubli What I particularly like about Komax is the trust the company places in its employees. Working self-reliantly and assuming responsibility are not theoretical notions at Komax, it’s something you do day in, day out. In my area of work – auto- matic crimping tools – the principal functionality has essentially been the same for years. And yet almost every day I find myself confronted with new, multifaceted interdisciplinary tasks. The depth of development expertise, the use of modern technologies, and the dedication of the team are constantly delivering new, refined, holistic solutions. I still find that fascinating, even after 17 years at Komax. Komax Wire, Rotkreuz, Switzerland I still get a great deal of pleasure from working for Komax, even after 17 years. As a trained machinist, I came to Komax largely by chance. Throughout my time here, I’ve always had the opportunity to learn new things, which brings variety to my work. I produce various machine parts, as well as writing complex milling programmes for new parts. I enjoy the challenges of working for Komax and the training opportunities that are on offer. Komax Wire, Dierikon, Switzerland q Global leadership, a pioneering spirit and innovation – these qualities which characterize Komax Wire can be summarized in the expression “cutting-edge.” 50 KOMAX GROUP ANNUAL REPORT2014 Controller Kirsten Bechter AN NUA L REPORT 40 YEAR S KO MAX WIRE After my studies and a spell abroad, it was important to me to continue to work in a global environment, yet nonetheless stay in a company that represents Swiss values. What’s more, Komax provides me with opportunities for both professional and personal further development. My work is fun, and I like taking part in the company’s health promotion programmes. Another thing that makes the working atmosphere at Komax so pleasant is the friendly and respectful way people treat each other. Komax Wire, Dierikon, Switzerland CFO Komax India Kamal Sethi I’ve been employed by Komax India ever since this branch was founded. I particularly value the freedom I have to do my job and the friendly atmosphere in the team. With its global orientation and growth opportunities, the company provides me with the ideal platform for my own personal development. Komax Wire, Gurgaon, India Building Services Walter Odermatt I’ve been with Komax for eight years now. What I like about my work is the fact that it is so varied. On the one hand you have the planned projects, and on the other you have the unex- pected jobs that crop up every day; I love my work because it demands flexibility and creativity, as well as specialist knowledge and experience. I feel very much at home in my team because we all get on well and everyone is willing to help each other out. I really have found my dream job at Komax. Komax Wire, Dierikon, Switzerland 51 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT 40 YEARS KOMAX WIRE Mechanical engineer Karin Thoms Head e-Commerce Stefan Lugauer Working on technical developments, testing machine units and developing them through to production readiness are tasks that I very much enjoy. I’ve never regretted my decision to join the Komax Group as a mechanical engineer. What’s more, joint projects and the company’s leisure activities have brought me a lot of The international orientation of the company gives me the friendships that I very much value. opportunity to acquire intercultural and interdisciplinary experience by working in global teams. Management has shown its confidence in my performance, and my person- ality as an emerging manager, and I appreciate that. Komax gives me the opportunity to contribute my strengths and professional skills to the management of complex international products. Komax Wire, Dierikon, Switzerland Komax Wire, Dierikon, Switzerland Sales Director Asia Pacific Sean Rong I’ve worked for Komax Shanghai in China since 2012, and I really value the customer-focused and service-oriented environment of this technology leader. The innovation and high quality of Komax products are brought home to me every day. I like working here, as I really value the corporate culture, which is both fair and open. Mistakes are allowed, as long as you learn from them. Komax Wire, Shanghai, China 52 KOMAX GROUP ANNUAL REPORT2014 C ORPO RATE GOV ERNANCE CO NTENTS Corporate structure and shareholders 54 Capital structure 55 Board of Directors 57 Executive Committee 61 Compensations, shareholdings and loans 62 Shareholder participation rights 62 Changes of control and defence measures 64 Auditors 65 Information policy 66 Ensuring good corporate governance is very important to Komax. Objectives in this area include safeguarding company value and suc- cess in the interest of customers, shareholders, staff, creditors, sup- pliers and the public, as well as the provision of transparent, rapid and simultaneous information to all stakeholder groups. Komax takes as its starting point the principles and regulations of the Swiss Code of Best Practice of economiesuisse and the Directive on Information Relating to Corporate Governance (Directive Corporate Governance, DCG) of SIX Exchange Regulation, and gives account of develop- ments in this area each year in the Annual Report. The key elements are laid down in the Articles of Association, the Organizational Regulations, and the Regulations on the Remuneration Committee and the Audit Committee. In addition, the Board of Directors regularly looks at the issue of corporate governance and initiates the corres- ponding improvements where necessary. 53 E C N A N R E V O G E T A R O P R O C KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT CORPO RATE GOVERNANCE Corporate Governance On 20 November 2013, the Federal Council issued the Ordinance against Excessive Remuner- ation in Listed Companies Limited by Shares (ERCO). ERCO introduced the core elements of the “Minder initiative”, which was accepted by the Swiss electorate on 3 March 2013 and aimed to strengthen shareholder rights. It also imposes on listed Swiss companies requirements in connection with the compensation of the Board of Directors and the Executive Board. ERCO entered into force on 1 January 2014 and gives companies a transitional period of two years in which to adjust their Articles of Association. Komax decided to implement these requirements rapidly, submitting the proposed amendments to its Articles of Association for approval at the 2014 Annual General Meeting. An overview of the amendments to the Articles of Association is provided in the invitation to the 2014 Annual General Meeting, which is published on the website www.komaxgroup.com. e 1 Corporate structure and shareholders Corporate structure The Group structure and subsidiaries belonging to the Group are set out on pages 150 and 151 of the Annual Report. With the exception of Komax Holding AG, no companies with listed partici- pation securities form part of the scope of consolidation. Komax Holding AG, the holding company of the Komax Group, has its headquarters in Dierikon, Switzerland. Details on the place of listing, market capitalization, security and ISIN numbers are set out on pages 40 to 44 (“Information for investors”). Significant shareholders Shareholders whose share of the company’s share capital exceeds or falls below the thresholds of 3, 5, 10, 15, 20, 25, 331∕3, 50 and 662∕3% have a reporting obligation under the Federal Act on Stock Exchanges and Securities Trading (SESTA) and the Stock Exchange Ordinance of the Swiss Financial Market Supervisory Authority (SESTO-FINMA). According to these disclosure requirements, at 31 December 2014, the company had the following significant shareholders with voting rights of more than 3% of the share capital: Shareholder / shareholder group Max Koch, Meggen, Switzerland Vontobel Fonds Services AG, Switzerland Credit Suisse Funds AG, Switzerland Leo Steiner, Steinhausen, Switzerland Number of shares 31.12.2014 216 069 2 178 400 3 138 992 4 120 650 5 Share in % 31.12.20141 6.13 5.06 3.94 3.42 1 The calculation is based on the 3 523 780 registered shares listed in the Commercial Register as at 31 December 2014. 2 Plus stock options from the employee incentive scheme (0.10%): 0.03% 1 000 call options, CHF 94.25, duration 1.1.2011–31.12.2015 0.03% 1 000 call options, CHF 66.21, duration 1.1.2012–31.12.2016 0.03% 1 000 call options, CHF 67.03, duration 1.1.2013–31.12.2017 0.01% 416 call options, CHF 129.21, duration 1.1.2014–31.12.2018 All share options are subject to a three-year lock-in period and a two-year exercise period, exchange ratio 1:1, effective fulfilment. 3 Reported figure as of 5 November 2014. 4 Reported figure as of 10 September 2014. 5 Plus stock options from the employee incentive scheme (0.28%): 0.07% 2 500 call options, CHF 94.25, duration 1.1.2011–31.12.2015 0.07% 2 500 call options, CHF 66.21, duration 1.1.2012–31.12.2016 0.07% 2 500 call options, CHF 67.03, duration 1.1.2013–31.12.2017 0.07% 2 500 call options, CHF 129.21, duration 1.1.2014–31.12.2018 All share options are subject to a three-year lock-in period and a two-year exercise period, exchange ratio 1:1, effective fulfilment. 54 KOMAX GROUP ANNUAL REPORT2014 AN NUA L REPORT CORP ORATE GOVER NANCE All shareholdings reported to Komax Holding AG and the Disclosure Office of SIX Swiss Ex- change during the 2014 financial year as per Art. 20 of the Federal Act on Stock Exchanges and Securities Trading (SESTA) and the provisions of the Stock Exchange Ordinance of the Swiss Financial Market Supervisory Authority (SESTO-FINMA) have been published on SIX Swiss Exchange AG’s electronic publication platform, and can be viewed at www.six-exchange-regulation.com/obligations/disclosure/major_shareholders_en.html. Cross-shareholdings There are no cross-shareholdings. e 2 Capital structure Capital in CHF Ordinary capital Conditional capital Authorized capital 360 510.10 24 489.90 0.00 Further details are provided in the sections below. Authorized and conditional capital in particular For information on conditional capital, please refer to the individual financial statements of Komax Holding AG, page 145, and Art. 3.2 of the Articles of Association. The Annual General Meeting of 13 May 2009 approved the creation of new conditional capital up to a maximum of CHF 18 000.00, thereby allowing the share capital of the company at that time to rise by up to CHF 46 248.00 to cover the exercising of option or subscription rights issued as part of the Executive and Employee Participation Programmes of Komax Holding AG. The sub- scription and advance subscription rights of the remaining shareholders in the company are ex- cluded. The allocation of options is undertaken in a framework determined by the Remuneration Commit- tee. The option plan of Komax Holding AG is authoritative. The individual allocation of options is at the discretion of the Board of Directors and senior management. Options have a duration of five years and are subject to a three-year lock-in period. The predetermined exercise price of the options corresponds to the lower of the following two values: the average price of the fourth quarter of the preceding year, or the average price in March of the year the option was issued. For options issued in the 2014 financial year, the exercise price amounted to CHF 129.21. Further information on the Komax Group’s option programmes can be found on pages 74, 133 and 134 of the Annual Report. In 2010, 13 360 options were converted into shares with a par value of CHF 0.10. In 2011, no options were exercised, and in 2012, 42 909 options were exercised. The number of options ex- ercised in 2013 amounted to 79 991; the figure for 2014 was 81 321. Conditional capital therefore amounted to CHF 24 489.90 as at 31 December 2014. The newly created capital was reported within the deadline stipulated under Art. 635h of the Swiss Code of Obligations (CO). The Komax Group has no authorized capital. 55 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT CORPO RATE GOVERNANCE Capital changes Details of capital changes in 2013 and 2014 can be found on page 90 of the Financial Report. The corresponding information for 2012 can be found on page 58 of the financial section of the 2013 Annual Report. Shares, participation certificates and bonus certificates As at 31 December 2014, Komax Holding AG had fully paid-up capital of CHF 360 510.10, distrib- uted over 3 605 101 registered shares with a par value of CHF 0.10 each. Each registered share entitles the holder to vote at the Annual General Meeting as long as the shareholder is listed in the share register as a “voting shareholder” (see also “Restrictions on transferability of shares and nominee registrations”). Registered shares are fully entitled to receive dividends. Komax Holding AG has not issued any participation certificates or bonus certificates. Restrictions on transferability of shares and nominee registrations The Komax Holding AG share register is divided into the categories of “non-voting shareholders” and “voting shareholders”. “Non-voting shareholders” may exercise all property rights, but not the right to vote or rights associated with that of voting. “Voting shareholders” may exercise all rights associated with the share (Articles of Association, Section 6 para. 2). Registration of an acquirer of shares as a “voting shareholder” may be refused under Komax Holding AG’s Articles of Association (Section 6 para. 4) if, as a result of such recognition, the acquirer would directly or indirectly hold more than 5% of the total number of shares recorded in the Commercial Register. Legal entities and groups with joint legal status which are connected through capital, voting rights, management or in some other manner, along with all natural per- sons, legal entities and groups with joint legal status which act in concert by virtue of agreement, syndicate or in some other manner, are regarded as a single acquirer for the purposes of this provision. This limitation also applies in the case of the acquisition of registered shares through the exercising of subscription rights, option rights or conversion rights. The Board of Directors may grant exceptions to the 5% limitation for good cause. No requests for an exception were made in the year under review. This restriction does not apply to the acquisition of shares through inheritance, division of an estate or joint marital property. Komax Holding AG’s Articles of Association (Section 6 paras. 5 and 6) also empower the Board of Directors to refuse entry in the share register if the acquirer does not expressly declare, at the request of the Board, that the shares were acquired in their own name and for their own account. Nominees are listed in the share register as “non-voting shareholders”. After hearing the affected party, Komax Holding AG may delete entries in the share register if such entries occurred in con- sequence of false statements by the acquirer. The acquirer must be informed of the deletion im- mediately. Convertible bonds and options Komax Holding AG has no outstanding convertible bonds. Details on employee options can be found above under “Authorized and conditional capital in particular” as well as on pages 74, 133 and 134 of the Annual Report. 56 KOMAX GROUP ANNUAL REPORT2014 ANN UA L REPORT CO RP OR ATE GOVER NANCE Management transactions The Listing Rules of SIX Swiss Exchange stipulate a disclosure obligation for management trans- actions. The Board of Directors has issued a set of regulations to comply with these provisions. Members of the Board of Directors and Executive Committee have a disclosure obligation towards the company in this respect. A total of 32 notifications were submitted in the 2014 financial year. Published notifications can be found on the website of SIX Swiss Exchange (http://www.six- exchange-regulation.com/obligations/management_transactions/notifications_en.html). e 3 Board of Directors The Board of Directors comprised six individuals as at 31 December 2014. No member of the Board of Directors was a member of the Executive Committee in the three financial years prior to the reporting period, and no member of the Board of Directors has any material business relation- ship with any Group companies. Members of the Board of Directors Leo Steiner, Chairman Daniel Hirschi, Vice-Chairman Hans Caspar von der Crone Kurt Haerri Roland Siegwart David Dean AC: Audit Committee RC: Remuneration Committee Appointed Term expires Committees 1997 2005 1997 2012 2013 2014 2015 2015 2015 2015 2015 2015 AC, RC (Chairman) RC AC (Chairman) AC RC AC There are no cross-involvements among the Board of Directors. Biographies of the individual Board members and details of their other activities and interests are provided on page 16 of the Annual Report. Statutory regulations with respect to the number of permissible activities as per Art. 12 para. 1 point 1 ERCO According to Section 21 para. 3 of the Articles of Association, the number of permissible man- dates of members of the Board of Directors in the highest management or administrative bodies of legal entities which are obliged to have themselves entered in the Commercial Register or in a corresponding foreign register and which are not controlled by the company or do not control the company shall be 4 additional mandates for listed companies, 5 additional mandates for non- listed companies, and 5 additional mandates for charitable organizations, as long as this does not involve any breach of statutory provisions and in particular the due diligence obligations of the Board of Directors. Mandates with different companies that belong to the same corporate group count as a single mandate. Mandates undertaken by a member of the Board of Directors at the behest of a Group company or to exercise an office under public law are not covered by the restriction on additional mandates described above. The assumption of mandates other than those stipulated above is permissible without numerical restriction, as long as these mandates are unremunerated and do not interfere with the Board member’s fulfilment of his / her obligations vis-à-vis the company. The reimbursement of expenses does not count as compensation. 57 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT CORPO RATE GOVERNANCE Election and term of office According to the Articles of Association (Section 14 para. 1), the Board of Directors consists of three to seven members. It is predominantly composed of independent, non-executive members, who are elected individually by the Annual General Meeting for a term lasting until the end of the next Annual General Meeting. The Annual General Meeting also elects the Chairman. Members may be re-elected. There is no restriction on the length of a member’s term of office. The Articles of Association provide no regulations regarding the appointment of the Chairman and the mem- bers of the Board of Directors that deviate from statutory provisions. At the next Annual General Meeting of 8 May 2015, all members of the Board of Directors will be newly elected. However, Leo Steiner will not be standing for re-election as Chairman. In addition, Hans Caspar von der Crone will be stepping down from the Board of Directors with effect from the end of the Annual General Meeting. Instead, the Board of Directors will propose to the Annu- al General Meeting the election of Beat Kälin – the current CEO – as member and Chairman. Accordingly, and subject to his election by the Annual General Meeting, he will step down as CEO of Komax and restrict his activity to the role of Chairman of the Board. Internal organization The Board of Directors consists of the Chairman and a maximum of six other Board members. With the exception of the Chairman, who is also elected by the Annual General Meeting unless that position becomes vacant during the year, the Board of Directors organizes itself. If the office of Chairman becomes vacant during the period of office, the Board of Directors will nominate a new Chairman for the remaining period of office, whereby this person must be an existing mem- ber of the Board of Directors. The Chairman is responsible for chairing meetings. The Board of Directors additionally appoints a Secretary, who does not need to be a member of the Board of Directors. The Board of Directors meets as often as business requires, but no less than four times per year. It convenes at the invitation of the Chairman. Each member of the Board of Directors is also en- titled to demand that a meeting be called to discuss a particular topic. In this case, the Chairman convenes the meeting within 14 days of receiving the request. The Board of Directors is deemed to have a quorum if an absolute majority of its members are present in person. The resolutions of the Board of Directors are adopted by an absolute majority of votes present. In the event of a tie, the Chairman casts the deciding vote. All resolutions are minuted. In cases of urgency, a meeting of the Board of Directors may be held by telephone or other appropriate medium. Resolutions by circular letter are permissible provided no Board member calls for verbal discussion. All members were present at the eight meetings of the Board of Directors that took place in 2014. On average, these meetings lasted around six hours. How- ever, these average times pertain to the actual duration of the meetings themselves, and do not take into account the extensive preparatory and follow-up work done by the individual members. Within the Board of Directors, there are two committees that are exclusively made up of non- executive Board members: – Remuneration Committee This committee amalgamates the tasks of a remuneration and nomination committee. The Remu- neration Committee consists of a maximum of three non-executive members. It is elected by the Annual General Meeting. The term of office ends with the conclusion of the next Annual General Meeting. Re-election is permissible. The current members are Daniel Hirschi, Roland Siegwart and Leo Steiner. The Board of Direct- ors is proposing to the Annual General Meeting of 8 May 2015 the re-election of Daniel Hirschi and Roland Siegwart and the election of Beat Kälin. 58 KOMAX GROUP ANNUAL REPORT2014 ANN UA L REPORT CO RP OR ATE GOVER NANCE The Articles of Association provide no regulations regarding the appointment of Committee mem- bers that deviate from statutory provisions. If a member leaves the company prior to completing his term of office, the Board of Directors will appoint a replacement from among its number for the remaining period of office. The Remuneration Committee meets as often as business requires, but at least twice a year. The invitation, which contains details of the agenda items, is issued in writing at least ten days prior to the meeting. The CEO and other members of the Executive Committee may attend these meet- ings in an advisory capacity. However, they do not take part in discussions concerning their own compensation. The Committee Chairman reports to the Board of Directors on the activities of the Committee after every meeting. The minutes of Committee meetings are made available to mem- bers of the Board of Directors. In 2014, the Committee met twice, with all members being present on both occasions. On aver- age, these meetings lasted three hours. These average times do not include the extensive pre- paratory and follow-up work done by the individual members. The tasks of the Remuneration Committee include supporting the Board of Directors in the ful- filment of the compensation and staff policy duties assigned to it by current legislation and the Articles of Association. In particular, the Remuneration Committee puts forward proposals on remuneration policy and prepares all relevant decision-making material for the Board of Directors with respect to the appointment and remuneration of members of the Board of Directors and the Executive Committee. The detailed tasks and competencies of the Remuneration Committee are set out in the Organizational Regulations for the Remuneration Committee. Further details on the Remuneration Committee can be found in the Compensation Report on pages 67 to 78. – Audit Committee The Audit Committee consists of Hans Caspar von der Crone (Chairman), David Dean, Kurt Haerri and Leo Steiner. The Committee meets at least twice a year. In 2014, the Committee met three times, with all members being present on each occasion. On average, these meetings last- ed three hours. These average times do not include the extensive preparatory and follow-up work done by the individual members. The tasks of the Audit Committee include the overall supervision of the external and internal au- ditors, as well as financial reporting. The Audit Committee sets out the scope and schedule of the audit to be carried out by the two auditing bodies and also coordinates their work. Both the ex- ternal and internal auditors draw up a report on their audit work, and the Audit Committee moni- tors implementation of the audit findings. Furthermore, the Audit Committee evaluates the relia- bility of the internal control system and risk management, and acquires a picture of the extent to which statutory and internal regulations are being adhered to (compliance). The CEO and the CFO both attend meetings of the Audit Committee. The external auditor is invited to attend. The CFO represents the internal audit unit. Both bodies have access to the minutes of the meetings of the Boards of Directors and Executive Committee. The detailed tasks and competencies of the Audit Committee are set out in the Organizational Regulations for the Audit Committee. 59 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT CORPO RATE GOVERNANCE Definition of areas of responsibility According to Art. 716a para. 1 SCO and Section 19 of the Articles of Association, the Board of Directors must fulfil the following tasks: – – – Overall management of the company and issuance of the necessary directives Defining the company’s organizational structure Determining the principles of accounting, financial controlling and financial planning, insofar as this is necessary for the management of the company Appointing and removing the persons entrusted with managing and/or representing the company Ultimate supervision of the persons entrusted with managing the company, specifically with respect to prevailing legislation, the Articles of Association, regulations and directives Producing the Annual Report, making preparations for the Annual General Meeting and executing the resolutions passed by the Annual General Meeting Drawing up the Compensation Report Informing the courts in the event of excessive indebtedness Passing resolutions on supplementary contributions for shares not fully paid in Resolutions for the approval of capital increases and the resulting amendments to the Articles of Association – – – – – – – The tasks, obligations and powers of the Board of Directors, its Chairman, and the above- mentioned Committees are set out in detail in the Articles of Association, the Organizational Regulations of Komax Holding AG, and the Regulations for the Remuneration Committee and the Audit Committee. These also define the rights, obligations and competencies of the CEO and Executive Committee. The relevant regulations are reviewed on a regular basis and amended where necessary. The most recent amendment was undertaken in August 2014. To the extent permitted by law and by the Articles of Association, the Board of Directors has delegated operational management of the company to the CEO of the Komax Group. The Executive Committee is made up of the CEO and three further members. The members of the Executive Committee are appointed by the Board of Directors at the proposal of the Remunera- tion Committee. Information and control instruments vis-à-vis the Executive Committee The CEO informs the Board of Directors at each ordinary meeting about the course of business, the Group’s most important transactions and the status of the tasks delegated to the Executive Committee. In addition, the key data generated by the management information system (MIS) is discussed at length with the CEO and CFO at these meetings. The Board of Directors is provided with full details of the current course of business and the financial situation of the Group between each meeting. In addition, the Chairman of the Board of Directors and the CEO are in regular contact to discuss important questions of company policy. The risks associated with the Group’s commercial activities are systematically identified, ana- lyzed, monitored and managed through an institutionalized risk management function. These risks are amalgamated into groups according to their nature, namely general external risks, busi- ness risks, financial risks, risks arising in connection with corporate governance, and IT risks. The Executive Committee is responsible for the operational side of risk management, whereby specially appointed process owners are assigned responsibility for the management of key indi- vidual risks. These process owners take specific measures and monitor their implementation. Every year, the Executive Committee informs the Audit Committee of the risks identified and measures taken as part of risk management activities. 60 KOMAX GROUP ANNUAL REPORT2014 ANN UA L REPORT CO RP OR ATE GOVER NANCE The MIS of the Komax Group is organized as follows: each subsidiary’s key balance sheet and profit and loss figures are compiled and consolidated once a month. The subsidiaries’ balance sheets, income statements, cash flow statements and various indicators are compiled and con- solidated on a quarterly, half-yearly and yearly basis. A comparison is then made with the previ- ous year and the budget. The budget forecast is checked for attainability against the quarterly statements for each individual company and on a consolidated basis. Using key controls, the internal control system (ICS) ensures proper and efficient management, safeguards assets, prevents and identifies offences and errors, and ensures accurate and com- plete accounting records as well as timely preparation of reliable financial information. A report setting out the results of these investigations and the corresponding measures taken is submit- ted to the Audit Committee. The internal audit function evaluates the effectiveness of the ICS as well as management and monitoring processes. It also supports the Executive Committee in the risk management process. Internal audit duties are performed by the Finance & Accounting unit of Komax Management AG, Dierikon. This unit scrutinizes the individual operating units of the Group and the various busi- ness areas of the parent entity at regular intervals, and on the basis of an annually updated audit plan. The internal auditors report the results of their investigations to the Audit Committee. The Audit Committee reviews and approves the scope of the audit, the audit plan, and the corres- ponding responsibilities. It also decides on any measures to be implemented as a result of intern- al audit findings. e 4 Executive Committee The Executive Committee of the Group comprises the CEO, the business unit heads who report directly to him, and the Chief Financial Officer (CFO). Beat Kälin, CEO Andreas Wolfisberg, CFO Matijas Meyer, Head Business Unit Wire Rene Ronchetti, Head Business Unit Medtech Walter Nehls, Head Business Unit Solar Function exercised since 2007 1996 2010 2012 2008 until 30 September 2014 Biographies of the individual members of the Executive Committee are provided on page 17. Other activities and interests Aside from the mandates listed on page 17, the members of the Executive Committee did not exercise any activities on management or supervisory bodies of significant Swiss and foreign corporate entities, institutions or foundations under private or public law outside the Komax Group as at 31 December 2014. 61 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT CORPO RATE GOVERNANCE Statutory regulations with respect to the number of permissible activities as per Art. 12 para. 1 ERCO The number of permissible mandates of members of the Executive Committee in the highest management or administrative bodies of legal entities which are obliged to have themselves entered in the Commercial Register or in a corresponding foreign register and which are not con- trolled by the company or do not control the company shall be 2 additional mandates for listed companies, 2 additional mandates for non-listed companies, and 5 additional mandates for char- itable organizations, as long as this does not involve any breach of statutory provisions and in particular the applicable due diligence obligations and the duty of loyalty. Mandates with differ- ent companies that belong to the same corporate group count as a single mandate. Mandates undertaken by a member of the Executive Committee at the behest of a Group company are not covered by the additional mandate restriction. Executive Committee members may not accept any of the above-mentioned mandates without the prior written approval of the Board of Direct- ors. The assumption of mandates other than those stipulated above is permissible without nu- merical restriction, as long as these mandates are unremunerated and do not interfere with the Executive Committee member’s fulfilment of his obligations vis-à-vis the company. The reim- bursement of expenses does not count as compensation. Management contracts No management agreements exist with companies or natural persons outside of the Group in relation to transferred management responsibilities. e 5 Compensations, shareholdings and loans Details of compensations, shareholdings and loans are set out in the Compensation Report on pages 67 to 78 of this Annual Report. e 6 Shareholder participation rights The fundamental participation rights of shareholders are set out in the Swiss Code of Obligations (CO) and supplemented by the provisions of the company’s Articles of Association. There are no regulations on participation in the Annual General Meeting that deviate from statutory provisions. The Articles of Association of Komax Holding AG are available in electronic form on the website www.komaxgroup.com. Voting rights and representation restrictions Shareholders registered in the Komax Holding AG share register are entitled to vote; each share is entitled to one vote. Treasury shares do not confer the right to vote. No single shareholder may directly or indirectly exercise the votes of more than 5% of the total number of shares recorded in the Commercial Register for his / her own registered shares and shares voted by proxy. Legal entities and groups with joint legal status which are connected through capital, voting rights, management or in some other manner, along with all natural persons, legal entities and groups with joint legal status which act in concert by virtue of agreement, syndicate or in some other manner, are regarded as one person for the purposes of this provision. Representation by the independent proxy remains reserved. The Board of Directors may grant exceptions to this rule for good cause. No exceptions were granted in this respect in the year under review. 62 KOMAX GROUP ANNUAL REPORT2014 ANN UA L REPORT CO RP OR ATE GOVER NANCE The voting rights limitation does not apply to shareholders who were registered as holding regis- tered shares amounting to more than 5% of votes for all shares at the time that the provision of the Articles of Association regarding limitation of voting rights was passed. Shareholders may be represented at the Annual General Meeting by another shareholder with voting rights on the basis of a written power of attorney, and by the independent proxy on the basis of electronic or written power of attorney. The Chair of the Annual General Meeting shall decide on the permissibility of representation. The independent proxy is elected by the Annual General Meeting up until the end of the next Annual General Meeting. The Articles of Association provide no regulations regarding the appointment of the independent proxy that deviate from statutory provisions. The statutory voting rights limitation may be removed by a resolution by the Annual General Meeting. Such a resolution must be carried by an absolute majority of voting shares represented. Statutory quorums The Annual General Meeting votes and passes its resolutions with the absolute majority of votes represented, unless prevailing legislation or the Articles of Association contain mandatory provi- sions under which resolutions have to be passed in a different way. In addition to the resolutions specified in CO Art. 704, under the Articles of Association of Komax Holding AG, a two-thirds majority of votes cast and an absolute majority by value of shares voted is required to dismiss members of the Board of Directors. Convocation of the Annual General Meeting of shareholders The convocation of the Annual General Meeting is governed by applicable law. Shareholders representing at least 1% of the share capital can request that items be placed on the agenda for discussion by submitting the proposed motions in writing by the deadline published by the com- pany. Entries in the share register In principle, any shareholder can be entered in the Komax Holding AG share register. Any person acquiring shares is listed as a “shareholder with voting rights” up to a maximum of 5% of the total number of shares published in the Commercial Register. Any person owning more than 5% of the published shares will be entered as a “non-voting shareholder” for the portion in excess of 5% (Komax Holding AG Articles of Association, Section 6 para. 4). This restriction does not apply to the acquisition of shares through inheritance, division of an estate or joint marital property. The Board of Directors may grant exceptions for good cause. The Board of Directors can add- itionally refuse entry in the share register if the acquirer does not expressly declare, at the re- quest of the Board, that the shares were acquired in their own name and for their own account. After hearing the affected party, the company may delete entries in the share register if such entries occurred in consequence of false statements by the acquirer. The acquirer must be in- formed of the deletion immediately. Nominees are listed in the share register as “non-voting shareholders”. 63 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT CORPO RATE GOVERNANCE Invitation to the Annual General Meeting of 8 May 2015 All shareholders registered in the Komax Holding AG share register as at 5.00 p.m. on 6 May 2015 are entitled to vote in respect of the number of shares registered in their name at the Annual General Meeting of 8 May 2015. Shareholders registered on 16 March 2015 will receive an invita- tion indicating the proposals of the Board of Directors together with a reservation and entry ticket coupon. Shareholders who acquire shares later and whose registration application is re- ceived by the Komax Holding AG share register no later than 6 May 2015 will receive the invita- tion at that time, or ballot materials will be waiting for them at the front desk of the Annual Gen- eral Meeting. Shareholders who dispose of their shares before the Annual General Meeting are not entitled to vote. In the event of a partial sale or purchase of additional shares, the entry ticket received should be exchanged at the front desk on the date of the Annual General Meeting. Agenda item tabled by zCapital, Zug, Switzerland Komax Holding AG has received from zCapital AG, Zug, which represents 62 000 registered shares with a nominal value of CHF 6 200 (as per 23 February 2015), a request to add a proposal to the agenda of the Annual General Meeting on 8 May 2015. zCapital AG is proposing the dele- tion of Art. 6 Para. 4 and Art. 10 Para. 3 of the Articles of Association, which would abolish the provisions restricting registration and voting rights to a maximum of 5% of the total number of shares recorded in the Commercial Register in each case. In connection with the above- mentioned deletions, zCapital AG is also proposing amendments to Art. 6 Para. 2 and Para. 3 of the Articles of Association. zCapital AG put forward a largely identical proposal at the last Annual General Meeting on 7 May 2014. The proposal was rejected by around 60% of the represented votes. Further details, including the response of the Board of Directors, can be found in the invitation to the Annual General Meeting. e 7 Changes of control and defence measures Duty to make an offer Upon reaching or exceeding a threshold of 331⁄3%, a shareholder must submit an offer to all shareholders for the purchase of their shares (Art. 32, Federal Act on Stock Exchanges and Se- curities Trading). The Articles of Association do not contain any opting-out or opting-up regulations. 64 KOMAX GROUP ANNUAL REPORT2014 ANN UA L REPORT CO RP OR ATE GOVER NANCE Clauses on change of control At the Komax Group, change-of-control clauses are not included in employment contracts. The members of the Board of Directors, Executive Committee and middle management are however entitled to exercise their options in part or in full, without regard to the time limits, in the following cases: – – if Komax Holding AG or its subsidiaries sell(s) all assets relevant to the business if one or more persons or companies merge(s) and conclude(s) a legally binding agreement for the purpose of acquiring shares in Komax Holding AG, as a result of which they hold more than 50% of the voting rights (including any previous shareholdings) if another case of legal or economic disposal or liquidation of Komax Holding AG occurs if the shares of Komax Holding AG are no longer traded on the stock exchange and no publicly traded shares of the company are available – – e 8 Auditors Duration of the mandate and term of office of the lead auditor PricewaterhouseCoopers AG, Basel, has been the statutory auditor of Komax Holding AG and the Komax Group’s consolidated financial statements since 1994. Pursuant to the provisions of the Swiss Code of Obligations, the lead auditor is replaced after a maximum term of seven years. The lead auditor has been responsible for the audit mandate since 2010. Audit fee PricewaterhouseCoopers invoiced the Komax Group CHF 680 327 in the 2014 financial year for services in connection with auditing the annual statements of Komax Holding AG and the Group companies, as well as the consolidated statements of the Komax Group. Additional fees During the 2014 financial year, PricewaterhouseCoopers invoiced the sum of CHF 25 648 for tax advisory services. Information instruments of the external audit The Audit Committee is responsible for evaluating the external auditors, who submit an audit re- port to the Board of Directors and senior management. At least two consultations are held each year between the external auditors and the Audit Committee, at which the material findings for each company (management letters) and the consolidated financial statements covered by the audit report are discussed in detail. The auditors also explain the audits conducted (audit and review) for each company along with recent changes in IFRS (International Financial Reporting Standards) and their impact on the Komax Group’s consolidated annual statements. The ser- vices provided by the statutory auditors are evaluated by the Audit Committee on the basis of the quality of reporting and the audit reports, the implementation of the audit plan and the level of cooperation with the internal audit team. The independence of the auditors is verified by compar- ing the fee for additional services charged by the external auditors with the audit fee, taking into account the scope of these additional services. 65 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT CORPO RATE GOVERNANCE e 9 Information policy Komax Holding AG is committed to providing swift, transparent and simultaneous information for all stakeholders. The CEO, CFO, and the Head of Investor Relations and Corporate Communica- tions are available as contact partners for information purposes. The consolidated financial statements are compiled in conformity with IFRS standards. Komax Holding AG publishes comprehensive financial results twice a year, for the first half and the full year. In addition to the financial results, shareholders and the financial markets are also regularly informed of significant changes and developments. Komax Holding AG publishes facts relevant to its share price in conformity with the disclosure policies of SIX Swiss Exchange Ltd. (ad hoc publicity, Art. 72 of the Listing Rules). The Listing Rules can be downloaded at www.six-exchange-regulation.com under “Admission”. The official publication for company notices is the “Swiss Official Gazette of Commerce” (“Schweizerisches Handelsamtsblatt”). Information on share price trends, annual and half-year reports, the financial calendar, the minutes of the most recent Annual General Meeting, press releases and Komax Holding AG’s Articles of Association are available at www.komaxgroup.com. Press conferences and presentations for analysts are held at least once a year. Contact Komax Holding AG Marco Knuchel Industriestrasse 6 6036 Dierikon Switzerland Phone +41 41 455 06 16 marco.knuchel@komaxgroup.com 66 KOMAX GROUP ANNUAL REPORT2014 C OMPEN SATIO N REPORT CONTENTS Introduction by the Chairman of the Remuneration Committee 68 Tasks and competencies of the Remuneration Committee 69 Provisions of the Articles of Association on compensation 70 Principles of compensation policy 71 Structure of the compensation system 71 Compensation, shareholdings and options held by the Board of Directors in 2014 (audited) 75 Compensation, shareholdings and options held by the Executive Committee in 2014 (audited) 76 Changes to the compensation system in 2015 78 Report of the auditors 79 This Compensation Report provides an overview of the compensation policy and compensation systems of Komax Holding AG, as well as the principles used to determine the compensation of the Board of Direct- ors and the Executive Committee. In addition, the compensation paid in 2014 is disclosed in detail. This report has been drawn up in accord- ance with the provisions of the Ordinance against Excessive Remuner- ation in Listed Companies Limited by Shares (ERCO), the Directive Cor- porate Governance (DCG) of SIX Swiss Exchange, and the principles of the Swiss Code of Best Practice for Corporate Governance of econo- miesuisse. 67 I N O T A S N E P M O C T R O P E R KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT COM PENSATI ON REPORT e 1 Introduction by the Chairman of the Remuneration Committee Dear Shareholders, As Chairman of the Remuneration Committee, it falls to me to present to you the Compensation Report for the 2014 financial year. On 1 January 2014, the Swiss Ordinance against Excessive Remuneration in Listed Companies Limited by Shares (ERCO) entered into force. This has a significant influence on the corporate governance of affected companies. The work of the Remuneration Committee therefore focused primarily on preparing for and implementing the modifications that this legislation requires. First of all, the Articles of Association were revised and amended in line with ERCO provisions. The revised Articles of Association were submitted to shareholders at the Annual General Meet- ing of 7 May 2014, and were duly approved. The Articles of Association now contain provisions on compensation principles and rules concerning the compensation paid to the Board of Direct- ors and the Executive Committee. This report summarizes these provisions. Furthermore, the Committee reviewed the compensation system and decided on a number of modifications that will be implemented in 2015. In particular, these include discontinuation of the allocation of share options to members of the Board of Directors and the Executive Committee, and the introduction of a performance-related, share-based, long-term incentive plan for mem- bers of the Executive Committee. We are confident that we are putting in place a transparent compensation system which delivers reasonable yet attractive compensation that reflects market conditions, is in line with corporate strategy, and aligns the interests of management more close- ly with the long-term interests of shareholders. Further details are likewise provided in this report. Finally, we have significantly expanded the disclosure of compensation in this Compensation Report, taking into account the provisions of ERCO and the feedback of our shareholders and their representatives. At the Annual General Meeting on 8 May 2015, we will be requesting approval of the total com- pensation for the Board of Directors and the Executive Committee for the 2016 financial year. We will submit to vote the maximum possible sum payable, as this procedure will give our company the greatest possible legal certainty. We are conscious of our responsibility, and will manage the budget granted to us prudently. A look back at the past shows that the total compensation paid in recent years was significantly lower than the maximum amounts defined in the Articles of As- sociation. In view of the modifications to the compensation system that will take effect in 2015, we are planning to hold an advisory vote on compensation at the 2016 Annual General Meeting. Yours sincerely, Leo Steiner Chairman of the Remuneration Committee 68 KOMAX GROUP ANNUAL REPORT2014 AN NUA L REPORT COMP ENSATION REPORT e 2 Tasks and competencies of the Remuneration Committee Under the Articles of Association, Organizational Regulations and Regulations of the Remunera- tion Committee of Komax Holding AG, the Remuneration Committee is the supervisory body for staff and compensation policy within the Komax Group. The Committee amalgamates the tasks of a remuneration and nomination committee. The Remuneration Committee has the following tasks and competencies: – Development and regular review of staff policy and compensation policy, including the prin- ciples of variable compensation and shareholding programme Annual review of, and proposals for, the maximum total compensation payable to the Board of Directors and the Executive Committee, as well as preparation of the related proposals to the Annual General Meeting Proposal on the individual compensation payable to members of the Board of Directors and the CEO Resolutions on the compensation payable to other members of the Executive Committee Succession planning for the Board of Directors, Executive Committee, and other key functions Annual assessment of the independence of the members of the Board of Directors Annual assessment of the performance of the CEO and the members of the Executive Committee Preparation of the Compensation Report – The Committee regularly discusses trends and developments in the area of compensation, in- cluding any changes to statutory provisions or changes to provisions on corporate governance. – – – – – – Delineation of competencies Compensation policy, including the principles of variable compensation and participation programme Maximum total compensation for the Board of Directors and the Executive Committee submitted to the Annual General Meeting for approval Compensation of the members of the Board of Directors Evaluation of the performance of the CEO Compensation of the CEO CEO Committee BoD AGM proposes approves proposes submits approves proposes approves proposes approves proposes approves Evaluation of the performance of other members of the Executive Committee proposes approves Compensation of other members of the Executive Committee proposes approves Compensation Report proposes approves Under the Articles of Association, the Remuneration Committee consists of a maximum of three non-executive members of the Board of Directors. The Committee is elected by the Annual Gen- eral Meeting. Members’ term of office ends with the conclusion of the next Annual General Meet- ing. Re-election is permissible. The 2014 Annual General Meeting elected Leo Steiner (Chairman), Daniel Hirschi and Roland Siegwart to the Committee. The Remuneration Committee meets as often as business requires, but at least twice a year, gen- erally in March and December. Compensation issues are discussed at the March meeting. These discussions include assessments of the individual performance of the CEO and other members of the Executive Committee, determination of the compensation payable to individual members of the Board of Directors, and approval of the Compensation Report. At the December meeting, nominations and succession planning are discussed, along with corporate governance. In the year under review, the Committee met twice, with all Committee members present on both occa- sions. 69 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT COM PENSATI ON REPORT The Chairman of the Committee may invite the CEO and other members of the Executive Com- mittee to meetings in a non-voting capacity. However, they do not take part in discussions con- cerning their own performance and compensation. The Committee Chairman reports to the Board of Directors on the activities of the Committee after every Committee meeting. The minutes of Committee meetings are made available to all members of the Board of Directors. Furthermore, the Committee may call in external consultants and draw on their assistance when fulfilling its duties. In 2014, Hostettler & Company, Zurich provided independent advice on com- pensation matters. This is the only mandate that Hostettler & Company holds at the Komax Group. e 3 Provisions of the Articles of Association on compensation Principles for the compensation of members of the Board of Directors: Principles for the compensation of members of the Executive Committee: In compliance with the Ordinance against Excessive Remuneration in Listed Companies Limited by Shares (ERCO), shareholders approved a number of amendments to the Articles of Associa- tion at the 2014 Annual General Meeting. These included the following provisions relating to compensation, which are reproduced here in abbreviated form (as an excerpt) and set out in detail in sections 13 and 25 of the Articles of Association. – Members of the Board of Directors receive fixed compensation in cash as well as in shares and / or options under the company’s employee participation programme. The calculated value (fair value) of the shares and / or options at the time of allocation may not exceed the amount of compensation paid in cash. The Board of Directors determines the conditions that apply to shares and / or options. The lock-in periods are at least three years. – Members of the Executive Committee receive a fixed base salary, variable performance-related compensation, and shares and / or options under the company’s employee participation pro- gramme. The Board of Directors determines the conditions for the performance-related compen- sation component on an annual basis. These are linked to the attainment of one or more perfor- mance criteria, whereby these criteria are either company-related and / or individual in nature. The target amount may not exceed 50% of the annual fixed compensation. If targets are not at- tained, the performance-related compensation may fall to zero. If all targets are significantly ex- ceeded, it may amount to a maximum of 100% of the annual fixed compensation. The Board of Directors determines the conditions that apply to shares and / or options. The calculated value (fair value) of the shares and / or options at the time of allocation may not exceed 100% of the annual fixed compensation. The lock-in periods are at least three years. – The Annual General Meeting holds a separate vote each year on the total amount of compensa- tion payable to the Board of Directors and Executive Committee. This vote is binding. It applies for the coming financial year to the relevant total maximum amounts that may be paid to mem- bers of the Board of Directors and the Executive Committee. – Binding vote on the compensation paid to the Board of Directors and Executive Committee: Additional sum for payments to members of the Executive Committee appointed after the binding vote of the Annual General Meeting: The additional amount for the compensation of members of the Executive Committee appointed after the Annual General Meeting has voted on compensation may not exceed 30% of the ap- proved total amount of compensation payable to the Executive Committee. 70 KOMAX GROUP ANNUAL REPORT2014 ANN UA L REPORT CO MP ENSATIO N REPORT Pension benefits: – The pension benefits of members of the Executive Committee are only paid in the context of domestic and foreign pension plans and comparable plans of the company or its Group com- panies. The benefits for insured persons and the employer contributions result from the above-mentioned plans or corresponding regulations. Retirement benefits are provided solely within the framework of the company’s ordinary pension plans. The Articles of Association of Komax Holding AG can be found at www.komaxgroup.com. e 4 Principles of compensation policy The principles of compensation policy are aligned with the company’s philosophy, which is based on sustainability and social responsibility, as well as with company strategy, a core element of which is profitable growth. Performance orientation A proportion of compensation is directly linked to the operating and financial performance of the company and the attainment of individual objectives. Alignment with share- holder interests A proportion of compensation consists of shares and / or options. In other words, the an- nual compensation contains a component that is dependent on the long-term success of the company. Market comparability Compensation is in line with that paid for similar positions in comparable companies. Appropriateness The amount of compensation reflects the job profile as well as the capabilities and experi- ence of the function holder. Transparency The compensation system is straightforward and designed for transparency. The compensation paid to the Board of Directors and the Executive Committee is determined on the basis of the following key factors: – Comparisons with rates of compensation paid by other Swiss-based, internationally operat- ing industrial companies of comparable complexity, size and geographic reach to Komax. The relevant sources of information include publicly accessible data such as the compensa- tion disclosed in the annual reports of the companies in question. In view of the fact that the compensation system was unchanged in 2014 and base salaries have essentially remained the same, no benchmarking exercise was carried out this year. The financial performance of the company and its relevant business areas, and the attain- ment of individual targets agreed as part of the annual performance management process. – e 5 Structure of the compensation system Board of Directors 5.1 The compensation paid to the Board of Directors is fixed and consists of a cash component and a fixed number of options. The amount of compensation depends on the responsibilities of the individual as well as the time taken up by their mandate, and is based on the following structure: in CHF Chairman Member Attendance fee per meeting1 Basic annual fee Options (number) 187 500 75 000 2 500 2 500 1 000 1 The chairmen of the different bodies receive twice this amount for the corresponding meetings. 71 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT COM PENSATI ON REPORT The basic annual fee in cash (incl. expense allowance) and attendance fees are paid out in June and December for the current calendar year. Options for the current year are allocated as of January. The term amounts to five years, with a lock-in period of three years. However, the option plan for the Board of Directors described here was discontinued at the end of 2014 and replaced by restricted shares. Details of the changes to the compensation system planned for 2015 can be found in Section 8. Additional compensation may be paid for exceptional efforts that cannot be considered part of ordinary Board of Directors activity. Compensation paid to members of the Board of Directors is subject to the standard social security deductions. The members of the Board of Directors do not participate in the staff pen- sion plan of Komax. CEO and Executive Committee 5.2 The CEO and members of the Executive Committee receive a fixed salary component, a cash bonus, shares and / or options as per the company’s own employee participation plan, as well as occupational benefits. Purpose Driver Performance criterion Period Instrument Fixed base salary Attracting, retaining, motivating Market practice – One year Monthly cash payments Cash bonus Pay for performance Financial and individual performance EAT, EBIT Individual objectives One year Yearly cash payment Employee participation plan Alignment with share- holder interests Hierarchical level Share price Three-year lock-in period Five-year term Occupational benefits Protection against risks Market comparability – – Options Retirement savings / insurance plan 5.2.1 Fixed compensation The fixed compensation component consists of a fixed base salary and a fixed company car allowance, to which members of the Executive Committee are entitled according to the current expense regulations. Expense allowances are not included, as these are not considered as com- pensation. The fixed salary component and the cash bonus for 100% target attainment form what is called the target salary. The target salary is measured on the basis of the following factors: – – – – the tasks and responsibilities of the individual functions the standard market compensation rate for the function in question (external benchmark) an internal peer comparison (internal benchmark) the individual profile of the function holder, e.g. their capabilities, skills, experience and performance the company’s available financial resources – 72 KOMAX GROUP ANNUAL REPORT2014 ANN UA L REPORT CO MP ENSATIO N REPORT 5.2.2 Cash bonus The cash bonus is dependent on the financial performance of the company and its business areas in the year under assessment, as well as the attainment of the individually agreed objec- tives. The target value (target bonus) is expressed as a proportion of fixed annual basic salary, and amounts to 50% for the CEO and a maximum of 50% for the other members of the Executive Committee. The cash bonuses for the CEO and CFO are derived entirely from the financial performance of the Komax Group. The reference value relevant to the 2014 financial year was the margin on Group profit after taxes (EAT). The Board of Directors determines the performance achievement level the amount of the bonus payable to the CEO annually at the request of the Compensation Com- mittee. The Compensation Committee determines the performance achievement level and amount of the bonus payable to the CFO at the request of the CEO. If performance objectives are not attained, the cash bonus may fall to zero. If all objectives are significantly exceeded, the cash bonus may amount to a maximum of 200% of the target bonus or a maximum of 100% of annual fixed salary. The cash bonus payable to the other members of the Executive Committee (business unit heads) is calculated as follows: 70% on the basis of financial performance and 30% on the basis of in- dividual performance. The performance achievement level and bonuses are determined by the Compensation Committee at the request of the CEO. If performance objectives are not attained, the cash bonus may fall to zero. If all objectives are exceeded significantly, the cash bonus may amount to a maximum of 170% of the target bonus or a maximum of 85% of fixed salary. The following key figures were relevant for the business unit heads in 2014: – margin on Group profit after taxes (EAT), weighted at 20% – absolute EBIT of the business unit in question, weighted at 50% Attainment of financial targets is assessed after the financial year has ended and may fluctuate within a range of 0% to 200%. The individual performance component is based on the attainment of personal objectives agreed in advance as part of the annual performance management process. These objectives may also include non-quantitative objectives of a predominantly strategic nature, such as the opening up of new markets, the development of new products, the management of key projects, and leader- ship objectives. Attainment of personal objectives is evaluated after the financial year has ended and may fluctuate within a range of 0% to 100%. CEO and CFO Business unit heads Financial performance 100% EAT margin (Group) Individual performance – 20% EAT margin (Group) 50% EBIT (business unit) 30% individual objectives The cash bonus is generally paid in April of the following year. 73 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT COM PENSATI ON REPORT 5.2.3 Employee participation plan Members of management share in the long-term success of the company through an employee participation plan that takes the form of options subject to a three-year lock-in period. This has the effect of aligning their interests with the long-term interests of shareholders. The Board of Directors decides on the allocation of options at its own discretion. In doing so, it takes into particular account the importance of the function to the company. In recent years, al- locations to Board members and members of the Executive Committee have remained constant. The exercise price of the options is equivalent to the lower of the two following values: the aver- age share price in the fourth quarter of the previous year or the average share price in March of the year the option was issued. The option term amounts in each case to five years, with a lock- in period of three years. With the exception of retirement, death or disability, the exercising of options at the end of employment is restricted as follows: – 100% forfeited in the event of employment ending within a year of allocation – 67% forfeited in the event of employment ending within 13–24 months of allocation – 33% forfeited in the event of employment ending within 25–36 months of allocation These restrictions are rescinded in the event of liquidation or a change in control of the company. Options can then be exercised at any time up to the ordinary end of their term. The employee participation plan for the Executive Committee described here was discontinued at the end of 2014, and replaced by a Performance Share Units Plan. Details of the changes to the compensation system planned for 2015 can be found in Section 8. 5.2.4 Occupational benefits Members of the Executive Committee are insured under the Komax’s ordinary staff pension scheme in Switzerland. Contributions are graduated by age, and are shared equally between the insured and the employer. The benefits of the plan go beyond the statutory requirements of the Swiss Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans, and are in line with the market practice of other industrial companies in Switzerland. 5.2.5 Other provisions in employment contracts The employment contracts of members of the Executive Committee are concluded for an indef- inite period and stipulate a maximum notice period of twelve months. They do not contain any agreement on severance payments. 74 KOMAX GROUP ANNUAL REPORT2014 ANN UA L REPORT CO MP ENSATIO N REPORT e 6 Compensation, shareholdings and options held by the Board of Directors in 2014 Section 6 of the Compensation Report was audited by the company’s external auditor. Compensation 6.1 In 2014, members of the Board of Directors received total compensation of CHF 1 011 219 (2013: CHF 894 342), of which CHF 746 250 was paid out in cash (2013: CHF 723 750), CHF 223 745 in share options (2013: CHF 130 941) and CHF 41 224 were social benefits (2013: CHF 39 651). Con- tributions to pensions amounted to CHF 0 (2013: CHF 0). The increase in compensation mainly resulted from the higher market value of options allocated in 2014 financial year. in CHF Basic annual fee Options (number) Options (fair value)1 Social benefits2 Total compensation 2014 Total compensation 20133 Leo Steiner Daniel Hirschi Chairman Member Hans Caspar von der Crone Member Kurt Haerri Roland Siegwart4 David Dean5 Melk M. Lehner6 Max Koch7 Member Member Member Member Member 240 000 97 500 107 500 100 000 97 500 67 500 n.s. 36 250 2 500 1 000 1 000 1 000 1 000 666 n.s. 416 73 775 29 510 29 510 29 510 29 510 19 654 n.s. 12 276 7 391 6 491 7 278 6 688 6 491 4 524 n.s. 2 361 321 166 133 501 144 288 136 198 133 501 91 678 n.s. 50 887 288 066 121 261 123 958 115 868 78 133 n.s. 45 795 121 261 Total Board of Directors 746 250 7 582 223 745 41 224 1 011 219 894 342 1 The fair value at the time of allocation is calculated using the enhanced American binomial evaluation model. It amounted to CHF 29.51 per option in 2014 and CHF 17.27 per option in 2013. The exercise price was CHF 129.21 in 2014 and CHF 67.03 in 2013. 2 Contains mandator y employer contributions to social insurance. This amount entitles members of the Board of Directors to draw the ma ximum insured pension benefits in the future. 3 Restatement of prior-year figures due to option valuation at fair value at the time of allocation using the enhanced American binomial evaluation, and in compliance with ERCO. 4 Member of the Board of Directors since 3 May 2013. 5 Member of the Board of Directors since 7 May 2014. 6 Member of the Board of Directors until 3 May 2013. 7 Member of the Board of Directors until 7 May 2014. No compensation was paid to former members of the Board of Directors in the 2014 and 2013 financial years. Komax Group companies had not granted any guarantees, loans, advances or credits to mem- bers of the Board of Directors or parties closely linked to such persons as at 31 December 2014. No members of the Board of Directors or persons closely linked to them are or were involved in Komax Group transactions outside their normal duties. 75 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT COM PENSATI ON REPORT Holdings of shares and options as at 31 December 2014 6.2 As at the end of 2014 and 2013, members of the Board of Directors had the following holdings of shares and / or options in the company: Assets in units 31.12.2014 31.12.2013 Leo Steiner Daniel Hirschi Chairman Member Hans Caspar von der Crone Member Kurt Haerri Roland Siegwart David Dean1 Max Koch2 Member Member Member Member Shares Options Shares Options 120 650 2 200 11 300 25 0 740 n.s. 10 000 4 000 4 000 2 500 1 666 666 n.s. 118 650 1 200 10 300 25 0 n.s. 232 401 9 500 4 000 4 000 1 500 666 n.s. 4 000 Total Board of Directors 134 915 22 832 362 576 23 666 1 Member of the Board of Directors since 7 May 2014. 2 Member of the Board of Directors until 7 May 2014. e 7 Compensation, shareholdings and options held by the Executive Committee in 2014 Section 7 of the Compensation Report was audited by the company’s external auditor. Compensation 7.1 In 2014, members of the Executive Committee received total compensation of CHF 3 062 579 (2013: CHF 2 794 529). Of this amount, CHF 1 430 399 related to fixed compensation (2013: CHF 1 442 308), CHF 870 077 to cash bonuses (2013: CHF 693 330), CHF 501 670 to share options (2013: CHF 393 739), and CHF 260 433 to social security and pension fund contributions (2013: CHF 265 152). The increase in total compensation in 2014 compared to the previous year is es- sentially attributable to the increase in the cash bonus resulting from higher results and the high- er fair value of options at the time of allocation (further details see below). in CHF Fixed base salary1 Cash bonus2 Options (number) Options (fair value)3 Social benefits4 Total compensation 2014 Total compensation 20135 Beat Kälin6 CEO 435 086 400 500 8 000 236 080 76 425 1 148 091 872 152 Total other members of the Executive Committee 995 313 469 577 9 000 265 590 184 008 1 914 488 1 922 377 Total Executive Committee 1 430 399 870 077 17 000 501 670 260 433 3 062 579 2 794 529 1 Includes, in addition to the fixed base salar y, fixed company car allowances in accordance with the current expense regulations. Expense allowances are not included, as these are not considered as compensation. 2 Bonus for 2014, to be paid in April 2015. 3 The fair value at the time of allocation is calculated using the enhanced American binomial evaluation model. It amounted to CHF 29.51 per option in 2014 and CHF 17.27 per option in 2013. The exercise price was CHF 129.21 in 2014 and CHF 67.03 in 2013. 4 Contains mandator y employer contributions to social insurance of CHF 58 900 as well as contributions to occupational benefits (BVG). This amount entitles members of the Executive Committee to draw the maximum state-insured pension benefits in the future. 5 Restatement of prior-year figures due to option valuation at fair value at the time of allocation using the enhanced American binomial evaluation, and in compliance with ERCO. 6 Highest compensated member of the Executive Committee. 76 KOMAX GROUP ANNUAL REPORT2014 ANN UA L REPORT CO MP ENSATIO N REPORT In 2014, the CEO’s cash bonus amounted to 92% of fixed base salary. This payout level is due to the strong EAT performance. The fixed number of options (8 000) allocated in the year under review had a fair market value of 54% of fixed base salary at the time of allocation, this value being calculated using the enhanced American binomial valuation model. Total variable compen- sation therefore amounted to 146% of the annual fixed base salary. The cash bonuses paid to the other members of the Executive Committee amounted to between 22 and 62% of fixed base salary. The fair value (as per the enhanced American binomial valuation model) of the options at the time of allocation was between 0 and 37% of fixed base salary. Total variable compensation therefore amounted to between 38 and 96% of the annual fixed base salary. Under the provisions of the Articles of Association, the maximum cash bonus and maximum fair value of options at the time of allocation are restricted to 100% each of fixed base salary. The exercise price for the options allocated in the 2014 financial year was CHF 129.21. Further details on the participation plans can be found in the notes to the consolidated financial state- ments, on pages 133 to 134 of the Financial Report. No compensation was paid to former members of the Executive Committee for the 2014 and 2013 financial years. Komax Group companies had not granted any guarantees, loans, advances or credits to mem- bers of the Executive Committee or parties closely linked to such persons as at 31 December 2014. No members of the Executive Committee or persons closely linked to them are or were involved in Komax Group transactions outside their normal duties. Holdings of shares and options as at 31 December 2014 7.2 As at the end of 2014 and 2013, members of the Executive Committee had the following holdings of shares and / or options in the company: Assets in units 31.12.2014 31.12.2013 Shares Options Shares Beat Kälin Andreas Wolfisberg Matijas Meyer René Ronchetti Walter Nehls1 CEO CFO Head Business Unit Wire Head Business Unit Medtech Head Business Unit Solar 7 300 500 0 50 n.s. 29 000 9 000 9 000 7 000 n.s. Total Executive Committee 7 850 54 000 1 Member of the Executive Committee until 30 September 2014. 6 300 1 000 0 0 1 500 8 800 Options 31 000 9 000 9 000 4 000 11 799 64 799 77 KOMAX GROUP ANNUAL REPORT2014 ANNUAL REPORT COM PENSATI ON REPORT e 8 Changes to the compensation system in 2015 Following implementation of the Ordinance against Excessive Remuneration in Listed Com- panies Limited by Shares (ERCO) and numerous discussions with institutional investors, private shareholders and voting proxies, the Board of Directors reviewed the current remuneration policy and compensation programmes in order to further improve their alignment with the economic environment, corporate strategy and long-term shareholder interests. This review gave rise to a number of modifications, which will be implemented in 2015. Compensation of the Board of Directors 8.1 The allocation of share options will be discontinued with effect from 2015. In future, the Board of Directors will receive fixed compensation that will be paid partly in cash and partly in the form of shares with a three-year restriction period. Compensation of the Executive Committee 8.2 In 2015, the annual allocation of share options will be discontinued and replaced by a Per- formance Share Units Plan (PSU Plan). The PSU Plan provides for the annual allocation of perfor- mance share units, which are subject to a three-year vesting period. The number of PSUs allocated consists of the fixed allocation amount in CHF divided by the share price at the time of allocation. The allocation may amount to a maximum of 662⁄3% of fixed base salary. The actual payout at the end of the vesting period takes the form of shares, and is dependent on the average EBIT margin over three years compared to the target margin defined in advance. The payout multiplier may range between 0% and 150%. The actual value of the allocation at the end of the vesting period is therefore dependent on the payout multiplier and the development of the share price over the course of the vesting period. The performance incentives for senior managers are therefore aligned with the long-term inter- ests of shareholders. Plan period (LTI 2015–2017) 2015 plan year 2016 plan year 2017 plan year 1 January 2015 allocation of PSU Average EBIT margin 31 December 2017 vesting: allocation of shares (payout multiplyer between 0% and 150%) With the introduction of performance conditions to the share-based compensation component, a significant proportion of the income of Executive Committee members will depend on the perfor- mance of the company over the following three years. Giving a higher weighting to the long-term perspective – in which shareholders also have a particular interest – will result in a more balanced compensation system. The structure of the remaining compensation elements for members of the Executive Committee, namely fixed compensation, the cash bonus and social security contri- butions, remains essentially unchanged. 78 KOMAX GROUP ANNUAL REPORT2014 AN NUA L REPORT COMP ENSATION REPORT Report of the statutory auditor to the Annual General Meeting of Komax Holding AG, Dierikon We have audited the Remuneration Report (Art. 6 and 7) dated 5 March 2015 of Komax Holding AG for the year ended 31 December 2014. Board of Directors’ responsibility The Board of Directors is responsible for the preparation and overall fair presentation of the remuneration 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 in- dividual remuneration packages. Auditor’s responsibility Our responsibility is to express an opinion on the accompanying remuneration 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 remuneration 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 remuneration report with regard to compensation, loans and credits in accordance with articles 14–16 of the Ordinance. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material mis- statements in the remuneration report, whether due to fraud or error. This audit also includes evaluating the rea- sonableness of the methods applied to value components of remuneration, as well as assessing the overall pres- entation of the remuneration report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, the remuneration report of Komax Holding AG for the year ended 31 December 2014 complies with Swiss law and articles 14–16 of the Ordinance. PricewaterhouseCoopers AG Sven Rumpel Audit expert Gerd Tritschler Audit expert Auditor in charge Basel, 9 March 2015 2014 KOM AX GROUP AN NUA L REPORT 79 This page has been intentionally left blank. CONSOLIDATED FINANCIAL STATEM ENTS FINANCIAL STATEM EN TS OF KOM AX HOLDING AG Comments 141 Balance sheet 143 Income statement 144 Notes 145 Corporate structure 150 Proposal for the appropriation of profit 152 Report of the auditors 153 Comments 82 Consolidated balance sheet 86 Consolidated income statement 87 Consolidated statement of comprehensive income 88 Consolidated cash flow statement 89 Consolidated statement of shareholders’ equity 90 Notes 91 Report of the auditors 140 FIN ANC IAL REPORT CONTENTS 81 KOMAX GROUP ANNUAL REPORT2014FINANCIAL REPORT Comments on the consolidated financial statements The Komax Solar business was sold to Komax Solar’s management team as part of a manage- ment buyout (MBO) in the second half of 2014. The MBO was structured as an asset deal, and the newly founded company commenced operations on 1 October 2014. Komax holds a minority stake of 25% in the new company Xcell Automation Inc., which is headquartered in York, Penn- sylvania (USA). As the cumulative criteria of IFRS 5 (“Non-current Assets Held for Sale and Discontinued Operations”) were met as per 31 December 2014, the standard was applied accordingly and the result of the Solar segment was reported under EBIT as “Result from discontinued operations”. The previous year’s figures have likewise been revised. The following notes to the consolidated financial statements do not, therefore, contain any figures from the discontinued activities, except where explicitly mentioned. e Income statement Order intake Order intake totalled CHF 367.7 million in 2014, compared with CHF 343.9 million in 2013, which equates to an increase of around 7% (adjusted for acquisitions: increase of 2.3%). Revenues (net sales and other operating income) Komax generated revenues of CHF 363.3 million in the 2014 financial year. This represents an increase in revenues of 12.2% compared to the previous year. The following is a breakdown of net sales by currency in 2014 (percentages in brackets are for the previous year): – CHF 30% (32%) – USD 19% (23%) – EUR 33% (30%) – Other foreign currencies 18% (15%) The slight decline in the proportion of revenues booked in CHF is attributable to the acquisition made in 2014. SLE quality engineering, which is based in Grafenau, Germany, invoices almost exclusively in EUR. Although the EUR did not fluctuate significantly against the CHF in the year under review, thanks to the continued support of the Swiss National Bank, the currency impact remained a challenge in 2014. This is primarily due to the increasing significance of currencies of certain emerging markets, some of whose exchange rates have come under significant pressure since 2013. However, the Komax Group was able to book the largest proportion of revenues in other foreign currencies in CNY, and the Chinese currency proved very stable against the CHF in 2014. It continues to be highly correlated with the USD. Towards the end of the fourth quarter, most currencies appreciated to some degree against the CHF. This was also an indirect conse- quence of coupling the CHF to the EUR, as was made abundantly clear in January 2015 after the abandonment of the minimum exchange rate policy and the significant foreign exchange movements that ensued. The foreign currency impact at net sales level lay in negative territory for the year as a whole (–1.7%). Net sales in Europe (excl. Switzerland) amounted to CHF 167.6 million in 2014. This equates to some 46% of total net sales. Asia accounted for the second-largest proportion of sales in the 2014 financial year, specifically 22.5%. Sales in China developed particularly impressively. In the Africa region, net sales amounted to CHF 32.9 million and were once again primarily generated in Morocco. This represents a significant year-on-year rise (2013: CHF 22.8 million). Komax ex- perienced its most significant fall in sales last year in South America (decline of just under 32%). This development was attributable to persistently difficult economic conditions and the weak- ness of the Brazilian real. Nonetheless, Brazil remains by far the most important South American market for Komax. Komax reported another good result in North America in the year under re- view, with net sales coming in at CHF 61.3 million. Product purchasers in North America are split between Mexico (around two-thirds) and the US (around one-third). 82 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 Gross profit The foreign currency impact at gross profit level was negative in the year under review at –1.1 percentage points. Nonetheless, the gross profit margin of 60.6% virtually matched that of the previous year (60.7%). Operating expenses Personnel expenses amounted to 32.6% of revenues in the year under review, compared to 32.0% in 2013. Among other things, the increase is attributable to the rise in customer-specific systems in the Wire business unit. In addition, we have consistently expanded our spectrum of services on a global basis, further increased development services – which predominantly comprise personnel costs – and specifically expanded sales and marketing activities. The Komax Group generated revenues per employee of TCHF 261 in 2014, compared to TCHF 262 in 2013. As per 31 December 2014, the Komax Group employed a total of 1 498 people compared to 1 282 at the end of 2013. The increase is spread relatively evenly between the reporting areas, with only the administration area having changed insignificantly. Research and development expenditure R&D expenditure amounted to CHF 25.8 million compared to CHF 24.9 million in 2013. It there- fore amounted to 7.1% of revenues in 2014, compared to 7.7% the previous year. The “Other operating expenses” item in the income statement includes CHF 4.5 million for third-party devel- opment services. The lion’s share of internal development expenses of CHF 21.3 million primar ily comprises own work on the part of our development staff. The increase in research and devel- opment expenditure compared to the previous year is primarily attributable to higher expenditure at Komax Wire. As per 31 December 2014, the Komax Group employed a total of 150 staff in R&D – the vast majority of them in Switzerland. However, we also have development units in China and Japan. The 246 employees listed under Engineering work directly on customer projects. Their staff costs are therefore not included in research and development expenditure. The increase in Engineering was significantly greater than in the other areas, and is primarily attribut- able to the acquisition of SLE quality engineering in Grafenau, Germany. This company primarily produces customer-specific systems, and requires significantly more engineering services than the remainder of the Wire business unit. Operating profit (EBIT) The Komax Group generated an operating profit of CHF 48.1 million in the year under review. This corresponds to a margin of 13.2% and is therefore slightly below the previous year’s result of 13.4%. The key reasons for this development are the lower year-on-year profit in the Medtech business, whereas the profit of the Wire business unit was sharply up in absolute terms and up 18.7% in percentage terms. Moreover, personnel expenses in the Corporate area rose year-on- year due to one-off corrections booked in connection with IAS 19 in 2013. Further details on segment reporting can be found on pages 130 to 132. Financial result The financial result amounted to CHF −1.3 million, of which CHF −1.1 million net related to inter- est expenses. Net interest expenses in the previous year amounted to CHF −1.0 million, and were therefore virtually unchanged in a year-on-year comparison. Short-term loans to subsidiary com- panies in foreign currencies are typically granted in USD or EUR, which makes the financial result heavily dependent on the development of these currencies against the CHF. 83 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT Result from discontinued operations As mentioned above in the introduction to the notes to the consolidated financial statements, Komax sold its Solar segment to the management of this former business unit in York, Pennsyl- vania (USA) in the 2014 financial year. The loss from discontinued operations in 2014 amounted to CHF 15.9 million. This amount includes one-off valuation adjustments on goodwill, technology, and other assets amounting to CHF 8.7 million. These were booked to coincide with the sale decision. The operating business of the divested Solar business unit reported a loss at EBIT level of CHF 6.3 million. The newly founded company Xcell Automation Inc., which is based in York, Pennsylvania (USA), will finish the remaining incomplete orders on behalf of Komax in 2015. Group result In the 2014 financial year, profit before taxes (EBT) amounted to CHF 46.8 million (12.9% of revenues), compared to CHF 40.3 million (12.4% of revenues) in the previous year. The tax rate for the year under review came to 11.5% (2013: 16.5%). The tax rate was calculated after deduc- tion of the result from discontinued activities, as this percentage is otherwise largely meaning- less. The significant decline in the tax rate is primarily the result of healthy business development in Switzerland and a number of capitalized tax-loss carryforwards in countries with significantly higher tax rates. Group profit after tax (EAT) amounted to CHF 27.7 million in 2014 (2013: CHF 25.1 million) with basic earnings per share amounting to CHF 7.64, slightly higher than the prior-year figure of CHF 7.33. e Balance sheet Assets As per 31 December 2014, current assets excluding cash and cash equivalents had increased by 12.5% to CHF 189.8 million. Cash and cash equivalents amounted to CHF 52.7 million at the end of the reporting period, a year-on-year increase of just under CHF 0.5 million. The increase in current assets was therefore broadly in line with the increase in revenues. As at the balance sheet date, the Komax Group can nonetheless report significantly higher net cash of CHF 29.2 million (2013: CHF 22.6 million). The figure of CHF 106.1 million for trade receivables also includes underfinanced projects of CHF 22.7 million net according to the POC method. This represents an increase of CHF 4.5 million on the level reported at 31 December 2013. Overdue receivables are also reported in the notes to the consolidated financial statements. As at 31 December 2014, these amounted to CHF 15.8 million, of which 10.7% were overdue by more than 120 days. At the end of 2013, overdue receivables amounted to CHF 20.5 million; however, the proportion of receivables overdue by more than 120 days has fallen sharply. As a result of the healthy commer- cial and financial environment at both Komax Wire and Komax Medtech, no material increase in impairments in the receivables area is anticipated in the future. Liabilities Current liabilities amounted to CHF 68.1 million as at 31 December 2014. This amount also includes overfinanced projects amounting to CHF 4.8 million net valued according to the POC method (2013: CHF 5.7 million). Furthermore, current liabilities also include provisions amounting to CHF 6.3 million (2013: CHF 4.5 million). The increase in provisions is the result of accruals in connection with warranties, which will primarily be applied to the Wire business unit over the course of 2015. At CHF 0.7 million, the figure for the reversal of provisions no longer required was lower than in the previous year. 84 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 Non-current liabilities recorded only a slight year-on-year rise of CHF 4.2 million to CHF 33.8 million. This is primarily attributable to liabilities resulting from defined benefit pension plans as per IAS 19. Although the Komax pension fund recorded a very good result in 2014, the assets were not sufficient to achieve full cover due to the new, much lower technical interest rate of 1.1%. The impact of the lower technical interest rate, which was cut from 2.0% to 1.1%, amounted to more than CHF 22 million. The Komax Group continues to have access to a CHF 120 million syndicated loan facility, as well as other local credit lines up to a maximum of CHF 15 million. All covenants were again fully complied with at all times in 2014. The shareholders’ equity attributable to shareholders of the parent company amounted to CHF 284.2 million as at 31 December 2014 (73.2% of the balance sheet total), compared with CHF 264.0 million as at 31 December 2013. The currency translation differences of CHF 6.7 million were very much positive (2013: CHF −3.1 million) because the balance sheet date exchange rates were generally higher against the CHF than a year previously. Assets and liabilities held for sale At 31 December 2014, assets of CHF 8.9 million are recorded as “Assets classified as held for sale”, and liabilities of CHF 0.1 million as “Liabilities classified as held for sale”. Further details on these positions are provided in Note 10 to the consolidated financial statements (pages 114 and 115). e Cash flow statement Cash flow from operating activities Cash flow from operating activities prior to the change in net current assets and provisions amounted to CHF 39.8 million (2013: CHF 37.7 million), or CHF 30.3 million after changes in net current assets and provisions (2013: CHF 31.7 million). The positive cash flow is the result of the increase in Group profit after taxes and the only moderate rise in current assets, despite the increase in revenues. Cash flow from investing activities The cash outflow from investing activities amounted to CHF 15.9 million net, which represents a significant increase of CHF 8.7 million on the previous year. The increase in investment is primar- ily attributable to the purchase of a plot of land at the main site in Dierikon, Switzerland, and to investment in intangible assets, which were CHF 2.4 million higher in 2014 than in the previous year. In addition to the land purchase, the main focus of investment in the year under review was on machinery for the Wire business unit’s manufacturing activities, as well as on the expansion of the global network (hardware and software). Free cash flow, i.e. cash flow from operating activities after deduction of net investments, amounted to CHF 14.4 million, which represents a decline of CHF 10.1 million compared to the previous year. This decline is solely attributable to the higher investment in 2014. Cash flow from financing activities Bank loans amounting to CHF 7.0 million net were repaid in 2014. In addition, positive cash flow of CHF 7.1 million was generated by the exercising of employees’ options. The dividend distribu- tion from reserves for capital contributions amounted to CHF 16.0 million in 2014. Despite the significantly higher investment and increase in the distribution out of reserves from capital con- tributions, the cash flow statement shows an increase of CHF 0.5 million. 85 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT e Consolidated balance sheet in TCHF Assets Cash and cash equivalents Securities Trade receivables Other receivables and accrued income / prepaid expenses Inventories Assets classified as held for sale Total current assets Deferred tax assets Other non-current receivables Investments in associates Property, plant and equipment Intangible assets Total non-current assets Total assets Liabilities and shareholders’ equity Financial liabilities Trade payables Other payables and accrued expenses / deferred income Current income tax liabilities Provisions Liabilities classified as held for sale Total current liabilities Financial loans Deferred tax liabilities Defined benefit plan liabilities Total non-current liabilities Total liabilities Share capital Treasury shares Capital surplus (premium) Other reserves Equity attributable to equity holders of the parent company Non-controlling interest Total shareholders’ equity Notes 31.12.2014 31.12.2013 5 6 7 8 9 10 11 12 14 15 16 18 19 20 21 10 22 11 13 23 52 699 182 106 139 19 959 54 642 8 869 52 203 0 95 751 19 751 53 270 0 242 490 220 975 20 452 2 472 17 75 253 47 368 145 562 14 096 287 2 128 70 587 49 518 136 616 388 052 357 591 0 19 745 36 317 5 617 6 348 81 68 108 23 670 3 345 6 759 33 774 101 882 361 −2 245 28 398 257 654 284 168 2 002 286 170 4 044 15 697 33 576 5 586 4 454 0 63 357 25 543 4 040 0 29 583 92 940 352 −2 919 37 345 229 207 263 985 666 264 651 Total liabilities and shareholders’ equity 388 052 357 591 The notes on pages 91 to 139 are an integral component of these consolidated financial statements. 86 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 e Consolidated income statement in TCHF Net sales Other operating income Cost of materials Personnel expenses Rental expenses Maintenance and repair expenses Representation and advertising expenses Depreciation Other operating expenses Operating expenses Operating profit before interest and taxes Financial income Financial expenses Group profit before taxes Taxes Group profit after taxes from continuing operations Result from discontinued operations Group profit after taxes Of which attributable to: – Equity holders of the parent company – Non-controlling interest Attributable to equity holders of the parent company Basic earnings per share (in CHF) Diluted earnings per share (in CHF) Earnings per share from continuing operations Basic earnings per share (in CHF) Diluted earnings per share (in CHF) 1 Prior-year figures restated in accordance with Note 10. The notes on pages 91 to 139 are an integral component of these consolidated financial statements. Notes 2014 20131 362 853 323 501 485 458 24 25 26 15/16 28 29 29 30 10 31 31 31 31 143 150 118 479 5 005 8 729 10 075 9 561 20 237 315 236 48 102 3 307 −4 584 46 825 3 165 43 660 −15 917 27 743 27 137 606 27 743 7.64 7.42 12.09 11.75 127 325 103 651 4 722 7 477 9 622 9 280 18 585 280 662 43 297 4 283 −7 277 40 303 5 239 35 064 −9 935 25 129 25 362 −233 25 129 7.33 7.16 10.14 9.90 87 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT e Consolidated statement of comprehensive income in TCHF Group profit after taxes Revaluation of defined benefit plans Income taxes Items that will not be reclassified to the income statement Currency translation differences from foreign subsidiaries Currency translation differences from investments in associates Items that may be reclassified subsequently to the income statement Other comprehensive income after taxes 2014 27 743 −8 175 1 084 −7 091 6 747 −4 6 743 −348 2013 25 129 6 533 −860 5 673 −3 104 33 −3 071 2 602 Comprehensive income after taxes 27 395 27 731 Of which attributable to: – Equity holders of the parent company – Non-controlling interest 26 916 479 27 395 27 959 −228 27 731 The notes on pages 91 to 139 are an integral component of these consolidated financial statements. 88 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 e Consolidated cash flow statement in TCHF Cash flow from operating activities Group profit after taxes Adjustment for non-cash items − Taxes − Depreciation and impairment of property, plant and equipment − Depreciation and impairment of intangible assets − Profit (–) / loss (+) from sale of non-current assets − Expense for share-based payments − Employee benefits − Net financial result − Other non-cash items Interest received and other financial income Interest paid and other financial expenses Taxes paid Cash flow before change in net current assets and provisions Increase (+) / decrease (–) in provisions Increase (–) / decrease (+) in trade receivables Increase (–) / decrease (+) in inventories Increase (+) / decrease (–) in trade payables Increase (–) / decrease (+) in other net current assets Total cash flow from operating activities Cash flow from investing activities Investments in property, plant and equipment Sale of property, plant and equipment Sale of non-current assets held for sale Investments in intangible assets Sale of intangible assets Investments in associates Investments in Group companies and participations1 Sale of Group companies and participations2 Purchase (–) / sale (+) of securities Total cash flow from investing activities Cash flow from financing activities Increase in financial liabilities Decrease in financial liabilities Sale of securities held for trading Sale of treasury shares Capital increase (share-based payments) Distribution out of reserves from capital contributions Dividend paid Total cash flow from financing activities Effect of currency translations on cash and cash equivalents Increase (+) / decrease (–) in funds Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December 1 Less cash and cash equivalents acquired. 2 Less cash and cash equivalents sold. Notes 2014 2013 27 743 25 129 30 15 16 13 29 15 16 14 33 18 / 22 18 / 22 26 5 3 601 7 627 8 183 58 1 366 −1 416 1 164 222 487 −1 335 −7 949 39 751 1 684 4 977 6 644 3 898 −328 1 769 −1 988 3 118 −90 682 −1 399 −4 670 37 742 −1 653 −10 158 −10 264 817 2 360 −4 159 30 295 −10 545 467 0 −5 021 455 −134 −817 −106 −182 3 391 1 649 869 31 734 −5 410 534 930 −2 622 0 0 −621 0 0 −15 883 −7 189 0 −7 039 0 839 7 065 −16 003 −98 −15 236 1 320 496 52 203 52 699 1 550 −29 096 70 192 4 863 −6 909 0 −29 330 −667 −5 452 57 655 52 203 89 89 The notes on pages 91 to 139 are an integral component of these consolidated financial statements. KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT e Consolidated statement of shareholders’ equity 2014 in TCHF Balance on 1 January 2014 Other comprehensive income Group profit after taxes Comprehensive income after taxes Capital increase from exercise of options Distribution out of reserves from capital contributions Dividend paid Transactions in treasury shares Share-based payments Equity contribution by non-controlling interests Equity outflow due to non-controlling interests Attributable to equity holders of the parent company Other reserves Share capital Treasury shares Premium Currency differences Retained earnings Non- control ling interest Total shareholders’ equity 352 −2 919 37 345 −29 083 258 290 0 9 6 870 0 0 6 870 7 056 −16 003 674 −7 091 27 137 20 046 165 1 366 666 −127 606 479 −98 1 439 −484 264 651 −348 27 743 27 395 7 065 −16 003 −98 839 1 366 1 439 −484 Balance on 31 December 2014 361 −2 245 28 398 −22 213 279 867 2 002 286 170 2013 in TCHF Balance on 1 January 2013 Other comprehensive income Group profit after taxes Comprehensive income after taxes Capital increase from exercise of options Distribution out of reserves from capital contributions Transactions in treasury shares Share-based payments Attributable to equity holders of the parent company Other reserves Share capital Treasury shares Premium Currency differences Retained earnings Non- control ling interest Total shareholders’ equity 344 −3 086 39 399 −26 007 225 461 0 8 −3 076 0 0 −3 076 4 855 −6 909 167 5 673 25 362 31 035 25 1 769 894 5 −233 −228 237 005 2 602 25 129 27 731 4 863 −6 909 192 1 769 Balance on 31 December 2013 352 −2 919 37 345 −29 083 258 290 666 264 651 The notes on pages 91 to 139 are an integral component of these consolidated financial statements. 90 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 e Notes to the consolidated financial statements General information 1 The Komax Group is active in the manufacture of machines, and as at 31 December 2014 employed 1 498 people worldwide (2013: 1 282 employees). The parent company, Komax Holding AG, is domiciled in Dierikon, Canton Lucerne (Switzerland). The Komax Group’s business activities are focused on the development, production and sale of high-quality capital goods for precision engineering, electronics and information technology in the areas of wire processing and automated production and assembly. The focus here is on highly automated production systems for the automotive, household appliance, electronics, telecommunication and medical technology sectors. The Komax Group sells to the world market. Komax has a network of 21 operating subsidiaries and around 50 independent agencies to ensure on-the-spot sales and service support. The present consolidated financial statements were adopted by the Board of Directors of Komax Holding AG on 5 March 2015 and released for publication. Their approval by the Annual General Meeting, scheduled for 8 May 2015, is pending. Summary of significant accounting policies 2 The significant recognition and measurement policies used in compiling the consolidated finan- cial statements are presented in the paragraphs below. Unless otherwise stated, the methods described are always applied to the periods reviewed. Accounting policies 2.1 The consolidated financial statements of the Komax Group are based on the individual financial statements of the Group companies, compiled in accordance with uniform standards, as at 31 December 2014. The Group’s accounting is based on historical purchase or production cost. Exceptions to this rule relate to the marking to market of financial assets available for sale, and the valuation of financial assets and liabilities at agreed fair value with effect on the income state- ment (including derivative financial instruments). The consolidated financial statements are struc- tured in accordance with the International Financial Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB) and comply with Swiss law and the Listing Rules of the SIX Swiss Exchange. 2.1.1 New standards and interpretations and amendments to published standards adopted by the Group Komax adopted the following new standards and amendments to existing standards in accord- ance with the requirements for the financial year commencing 1 January 2014. IFRS 10 “Consolidated Financial Statements”, IFRS 12 “Disclosure of Interests in Other – Entities” and IAS 27 “Separate Financial Statements”: Investment entities – IAS 32 “Financial instruments: presentation”: Offsetting financial assets and financial liabilities IAS 36 “Impairment of assets”: Recoverable amount disclosures for non-financial assets IAS 39 “Financial instruments: recognition and measurement”: Novation of derivatives – – and continuation of hedge accounting – IFRIC 21 “Levies” These amendments currently have no impact on the consolidated financial statements of the Komax Group. 91 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT 2.1.2 New standards and interpretations and amendments to published standards that are not yet obligatory and are not being applied by the Group at an early stage The Group is currently reviewing the possible repercussions of other new and revised standards and interpretations that will take effect from 1 January 2015 or at a later date. Komax is not ap- plying these early. With the exception of the following new IFRS standards, an initial analysis in- dicates that these will not have any material impact on the overall result or financial situation of the Group. IFRS 9 “Financial Instruments”: This standard is applicable from 1 January 2018, but early – application is permissible. The Group is currently assessing the impact of IFRS 9. IFRS 15 “Revenue from Contracts with Customers”: This standard is applicable – from 1 January 2017, but early application is permissible. The Group is currently assessing the impact of IFRS 15. Scope of consolidation 2.2 2.2.1 Subsidiaries The consolidated financial statements incorporate the individual financial statements of Komax Holding AG, Dierikon, and its subsidiaries. The individual consolidated subsidiaries are listed on pages 150 and 151. Subsidiaries are fully consolidated if Komax Holding AG exercises control over their financial and business policies. As a rule, this is the case if Komax Holding AG directly or indirectly holds over 50% of the subsidiary’s voting capital. Subsidiaries are included in the consolidated financial statements (fully consolidated) from the date when the Group assumes control. They are deconsolidated from the date when control ends. Acquired subsidiaries are accounted for according to the acquisition method. Acquisition costs are equal to the fair value of the assets assumed, equity instruments issued, and liabilities incurred or assumed at the date of exchange. Costs directly assignable to acquisitions will be directly booked to the income statement. Assets, liabilities and contingent liabilities identified during a merger are recognized at fair value on first consolidation, regardless of the extent of minority interests. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired (negative goodwill), the difference is recognized directly in the income statement. Intragroup transactions, balances and unrealized gains and losses from transactions between Group companies are eliminated. 2.2.2 Changes in the scope of consolidation On 1 January 2014, Komax acquired the majority of SLE quality engineering GmbH & Co. KG and SLE quality engineering Verwaltungs GmbH. The two companies have accordingly been fully consolidated as of this year. Further details on these acquisitions are provided in Note 33 on pages 137 and 138. In addition, Komax and its Chinese partner Yingkou Jinchen Machinery Co. Ltd. signed an agreement whereby Yingkou Jinchen Machinery Co. Ltd. acquired Komax’s 51% stake in the Komax Jinchen joint venture. This transaction was completed in July 2014 after it had been approved by the relevant Chinese authorities. No acquisitions were made the previous year. However, the subsidiary company Komax SA Pty. Ltd. in Port Elizabeth, South Africa (100% interest), was closed. 92 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 The mentioned transactions in 2014 and 2013 aside, there were no changes in the scope of consolidation either in the 2014 reporting year or in the prior-year period. 2.2.3 Transactions with non-controlling interests Komax treats transactions with non-controlling interests as equity capital transactions with the owners. When non-controlling interests are acquired, the difference between the equivalent value paid per share and the corresponding acquired interest in the carrying value of the net assets of the subsidiary company is recognized in shareholders’ equity. Any profit from the sale of non- controlling interests is likewise booked under shareholders’ equity. 2.2.4 Shares in joint ventures and associates Ownership interests of between 20% and 50% and joint ventures over which Komax Holding AG exercises significant influence are accounted for according to the equity method and initially recognized at acquisition cost. Cumulative changes in the value of such holdings after acquisi- tion are reported in the income statement and charged against the carrying value of the holding. If a cumulative loss equals or exceeds the value of the Group’s interest in an associate, no further losses are recorded unless the Group has assumed obligations for the associate or made pay- ments on its behalf. Unrealized profits from transactions between Group companies and associ- ates are eliminated in proportion to the Group’s interest in the affiliate. As Komax typically does not exercise any material influence on companies in which it holds an interest of less than 20%, and deems these interests to be potentially sellable at any point, they are treated as “held for trading” and measured at fair value. They are reported under “Securities”. In the second half of 2014, Komax acquired a 25% stake in Xcell Automation Inc., which is based in York, Pennsylvania (USA), for a total of CHF 0.1 million. As per 31 December 2013, Komax held 30% of SLE quality engineering GmbH & Co. KG and 30% of SLE quality engineering Verwaltungs GmbH. Komax acquired a majority interest in both companies as per 1 January 2014. Further details on associated companies are provided in Note 14 on page 122. Komax held no material investments below 20% and no interests in joint ventures at either 31 December 2014 or 31 December 2013. Segment reporting 2.3 Komax’s reportable segments are based on the Group’s strategic business areas, in which prod- ucts using different technologies are manufactured and sold on the basis of independent market- ing strategies. The internal organizational structure is fully geared towards the individual busi- ness areas, each of which comes under the responsibility of a separate head. The Executive Committee of the Komax Group is designated as the chief operating decision- maker. They receive financial information on the individual segments on a regular basis, enabling it to assess their profitability and decide the operational allocation of resources to the various areas. 93 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT The financial data of the operating segments is established according to the same accounting principles set out here. Transfer prices between the operating segments are set on an “at arm’s length” basis. The Executive Committee assesses the profitability of the segments on the basis of their earnings before interest and taxes (EBIT). Information on the assets and liabilities of the individual segments is not reported to the chief operating decision-maker, which is why such information is also not disclosed in external reporting. In accordance with internal reporting to the chief operating decision-maker, the Group has been disclosing information for its three business segments of Wire, Solar and Medtech from the 2009 financial year onwards. In 2013, Komax announced that it was selling its Solar business. In the second half of 2014, Komax sold its 51% interest in the Komax Jinchen joint venture to its Chinese partner Yingkou Jinchen Machinery Co. Ltd. In addition, the remaining activities of Komax Solar were transferred to the management team of Komax Solar as part of a management buyout. This business unit is reported as “Non-current Assets Held for Sale and Discontinued Operations” under IFRS 5, and therefore no longer forms part of the company’s segment report- ing. With effect from 2014, therefore (retroactive application of IFRS 5 for 2013), Komax only has two business units. The Wire segment essentially comprises the development, production, distri- bution and maintenance of wire processing machines and systems used primarily for wire pro- duction in the automotive and electronics industries. The Medtech segment includes the design and production of assembly systems for the pharmaceutical industry (Medtech) as well as the manufacturing of assembly lines for inkjet cartridges (Inkjet). The development and manufactur- ing of systems for the assembly of mechanical and electronic components in the automotive and electronics sector (Mechanical and Electronic Systems Assembly) is also assigned to this seg- ment. 2.4 Currency conversion 2.4.1 Functional currency and reporting currency Items included in the financial statements of each entity are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity (the functional currency). The consolidated financial statements are presented in Swiss francs, which is the functional currency of the parent company, Komax Holding AG. 2.4.2 Transactions and balances Foreign currency transactions are translated into the functional currency at the rate prevailing on the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in for- eign currencies are recognized in the income statement, except when taken to shareholders’ equity as a qualifying cash flow hedge. 94 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 2.4.3 Group companies The earnings and balance sheet figures of foreign business units with a functional currency other than the Swiss franc are translated to Swiss francs as follows: a) Assets and liabilities are translated at the exchange rate on the balance sheet date for each such date. b) Revenues and expenses are translated at the weighted average exchange rate for each income statement. c) All exchange rate gains and losses are recognized in other comprehensive income and reported on a separate line within the other reserves under shareholders’ equity. Exchange rate differences arising from the translation of net investments in foreign business units are recognized under comprehensive income. When a foreign company is sold, these ex- change rate differences are reported in income as part of the gain or loss from the sale. Goodwill and fair value adjustments occurring during the acquisition of a foreign company are treated as assets and liabilities of the unit and translated at the exchange rate on the balance sheet date. The most important year-end and average exchange rates were as follows: Currency USD EUR BRL CNY MYR Year-end rate 31.12.2014 Average rate 2014 Year-end rate 31.12.2013 Average rate 2013 1.000 1.210 0.376 0.161 0.286 0.920 1.230 0.395 0.149 0.285 0.900 1.240 0.380 0.148 0.273 0.940 1.240 0.443 0.152 0.300 95 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT Property, plant and equipment 2.5 Property, plant and equipment are accounted for at historical acquisition or production cost less accumulated depreciation. Depreciation is linear over the expected service lifetime. The specific depreciation periods for various asset categories are: Asset categor y Machinery Tools Measuring, testing and controlling devices Operating installations Warehouse installations Vehicles Office furnishings and office machines Information technology Factory buildings Office buildings Land Years 7–10 7 5 10 10–14 5–8 5–10 3–5 33 40 no depreciation Maintenance, repair and minor renovation costs are charged directly to the income statement as expenses when incurred. Renovation work that increases the value and extends the service life of a tangible asset is capitalized if it is likely to generate future economic benefits for the Group, and the costs associated with the asset value can be reliably measured. Property, plant and equipment which have been eliminated from the business or sold are cleared from the property, plant and equipment account at their acquisition cost and with the associated accumulated depreciation. Any profits or losses resulting from the disposal of property, plant and equipment are recognized in the income statement. Financing costs for property, plant and equipment under construction are capitalized. Intangible assets 2.6 2.6.1 Goodwill Goodwill represents the excess of the cost of acquisition of a company over the fair value of the Group’s share of the net assets of the acquired company at the date of acquisition. Goodwill created through acquisition of a company is reported under “Intangible assets”. Goodwill carried on the balance sheet is subjected to an annual impairment test and measured at the original acquisition cost less cumulative impairments. Impairments may not be reversed. For purposes of the impairment test, goodwill is broken down across cash-generating units (CGUs). The value is distributed over those CGUs or groups of CGUs that are expected to benefit from the merger that gave rise to the goodwill. 2.6.2 Patents Patents are recognized at historical acquisition cost less cumulative amortization. 96 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 2.6.3 Software Purchased software licenses are capitalized at acquisition or production cost plus costs incurred in readying them for use. The total acquisition cost is amortized on a linear basis over three to five years. Costs associated with the development or maintenance of software are recorded as expenses at the time they are incurred. 2.6.4 Research and development expenditure Research and development costs are capitalized and written off on a straight-line basis over their useful life, provided the criteria for capitalization are met. No such expenses were capitalized in the year under review or in the previous year, as the future economic benefits of these expenses cannot be accurately estimated. 2.6.5 Technology Acquired technology assets are recognized if they bring the company measurable benefits over a period of several years. They are valued at acquisition cost minus linear depreciation. Acquisi- tion costs are written down in a linear way over a period of five to ten years. Impairment of non-monetary assets 2.7 Assets with an indeterminate service lifetime are not amortized according to plan but subjected to an annual impairment test. Assets subject to planned amortization are also tested for impair- ment if events or changes in circumstances create a presumption that the carrying value can potentially no longer be realized. An impairment is recorded in the amount by which the asset’s carrying value exceeds its realizable value. The realizable value is the greater of the asset’s fair value less disposal costs and its use value. In determining impairments, assets are grouped according to the smallest separately identifiable cash-generating units. Financial assets 2.8 Financial assets are classified into the following categories: recognized at fair value through profit or loss, loans and receivables, held to maturity, and available for sale. The classification depends on the purpose for which a given financial asset was acquired. The financial assets recognized in the consolidated balance sheet are assigned to the following categories: in TCHF Securities Total at fair value through profit or loss Cash and cash equivalents Trade receivables Other receivables Other non-current receivables Total loans and receivables 31.12.2014 31.12.2013 182 182 52 699 106 139 17 135 2 472 0 0 52 203 95 751 16 134 287 178 445 164 375 97 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT The financial liabilities are allocated to the following categories: in TCHF Derivative financial instruments Total held for trading Financial liabilities (current and non-current) Trade payables Other payables Total at amortized cost 31.12.2014 31.12.2013 552 552 23 670 19 745 7 398 50 813 151 151 29 587 15 697 6 182 51 466 2.8.1 Financial assets at fair value through profit or loss This category comprises two subcategories: assets classified as “Held for trading” from the beginning, and those classified as “At fair value through profit or loss” from the beginning. A financial asset is assigned to this category if it was purchased in principle with the intent of short- term resale or designated as such by management. Derivatives also belong to this category if they are not qualified as hedges. Assets in this category are reported as current assets if they are either held for trading or are expected to be realized within twelve months of the balance sheet date. The “Securities” position, which is reported separately in the Komax Group’s balance sheet as per 31 December 2014, is classified as financial assets carried “At fair value through profit or loss”. Securities purchases are recorded at their market price on the date of purchase and sub- sequently measured at fair value. Realized and unrealized gains and losses from changes in fair value are recognized directly in income. 2.8.2 Loans and receivables Loans and receivables are non-derivative financial assets with fixed or calculable payments that are not listed on an active market. They are regarded as current assets if they mature within twelve months of the balance sheet date. If the period to maturity exceeds twelve months, they are carried as non-current assets. Current loans and receivables are reported in the consolidated balance sheet under “Cash and cash equivalents”, “Trade receivables” and “Other receivables and accrued income / prepaid expenses”, whereas long-term receivables are reported un- der “Other long-term receivables”. 2.8.3 Financial investments held to maturity Financial investments held to maturity are non-derivative financial assets with fixed or calculable payments and a fixed maturity that the entity wishes and is able to hold to the maturity date. The Komax Group consolidated balance sheet does not include any financial assets in this category. 98 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 2.8.4 Financial assets available for sale Financial assets available for sale are non-derivative assets that were either assigned to this category or not assigned to any of those described above. They are carried as non-current assets unless management intends to dispose of them within twelve months of the balance sheet date. Komax does not hold any financial assets in this category. Purchases and sales of financial assets are posted at the settlement date, i.e., the date when the asset is transferred. Financial assets in the “At fair value through profit or loss” category are carried at fair value, both at acquisition and after they are recognized for the first time. Associated transaction costs and gains and losses from financial assets, which are posted in the “At fair value through profit or loss” category, are reported on the income statement for the correspond- ing period. Loans and receivables are carried at historical purchase price using the effective interest rate method. Fair values of listed investments are based on current offer prices. For assets without an active market, Komax applies suitable valuation measures to determine the fair value. These include reference to recent “arm’s-length” transactions, current market prices of other similar assets, discounted cash flow procedures, and option price models based as far as possible on market data and as little as possible on company-specific data. At each balance sheet date, a determination is made as to whether objective indications exist of impairment of a financial asset or group of assets. Any impairments are charged to income in the corresponding period. 2.9 Derivative financial instruments and hedging activities Derivative financial instruments are initially measured at fair value as at the date when the con- tract is concluded. Subsequent measurement is likewise at fair value as at each balance sheet date. The method used to measure gains and losses depends on whether the derivative financial instrument was designated as a hedging instrument and, if so, on the type of item hedged. Derivative financial instruments may be designated as: a) hedges of fair value of a balance sheet asset or liability or off-balance-sheet fixed obligation (fair value hedge); b) hedges against risks of payment flow fluctuations associated with a balance sheet asset or liability or an anticipated and highly probable future transaction (cash flow hedge); c) hedges of a net investment in a foreign business operation (net investment hedge). Since the Komax Group uses derivative financial instruments only to hedge against existing foreign exchange and interest rate risks, such instruments do not qualify for hedge accounting in terms of IAS 39. Foreign currency surpluses are hedged in accordance with financial planning (economic hedges), so that changes in fair value are charged directly to income as realized and unrealized gains or losses for the relevant period. Only standardized instruments (currency forward and option contracts, interest rate and currency swaps) are used for hedging. Financing and hedging instruments are utilized in accordance with uniform rules throughout the Group. 99 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT Inventories 2.10 Inventories are measured at the lower of purchase or production cost and net sales price. Pur- chase or production costs are determined using the weighted average method. Internally pro- duced finished and semi-finished goods are measured at production cost in accordance with the state of completion. Production costs of finished and unfinished products include costs for prod- uct design, raw materials, direct personnel costs, other direct costs, and overhead costs allocated to production (based on normal operating capacity). Purchase and production costs do not include costs of debt capital since products do not qualify as assets in the sense of IAS 23, “Bor- rowing Costs”, and any costs of debt capital cannot therefore be directly attributed to products. The net sales price is the estimated proceeds of sale attainable in the normal course of business, less the necessary variable selling costs. 2.11 Trade receivables Trade accounts receivable are recorded at the original billed amount less provisions for bad debt. Bad debt provisions are formed if there are objective indications that not all the Group’s accounts receivable will be settled. Indications that an amount may not be recoverable include signs that the customer may be in serious financial difficulties or if bankruptcy or financial reorganization appears probable. The allowance is stated separately and comprises the difference between the carrying amount of the receivable and the recoverable amount. The amount of the allowance is charged to the income statement. An impairment loss is posted if the receivable is no longer recoverable. Non-current receivables are discounted to account for current value if the effects are material. 2.12 Manufacturing contracts Manufacturing contracts in the automated assembly and production business units, involving the customer-specific manufacture of systems, are valued according to the percentage-of- completion method (POC). On the balance sheet, these are reported either under “Trade receivables” or “ Other payables and accrued expenses / deferred income”, depending on the degree to which they are underfinanced or overfinanced. The percentage of completion is calculated according to the cost-to-cost method (costs incurred in relation to overall estimated costs of the contract). Anticipated project losses are fully expensed in the income statement. Any costs of debt capital are capitalized provided debt capital is raised for the purpose of financing the project and provided its costs can be directly attributed to a manufacturing contract. 2.13 Non-current assets held for sale Non-current assets held for sale are reported separately under current assets. Immediately before their first-time classification as assets held for sale, the value of the assets is determined in accordance with prevailing accounting principles. Subsequently, non-current assets held for sale are reported at the lower of carrying amount and fair value minus cost to sell. Non-current assets held for sale are not depreciated / amortized. 100 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 2.14 Cash and cash equivalents Cash and cash equivalents includes banknotes, sight deposits and other current, highly liquid financial assets with an original maturity of no greater than three months. Utilized current ac- count overdrafts are shown on the balance sheet as payables to credit institutions under current financial liabilities. 2.15 Shareholders’ equity Ordinary shares are classified as equity. No preferred shares have been issued to date. Costs directly attributable to the issue of new shares are disclosed in equity as a net deduction from the proceeds. Treasury shares are recognized at the average weighted cost of acquisition, including the trans- action costs assignable to them, and offset against equity. When treasury shares are purchased or sold, the consideration paid or received will be offset against equity. 2.16 Dividend payment Dividend distribution to the shareholders of Komax Holding AG is recognized as a liability in the consolidated financial statements in the period in which the dividend distribution is approved by the company’s shareholders. 2.17 Trade payables Trade payables are valued initially at fair value, which is normally the amount originally invoiced, and subsequently measured at amortized cost. 2.18 Financial liabilities Financial liabilities are initially recognized at fair value after deducting any transaction costs. In subsequent periods, they are measured at historical purchase price. Any difference between the amount paid out and the amount due is reported in income over the duration of the liability. Borrowings are classified as current liabilities unless the Group has an unconditional right to postpone settlement of the debt until at least twelve months after the balance sheet date. 2.19 Deferred taxes All the consolidated companies of the Komax Group are independently subject to tax, except for the companies in the US that are affiliated to Komax Holding Corp. (Komax Systems Rockford Inc., Komax Solar Inc. and Komax Corp.). In the case of the other companies, it is not possible to offset the taxable profit of one consolidated company with the loss of another. This should be remembered when comparing earnings with the tax burden. Deferred and future tax expenses are calculated on the basis of the comprehensive liability method. This method is based on the tax rates and tax regulations applicable on the balance sheet date or which have in essence been enacted and are expected to apply at the time the deferred tax claim is realized or the deferred tax liability is settled. Deferred and future taxes are calculated on the basis of the temporary differences in value between the individual balance sheets and balance sheets for tax purposes. Such differences primarily exist in the case of non-current assets, inventories and some provisions. Deferred tax assets are recognized in the amount corresponding to the probability that the Group companies in question will generate sufficient future taxable income to absorb the relevant positive differences in the tax assets. 101 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT Deferred tax liabilities are provided on temporary differences arising on investments in subsidiar- ies and associates, except where the timing of the reversal of the temporary difference cannot be determined by the Group and it is consequently probable that the temporary difference will not reverse in the foreseeable future. 2.20 Payments to employees 2.20.1 Employee benefits Employee pension and retirement benefits are based on the regulations and prevailing circum- stances in those countries in which Komax is represented. In Switzerland, pension and retirement benefits are based on the defined benefit model in conformity with IAS 19, “Employee Benefits”. The consequences of compliance with IAS 19 for retirement benefits are detailed in Note 13. In the other countries, pension and retirement benefits are provided under defined contribution schemes. The provision for defined benefit plans stated in the balance sheet represents the present value of the defined benefit obligation (DBO) on the balance sheet date less the fair value of plan assets. The DBO is calculated annually by an independent actuary according to the projected unit credit method. The recognition of pension assets is limited to the present value of any economic benefits available from refunds from the plans or reductions in future contributions to the plans. Past service costs are recognized immediately in income. Actuarial gains and losses, which are based on experience adjustments and changes in actuarial assumptions, are recognized in the other comprehensive income. In the case of defined contribution plans, the Group funds public or private retirement plans on the basis of statutory or contractual obligations or voluntary contributions. The Group has no payment obligations beyond the payment of contributions. Contributions are recognized in personnel expenses as they become due. Prepayments of contributions are recognized as assets to the extent that a right to repayment or a reduction in future payments exists. 2.20.2 Share-based compensation The Komax Group has initiated a share-based compensation plan involving grants of its own shares by way of a capital increase. The fair value of the employee services received for the options is included in personnel expenses. The total amount of the expenses to be charged for employee options issued and still locked in is amortized over the vesting period and recognized in expenses. On every balance sheet date, the estimated number of options that become exer- cisable under the vesting conditions as expected and which are relevant for determining the ex- pense to be booked is reviewed. The effects of any potentially relevant changes in initial esti- mates are taken into account in the income statement and by a corresponding charge to shareholders’ equity during the remaining time to the vesting date. Payments received upon ex- ercise of the options are credited to subscribed capital (at par) and to capital reserves after de- ducting directly attributable transaction costs. 102 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 2.20.3 Other payments after termination of employment There are no liabilities for payments to pensioners after termination of employment. 2.20.4 Payments triggered by termination of employment In some countries, in which the Komax Group operates its own companies, there are local regu- lations for payment triggered by termination of employment. Komax complies with these legal requirements. The corresponding expenses are booked under personnel expenses. 2.20.5 Profit sharing and bonus plans For bonus payments and profit sharing, a liability is recognized based on an appraisal procedure involving Group profit after certain adjustments and the beneficiary’s individual targets. A provi- sion is recorded in the consolidated financial statements in cases where a contractual liability exists. The expense is recognized in income under personnel expenses. 2.21 Provisions Provisions are recorded if the Group has a current legal or constructive obligation arising from a past event and it is probable that settling this obligation will impact the asset base, and if the amount of the provision can be reliably estimated. Provisions for warranties are based on past payments, sales revenues in previous years and current contracts. Komax normally gives a one-year warranty on machines and systems. The other provisions relate to various obligations and liabilities associated with past events, the performance of which will in all probability result in an outflow of funds. 2.22 Revenue recognition The Komax Group’s consolidated income statement is compiled using the nature of expense method. Net sales comprise the fair value of considerations received or receivable for the sale of goods and services in the course of ordinary business activities after deducting VAT, returns, discounts and price reductions, and eliminating intragroup sales. Revenues are recognized as described below. 2.22.1 Sale of goods Revenue from the sale of goods is recognized when risk and rewards of ownership have been transferred to the buyer. All expenses connected with sales are recognized on an accrual basis. 2.22.2 Sale of services Revenue from the sale of services is recognized in accordance with progress on the service ac- cording to the ratio of completed to still outstanding services to be performed during the financial year in which the services are rendered. 2.22.3 Revenue recognition using the POC method In the automated assembly and production field, revenue is recognized according to the POC method. The Komax Group calculates the percentage of completion according to the ratio of production costs already incurred to forecast total production costs. 103 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT 2.22.4 Interest and dividend income Interest income is accrued using the effective interest rate method. Dividend income is recog- nized at the date when the right to receive the payment originates. represent a separate major line of business or geographical area of operations is part of a single coordinated plan to dispose of a separate major line of business or 2.23 Discontinued operations Discontinued operations are a component part of Group business whose business area and cash flows are clearly separated from the rest of the Group, and which – – geographically distinct business area, or – Classification as discontinued operations occurs upon the sale of the activities in question or as soon as the business area fulfils the criteria for being “Held for sale”, whichever occurs first. If a business area is classified as a discontinued operation, the income statement for the compara- tive year is adjusted as if the business area had been discontinued from the start of that year. is a subsidiary company acquired exclusively with a view to resale. 2.24 Leases A lease under which a significant portion of the risks and rewards of ownership remains with the lessor is regarded as an operating lease. Payments under operating leases (less any incentives provided by the lessor) are charged to income on a linear basis over the duration of the lease agreement. The Komax Group does not assume material liabilities from financial lease contracts. Contractual relationships in which Komax acts as lessor are reported as financial leases if all risks and rewards associated with ownership are essentially transferred to the lessee. At the beginning of the lease, lease payments are recognized in the balance sheet in the amount of the net investment value arising from the lease. Revenue is recorded in the same way as the direct sale of goods. Financial income is spread over the term of the lease. Assets that are the subject of operating leases are reported in the balance sheet in accordance with their properties and are written down at the normal rates for similar assets. Lease income is recognized in the income statement on a linear basis over the term of the lease. Komax did not possess any significant assets that were the subject of operating leases in either the 2014 report- ing year or the previous year. 104 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 2.25 Government grants Government grants are recognized if it is likely that the payments will be received and Komax can fulfil the conditions attached to such subsidies. These are recognized in “Other operating in- come”, regardless of when payment is received, and on a pro rata basis in the period in which the associated costs are incurred, and charged to the income statement as an expense. Grants relat- ing to an asset are deducted from the carrying amount. 2.26 Restatement of previous years’ figures To ensure that figures are comparable, prior-year figures are restated if it becomes necessary when new provisions of the International Financial Reporting Standards (IFRS) are applied or existing standards are amended, or when changes are made in the presentation and structure of the financial statements during the reporting period. As announced in 2013, Komax is exiting the Solar business. As the cumulative criteria in IFRS 5 ,“Non-current Assets Held for Sale and Discontinued Operations”, were met as per 31 December 2014, the standard is applied accordingly and the segment concerned reclassified as discontinued operations. The amounts set out in the income statement for the prior period have been adjusted accordingly. Further details on the application of IFRS 5 are provided in Note 10 on pages 114 and 115. With the exception of the application of IFRS 5, no adjustments were made that have any significant impact on the consolidated financial statements of the Komax Group. Financial risk management 3 The Komax Group is exposed to various financial risks, for example currency, credit, liquidity and interest rate risks, through its business activities. The Group’s overall risk management strategy is focused on the unpredictability of developments in the financial markets and is intended to minimize the potential negative impact on the Group’s financial position. The Group uses deriva- tive financial instruments to protect itself against interest rate, currency and credit risks. The risks are monitored and reported. Risk management is conducted by the finance department of Komax Holding AG in conformity with the guidelines issued by the Board of Directors. These guidelines set out procedures for the use of derivatives as well as dealing with foreign currency, interest rate and credit risks. The guidelines are binding for all subsidiaries of the Komax Group. In addition, Komax conducts extensive annual analyses of financial risks as part of its risk management. The principal financial risks form an integral part of the internal control system (ICS) and are therefore subject to systematic, periodic review. Further, the Komax Group prepares an extensive report each quarter on currency, interest, country and customer risks, using the value-at-risk method. Due to the increased volatility, the Group continually improved and extended its risk management in 2014, particularly in relation to foreign exchange and country risks in emerging markets. 3.1 Currency risk The Komax Group operates internationally and is therefore exposed to a variety of foreign exchange risks. Foreign currency risks arise from future cash flows, assets and liabilities recog- nized in the balance sheet, and investment in foreign companies. 105 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT Foreign currency items are assessed centrally by Group Treasury as part of the rolling financial planning process. Corporate guidelines specify that up to 100% of the amount can be hedged if the current exchange rate is below the budgeted rate and the exchange rate for the foreign currency is expected to drop further relative to the functional currency. Komax is mainly exposed to currency risks relating to the USD, the EUR and the CNY. Assuming that the average rate of the EUR against the CHF had been 10% lower in 2014 and that all other parameters remained largely unchanged, the EBIT margin would have been 0.6 percentage points (2013: 0.6 percentage points) lower. Conversely, if this exchange rate had been 10% high- er, the margin would have risen by the same amount. Assuming that the average rate of the USD against the CHF had been 10% lower in 2014 and that all other parameters had been largely unchanged, the EBIT margin would have been 0.7 percentage points (2013: 0.9 percentage points) lower. Conversely, if this exchange rate had been 10% higher, the margin would have risen by the same amount. If the average rate of the CNY against the CHF had been 10% lower in 2014 and that all other parameters had been largely unchanged, the EBIT margin would have been 0.5 percentage points (2013: 0.3 percentage points) lower. Conversely, if this exchange rate had been 10% higher, the margin would have risen by the same amount. The main reasons for these changes would have been currency gains and losses on receivables, payables and other current receivables and liabilities. 3.2 Credit risk Credit risks may exist with regard to bank account balances, derivative financial instruments and receivables from customers. Banks must have a minimum credit rating of “A” before the Komax Group will enter into a material and long-term business relationship with them. Moreover, all risks pertaining to cash and cash equivalents are further minimized by using a variety of banks rather than one single bank. There is no significant concentration of potential credit risks within the Group. There are binding policies to ensure that sales to customers are made only if the customer has shown reasonable payment performance in the past. Moreover, outstanding receivables are monitored at the corporate level on a monthly basis. Contracts for derivative financial instruments and financial transactions are only entered into with banks of the highest financial solidity. The Group also has a business policy that limits credit risk associated with individual financial institutions through use of multiple banks. Management does not anticipate any significant losses on the receivables outstanding as at 31 December 2014 that have not already been taken into account in the value adjustments as per Note 7. The following table shows the receivables and credit limits of the main counterparties as of the reporting date: 106 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 in TCHF Counterpar ty Deutsche Bank1 Credit Suisse1 Bank of Shanghai UBS1 Customer A Customer B Customer C 31.12.2014 31.12.2013 Rating Credit limit Amount held Credit limit Amount held A+ A n.s. A Group 2 Group 2 Group 2 13 632 25 000 0 24 000 n.s. n.s. n.s. 12 649 8 605 4 963 3 250 14 823 7 988 5 647 11 898 25 000 0 24 000 n.s. n.s. n.s. 7 945 8 182 674 7 618 8 544 6 732 4 444 1 Creditor as par t of the CHF 120.0 million syndicated loan agreement under the stewardship of Credit Suisse (par ticipating banks: Basler Kantonalbank, Credit Suisse, Deutsche Bank, Luzerner Kantonalbank, UBS and Zürcher Kantonalbank). Komax assigns its customers to the following groups: Group 1: New customer (business relationship established within the past twelve months). Group 2: Existing customer (business relationship established more than twelve months ago) without defaults in the past. Group 3: Existing customer (business relationship established more than twelve months ago) with defaults in the past. 3.3 Capital risk In the management of its capital, the Komax Group pays special attention to ensuring that the Group is able to continue to operate, that shareholders receive an appropriate return for their risks, and that financial ratios are optimized, taking the cost of capital into account. To achieve these targets, Komax may adjust its dividend payment, issue new shares, or sell assets in order to scale back its debt. Komax monitors its capital structure principally through the gearing factor and net debt. The latter is calculated from the total outstanding interest-bearing debts of the Group, including liabilities from finance leasing, minus cash and cash equivalents. The gearing factor is calculated by dividing net debt at the balance sheet date by the operating profit before interest, taxes, depreciation and amortization (EBITDA) over the last twelve months (rolling). This resulted in a net cash position (previous year: net cash) at the end of the reporting year, as cash and cash equivalents and securities exceeded existing financial liabilities as at 31 December 2014 and as at 31 December 2013. The Group’s financial liabilities are subject to externally regulated capital requirements ( covenants). These essentially provided for a maximum gearing factor of 2.75 as at 31 December 2014. In addition, the self-financing ratio (i.e. the Group’s reported equity plus subordinated loans minus goodwill divided by total assets less goodwill) may not fall below 50% at any balance sheet date. The Komax Group has complied with all capital requirements since the contract signing date as well as at 31 December 2014. 107 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT Liquidity risk 3.4 Prudent liquidity risk management involves maintaining sufficient reserves of cash and cash equivalents and liquid securities as well as financing capacity through an adequate volume of approved lines of credit. The amount of cash required for operations is reviewed annually and monitored on a monthly basis by the finance department. Given the business environment in which Komax operates, it is also essential for the Group to maintain the necessary flexibility in financing by maintaining sufficient unused lines of credit. The table below provides a breakdown of the Komax Group’s primary and derivative financial liabilities by maturity, based on the remaining maturity from the reporting date until the con- tractually agreed payment date. The table shows carrying amounts as the impact of discounting is negligible. 31.12.2014 in TCHF Financial liabilities (current and non-current)1 Trade payables Other payables Derivative financial instruments 31.12.2013 Financial liabilities (current and non-current)1 Trade payables Other payables Derivative financial instruments 0–30 days 31–60 days 61–90 days 91–120 days 121 days –1 year 1–5 years Total 0 16 380 4 834 0 0 13 850 3 981 0 0 2 081 590 8 1 550 1 223 496 8 0 994 594 84 0 261 435 0 0 280 526 0 0 317 499 0 0 10 854 146 23 670 0 0 167 2 494 25 543 46 771 70 0 0 258 23 670 19 745 7 398 405 29 587 15 697 6 182 336 1 The cash outflow from future interest payments amounts to CHF 0.3 million for outstanding financial liabilities as at 31 December 2014 and CHF 0.4 million for outstanding financial liabilities as at 31 December 2013. Interest rate risk 3.5 Neither at 31 December 2014 nor at the previous year’s balance sheet date did the Komax Group possess any assets that were subject to any material rate of interest. The Group’s financial risk policy is to finance long-term investments with long-term liabilities, which gives rise to an interest rate risk. If there is a significant interest rate risk, the related cash flow risks are hedged through interest rate swaps. With respect to the syndicated loan, which as at 31 December 2014 had been utilized to the amount of CHF 24.0 million (31 December 2013: CHF 26.0 million), an interest rate swap with a notional principal amount of CHF 20.0 million was concluded for the entire contract period of around five years, which fixes the LIBOR rate at a level of 0.4875% p.a. Furthermore, the interest margin is dependent on the level of indebtedness of the Group. As lending amounts are in each case drawn on in tranches with a term of one to six months, the Komax Group is only subject to short-term fluctuations in LIBOR. The overall risk with respect to changes in the market rate of interest is low. Moreover, there was a net cash position of CHF 29.2 million as at 31 December 2014 (31 December 2013: CHF 22.6 million). For these reasons, no sensitivity analysis of interest rate risk was undertaken. 108 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 3.6 Determination of fair value The valuations at fair value follow a three-stage hierarchy based on the type of valuation parameters incorporated into the valuation techniques applied: – Level 1 parameters are quoted prices for identical assets or liabilities in active markets. A company uses these prices, insofar as they exist, to determine the fair value without any further adjustment. – Level 2 parameters relate to other observable factors. – Level 3 parameters are non-observable input parameters that have to be further developed in order to replicate the assumptions that would be used by market participants to determine an appropriate price for the asset or liability in question. The table below shows the assets and liabilities that have been valued at fair value. 31.12.2014 in TCHF Assets Securities Total assets Liabilities Derivative financial instruments Total liabilities 31.12.2013 in TCHF Liabilities Level 1 Level 2 Level 3 Total 0 0 552 552 182 182 0 0 0 0 0 0 182 182 552 552 Level 1 Level 2 Level 3 Total Derivative financial instruments Total liabilities 151 151 0 0 0 0 151 151 Key recognition and measurement assumptions Key assumptions and sources of uncertainty in relation to estimates 4 4.1 Preparation of the consolidated financial statements in conformity with IFRS requires the Board of Directors and Group Management to make estimates and assumptions, whereby such esti- mates and assumptions have an effect on the accounting principles applied and are reflected in the amounts stated under assets, liabilities, income and expenses. Their estimates and assump- tions are based on past experience and on various other factors deemed applicable in the current situation. These form the basis for reporting those assets and liabilities that cannot be measured directly from other sources. The actual values may differ from these estimates. Estimates and assumptions are reviewed at least on a quarterly basis. Changes in estimates are required when the circumstances on which the estimates are based have altered, or when new or additional information is available. These changes are recognized in the reporting period in which the estimate was adjusted. 109 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT The most important assumptions about future developments and most important sources of uncertainty in relation to estimates that could necessitate significant adjustments to reported assets and liabilities over the coming twelve months are shown below. Recognition of revenue according to POC method 4.2 Automated assembly and production contracts are measured according to the POC method, provided the assessment meets the requirements of IAS 11. Although projects are assessed monthly and in good faith in accordance with comprehensive project management guidelines, subsequent corrections may be required. These corrections are made in the following period and may have a positive or negative impact on revenue in this period. Impairment of non-current assets 4.3 Property, plant and equipment as well as goodwill and intangible assets are tested for impair- ment at least once a year. To determine whether impairment exists, estimates are made of the expected future cash flows arising from use. Actual cash flows may differ from the discounted future cash flows based on these estimates. Factors such as changes in the planned use of prop- erty, plant and equipment, restructuring, reorganization and closure of facilities, changes in the market situation, technical deficiencies in relation to machinery and systems, or sub- projected sales of machines, spare parts and systems may shorten useful life or result in an impairment. Employee benefits 4.4 Employees of the Group in Switzerland are insured under defined benefit retirement schemes in conformity with IAS 19. Calculations of the reported credits and liabilities in relation to these schemes are based on dynamic actuarial calculations as well as the expected return on the assets of the retirement plans. The present value of the liabilities relating to the defined benefit schemes is particularly dependent on assumptions such as the discount rate used to calculate the present value of future pension liabilities, future rises in salary and increases in other com- pensation paid to employees. The Group’s independent actuaries additionally use statistical data such as the likelihood of departure and mortality rate of insured individuals. The actuaries’ assumptions may differ substantially from actual events due to changes in market conditions and the economic environment, higher or lower rates of departure, longer or shorter life expectancy of insured individuals, as well as other estimated factors. These differences may have an influence on the assets and liabilities stated in relation to employee benefits in future reporting periods. Provisions 4.5 In relation to machines and systems already delivered, Komax calculates the necessary warranty provisions on the balance sheet date on the basis of analysis and estimates in conformity with IAS 37. The actual costs may differ from the provisions stated. Any differences may affect the provision carried for warranty events in future reporting periods and therefore the reported result for the period. 110 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 4.6 Current and deferred income taxes In determining the assets and liabilities from current and deferred income taxes, estimates must be made on the basis of existing tax laws and ordinances. Numerous internal and external fac- tors may have favourable and unfavourable effects on the assets and liabilities from income taxes. These factors include changes in tax laws and ordinances, as well as the way they are interpreted, in addition to changes in tax rates and the total amount of taxable income for the particular location. Any changes may affect the assets and liabilities from current and deferred income taxes carried in future reporting periods. Cash and cash equivalents 5 The cash and cash equivalents amounting to CHF 52.7 million (2013: CHF 52.2 million) include demand deposits and call money. The composition of the call money and the applicable interest rates can be found in the table below. Currency CNY INR EUR SGD Total 6 Securities in TCHF Shares Total 31.12.2014 31.12.2013 Interest rate TCHF Interest rate TCHF 2.86% 8.34% 0.00% 0.00% 0.00% 8.44% 0.00% 0.10% 1 541 191 25 0 1 757 0 293 0 105 398 31.12.2014 31.12.2013 182 182 0 0 The Komax Group uses forex forward and option contracts as well as interest rate and currency swaps to hedge currency and interest rate risks on cash and cash equivalents. As at 31 Decem- ber 2014, an interest rate swap with a notional principal amount of CHF 20.0 million and a nega- tive fair value of CHF 0.4 million (31 December 2013: CHF 20.0 million with a negative fair value of CHF 0.2 million) as well as two option contracts of a total of USD 4.0 million with a negative fair value of CHF 0.2 million (31 December 2013: none) were outstanding. The following volumes were transacted in the corresponding financial year: 2014: EUR none, USD 6.0 million 2013: EUR 1.5 million, USD 4.0 million Negative fair values are included in the “Other payables and accrued expenses / deferred income” item, positive fair values under “Other receivables and accrued income / prepaid expenses”. 111 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT 7 Trade receivables in TCHF Trade receivables less provision for impairment Accruals for systems1 less prepayments for systems Receivables arising from POC 31.12.2014 31.12.2013 84 722 −1 286 77 686 −54 983 22 703 79 673 −2 156 74 797 −56 563 18 234 Total 106 139 95 751 1 For manufacturing contracts of systems, the inventor y includes all costs associated with the systems as well as the pro- duction costs. The order costs comprise all costs attributable to the contract from the date the order is received until the balance sheet date. The order proceeds per manufacturing contract are recorded as at 31 December according to the POC. The carrying value of trade receivables corresponds to the fair value of the goods and services in question. The total amount of costs incurred and profits disclosed (less disclosed losses) on manufacturing contracts amounted to CHF 93.7 million as at 31 December 2014 (2013: CHF 85.6 million). Overfinanced projects totalling CHF 16.0 million (2013: CHF 10.8 million) are included in the “Other payables and accrued expenses / deferred income” item (see Note 20), while under- financed projects in the amount of CHF 77.7 million (2013: CHF 74.8 million) are stated un- der “Trade receivables”. Revenues for 2014 include sales on manufacturing contracts which remained outstanding on the balance sheet date and amounted to CHF 57.4 million (2013: CHF 55.5 million), equivalent to 15.8% of revenues for 2014 (2013: 17.1%). CHF 49.4 million (2013: CHF 45.2 million) of this represents costs incurred and CHF 8.0 million (2013: CHF 10.3 million) recognized contribution margins. Overdue trade receivables that had not been written down amounted to CHF 15.8 million on 31 December 2014 (31 December 2013: CHF 20.5 million). Their maturity structure is set out in the following table: in TCHF as at 31.12.2014 as at 31.12.2013 Number of days 0–30 8 135 10 926 31–60 3 300 3 392 61–90 91–120 1 199 1 910 1 482 661 >120 1 683 3 597 Total 15 799 20 486 No collateral has been received as security for overdue trade receivables for which no valuation allowance has been made. 112 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 Valuation allowances totalling CHF 1.3 million were recognized for trade receivables as at 31 December 2014 (31 December 2013: CHF 2.2 million). The table shows the change in valua- tion allowances: in TCHF Total as at 1 January Allowances for doubtful accounts Change in scope of consolidation Classified as held for sale Depreciation of irrecoverable receivables Unused amounts reversed Currency differences Total as at 31 December 2014 2 156 129 5 −644 −241 −91 −28 1 286 2013 5 136 932 0 0 −3 537 −437 62 2 156 Trade receivables are classified into the main currencies used by the Group, with an additional group for all other currencies: in TCHF CHF EUR USD CNY Other currencies Total trade receivables (gross) 8 Other receivables and accrued income / prepaid expenses in TCHF Other receivables Prepayments to suppliers Accruals Total 31.12.2014 31.12.2013 29 885 21 195 16 367 11 244 6 031 84 722 32 342 15 450 19 147 7 903 4 831 79 673 31.12.2014 31.12.2013 15 684 1 451 2 824 19 959 12 623 3 511 3 617 19 751 Other receivables mainly comprise tax credits due from state authorities (tax authorities) and bills receivable. The accruals include, among others, prepayments for insurance benefits and credits for maintenance and servicing work not yet carried out. 9 Inventories in TCHF Manufacturing components and spare parts Semi-finished goods / work in process Finished goods Total The inventories are not pledged to third parties. 31.12.2014 31.12.2013 32 217 6 343 16 082 29 595 4 251 19 424 54 642 53 270 113 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT The change in write-downs of inventories is as follows: in TCHF Total as at 1 January Write-downs charged to income statement Change in scope of consolidation Classified as held for sale Used to write off obsolete inventories Unused amounts reversed Currency differences Total as at 31 December 2014 8 928 2 379 753 −808 −2 068 −960 107 2013 12 271 2 691 0 0 −4 659 −1 203 −172 8 331 8 928 The expenditure recognized in the income statement in connection with the value adjustments of inventories amounts to CHF 1.4 million (2013: CHF 1.5 million). Discontinued operations 10 As announced in 2013, Komax is exiting the Solar business. As the cumulative criteria in IFRS 5, “Non-current Assets Held for Sale and Discontinued Operations”, were met as per 31 December 2014, the standard was applied accordingly and the segment concerned reclassi- fied as discontinued operations. The amounts in the income statement for the prior period were adjusted accordingly. Assets and liabilities of discontinued operations are presented as “Assets classified as held for sale” and “Liabilities classified as held for sale”. In accordance with IFRS 5, the amounts in the prior-year balance sheet have not been adjusted. In March 2014, Komax was able to announce that it had sold part of the Solar business. Komax and its Chinese partner Yingkou Jinchen Machinery Co. Ltd. signed an agreement whereby Yingkou Jinchen Machinery Co. Ltd. acquired Komax’s 51% stake in the Komax Jinchen joint venture. This transaction required the formal approval of the relevant Chinese authorities, and was duly completed in July 2014. The remaining activities of Komax Solar business were handed over to the Komax Solar management team in the second half of 2014 as part of a management buyout. Komax holds a minority interest of 25% in the new company. The newly founded company Xcell Automation Inc., which is based in York, Pennsylvania (USA), will finish the remaining incomplete orders on behalf of Komax in 2015. In 2014, non-current assets of CHF 8.3 million net were reclassified as “Assets classified as held for sale”. Due to the application of IFRS 5, impairment losses of CHF 4.7 million had to be recog- nized on intangible assets. In addition, CHF 1.2 million had to be charged to fixed assets and CHF 2.8 million to current assets held for sale. 114 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 Result from discontinued operations: in TCHF Revenues Expenses Result before taxes Taxes 2014 19 101 34 582 –15 481 436 2013 20 065 30 262 –10 197 –262 Result from discontinued operations –15 917 –9 935 Of which attributable to: – Equity holders of the parent company – Non-controlling interest Attributable to equity holders of the parent company Basic earnings per share (in CHF) Diluted earnings per share (in CHF) Assets and liabilities classified as held for sale: in TCHF Assets classified as held for sale Trade receivables Other receivables and accrued income / prepaid expenses Inventories Property, plant and equipment Total assets classified as held for sale Liabilities classified as held for sale Other payables and accrued expenses / deferred income Total liabilities classified as held for sale Cash flows from discontinued operations: in TCHF Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Total cash flows –15 817 –100 –4.45 –4.33 2014 –4 901 609 2 971 –1 321 –9 702 –233 –2.81 –2.74 31.12.2014 4 347 30 4 254 238 8 869 81 81 2013 –880 112 –1 575 –2 343 115 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT Deferred taxes 11 11.1 Statement of carrying values in TCHF 31.12.2014 31.12.2013 Property, plant and equipment / / intangible assets Trade receivables and inventories1 Provisions Tax-loss carryforwards Tax credits Other items Total deferred tax assets (gross) Offset against deferred tax liabilities Balance sheet deferred tax assets Property, plant and equipment / intangible assets Trade receivables and inventories Provisions Other items Total deferred tax liabilities (gross) Offset against deferred tax assets Balance sheet deferred tax liabilities 2 067 4 692 1 426 11 687 3 424 1 646 24 942 −4 490 20 452 4 608 2 209 673 345 7 835 1 352 3 408 1 257 8 414 3 082 1 033 18 546 −4 450 14 096 5 357 2 500 615 18 8 490 −4 490 −4 450 3 345 4 040 Net deferred tax assets (+) / tax liabilities (–) 17 107 10 056 1 Including unrealized intragroup profit. 11.2 Statement of changes in TCHF Net total as at 1 January Credited (+) respectively charged (–) to the income statement Credited (+) respectively charged (–) to the other comprehensive income Change in scope of consolidation Classified as held for sale Currency translation differences 2014 10 056 5 052 1 084 486 −628 1 057 2013 11 641 −337 −860 0 0 −388 Net total as at 31 December 17 107 10 056 The total of the temporary differences relating to investments in affiliated companies for which no deferred taxes have been reported came to CHF 33.9 million as at 31 December 2014 (2013: CHF 33.9 million). As at 31 December 2014, deferred tax assets of CHF 5.5 million (2013: CHF 5.0 million) in connection with tax-loss carryforwards of CHF 18.3 million (2013: CHF 15.8 million) were not capitalized. Thereof CHF 5.5 million will expire between one and five years and CHF 12.8 million in more than five years. 116 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 12 Other non-current receivables in TCHF 31.12.2014 31.12.2013 Present value of minimum lease payments Non-current loans Rent deposit and other non-current receivables Total 211 700 1 561 2 472 105 0 182 287 Komax has lease agreements with various customers for the financing of machine purchases. The leasing period is normally between 36 and 60 months. The agreements are subject to ter- mination, with the lessee being required to bear the cost of termination. All agreements envisage the purchase of the leased asset at the end of the term, either as a fixed agreement or in the form of a purchase option. It is the duty of the lessee to ensure that the leased asset is properly in- sured. Non-current receivables from financing leases are recognized in the “Other non-current receivables” item, current receivables from financing leases in the “Trade receivables” item. Details can be found in the table below: in TCHF 31.12.2014 31.12.2013 Gross investment in the lease less unguaranteed residual value in favour of lessor less unearned finance income Present value of minimum lease payments 31.12.2014 in TCHF Gross investment in the lease Present value of minimum lease payments 31.12.2013 in TCHF Gross investment in the lease Present value of minimum lease payments 420 −17 −50 353 0–1 year 1–5 years 168 142 252 211 0–1 year 1–5 years 90 76 130 105 220 −18 −21 181 Total 420 353 Total 220 181 As at 31 December 2014, just as on the previous year’s balance sheet date, no value adjustments needed to be recognized for irrecoverable minimum lease payments. 117 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT Employee benefits (IAS 19) 13 13.1 Defined benefit plans Komax maintains retirement benefit plans for its employees in Switzerland and abroad. In con- formity with IFRS, the retirement benefit plans in Switzerland are defined benefit schemes. For the principal defined benefit pension schemes, the net expenditure for employee benefits is shown below. Benefits respectively liabilities in accordance with IAS 19 are recognized in the balance sheet of the Komax Group under “Prepaid pension assets” respectively “Defined benefit plan liabilities” and in the consolidated income statement under “Personnel expenses”. in TCHF Current service cost Interest cost Gains (–) / losses (+) from plan adjustments Total employee benefits expenditure of the Komax Group Interest income on plan assets Employee contributions Total employee benefits income of the Komax Group 2014 6 420 1 372 0 7 792 1 422 2 875 4 297 2013 6 164 2 424 −1 051 7 537 2 272 2 674 4 946 Employee benefits result of the Komax Group1 −3 495 −2 591 Employer contributions Prepayments to the employee benefits plan during the financial year 4 911 1 416 4 579 1 988 1 The employee benefits expenditure of CHF 3.5 million (2013: CHF 2.6 million) is recognized under personnel expenses. The effect of the revaluation of defined benefit retirement schemes on the other comprehensive income is shown in the table below: in TCHF Actuarial gains (+) and losses (–) Gains (+) and losses (–) from the revaluation of pension fund assets Change to the asset ceiling of pension fund assets Impact on other comprehensive income 2014 −19 644 7 928 3 541 −8 175 2013 3 031 7 043 −3 541 6 533 Benefits agreements for employees in Switzerland are concluded on the basis of pension plans regulated by the Federal Law on Occupational Old-Age, Survivors’ and Disability Insurance (“BVG”). The pension plans of the Group are managed by a legally independent foundation which is financed by regular employee and employer contributions. The final pension benefits are dependent on contributions and involve specified minimum guarantees. On the basis of these minimum guarantees, the pension plans in Switzerland are assigned to defined benefit pension plans in this year’s accounts, even though they exhibit many of the characteristics of defined contribution pension plans. Any shortfall in cover can be eliminated through a variety of methods, such as increasing employee and employer contributions, lowering the interest rate for retirement assets, reducing future benefits claims, or suspending the right to make advance withdrawals. 118 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 Responsibility for the investment strategy of the funded pension plans lies with the Board of Trustees of the pension fund. Asset-liability studies are conducted on a regular basis. These studies review the liabilities arising from the pension plans and evaluate different investment strategies with respect to the interdependent key variables such as expected profits, expected risks, expected contributions and the expected financing status of the plan. The aim of the asset-liability study is to ensure the appropriate diversification of assets within the plan. The investment strategy is being developed with a view to optimizing the expected profits, controlling risks and restricting fluctuations in the statutory cover ratio in an effective, sustainable manner. The asset-liability study contains strategies for aligning the cash flows of the underlying assets with the anticipated liabilities of the plans. The pension fund assets are managed by both internal and external asset managers. The invest- ment results are monitored by the management bodies of the pension fund on a regular basis. Defined benefit obligations developed as follows: in TCHF Total as at 1 January Current service cost Interest cost Payments made to and by beneficiaries (net) Gains (–) / losses (+) from plan adjustments Remeasurements: – Experience adjustments – Changes in demographic assumptions – Changes in financial assumptions 2014 2013 123 857 120 338 6 420 1 372 −1 200 0 −3 464 357 22 751 6 164 2 424 −987 −1 051 −5 895 1 702 1 162 Total as at 31 December 150 093 123 857 In 2013, the Board of Trustees of the Komax pension fund in Switzerland decided to modify the conversion rate in response to the continuing rise in life expectancy and expected returns over the next few years. No new plan adjustments were made in 2014. The present value of plan assets developed as follows: in TCHF Total as at 1 January Interest income on plan assets Employee contributions Employer contributions Payments made to and by beneficiaries (net) Remeasurements on plan assets 2014 2013 127 398 111 817 1 422 2 875 4 911 −1 200 7 928 2 272 2 674 4 579 −987 7 043 Total as at 31 December 143 334 127 398 119 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT The amount recorded in the consolidated balance sheet with respect to the defined benefit schemes was as follows: in TCHF Present value of funded obligations Fair value of plan asset 2014 2013 150 093 143 334 123 857 127 398 Overfunding (–) / underfunding (+) as at 31 December 6 759 −3 541 Limitation of the recognition of plan assets as at 1 January Change to the limitation of the recognition of plan assets Limitation of the recognition of plan assets as at 31 December Recognized liability as at 31 December 3 541 −3 541 0 6 759 0 3 541 3 541 0 The recognition of pension plan assets is limited to the cash value of all available economic benefits of reimbursements from the plans or reductions in future contributions to the plans. As future contributions exceeded the value of future service costs, no retirement assets were applied as at 31 December 2013. Available assets break down as follows: in TCHF Assets held in shares Assets held in bonds Assets held in real estate Other assets Total 31.12.2014 31.12.2013 49 923 29 822 40 655 22 934 43 130 27 728 36 250 20 290 143 334 127 398 The staff pension scheme of Komax AG invests in the following different asset categories with the aim of achieving an appropriate balance between risk and return: – shares and bonds, most of which are listed on an exchange; – real estate, which primarily comprises Swiss properties held by a foundation whose investors are exclusively pension funds; other investments, including cash assets and money market instruments whose issuers are financial institutions with a credit rating of at least “A”, as well as other, primarily alternative investments. These are used for risk management purposes and in some cases have exchange-listed prices. – The available assets of the retirement benefit scheme of Komax AG do not include shares of Komax Holding AG or real estate properties used by the Group. The expected return on assets is based on the investment policy of the Board of Trustees. Expected returns on fixed-interest investments are based on the effective gross interest rates at the balance sheet date. Expected returns from equity securities reflect the effective returns empirically determined as obtainable in the long term on the respective markets. 120 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 The retirement benefit liabilities are valued using assumptions based on the following economic and demographic parameters (weighted average): % Discount rate Estimated wage growth rate Increase in current pensions (expectancy of future benefits) 2014 1.10 0.80 0.00 2013 2.00 1.00 0.00 At a value of 10.5, the weighted average duration of the defined benefit plans as at 31 December 2014 is just above ten years. Average life expectancy on reaching retirement at age 65 or 64, respectively: Retirement at end of the reporting period: Years Men Women 2014 19.9 23.1 2013 19.8 23.0 The valuation of the net defined benefit obligations is particularly sensitive to changes in the discount rate, life expectancy and wage growth rate, and the increase in current pensions. The following table summarizes the repercussions of a change in these assumptions on the cash value of the defined benefit obligation: in TCHF Life expectancy 1 year increase 1 year decrease Discount rate 1.0% increase 1.0% decrease Wage growth rate 1.0% increase 0.8% decrease Increase in current pensions 1.0% increase 2014 2013 3 335 −3 709 −24 927 33 865 8 007 −6 130 2 146 −1 702 −21 019 27 788 6 225 −6 015 16 553 12 772 According to the most recent actuarial estimates, the Group expects employer contributions amounting to CHF 4.3 million for 2015. The expected cash outflows for benefits to be paid within the next year amount to CHF 1.8 million, while those for benefits to be paid within the next two to five and five to ten years amount to CHF 7.0 million and CHF 7.8 million respectively. 121 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT 13.2 Defined contribution plans No material costs for defined contribution plans of foreign subsidiaries had to be recognized in the income statement under personnel expenses, neither in the 2014 business year nor in the previous year. The liabilities arising from these retirement benefit plans amounted to CHF 0.1 million as at 31 December 2014 (31 December 2013: CHF 0.1 million). They are recognized in the balance sheet under “Other payables and accrued expenses / deferred income”. Investments in associates 14 In the second half of 2014, Komax acquired a 25% stake in Xcell Automation Inc., which is based in York, Pennsylvania (USA), for a total of CHF 0.1 million. As per 31 December 2013, Komax held 30% of SLE quality engineering GmbH & Co. KG and 30% of SLE quality engineering Verwaltungs GmbH. Komax acquired a majority interest in both companies as per 1 January 2014. According- ly, both of these companies were fully consolidated with effect from 1 January 2014 and are no longer reported under associated companies. The valuation of investments as at 31 December 2014 was based on the unaudited financial statements. Any changes in these statements will be taken into account in the following period. The investment value of CHF 0.0 million reported as at 31 December 2014 (2013: CHF 2.1 million) is equivalent to the proportion of equity held. There are no contingent liabilities. The proportional contribution to profit is negligible and included in the “Other operating expenses” under “Other expenditure”. 122 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 15 Property, plant and equipment 15.1 Property, plant and equipment 2014 Changes in gross values in TCHF Movables Machinery Tools / operating equipment Warehouse equipment Vehicles Office furnishings Information technology Prepayments for movables Total movables Real estate Buildings Land Prepayments for real estate Total real estate Costs 1.1.2014 Currency differences Reclassifi- cations Additions Disposals Classifica- tion IFRS 5 Costs 31.12.2014 Change in scope of consolida- tion 19 727 6 059 1 896 3 019 7 399 4 699 107 42 906 76 800 11 699 51 88 550 145 119 14 34 190 66 0 568 795 38 0 833 −7 106 0 0 0 0 −99 0 51 0 −51 0 0 1 763 301 26 699 197 806 2 250 6 042 310 4 164 29 4 503 10 28 24 0 0 9 0 −1 695 −2 460 17 483 −303 −36 −407 −330 −1 141 0 −27 −216 −93 −262 −13 0 6 283 1 708 3 252 7 194 4 426 2 258 71 −3 912 −3 071 42 604 1 224 347 0 1 571 −21 0 0 −21 0 0 0 0 79 159 16 248 29 95 436 10 545 1 642 −3 933 −3 071 138 040 Total 131 456 1 401 Changes in depreciation in TCHF Movables Machinery Tools / operating equipment Warehouse equipment Vehicles Office furnishings Information technology Prepayments for movables Total movables Real estate Buildings Land Prepayments for real estate Total real estate Total Accumulated depreciation 1.1.2014 Currency differences Reclassifi- cations Accumulat- ed depreci- ation on disposals Depreci- ation 2014 Classifica- tion IFRS 5 Accumulat- ed depreci- ation 31.12.2014 Net value property, plant & equipment 31.12.2014 10 730 3 962 1 259 1 492 4 691 3 593 0 25 727 35 142 0 0 35 142 60 869 74 59 15 28 130 51 0 357 225 0 0 225 582 −3 −1 563 1 252 −769 −302 −36 −313 −330 −1 141 0 479 81 527 592 570 0 −27 −81 −41 −238 −9 0 9 721 4 174 1 238 1 693 4 845 3 064 0 7 762 2 109 470 1 559 2 349 1 362 2 258 −3 685 3 501 −1 165 24 735 17 869 −21 2 706 0 0 0 0 −21 2 706 0 0 0 0 38 052 0 0 41 107 16 248 29 38 052 57 384 −3 706 6 207 −1 165 62 787 75 253 3 0 0 0 0 0 0 0 0 0 0 0 No impairments had to be booked on property, plant and equipment of the continuing operations during the 2014 reporting year. As at 31 December 2014, no contractual obligations were existing in respect of the acquisition of property, plant and equipment. Future liabilities arising from oper- ating lease agreements amount to: CHF 2.6 million due in 2015, CHF 6.4 million due in 2016 to 2019. 123 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT 15.2 Property, plant and equipment 2013 Changes in gross values in TCHF Movables Machinery Tools / operating equipment Warehouse equipment Vehicles Office furnishings Information technology Prepayments for movables Total movables Real estate Buildings Land Prepayments for real estate Total real estate Total Changes in depreciation in TCHF Movables Machinery Tools / operating equipment Warehouse equipment Vehicles Office furnishings Information technology Prepayments for movables Total movables Real estate Buildings Land Prepayments for real estate Total real estate Total Costs 1.1.2013 Currency differences Reclassifi- cations Additions Disposals Costs 31.12.2013 18 899 −206 6 044 1 862 2 872 7 719 4 998 260 −14 −58 −44 −104 −44 167 −40 93 0 0 40 1 795 328 3 731 176 572 107 −928 −259 −4 −540 −392 −867 0 19 727 6 059 1 896 3 019 7 399 4 699 107 0 −260 42 654 −470 0 3 712 −2 990 42 906 75 449 11 820 54 87 323 −325 −121 0 −446 129 977 −916 54 0 −54 0 0 1 647 −25 0 51 0 0 76 800 11 699 51 1 698 −25 88 550 5 410 −3 015 131 456 Accumulated depreciation 1.1.2013 Currency differences Reclassifi- cations Accumulated depreciation on disposals Depreci- ation 2013 Accumulated depreciation 31.12.2013 Net value property, plant & equipment 31.12.2013 9 554 3 774 1 186 1 490 4 396 3 991 0 −58 −6 −22 −12 −62 −27 0 24 391 −187 32 592 −28 0 0 0 0 32 592 −28 56 983 −215 0 0 0 0 0 0 0 0 0 0 0 0 0 −664 −259 −4 −439 −332 −822 0 1 898 10 730 453 99 453 689 451 0 3 962 1 259 1 492 4 691 3 593 0 8 997 2 097 637 1 527 2 708 1 106 107 −2 520 4 043 25 727 17 179 −23 2 601 35 142 0 0 0 0 0 0 41 658 11 699 51 −23 2 601 35 142 53 408 −2 543 6 644 60 869 70 587 No impairments had to be booked on property, plant and equipment during the 2013 reporting year. As at 31 December 2013, no contractual obligations were existing in respect of the acquisition of property, plant and equipment. Future liabilities arising from operating lease agreements amounted to: CHF 2.4 million due in 2014, CHF 6.2 million due in 2015–2018. 124 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 16 16.1 Intangible assets Intangible assets 2014 Changes in gross values in TCHF Intangible assets Software Patents Goodwill Technology Prepayments Total Changes in depreciation in TCHF Intangible assets Software Patents Goodwill Technology Prepayments Total Costs 1.1.2014 Currency differences Reclassifi- cations Additions Disposals Classifica- tion IFRS 5 Costs 31.12.2014 Change in scope of consolida- tion 13 949 4 145 30 397 17 351 1 167 87 0 476 0 0 987 2 308 0 0 0 0 0 0 −987 2 713 220 0 1 875 0 0 −3 114 0 0 0 0 −332 −44 −3 591 −4 523 0 14 105 4 101 29 157 12 828 2 893 67 009 563 0 5 021 2 095 −3 114 −8 490 63 084 Accumulated depreciation 1.1.2014 Currency differences Reclassifi- cations Accumulat- ed depreci- ation on disposals Depreci- ation 2014 Classifica- tion IFRS 5 Accumulat- ed depreci- ation 31.12.2014 Net value intangible assets 31.12.2014 9 688 4 139 0 3 664 0 17 491 59 0 0 0 0 59 0 0 0 0 0 0 −3 100 2 012 −325 −39 0 8 334 4 100 5 771 1 0 29 157 0 0 1 342 −1 724 3 282 0 0 0 9 546 2 893 0 0 0 0 −3 100 3 354 −2 088 15 716 47 368 Goodwill impairment test Goodwill acquired through previous acquisitions is allocated to the cash-generating units at op- erating segment level. The allocation is determined by the strategic intention behind the acquisi- tion of each entity. The goodwill of the cash-generating unit Solar was reclassified under “Assets classified as held for sale” in 2014. Cash-generating unit (CGU) in TCHF Wire Solar Medtech (MTS) Inkjet (INJ) Total Segment 31.12.2014 31.12.2013 Wire Solar Medtech Medtech 17 008 0 10 195 1 954 29 157 14 895 3 591 9 957 1 954 30 397 The recoverable amount of a CGU is obtained from the calculation of its fair value less costs to sell. These calculations are based on projected cash flows derived from the five-year plan issued by the Board of Directors. Assumptions for the calculation of the fair value less costs to sell were as follows: 125 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT 2014 Gross profit margin Average growth rate Discount rate (pre-tax) 2013 Gross profit margin Average growth rate Discount rate (pre-tax) Wire MTS INJ 62.4% 5.3% 6.7% 51.0% 10.6% 6.2% 43.3% −6.7% 7.1% Wire Solar MTS INJ 62.2% 4.9% 7.4% 39.1% 37.4% 8.0% 51.6% 3.2% 6.9% 36.8% 17.8% 7.7% Management has determined the budgeted gross profit margin based on past developments and expectations regarding the future development of the market. The discount rates applied are interest rates before taxes and reflect the specific risks of the operating segments in question. The impairment test performed showed that the value of the goodwill was sustainable and re- vealed no signs of any impairment. 16.2 Intangible assets 2013 Changes in gross values in TCHF Intangible assets Software Patents Goodwill Technology Prepayments Total Changes in depreciation Costs 1.1.2013 Currency differences Reclassifi- cations Additions Disposals Costs 31.12.2013 13 574 4 146 30 562 17 351 46 −70 −1 −165 0 0 46 1 455 −1 056 0 0 0 0 0 0 −46 1 167 0 0 0 0 13 949 4 145 30 397 17 351 1 167 65 679 −236 0 2 622 −1 056 67 009 Accumulated depreciation 1.1.2013 Currency differences Reclassifi- cations Accumulat- ed depreci- ation on disposals Depreci- ation 2013 Accumulat- ed depreci- ation 31.12.2013 Net value intangible assets 31.12.2013 8 884 4 130 0 1 676 0 −40 −1 0 0 0 0 0 0 0 0 0 −1 056 1 900 9 688 4 139 0 10 0 1 988 3 664 0 0 0 0 0 0 4 261 6 30 397 13 687 1 167 −1 056 3 898 17 491 49 518 in TCHF Intangible assets Software Patents Goodwill Technology Prepayments Total 14 690 −41 126 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 Ownership restrictions for own liabilities 17 Assets pledged to secure own liabilities: in TCHF Book value real estate Lien on real estate Utilization (indemnification syndicated loan) 31.12.2014 31.12.2013 44 189 50 000 24 000 45 587 52 494 30 044 Real estate consists of land and buildings in Switzerland and USA. 18 Financial liabilities M&T Bank, York (PA) Deutsche Bank, Minden Total 2014 31.12.2014 2013 31.12.2013 Currency Interest rate in TCHF Interest rate in TCHF USD EUR 0.00% 0.00% 3.75% 0.96% 0 0 0 2 494 1 550 4 044 The fair value of current financial liabilities as at 31 December 2013 essentially corresponded to the book value. The average interest on financial liabilities was 1.55% in the reporting year (2013: 2.48%). Trade payables 19 The carrying amounts of trade payables are allocated to the currencies shown in the table. The carrying amounts reflect their fair value. in TCHF CHF EUR USD CNY Other currencies Total trade payables 31.12.2014 31.12.2013 8 543 4 146 3 273 851 2 932 7 705 3 329 2 835 815 1 013 19 745 15 697 127 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT 20 Other payables and accrued expenses / deferred income in TCHF Other payables Liabilities for social security and pension funds Prepayments by customers Accrual for personnel expenses Commission payments to representatives Invoices not yet received Other accruals Accrued expenses / deferred income Prepayments on systems1 less accruals / deferrals in respect of systems Liabilities arising from POC Total 1 See also Note 7. 31.12.2014 31.12.2013 7 398 295 6 927 11 069 1 889 1 180 2 778 23 843 20 829 −16 048 4 781 6 182 313 6 770 9 517 1 928 1 208 1 925 21 348 16 496 −10 763 5 733 36 317 33 576 Other payables mainly comprise amounts due to state authorities (tax authorities). Their carrying amounts are allocated to the currencies shown in the table: in TCHF CHF EUR USD CNY Other currencies Total other payables 21 Provisions Warranty provisions in TCHF Total as at 1 January Additional provisions Change in scope of consolidation Amounts utilized during the year Unused amounts reversed Currency differences Total as at 31 December 31.12.2014 31.12.2013 4 291 1 092 0 244 1 771 7 398 2014 4 454 4 646 149 −2 270 −711 80 6 348 4 348 460 101 158 1 115 6 182 2013 4 646 3 915 0 −2 842 −1 256 −9 4 454 Warranty provisions include material and personnel costs in relation to warranty work. Provisions for warranty are reviewed and adjusted annually. 128 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 Other provisions in TCHF Total as at 1 January Additional provisions Amounts utilized during the year Unused amounts reversed Currency differences Total as at 31 December 2014 0 0 0 0 0 0 2013 1 464 0 −1 488 0 24 0 As at 1 January 2013, the other provisions included the provision for restructuring charges that were completely utilized during 2013. 22 Financial loans Credit Suisse, Zurich1 Credit Suisse, Zurich1, 2 Credit Suisse, Zurich1 Total 2014 31.12.2014 2013 31.12.2013 Currency Interest rate in TCHF Interest rate in TCHF CHF CHF CHF 0.81% 0.80% 0.00% 0.82% 0.80% 0.80% 20 000 3 670 0 23 670 16 000 4 543 5 000 25 543 1 Utilized credit facilities as par t of the CHF 120.0 million syndicated loan agreement under the stewardship of Credit Suisse (par ticipating banks: Basler Kantonalbank, Credit Suisse, Deutsche Bank, Luzerner Kantonalbank, UBS and Zürcher Kantonalbank). 2 Utilized credit line amounting to CHF 4.0 million as at 31 December 2014 (31 December 2013: CHF 5.0 million) less transaction costs of CHF 0.3 million (31 December 2013: CHF 0.5 million). As at 31 December 2014, the Komax Group had unutilized credit lines of CHF 99.9 million (31 December 2013: CHF 87.1 million). The average interest on financial loans was 0.82% in 2014, compared with 0.82% in the previous year. The fair value of non-current financial loans cor- responds to their carrying value. Share capital 23 As at 31 December 2014, the share capital amounted to CHF 360 510. This comprised 3 605 101 fully paid-up registered shares, each with a par value of CHF 0.10. As a result of the exercising of option rights, the share capital increased by CHF 8 132 in relation to 2013 (2013: CHF 7 999). As at 31 December 2014, the Group held 20 000 treasury shares (2013: 26 000 treasury shares). 129 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT 24 24.1 Segment reporting Information by segment 2014 in TCHF Net sales from external customers Net sales from other segments Total net sales EBIT Investment in non-current assets Sale of non-current assets Depreciation 20131 in TCHF Net sales from external customers Net sales from other segments Total net sales EBIT Investment in non-current assets Sale of non-current assets Depreciation Wire Medtech Corporate2 Group 292 484 68 629 2 480 11 65 −816 361 178 1 675 294 964 68 640 −751 362 853 55 292 1 200 −8 390 48 102 13 549 1 994 284 8 530 2 823 134 0 208 15 677 286 9 561 Wire Medtech Corporate2 Group 253 560 67 909 31 321 500 2 626 224 −849 2 001 256 186 68 133 −818 323 501 47 578 3 053 −7 334 43 297 7 497 362 8 065 441 37 1 009 84 13 206 8 022 412 9 280 1 Prior-year figures restated in accordance with Note 10. 2 Including elimination of intersegment revenues. Costs allocated to Corporate include expenses arising in conjunction with the Komax Group’s option plan, expenses and income arising from bookings for defined benefit pension schemes according to IAS 19, the salaries of Group Management, compensation for the Board of Directors, as well as the costs of Komax Holding AG. The table shows the reconciliation of the total of the reportable segments’ EBIT to the Group profit after taxes: in TCHF EBIT Financial income Financial expenses Group profit before taxes Taxes Group profit after taxes from continuing operations Result from discontinued operations Group profit after taxes 1 Prior-year figures restated in accordance with Note 10. 130 2014 48 102 3 307 −4 584 46 825 3 165 43 660 −15 917 27 743 20131 43 297 4 283 −7 277 40 303 5 239 35 064 −9 935 25 129 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 Net sales from external customers were generated in the following four operating segments: in TCHF Wire2 Medtech (MTS) Inkjet (INJ) Mechanical and Electronic Systems Assembly (MES / EES) 2014 294 224 55 446 8 149 5 034 20131 255 592 60 396 5 117 2 396 Total 362 853 323 501 1 Prior-year figures restated in accordance with Note 10. 2 Including Corporate sales. 24.2 Information by geographical area Net sales by location of purchasing party Switzerland Europe2 North and South America Asia / Pacific Total 2014 in TCHF % in TCHF 10 314 200 455 70 274 81 810 2.8 55.3 19.4 22.5 6 414 173 436 78 842 64 809 20131 % 2.0 53.6 24.4 20.0 +/− % 60.8 15.6 −10.9 26.2 362 853 100.0 323 501 100.0 12.2 Net sales by location of service provider Switzerland Europe2 North and South America Asia / Pacific Total 2014 in TCHF % in TCHF 140 619 86 821 66 183 69 230 38.8 23.9 18.2 19.1 127 636 53 331 82 603 59 931 20131 % 39.5 16.5 25.5 18.5 +/− % 10.2 62.8 −19.9 15.5 362 853 100.0 323 501 100.0 12.2 Non-current assets by location of service provider3 2014 in TCHF % in TCHF 94 880 9 912 17 384 2 934 75.8 7.9 13.9 2.4 94 283 7 392 17 873 2 972 2013 % 77.0 6.0 14.6 2.4 125 110 100.0 122 520 100.0 Switzerland Europe2 North and South America Asia / Pacific Total 1 Prior-year figures restated in accordance with Note 10. 2 Including Africa. 3 Without deferred tax assets. +/− % 0.6 34.1 −2.7 −1.3 2.1 131 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT Domiciled in Switzerland, the Komax Group is active in three other geographical areas where it is represented with its own companies. The commercial revenues of the Group are predominantly generated in Europe, North and South America, and the Asia / Pacific region. Net sales are as- signed on the basis of the country in which the customer is based (location of purchasing party). In addition, reporting is also undertaken on the basis of the country in which the sales company has its headquarters (location of service provider). Assets are listed as per the headquarters of the company to which they belong. The Europe region also includes the sales generated and assets located in Africa (particularly Tunisia and Morocco). 24.3 Significant customers Neither in the 2014 reporting year nor in the previous year did the Komax Group generate sales amounting to 10% or more of Group revenues with any individual customer. 25 Other operating income in TCHF Own work capitalized Government grants Gains from the disposal of property, plant and equipment Total other operating income 1 Prior-year figures restated in accordance with Note 10. Information on personnel 26 26.1 Personnel expenses in TCHF Wages and salaries Share-based payments Social security and pension contributions Other personnel costs (training and development) 2014 267 0 218 485 2014 96 391 1 389 16 916 3 783 20131 303 9 146 458 20131 84 521 1 453 14 305 3 372 Total personnel expenses 118 479 103 651 1 Prior-year figures restated in accordance with Note 10. Personnel expenses include all performance-related compensation for the past business year. Further details on employee benefits are given in Note 13. 132 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 26.2 Share option plan of the Komax Group The executive share ownership scheme for directors and management of the Komax Group in- cludes a share option plan. The option plan was introduced in 1998 and is designed to give ex- ecutives and selected employees added interest in shareholder value and enable them to share in the company’s success. The share option plan takes the form of share-based compensation settled in equity instruments by means of a capital increase (equity-settled plan). The number of options allocated depends on the individual performance of the entitled employee. The options granted entitle holders to subscribe one Komax Holding AG share per option and are valid for five years. They have a predetermined exercise price and are subject to a three-year lock-in period. 2014 Weighted average exercise price 2013 Weighted average exercise price Outstanding at beginning of year Granted Exercised Forfeited Expired No. 292 159 79 057 −81 321 −3 130 −3 703 CHF 75.34 129.09 87.76 84.14 75.68 No. 282 207 95 363 −79 991 −3 260 −2 160 Outstanding at end of year 283 062 86.68 292 159 CHF 73.93 67.03 61.42 73.22 42.78 75.34 Of the 283 062 outstanding options (2013: 292 159), 28 628 were exercisable as at 31 December 2014 (2013: 32 106). Options exercised in 2014 led to the issue of 81 321 shares (2013: 79 991) at a price of CHF 87.76 per share. The weighted average share price at the time of exercising was CHF 138.96 (2013: CHF 106.30). The following table summarizes information on options granted and not yet exercised as at 31 December 2014: Expir y date 31 December 2015 2016 2017 2018 Total Exercise price CHF 94.25 66.21 67.03 129.21 Number 28 628 83 461 92 932 78 041 283 062 The fair value of the options granted in the 2014 financial year – as determined by the enhanced American model, an approach based on the binomial model concept – amounted to CHF 29.51 (2013: CHF 17.27). The key parameters for the valuation model are the share price of CHF 135.30 (2013: CHF 71.00) on the day granted, the exercise price listed above, the standard deviation for the expected share price return of 36.0% (2013: 43.2%), the option term of five years, and the risk-free interest rate of 0.44% (2013: 0.18%). The anticipated dividend yield is 3.13% (2013: 4.37%). The volatility of 36.0% used in these calculations represents an arithmetic average of the historical volatility of Komax Holding AG for the last four years and that of a representative peer group. 133 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT 25 0 8 20 5 58 23 0 7 19 6 55 597 150 246 376 129 1 498 Total 486 136 198 336 126 1 282 As an alternative to selling a registered share of Komax Holding AG, Komax Holding AG has the right to pay the cash sum equivalent to the difference between the market value of the registered share at the point of exercising and the exercise price. A corresponding accrual of CHF 0.2 million for 38 163 options was taken into account as per 31 December 2014. The market value of the Komax Holding AG share as per 31 December 2014 of CHF 144.50 was used for calculation purposes together with an exercise price of CHF 129.21. The expenses will be spread over three years, in keeping with the lock-in period. 26.3 Breakdown of employees by country and areas of activity Europe3 Americas4 Asia5 Africa6 Total 2014 Production Research and development Engineering Marketing and sales Administration7 CH2 248 122 80 121 51 139 15 77 91 23 68 1 50 68 23 117 12 31 76 27 Total headcount at 31 December 2014 622 345 210 263 20131 Production Research and development Engineering Marketing and sales Administration7 CH2 222 107 83 113 50 Europe3 Americas4 Asia5 Africa6 98 19 38 65 23 62 1 45 65 21 81 9 25 74 26 Total headcount at 31 December 2013 575 243 194 215 1 Prior-year figures restated in accordance with Note 10. 2 Komax AG, Dierikon (including operating facility in Rotkreuz), Komax Systems LCF SA, La Chaux-de-Fonds. 3 Komax companies in Europe: Germany, France, Por tugal, Turkey. 4 Komax companies in Nor th and South America: USA, Brazil. 5 Komax companies in Asia: Singapore, China, Malaysia, India, Japan. 6 Komax companies in Africa: Morocco, Tunisia. 7 Including management / IT. 26.4 Average number of employees The average number of employees in 2014 was 1 394 compared with 1 238 in the previous year. Development expenditure 27 The aggregate development expenditure for new and further development of Komax products contains personnel expenses, material costs and costs for third-party development contracts. They amount to CHF 25.8 million, equivalent to 7.1% of revenues, compared with CHF 24.9 mil- lion or 7.7% of revenues in the previous year. 134 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 Other operating expenses 28 Other operating expenses amount to CHF 20.2 million (2013: CHF 18.6 million) and comprise the following positions: in TCHF Expenditure on operating equipment and energy Third-party services for development expenses Legal and consultancy expenses Expenditure on administration and sales Shipping and packaging expenses Other expenditure 2014 4 878 4 552 3 850 2 238 3 129 1 590 20131 4 574 4 873 2 614 2 119 2 828 1 577 Total other operating expenses 20 237 18 585 1 Prior-year figures restated in accordance with Note 10. 29 Financial result in TCHF Financial income Interest income Income from securities Exchange rate gains on foreign currencies Total financial income Financial expenses Interest expenses Securities expenses Exchange rate losses on foreign currencies Total financial expenses Total financial result 1 Prior-year figures restated in accordance with Note 10. 2014 20131 145 0 3 162 3 307 1 276 242 3 066 4 584 155 368 3 760 4 283 1 198 142 5 937 7 277 −1 277 −2 994 The financial income includes no gains in the current year (2013: none) on financial assets held for trading. Exchange rate losses amounting to CHF –0.6 million (2013: CHF –0.0 million) result- ing from financial liabilities held for trading are taken into account in the financial expenses. The positions include both book gains and losses and realized gains and losses. 30 Taxes in TCHF Current income taxes Deferred tax income (–) / tax expenses (+) Total 1 Prior-year figures restated in accordance with Note 10. 2014 8 217 −5 052 3 165 20131 4 612 627 5 239 135 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT Analysis of the tax rate in TCHF Group profit before taxes Expected tax expenses Impact of non-capitalized tax-loss carryforwards Effect of changes in tax rate Tax credits / charges from previous years Effect of non-deductible expenses Effect of non-taxable income Non-reclaimable withholding taxes Others Effective tax expenses 2014 46 825 3 215 277 118 −778 316 −62 122 −43 3 165 % 6.9 0.6 0.2 −1.7 0.7 −0.1 0.3 −0.1 6.8 20131 40 303 4 500 18 22 529 204 −197 147 16 5 239 % 11.2 0.0 0.1 1.3 0.5 −0.5 0.4 0.0 13.0 1 Prior-year figures restated in accordance with Note 10. As the Group is internationally active, its income taxes are dependent on a number of different tax jurisdictions. The expected average Group tax rate is equivalent to the weighted average of tax rates of those countries in which the Group is active. Due to the composition of the taxable income of the Group, as well as changes in local tax rates, this Group tax rate varies from year to year. 31 Earnings per share (EPS) 31.1 Basic earnings per share in CHF 2014 20131 Weighted average number of outstanding shares 3 552 840 3 458 379 Group profit (attributable to equity holders of the parent company) Result from continuing operations Result from discontinued operations 42 954 153 35 063 866 −15 817 324 −9 702 185 Total profit attributable to equity holders of the parent company 27 136 829 25 361 681 Basic earnings per share Basic earnings per share from continuing operations Basic earnings per share from discontinued operations Total basic earnings per share 1 Prior-year figures restated in accordance with Note 10. 12.09 −4.45 7.64 10.14 −2.81 7.33 Basic earnings per share are calculated by dividing the consolidated net earnings by the average number of shares outstanding during the fiscal year, excluding treasury shares. 136 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 31.2 Diluted earnings per share in CHF Weighted average number of outstanding shares Adjustment for dilutive effect of share options Weighted average number of outstanding shares for calculating diluted earnings per share Group profit (attributable to equity holders of the parent company) Result from continuing operations Result from discontinued operations 2014 20131 3 552 840 103 676 3 458 379 84 498 3 656 516 3 542 877 42 954 153 35 063 866 −15 817 324 −9 702 185 Total profit attributable to equity holders of the parent company 27 136 829 25 361 681 Diluted earnings per share Diluted earnings per share from continuing operations Diluted earnings per share from discontinued operations Total diluted earnings per share 1 Prior-year figures restated in accordance with Note 10. 11.75 −4.33 7.42 9.90 −2.74 7.16 Diluted earnings per share are calculated by adding all option rights which would have had a dilutive effect to the average number of shares outstanding. Contingent liabilities 32 Guarantees in favour of subsidiaries amounting to CHF 5.1 million (2013: CHF 11.6 million) are listed in the notes to the financial statements of Komax Holding AG. Apart from additional guarantees amounting to CHF 0.9 million (2013: CHF 0.8 million) in favour of third parties at subsid iaries, there were no other contingent liabilities towards third parties or Group companies. Sureties comprise almost exclusively guarantees granted to customers for advance payments. Business combinations 33 33.1 Acquisitions 2014 From March 2011 onwards, Komax held a 30% stake in SLE quality engineering GmbH & Co. KG. On 1 January 2014, Komax acquired a further 30% and therefore the majority of the company as part of an orderly succession arrangement. The company is affiliated to the Wire business unit. At the same time, it also acquired a further 30% of SLE quality engineering Verwaltungs GmbH. In view of SLE quality engineering’s extensive expertise in the development and production of semi-automatic equipment for processing coaxial cables and four-wire lines, in micrograph laboratories and in crimp force monitoring systems, the company’s products represent a further valuable extension of Komax Wire’s already extensive product range. In return, Komax Wire will support SLE quality engineering by making available its acknowledged competencies in all areas of wire processing along with its global sales and service network. The goodwill results primarily from the capabilities and technical expertise of the workforce, and from the synergies expected to result from the process of incorporating the company into Komax Wire’s existing business. 137 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT in TCHF Acquired net assets at fair value Cash and cash equivalents Trade receivables Other receivables and accrued income / prepaid expenses Inventories Deferred tax assets Property, plant and equipment Intangible assets Total assets Financial liabilities Trade payables Other payables and accrued expenses / deferred income Current income tax liabilities Provisions Deferred tax liabilities Total liabilities Acquired net assets Non-controlling interest Goodwill Purchase costs Investment in associates less acquired cash and cash equivalents Net cash out 576 1 743 545 4 253 495 1 642 220 9 474 −2 096 −1 312 −2 298 −12 −149 −10 −5 877 3 597 −1 439 1 875 4 033 −2 019 −576 1 438 The agreement has involved no contingent consideration arrangement. An initial down payment of CHF 0.6 million was made in 2013. The remaining amount of CHF 1.4 million was settled in 2014. The transaction costs directly attributable to the acquisition were insignificant and are reported in the operating result within “Other operating expenses”. No contingent liabilities were taken over from the acquired companies. The fair value of trade receivables and other receivables amounted to CHF 2.0 million, of which CHF 1.7 million related to trade receivables. The acquired company contributed CHF 14.3 million towards net sales in 2014, as well as CHF 1.8 million to Group profit after taxes. Thereof CHF 1.1 million were attributable to equity holders of the parent company. 33.2 Acquisitions 2013 Komax did not make any acquisitions in 2013. The sole payment made in this context was the sum of CHF 0.6 million as a down payment on the takeover of the majority of SLE quality engineering GmbH & Co. KG as per 1 January 2014. 138 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 Events after the balance sheet date 34 As announced on 20 January 2015, Komax has acquired a 20% stake in the French company Laselec SA as part of a capital increase. Headquartered in Toulouse, Laselec employs some 60 staff. Laselec develops cable stripping and marking solutions as well as intelligent forming boards for wire harness production, which are currently used primarily in the aerospace industry. The company has branches in the US and Mexico. Komax and Laselec are already implementing joint customer projects. The two companies will further intensify their collaboration in the future. In addition, on 12 February 2015, Komax announced that it was acquiring the remaining 40% of SLE quality engineering GmbH & Co. KG and SLE quality engineering Verwaltungs GmbH retroactively as per 1 January 2015. With the exception of the two above-mentioned events, for which a combined cash outflow of CHF 8.2 million is anticipated, no material events occurred between the balance sheet date and the approval of the consolidated financial statements by the Board of Directors on 5 March 2015 which might adversely affect the information content of the 2014 consolidated financial statements or which would require disclosure. Related parties 35 35.1 Transactions with related parties In 2014, goods and services worth CHF 0.8 million were sold to associated companies (2013: none). In addition, goods and services to a value of CHF 1.0 million were procured from associ- ated companies (2013: none). As per 31 December 2014, receivables of CHF 0.6 million, a loan of CHF 0.7 million and liabilities of CHF 0.5 million were outstanding vis-à-vis associated companies (2013: loan of CHF 1.1 million). In the year under review, no transactions were entered into with members of management in key positions in connection with the sale and purchase of goods and services (2013: none). However, rental payments amounting to CHF 0.1 million were made last year in relation to a production facility. With the exception of the regular employer contributions to the pension fund, no transactions were effected with related parties (2013: none). 35.2 Compensation for the Executive Committee and Board of Directors In fiscal 2014, the Group’s Executive Committee comprised four (2013: five) members. In con- formity with IFRS 2 for the statement of share-based payments, the total compensation for the Executive Committee, including the six (2013: six) directors, was as follows: in TCHF Executive Committee Board of Directors Salaries and bonus payments2 Share-based payments 2014 2 561 502 20131 2 401 394 2014 787 224 Total 3 063 2 795 1 011 20131 763 131 894 Total 20131 3 164 525 2014 3 348 726 4 074 3 689 1 Restatement of prior-year figures in compliance with ERCO. 2 Including the post-employment benefits of CHF 0.3 million for the financial year 2014 (2013: CHF 0.3 million). A detailed breakdown of the compensation paid to the Board of Directors and the Executive Committee is provided in the notes to the financial statements of Komax Holding AG on page 147. 139 KOMAX GROUP ANNUAL REPORTFINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTS2014FINANCIAL REPORT Report of the statutory auditor to the General Meeting of Komax Holding AG, Dierikon Report of the statutory auditor on the consolidated financial statements As statutory auditor, we have audited the accompanying consolidated financial statements of Komax Holding AG, which comprise the balance sheet, income statement, statement of comprehensive income, cash flow statement, statement of changes in equity and notes (pages 86 to 139), for the year ended 31 December 2014. Board of Directors’ responsibility The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial state- ments in accordance with the International Financial Reporting Standards (IFRS) and the requirements of Swiss law. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Auditor’s responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards as well as the International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assur- ance whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the con- solidated financial statements. The procedures selected depend on the auditor’s judgment, including the assess- ment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s prepa- ration and fair presentation of the consolidated financial statements 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 system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropri- ate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements for the year ended 31 December 2014 give a true and fair view of the financial position, the results of operations and the cash flows in accordance with the International Financial Reporting Standards (IFRS) and comply with Swiss law. Report on other legal requirements We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our in- dependence. In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an in- ternal control system exists which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors. We recommend that the consolidated financial statements submitted to you be approved. PricewaterhouseCoopers AG Gerd Tritschler Audit expert Auditor in charge Basel, 9 March 2015 Sven Rumpel Audit expert 140 FINANCIAL REPORTCONSOLIDATED FINANCIAL STATEMENTSKOMAX GROUPANNUAL REPORT2014 Comments on the financial statements of Komax Holding AG e Balance sheet The Federal Council enacted the new accounting legislation with effect from 1 January 2013. A transitional period of two years has been granted for the application of this legislation. The Group’s financial statements will therefore be drawn up in accordance with the new regulations for the first time in 2015. Assets 1 The current loans increased by a total of CHF 8.0 million. This increase is the result of newly granted loans to subsidiaries. The value of the stake in Komax Systems LCF SA, Switzerland, was increased in the year under review. In addition, a majority interest was acquired in SLE quality engineering GmbH & Co. KG, Germany, with effect from the beginning of the year. The 51% stake in the joint venture Komax Jinchen Solar Equipment (Yingkou) Co. Ltd., China, was sold to partner Yingkou Jinchen Machinery Co. Ltd., China. Both Komax Systems LCF SA, Switzerland, and Komax Comercial do Brasil Ltda., Brazil, made repayments on non-current financial loans. By contrast, new non-current financial loans were granted to TSK do Brasil Ltda., Brazil, and Komax Solar Inc., USA. Liabilities 2 The current account debt of Komax Holding AG towards Komax AG, Switzerland, declined to CHF 69.0 million in the 2014 financial year. The dividend of Komax AG, Switzerland, for the 2013 financial year (CHF 25.0 million) was offset against the current account debt. The provisions relate to open tax liabilities for taxes on earnings in the current financial year, and corporation tax which has to be paid on the interest in SLE quality engineering GmbH & Co. KG, Germany. The “Loans Group” balance sheet item relates to a financial loan amounting to USD 4.0 million granted by Komax Corp., USA. In 2012, Komax Holding AG and a syndicate of banks led by Credit Suisse concluded a lending agreement for a credit limit of CHF 120.0 million that is valid until 31 July 2017. The credit line provides the Group with the necessary entrepreneurial flexibility, guarantees the financing of commercial operations, and ensures the continued implementation of corporate strategy. CHF 24.0 million of this credit line was being utilized as at 31 December 2014. In accordance with the prevailing capital contribution principle, capital contributions (share premiums) made after 31 December 1996 are disclosed in the separate equity item “Capital con- tribution reserves”. Repayments to shareholders from this account are treated as equal to the repayment of nominal capital and are not subject to withholding tax. The self-financing ratio increased by 3.7 percentage points, from 68.4% in 2013 to 72.1% as per 31 December 2014. The reserves for treasury shares were reduced from CHF 3.5 million in 2013 to CHF 2.9 million to reflect holdings as per 31 December 2014. These reserves are valued at the market value of the treasury shares held as at the balance sheet date. 141 KOMAX GROUP ANNUAL REPORT2014FINANCIAL REPORTFINANCIAL REPORTFINANCIAL STATEMENTS OF KOMAX HOLDING AG e Income statement Income 3 The majority of the dividend income comes from Komax AG, Switzerland (CHF 25.0 million). Oth- er dividend payments were made by Komax Management AG, Switzerland, Komax Deutschland GmbH, Germany, SLE quality engineering GmbH & Co. KG, Germany, Komax Shanghai Co. Ltd., China, and Komax Singapore Pte. Ltd., Singapore. The other income from Group companies comprises revenues from services and licences. Financial income includes interest on loans granted to Group companies, exchange rate gains on short-term financial loans, and realized and unrealized gains on securities held. Expenses 4 Administration expenses comprise compensation for the Board of Directors, patent and licensing costs, legal and advisory expenses and other operating expenses. Financial expenses include interest on loans payable to third parties and Group companies, as well as realized and unrealized exchange rate losses. The “Other expenses” item contains investor relations expenses, hospitality expenses and insur- ance premiums. As a result of the sale of the 51% stake in the Komax Jinchen joint venture, the corresponding participation value was impaired by CHF 0.6 million. 142 KOMAX GROUPANNUAL REPORT2014FINANCIAL REPORTFINANCIAL STATEMENTS OF KOMAX HOLDING AG e Balance sheet of Komax Holding AG in TCHF Assets Cash and cash equivalents Securities and treasury shares Other receivables third parties Other receivables Group Other receivables associates Financial loans Group Financial loans associates Accrued income / prepaid expenses Total current assets Investments in subsidiaries Investments in associates Participation loans Group Financial loans Group Financial loans associates Other non-current receivables third parties Total non-current assets Total assets Liabilities and shareholders’ equity Other liabilities third parties Other liabilities Group Accrued expenses / deferred income Provisions Loans Group Total current liabilities Loans third parties Total non-current liabilities Total liabilities Share capital General statutory reserves Reserves for treasury shares Capital contribution reserves Free reserves Retained earnings Profit after taxes Total shareholders’ equity 31.12.2014 31.12.2013 626 2 428 255 2 672 4 1 330 2 919 14 1 914 19 117 571 108 432 0 26 1 116 649 123 582 116 393 161 363 155 746 0 11 195 54 974 656 236 2 228 11 195 57 025 0 0 228 424 226 194 352 006 342 587 194 69 009 762 153 4 000 74 118 24 000 24 000 430 77 774 398 1 3 600 82 203 26 000 26 000 98 118 108 203 361 2 100 2 890 9 388 210 513 195 28 441 253 888 352 2 100 3 518 18 333 185 185 182 24 714 234 384 Total liabilities and shareholders’ equity 352 006 342 587 143 KOMAX GROUP ANNUAL REPORT2014FINANCIAL REPORTFINANCIAL REPORTFINANCIAL STATEMENTS OF KOMAX HOLDING AG e Income statement of Komax Holding AG in TCHF Dividend income Other income from Group companies Financial income Total income Administrative expenses Financial expenses Other expenses Value adjustment on investments in subsidiaries Total expenses Profit before taxes Taxes Profit after taxes 2014 29 657 593 4 780 35 030 2 485 2 370 929 622 6 406 2013 26 280 452 5 391 32 123 2 457 4 151 785 0 7 393 28 624 24 730 183 16 28 441 24 714 144 KOMAX GROUPANNUAL REPORT2014FINANCIAL REPORTFINANCIAL STATEMENTS OF KOMAX HOLDING AG e Notes to the 2014 financial statements of Komax Holding AG 1 Contingent liabilities in TCHF Joint liability for Group taxation value-added tax Guarantees (in favour of subsidiaries) in EUR in USD in MYR in CHF Total 31.12.2014 31.12.2013 p.m. p.m. 2 929 1 094 379 677 5 079 402 1 454 0 9 760 11 616 Conditional capital 2 As at 1 January 2014, the conditional capital consisted of 326 220 registered shares, each with a par value of CHF 0.10, created for management and employee share ownership schemes. 81 321 options were converted into shares in 2014 (2013: 79 991). There was no increase in the condi- tional capital. Change in conditional share capital Number of conditional registered shares Par value CHF Opening amount as at 1 January 2014 Reduction in conditional share capital as a result of exercise of options in 2014 Closing amount as at 31 December 2014 326 220 −81 321 244 899 0.10 0.10 0.10 Conditional share capital CHF 32 622 −8 132 24 490 145 KOMAX GROUP ANNUAL REPORT2014FINANCIAL REPORTFINANCIAL REPORTFINANCIAL STATEMENTS OF KOMAX HOLDING AG 3 Treasury shares Change in 2014 No. Opening amount Purchases (avg. CHF 0.00/share) Sales (avg. CHF 140.30/share) Closing amount Total Change in 2013 No. Opening amount Purchases (avg. CHF 0.00/share) Sales (avg. CHF 130.39/share) Closing amount Total 4 Major shareholders 1.1.2014 Additions Disposals 31.12.2014 26 000 26 000 0 0 −6 000 −6 000 20 000 20 000 1.1.2013 Additions Disposals 31.12.2013 27 483 27 483 0 0 −1 483 −1 483 26 000 26 000 Shareholder / shareholder group at 31 December 2014 No. of shares Share in %1 Max Koch, Meggen 216 069 6.1% Shareholder / shareholder group at 31 December 2013 No. of shares Share in %1 Max Koch, Meggen 232 401 6.7% 1 Calculated on the basis of 3 523 780 shares that were registered as at the balance sheet date of 31 December 2014 (2013: 3 443 789). Externally regulated capital requirements (covenants) 5 The Group’s financial liabilities are subject to the following externally regulated capital require- ments (covenants) as per the syndicated loan agreement: – The gearing factor may not exceed 2.75 either at 31 December 2014 or thereafter at each quarter-end balance sheet date. – The self-financing ratio (i.e. the Group’s reported equity plus subordinated loans less good- will divided by total assets less goodwill) may not fall below 50% at any balance sheet refer- ence date. The Komax Group has complied with all capital requirements since the contract signing date as well as at 31 December 2014. Within the scope of the syndicated loan agreement, Komax Hold- ing AG guarantees for the liabilities of any member of the Komax Group. 146 KOMAX GROUPANNUAL REPORT2014FINANCIAL REPORTFINANCIAL STATEMENTS OF KOMAX HOLDING AG Risk assessment 6 A detailed description of risk management can be found on pages 105 to 109 of Note 3 to the consolidated financial statements. Remuneration of Board of Directors and Executive Committee 7 The compensation paid to the members of the Board of Directors and Executive Committee in- cludes, in particular, fees, wages, bonuses, and the allocation of options in the context of the share-based compensation from the employee participation programme. The variable remunera- tion is dependent on the business result and the fulfilment of key individual tasks. All amounts are gross and include social security contributions payable by employees. The following benefits were paid out in the 2014 and 2013 financial years: in CHF Basic annual fee Options (number) Options (fair value)5 Social benefits6 Total compensation 2014 Total compensation 20137 Board of Directors Leo Steiner Daniel Hirschi Chairman Member Hans Caspar von der Crone Member Kurt Haerri Roland Siegwart1 David Dean2 Melk M. Lehner3 Max Koch4 Member Member Member Member Member 240 000 97 500 107 500 100 000 97 500 67 500 n.s. 36 250 2 500 1 000 1 000 1 000 1 000 666 n.s. 416 73 775 29 510 29 510 29 510 29 510 19 654 n.s. 12 276 7 391 6 491 7 278 6 688 6 491 4 524 n.s. 2 361 321 166 133 501 144 288 136 198 133 501 91 678 n.s. 50 887 288 066 121 261 123 958 115 868 78 133 n.s. 45 795 121 261 Total Board of Directors 746 250 7 582 223 745 41 224 1 011 219 894 342 1 Member of the Board of Directors since 3 May 2013. 2 Member of the Board of Directors since 7 May 2014. 3 Member of the Board of Directors until 3 May 2013. 4 Member of the Board of Directors until 7 May 2014. 5 The fair value at the time of allocation is calculated using the enhanced American binomial evaluation. It amounted to CHF 29.51 per option in 2014 and CHF 17.27 per option in 2013. The exercise price was CHF 129.21 in 2014 and CHF 67.03 in 2013. 6 Contains mandator y employer contributions to social insurance. This amount entitles members of the Board of Directors to draw the maximum insured pension benefits in the future. 7 Restatement of prior-year figures due to option valuation at fair value at the time of allocation using the enhanced American binomial evaluation, and in compliance with ERCO. in CHF Fixed base salary2 Cash bonus3 Options (number) Options (fair value)4 Social benefits5 Total com- pensation 2014 Total compensation 20136 Executive Committee Beat Kälin1 Total other members of Executive Committee CEO 435 086 400 500 8 000 236 080 76 425 1 148 091 872 152 995 313 469 577 9 000 265 590 184 008 1 914 488 1 922 377 Total Executive Committee 1 430 399 870 077 17 000 501 670 260 433 3 062 579 2 794 529 1 Highest compensated member of Executive Committee. 2 Includes, in addition to the fixed base salar y, fixed company car allowances in accordance with the current expense regulations. Expense allowances are not included, as these do not count as compensation. 3 Bonus for 2014, to be paid in April 2015. 4 The fair value at the time of allocation is calculated using the enhanced American binomial evaluation. It amounted to CHF 29.51 per option in 2014 and CHF 17.27 per option in 2013. The exercise price was CHF 129.21 in 2014 and CHF 67.03 in 2013. 5 Contains mandator y employer contributions to social insurance of CHF 58 900 as well as contributions to occupational benefits (BVG). This amount entitles members of the Executive Committee to draw the maximum state-insured pension benefits in the future. 6 Restatement of prior-year figures due to option valuation at the time of allocation using the enhanced American binomial evaluation, and in compliance with ERCO. 147 KOMAX GROUP ANNUAL REPORT2014FINANCIAL REPORTFINANCIAL REPORTFINANCIAL STATEMENTS OF KOMAX HOLDING AG 8 Holdings of shares and options Assets in units 31.12.2014 31.12.2013 Shares Options Shares Options Board of Directors Leo Steiner Daniel Hirschi Hans Caspar von der Crone Kurt Haerri Roland Siegwart David Dean1 Max Koch2 Chairman 120 650 10 000 118 650 Member 2 200 Member 11 300 Member Member Member Member 25 0 740 n.s. 4 000 4 000 2 500 1 666 666 n.s. 1 200 10 300 25 0 n.s. 9 500 4 000 4 000 1 500 666 n.s. 232 401 4 000 Total Board of Directors 134 915 22 832 362 576 23 666 Executive Committee Beat Kälin Andreas Wolfisberg Matijas Meyer René Ronchetti Walter Nehls3 CEO CFO Head BU Wire Head BU Medtech Head BU Solar 7 300 500 0 50 n.s. 29 000 9 000 9 000 7 000 6 300 1 000 0 0 31 000 9 000 9 000 4 000 n.s. 1 500 11 799 Total Executive Committee 7 850 54 000 8 800 64 799 1 Member of the Board of Directors since 7 May 2014. 2 Member of the Board of Directors until 7 May 2014. 3 Member of the Executive Committee until 30 September 2014. No loans or credits were granted to members of the Board of Directors, members of the Execu- tive Committee, or related parties of these persons during the 2014 and 2013 financial years. There are no outstanding loans or credits to these persons. There are no other items requiring disclosure under sections 663b, 663bbis, and 663c of the Swiss Code of Obligations. 148 KOMAX GROUPANNUAL REPORT2014FINANCIAL REPORTFINANCIAL STATEMENTS OF KOMAX HOLDING AG This page has been intentionally left blank. Komax Group Companies e Direct and indirect equity participation as at 31 December 2014 Place Dierikon, Switzerland Dierikon, Switzerland La Chaux-de-Fonds, Switzerland Epinay-sur-Seine, France Nuremberg, Germany S. Domingos de Rana, Portugal Buffalo Grove, Illinois, USA York, Pennsylvania, USA Rockford, Illinois, USA Buffalo Grove, Illinois, USA São Paulo, Brazil Mohammédia, Morocco Shanghai, China Penang, Malaysia Tokyo, Japan Singapore Gurgaon, India Porta Westfalica, Germany Porta Westfalica, Germany El Paso, Texas, USA Colombo, Brazil Tunis, Tunisia Ergene / Tekirdag, Turkey Shanghai, China Grafenau, Germany Grafenau, Germany York, Pennsylvania, USA Purpose Participation Ordinary capital Sales Sales Sales Sales Sales Sales Sales Sales Group services and management R&D, engineering, production, marketing, sales R&D, engineering, production, marketing, sales Holding of equity interests R&D, engineering, production, marketing, sales Engineering, production, marketing, sales R&D, production, sales Engineering, production, sales R&D, production, marketing, sales Holding of equity interests R&D, engineering, production, marketing, sales Engineering, production, marketing, sales Engineering, production, marketing, sales Engineering, production, marketing, sales R&D, engineering, production, marketing, sales R&D, engineering, production, marketing, sales Administration R&D, engineering, production, marketing, sales R&D, engineering, production, marketing, sales 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 60% 60% 25% BRL 200 000 MAD 10 000 000 USD MYR 200 000 3 000 000 JPY 30 000 000 SGD 100 000 INR 10 000 000 CHF CHF CHF EUR EUR EUR USD USD USD USD EUR EUR USD BRL TND TRY CNY EUR EUR USD 100 000 5 000 000 13 250 000 1 500 000 400 000 1 500 000 8 160 000 150 10 000 1 000 000 4 000 000 1 764 700 1 000 000 362 500 366 000 265 500 3 275 902 25 000 5 700 000 560 025 Company Komax Management AG Komax AG Komax Systems LCF SA Komax France Sàrl. Komax Deutschland GmbH Komax Portuguesa S.A. Komax Holding Corp. Komax Solar Inc. Komax Systems Rockford Inc. Komax Corp. Komax Comercial do Brasil Ltda. Komax Maroc Sàrl. Komax Shanghai Co. Ltd. Komax Systems Malaysia Sdn. Bhd. Komax Japan K.K. Komax Singapore Pte. Ltd. Komax Automation India Pvt. Ltd. TSK Beteiligungs GmbH TSK Prüfsysteme GmbH TSK Innovations Co. TSK do Brasil Ltda. TSK Tunisia s.a.l. TSK Test Sistemleri San. Ltd. Sti. TSK Test Systems (Shanghai) Co. Ltd. SLE quality engineering Verwaltungs GmbH SLE quality engineering GmbH & Co. KG Xcell Automation Inc. Komax Holding AG Dierikon, Switzerland Purpose: Holding of equity interests Listed on the SIX Swiss Exchange Swiss security ID code: 001070215 Share capital: CHF 360 510.10 Market capitalization: CHF 520.9 million 150 KOMAX GROUPANNUAL REPORT2014FINANCIAL REPORTCORPORATE STRUCTURE Place Dierikon, Switzerland Dierikon, Switzerland La Chaux-de-Fonds, Switzerland Epinay-sur-Seine, France Nuremberg, Germany S. Domingos de Rana, Portugal Buffalo Grove, Illinois, USA York, Pennsylvania, USA Rockford, Illinois, USA Buffalo Grove, Illinois, USA São Paulo, Brazil Mohammédia, Morocco Shanghai, China Penang, Malaysia Tokyo, Japan Singapore Gurgaon, India Porta Westfalica, Germany Porta Westfalica, Germany El Paso, Texas, USA Colombo, Brazil Tunis, Tunisia Ergene / Tekirdag, Turkey Shanghai, China Grafenau, Germany Grafenau, Germany York, Pennsylvania, USA Company Komax Management AG Komax AG Komax Systems LCF SA Komax France Sàrl. Komax Deutschland GmbH Komax Portuguesa S.A. Komax Holding Corp. Komax Solar Inc. Komax Systems Rockford Inc. Komax Corp. Komax Comercial do Brasil Ltda. Komax Maroc Sàrl. Komax Shanghai Co. Ltd. Komax Systems Malaysia Sdn. Bhd. Komax Japan K.K. Komax Singapore Pte. Ltd. Komax Automation India Pvt. Ltd. TSK Beteiligungs GmbH TSK Prüfsysteme GmbH TSK Innovations Co. TSK do Brasil Ltda. TSK Tunisia s.a.l. TSK Test Sistemleri San. Ltd. Sti. TSK Test Systems (Shanghai) Co. Ltd. SLE quality engineering Verwaltungs GmbH SLE quality engineering GmbH & Co. KG Xcell Automation Inc. Komax Holding AG Dierikon, Switzerland Purpose: Holding of equity interests Listed on the SIX Swiss Exchange Swiss security ID code: 001070215 Share capital: CHF 360 510.10 Market capitalization: CHF 520.9 million e Direct and indirect equity participation as at 31 December 2014 Purpose Participation Ordinary capital Group services and management R&D, engineering, production, marketing, sales R&D, engineering, production, marketing, sales Sales Sales Sales Holding of equity interests R&D, engineering, production, marketing, sales Engineering, production, marketing, sales Sales Sales Sales R&D, production, sales Engineering, production, sales R&D, production, marketing, sales Sales Sales Holding of equity interests R&D, engineering, production, marketing, sales Engineering, production, marketing, sales Engineering, production, marketing, sales Engineering, production, marketing, sales R&D, engineering, production, marketing, sales R&D, engineering, production, marketing, sales Administration R&D, engineering, production, marketing, sales R&D, engineering, production, marketing, sales 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 60% 60% 25% CHF CHF CHF EUR EUR EUR USD USD USD USD 100 000 5 000 000 13 250 000 1 500 000 400 000 1 500 000 8 160 000 150 10 000 1 000 000 BRL 200 000 MAD 10 000 000 USD MYR 200 000 3 000 000 JPY 30 000 000 SGD 100 000 INR 10 000 000 EUR EUR USD BRL TND TRY CNY EUR EUR USD 4 000 000 1 764 700 1 000 000 362 500 366 000 265 500 3 275 902 25 000 5 700 000 560 025 151 KOMAX GROUP ANNUAL REPORT2014FINANCIAL REPORTFINANCIAL REPORTCORPORATE STRUCTURE FINANCI AL REPORT PROPOSAL FOR THE AP PRO PRI ATIO N O F P R O F I T e Proposal for the appropriation of profit The Board of Directors proposes the following appropriation of profit, payout from the capital contribution reserves (which is not subject to withholding tax) as well as a dividend: in CHF Balance carried forward from previous year Profit after taxes Transfer from capital contribution reserves 31.12.2014 31.12.2013 195 211 181 539 28 441 284 24 713 672 9 012 753 15 857 010 Total available for distribution 37 649 248 40 752 221 Payout from capital contribution reserves of CHF 2.50 per registered share (2013: CHF 4.50) which is not subject to withholding tax1 Dividend of CHF 2.50 gross per registered share (2013: CHF 0.00)1 Allocation to free reserves Profit carried forward Total 9 012 753 9 012 753 15 857 010 0 19 500 000 24 700 000 123 742 195 211 37 649 248 40 752 221 1 The stated amount covers the requirement for the payout from capital reser ves for all registered shares outstanding. Regis- tered shares which will be issued after 1 Januar y 2015 upon exercise of options are also entitled to the payout from capital reser ves. Therefore, the stated amount may be subject to changes. 152 KOMAX GROUPANNUAL REPORT2014 Report of the statutory auditor to the General Meeting of Komax Holding AG, Dierikon Report of the statutory auditor on the financial statements As statutory auditor, we have audited the accompanying financial statements of Komax Holding AG, which com- prise the balance sheet, income statement and notes (pages 143 to 152), for the year ended 31 December 2014. Board of Directors’ responsibility The Board of Directors is responsible for the preparation of the financial statements in accordance with the require- ments of Swiss law and the company’s articles of incorporation. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from ma- terial misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and per- form the audit to obtain reasonable assurance whether the financial statements are free from material misstate- ment. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the finan- cial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assess- ments, the auditor considers the internal control system relevant to the entity’s preparation of the financial state- ments 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 system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements for the year ended 31 December 2014 comply with Swiss law and the com- pany’s articles of incorporation. Report on other legal requirements We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our in- dependence. In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an in- ternal 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 and reserves complies with Swiss law and the company’s articles of incorporation. We recommend that the financial statements submitted to you be approved. PricewaterhouseCoopers AG Gerd Tritschler Audit expert Auditor in charge Basel, 9 March 2015 Sven Rumpel Audit expert 153 KOMAX GROUP ANNUAL REPORT2014FINANCIAL REPORTFINANCIAL REPORTFINANCIAL STATEMENTS OF KOMAX HOLDING AG FURTHER INFORMATIO N GLOSSARY Glossary Mechatronics The term mechatronics describes the synergistic interaction between the specialist disciplines of mechanical engineering, electrical engineering and computer engineering in the design and manufacture of industrial products and in process design. Stripping Process whereby a section of the insulating cover (or “insulation sleeve / sheath”) of an electrical conductor (wire or flex) is removed up to a specific required length to allow the wire to be con- nected to another component. Crimping Crimping is a bonding technique whereby two components are joined together by plastic de- formation. It thus constitutes an alternative to conventional bonding methods such as soldering or welding. Crimp connections are predominantly used in mass production settings with non- stop assembly of single strands. Crimp force monitoring Measurement and monitoring of crimping processes during wire connector crimping. Micrograph laboratory Micrographs are an important criterion for analysing the quality of crimp connections and ensur- ing traceability in production. Micrograph laboratories analyse and document the quality of crimp connections, using colour pictures. Twisting Process whereby wires are twisted against one another and wound together into a spiral. Twisted pairs are a low-cost way of preventing electromagnetic interference. Inhaler Device used in the treatment of asthma, bronchitis and other chronic or acute respiratory dis- eases. Pen Injection device, for example for administering insulin, characterized by its ease of use. Self-medication Self-treatment with medicines. 154 KOMAX GROUPANNUAL REPORT2014 Five-year overview FU RTHE R IN FORMATION FIVE-Y EAR OVERVIEW in TCHF Income statement Revenues1 Gross profit in % of revenues EBITD in % of revenues Operating profit (EBIT) in % of revenues Group profit after taxes from continuing operations in % of revenues Result from discontinued operations Group profit after taxes (EAT) in % of revenues Depreciation Research and development in % of revenues Balance sheet Non-current assets Current assets Shareholders’ equity2 in % of total assets Share capital Total liabilities in % of total assets Non-current financial loans Current financial loans Net cash (+) / net indebtedness (−) Total assets Cash flow statement Cash flow from operating activities Investments in non-current assets Free cash flow Employees Headcount (at year-end) Revenues per employee3 Gross value added per employee3 Net value added per employee3 Key data Komax registered share Shares4 Par value High Low Closing price on 31.12. 2014 20135 2012 2011 2010 323 959 196 634 60.7 52 577 16.2 43 297 13.4 35 064 10.8 −9 935 25 129 7.8 9 280 24 908 7.7 136 616 220 975 263 985 73.8 352 92 940 26.0 25 543 4 044 22 616 363 338 220 188 60.6 57 663 15.9 48 102 13.2 43 660 12.0 −15 917 27 743 7.6 9 561 25 776 7.1 145 562 242 490 284 168 73.2 361 101 882 26.3 23 670 0 29 211 388 052 30 295 15 566 14 412 288 216 170 188 59.0 22 189 7.7 13 617 4.7 n.s. n.s. n.s. 9 426 3.3 8 572 24 633 8.5 141 231 218 302 236 111 65.7 344 371 424 200 837 54.1 54 906 14.8 47 536 12.8 n.s. n.s. n.s. 39 280 10.6 7 370 23 526 6.3 112 454 248 994 246 994 68.3 340 340 172 178 559 52.5 36 443 10.7 29 110 8.6 n.s. n.s. n.s. 17 780 5.2 7 333 20 511 6.0 107 162 211 536 212 523 66.7 340 122 528 113 413 106 175 34.1 56 765 0 938 31.4 46 571 0 5 604 357 591 359 533 361 448 31 734 8 032 24 545 45 222 9 033 27 627 10 055 13 536 –61 No. 1 498 1 282 1 330 1 140 1 023 261 126 119 3 605 0.10 152.40 124.60 144.50 262 125 117 3 524 0.10 138.00 72.35 135.30 246 108 100 3 444 0.10 97.10 61.25 71.00 343 147 140 3 401 0.10 120.00 59.00 68.75 No. 1 000 CHF CHF CHF CHF 33.3 42 374 0 12 026 318 698 24 546 5 890 19 500 333 135 127 3 401 0.10 103.00 73.10 102.00 155 1 Revenues: net sales + other operating income. 2 Equity attributable to equity holders of the parent company. 3 Calculated on the basis of average headcount. 4 Changes resulting from the exercising of option rights. 5 Prior-year figures restated in accordance with Note 10 of the consolidated financial statements. KOMAX GROUP ANNUAL REPORT2014 Komax Holding AG Investor Relations and Corporate Communications Marco Knuchel Industriestrasse 6 6036 Dierikon Switzerland Phone +41 41 455 04 55 www.komaxgroup.com Financial calendar Annual General Meeting Dividend payment Half-year results 2015 First information on the year 2015 Annual media conference / analysts’ presentation Annual General Meeting 8 May 2015 15 May 2015 18 August 2015 19 January 2016 22 March 2016 12 May 2016 Forward-looking statements The present Annual Report contains forward-looking statements in relation to Komax which are based on current assumptions and expectations. Unforeseeable events and developments could cause actual results to differ materially from those anticipated. Examples include: changes in the economic and legal environment, the outcome of legal disputes, exchange rate fluctuations, unexpected market behaviour on the part of our competitors, negative publicity, and the departure of members of management. The forward-looking statements are pure assumptions, made on the basis of information that is currently available. This Annual Report is available in English and German. The original German version is binding. 156 KOMAX GROUPANNUAL REPORT2014 Imprint Published by: Komax Holding AG, Dierikon Concept and realization: Linkgroup, Zurich www.linkgroup.ch Publishing platform/PublishingSuite® Linkgroup, Zurich www.linkgroup.ch Steiner Communications, Zurich/Uitikon www.steinercom.ch Produced on a climate-neutral basis by Linkgroup 0349975 4 1 0 2 T R O P E R L A U N N A X A M O K Komax Holding AG Industriestrasse 6 6036 Dierikon Switzerland Phone +41 41 455 04 55 www.komaxgroup.com