7 1 0 2 T R O P E R L A U N N A X A M O K Annual Report 2017 E_00_GB_Komax_Umschlag_2017 _P_-gelöst.indd 3 13.03.18 09:57 The Komax Group is a pioneer as well as the market and technology leader in auto- mated wire processing solutions. It is aiming to consolidate this leading position and set the pace on the trends that are important today, such as electro-mobility and autonomous driving. To this end, it is channeling above-average investment into research and development. For the period 2017–2021, Komax has set itself ambitious targets – for growth, profitability, and return on capital. Through its business strategy, which is geared to long-term success, Komax aims to create sustainable value. This approach also benefits shareholders – in the form of an attractive dividend policy and corresponding stock market valuation. E_00_GB_Komax_Umschlag_2017 _P_-gelöst.indd 4 13.03.18 09:57 KEY FIGURES in TCHF Order intake 2 Gross profit in % of revenues Investments in non-current assets Free cash flow Net working capital 3 in % of revenues Total assets Net debt (–) / net cash (+) 2017 2016 1 +/− in % 21.5 3.4 –2.7 449 736 370 246 256 476 247 943 62.8 22 201 –7 582 63.3 22 827 441 –1 819.3 168 361 136 540 23.3 37.3 33.8 414 458 357 060 16.1 –10 544 17 008 –162.0 m Revenues in CHF (2016: 373m) 4 409 % 23.8 RONCE (2016: 26.6%) 1 Operating profit (EBIT) in TCHF 21% 14% 7% 60 000 50 000 40 000 30 000 20 000 10 000 13.4 13.2 15.8 14.1 13.5 7 9 2 3 4 2 0 1 8 4 8 3 9 9 4 4 2 4 5 5 9 6 0 5 5 2013 1 2014 1 2015 1 2016 1 2017 EBIT EBIT in % of revenues E_00_GB_Komax_Umschlag_2017 _P_-gelöst.indd 5 13.03.18 09:57 1 841 Headcount as at 31.12.2017 (31.12.2016: 1 633 employees) %2.0 Dividend yield as at 31.12.2017 (31.12.2016: 2.6%) % 59.2 Payout ratio (2016: 63.4%) 1 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly. The years 2013–2015 are reported according to IFRS. 2 Order intake of the Medtech business unit, which was sold in April 2016, is not included. 3 Net working capital: receivables + inventories ./. current liabilities. 4 Revenues of the Medtech business unit, which was sold in April 2016, are not included. Shareholders’ equity in TCHF 320 000 240 000 160 000 80 000 73.8 73.2 71.0 68.9 62.3 100% 75% 50% 25% 5 8 9 3 6 2 8 6 1 4 8 2 4 3 1 3 8 2 4 7 1 6 4 2 8 7 1 8 5 2 2013 1 2014 1 2015 1 2016 1 2017 Shareholders’ equity Shareholders’ equity in % of total assets Group profit after taxes (EAT) in TCHF 50 000 40 000 30 000 9.9 10.3 9.3 20 000 7.8 7.6 10 000 9 2 1 5 2 3 4 7 7 2 5 1 2 9 2 3 0 7 8 3 1 0 1 2 4 2013 1 2014 1 2015 1 2016 1 2017 EAT EAT in % of revenues R&D expenditure in TCHF 40 000 30 000 20 000 7.7 7.1 8.0 7.4 9.0 10 000 8 0 9 4 2 6 7 7 5 2 5 1 3 5 2 1 7 0 9 2 8 6 6 6 3 2013 1 2014 1 2015 1 2016 1 2017 R&D R&D in % of revenues 15% 12% 9% 6% 3% 12% 9% 6% 3% E_00_GB_Komax_Umschlag_2017 _P_-gelöst.indd 6 13.03.18 09:57 CORPORATE GOVERNANCE 47 COMPENSATION REPORT 59 ANNUAL REPORT 2017 CONTENTS FINANCIAL REPORT Consolidated financial statements 74 Financial statements of Komax Holding AG 118 Five year overview 129 ANNUAL REPORT Shareholders’ letter 02 Locations 04 Market and innovation 10 Interview with Chairman and CEO 18 Global megatrends 22 Business model and strategy 26 Board of Directors and Executive Committee 34 Sustainability and social responsibility 36 Information for investors 43 E_00_GB_Komax_Berichtsteil_2017 [P].indd 1 01 12.03.18 14:45 ANNUAL REPORT 2017 SHAREHOLDERS’ LETTER DEAR SHAREHOLDER In 2017, the Komax Group further expanded its position as market and technology leader. The financial year was cha racterized by strong growth in order intake and revenues, numerous successful product launches, two acquisitions, significant investment in research and development as well as digitalization, a number of pro jects to expand production capacity, and the breakthrough in the aerospace market segment. Komax considers itself to be on track with implemen tation of its 2017–2021 strategy, and is confident about business development in 2018. The sharp rise in both order intake and revenues underlines the point: Komax once again grew more strongly than the market in 2017. While revenues increased by 9.6% to CHF 408.5 million (2016: CHF 372.7 million), the order intake rose by as much as 21.5% to CHF 449.7 million (2016: CHF 370.2 million). The growth in revenues comprises internal growth (+6.0%) and acquisition-driven growth (+2.2%), as well as the positive foreign currency influence (+1.4%). In 2017, Komax 02 changed its accounting standard from IFRS to Swiss GAAP FER, and revised the prior-year figures accordingly. These prior-year figures now exclude both the revenues (CHF 19.1 million) and the order intake (CHF 9.3 million) of the Medtech business unit, which was sold in April 2016. Europe (+8.0%), Asia (+10.3%), and Africa (+47.1%) all contributed to the strong revenue growth. By contrast, Komax recorded a slight decline in revenues in North/South America (–2.1%). However, following a sharp decline in the first half of the year (–5.8%), North/South America then recov- ered in the second half, almost reaching the prior-year level. In the US in particular, investment activity picked up as the year progressed, with the result that the decline in revenues in the earlier part of the year was partly reversed. The new Alpha 530/550 machine platform for the core business of Komax (crimp to crimp) penetrated the market in all regions in 2017, making a significant contribution to growth. In addition, our customers responded to the various new solutions we launched in 2017 – which cover the entire value chain – very rapidly and positively. 26% rise in R&D expenditure In order to further expand its leading position over the next few years, Komax invested CHF 36.7 million in research and development (R&D). This equates to 9.0% of revenues (2016: 7.4%), and an increase of CHF 7.6 million on the previous year. The two acquisitions executed in 2017 (Laselec and Practical Solution) also contributed to this increase. Issues such as electro-mobility and autonomous driving give Komax further opportunities to develop unique selling features. Komax is keen to grasp these opportunities, which is why it intends to channel some 8%–9% of revenues into research and develop- ment over the coming years too. Despite this significant rise in proactive investment to ensure a sustainably successful future, Komax nonetheless generated operating profit (EBIT) of CHF 55.1 million, thereby essentially matching the prior-year figure (CHF 55.4 million). The additional R&D expenditure had the effect of reducing the EBIT margin by 1.8 percentage points. Yet despite this, Komax was still able to report an EBIT margin of 13.5% in 2017 (2016: 14.1%). Another drag on profitability was the strong increase in inventories to CHF 92.0 million (2016: CHF 70.4 million). Around half of this increase relates to machinery that is now either complete or nearly complete, but has yet to be converted into revenues. E_00_GB_Komax_Berichtsteil_2017 [P].indd 2 12.03.18 14:45 ANNUAL REPORT 2017 SHAREHOLDERS’ LETTER be ready for occupation in the second half of 2019, while the three other buildings are expected to be ready towards the end of 2018. High payout ratio The Board of Directors is proposing to the Annual General Meeting an unchanged distribution of CHF 6.50 per share. This represents a substantial payout ratio of 59.2%. Due to the strong result and the positive outlook, the proposed dis- tribution is at the upper end of the strategic bandwidth of 50%–60%, and this despite the significant investment in the expansion of capacity. The distribution comprises a dividend of CHF 5.00 and a distribution from capital contribution re- serves of CHF 1.50. The latter is tax-free for persons domi- ciled in Switzerland who hold shares as part of their private assets. The dividend yield (calculated on the basis of the 2017 year-end closing price of the Komax share) amounts to 2.0%. Outlook The Komax Group remains very well positioned, and considers itself to be on track with the implementation of its 2017–2021 strategy. For the 2018 financial year, Komax is confident of delivering a result that will support the attainment of its ambi- tious medium-term targets. Komax expects to grow more strongly than the market and to increase profitability slightly – despite continuing to invest heavily in research and develop- ment. Demand for automation solutions in the area of wire processing continues to rise. Thanks to its innovative strength and broad spectrum of solutions, Komax is ideally placed to seize the growth opportunities that present themselves. Yours sincerely, Dr. Beat Kälin Chairman of the Board of Directors 8 March 2018 Matijas Meyer CEO Long delivery times of customer-specific systems This delayed conversion into revenue is one of the reasons for the Group’s high book-to-bill ratio of 1.10 (2016: 0.99). An- other contributory factor was the large number of customer- specific systems ordered in 2017. Orders of this type tend to have longer delivery times than serial production machines. A good example of this is the large order received by Komax at the end of 2017 from the aerospace industry. The delivery of the corresponding systems to automate wire processing for this customer will extend over the years 2018 to 2020. This large order represents a milestone both for Komax and for the aerospace industry. For Komax, this is the first order worth millions from this market segment, while for the aerospace industry the degree of automation in wire processing that will be achieved through the ordered systems represents a pio- neering development. Financial base remains strong Group profit after taxes (EAT) rose by 8.8% to CHF 42.1 mil- lion (2016: CHF 38.7 million). This result was reduced by the sum of CHF 3.6 million as a result of a value adjustment on a loan to an associated company. By making this value adjustment, Komax has drawn a line under the participation that dates back to the Komax Solar era. Basic earnings per share increased to CHF 11.05 (2016: CHF 10.34). Komax continues to be very robustly financed. As at 31 December 2017, shareholders’ equity totaled CHF 258.2 million (2016: CHF 246.2 million) while the equity ratio stood at 62.3% (2016: 68.9%). Free cash flow amounted to CHF –7.6 million (2016: CHF 0.4 million), while net debt stood at CHF 10.5 mil- lion (2016: net cash of CHF 17.0 million). Investment in capacity expansion Both the two acquisitions made in 2017 and the investment in capacity expansion had an impact on free cash flow. Thanks to the takeover of the assets of Practical Solution (as per 3 March 2017), Komax has strengthened its position in the growing market in Asia, acquiring a third Asian development site in Singapore to join its existing sites in Shanghai and To- kyo. To strengthen its presence in the aerospace market seg- ment, Komax acquired Laselec SA as per 1 October 2017; this French company develops laser-supported solutions for the stripping and marking of wires and intelligent assembly boards for wire harness production. In order to deliver the growth it has planned for the coming years, Komax is investing in the expansion of its production capacity in a targeted way. In 2017, work began on a new building at the Group’s headquarters in Switzerland, and three further construction projects are planned for 2018 – two in Germany, and one in Hungary. In total, Komax will be in- vesting more than CHF 90 million in new infrastructure be- tween 2017 and 2019. The new building in Switzerland should E_00_GB_Komax_Berichtsteil_2017 [P].indd 3 03 12.03.18 14:45 ANNUAL REPORT 2017 LOCATIONS AROUND THE WORLD The Komax Group has a presence in all key production regions of its customers. Having had its finger on the pulse of industry for more than 40 years, Komax is able to develop appropriate, highvalue and innovative auto mation solutions for local requirements in global markets. production sites19 Komax produces in Europe, Asia, North and South America, and Africa, and provides sales and service support in more than 60 countries through its subsidiaries and independent agents. 04 E_00_GB_Komax_Berichtsteil_2017 [P].indd 4 12.03.18 14:45 ANNUAL REPORT 2017 LOCATIONS Komax production, sales and service Komax sales and service Sales representative Participation Headquarters: Komax Holding AG Dierikon, Switzerland countries with sales and service support60 Komax companies worldwide38 E_00_GB_Komax_Berichtsteil_2017 [P].indd 5 05 12.03.18 14:45 ANNUAL REPORT 2017 LOCATIONS GLOBAL PRODUCTION, LOCAL DISTRIBUTION AND SERVICE NETWORK Komax produces standardized products as well as customerspecific systems at 19 locations worldwide, and has a unique global distribution and service network. Customer proximity together with short re action and supply times are crucial to success. For that reason, Komax has consistently been applying the motto “global local” for many years. More than 1 800 employees currently work in the 38 companies of the Komax Group worldwide. The latest North American site is located in Irapuato in the Bajío region in the Federal State of Guanajuato in Mexico. 06 E_00_GB_Komax_Berichtsteil_2017 [P].indd 6 12.03.18 14:45 ANNUAL REPORT 2017 LOCATIONS Komax produces standardized (off-the-shelf) products for wire processing at locations in Switzerland, Germany, France, China, Japan, and Singapore. The test systems of the TSK brand are manufactured in Germany, Bulgaria, Turkey, the US, Mexico, Brazil, Tunisia, and China. Customer proximity is very important when it comes to ensuring short supply times for testing adapters. Customer-specific sys- tems are produced at sites in Switzerland, Germany, France, and Hungary. With production sites in all the most important market regions of the world, Komax is well positioned to meet the expectations of its global customers, who require suppliers to have a local presence. The extension building in Dierikon will have total floor space of more than 20 000 m2, spread across seven floors (lower ground floor, ground floor, five stories). Ongoing expansion of production capacity The demand for automation solutions continues to rise, which means Komax is coming up against its capacity limits at a number of locations. For this reason, Komax has consistently been investing in the expansion of its production capacity in recent years, such as in 2016 in the case of Komax SLE in Grafenau, Germany, and TSK in Ergene/Tekirdag, Turkey. In 2017, Komax opened a newly built plant in Irapuato, Mexico, which specializes in the production of TSK test systems. The site lies right at the heart of the Mexican automotive market. This region is home not only to a number of different automotive plants, but also to the major automotive suppliers – which means the customers of Komax. In order to further expand the production of TSK test systems in Europe too, Komax founded a com- pany in Bulgaria at the end of 2017. This is located in Yambol. Employees commenced production op- erations in December. E_00_GB_Komax_Berichtsteil_2017 [P].indd 7 07 12.03.18 14:46 ANNUAL REPORT 2017 LOCATIONS Investment of more than CHF 70 million at headquarters The very strong order situation means that Komax is also increasingly reaching the limits of its capacity in Switzerland, and already in 2016 rented a third location in central Switzerland (Küssnacht am Rigi). In order to optimize the collaboration of staff in Switzerland as well as improve logistics, Komax is invest- ing more than CHF 70 million in an extension building at its headquarters in Dierikon. The goal is for all employees in Switzerland to be working at this site one day. The ground-breaking ceremony for this major project took place in mid-August 2017. The new pro- duction and office building will be situated right next to the existing buildings. It is designed so that each floor can be used for both production and administration. Thanks to the high-density building design, Komax is using the available space optimally, and will therefore have a vertical factory that should be ready for occupation in the second half of 2019. Expansion in Germany and Hungary In addition to the extension building in Switzerland, Komax will be investing in three further locations in 2018: at Komax SLE in Grafenau, Germany, at Kabatec in Burghaun, Germany, and at Komax Thonauer in Budakeszi, Hungary. Komax SLE has already quadrupled its original production and office area with a new-build complet- ed in 2016, and is now about to embark on the next extension project. This will have the effect of more than doubling the existing floor space of some 5 000 m2. At its location in Grafenau, Komax produces customer-specific systems for the manufacture of data lines and antennae. The production of these systems takes up a large amount of space for a long period of time. At the same time, the demand for machinery made in Grafenau has risen significantly – and will rise further, making a new building essen- tial. The principal reason for the rise in demand is the fact that vehicles are becoming increasingly inte- grated, with driver assistance systems becoming widespread and autonomous driving on public roads not that far off in the future. Komax SLE in Grafenau is the center of compe- tence for infotainment and high-frequency technology in the auto- motive sector. 08 E_00_GB_Komax_Berichtsteil_2017 [P].indd 8 12.03.18 14:46 ANNUAL REPORT 2017 LOCATIONS At the end of 2018, Kabatec will have a new production and assembly plant as well as a separate three-stories office build- ing in Burghaun. As the demand for taping and assembly technology also continues to rise, Komax is also investing in a new-build for Kabatec, a company it acquired in 2016. The new site, which will likewise be located in Burghaun, offers Kabatec the option of a further expansion at a later date. In 2017, Komax amalgamat- ed its two companies active in the area of taping technology – Kabatec and Ondal Tape Processing – under the name Kabatec, and the employees of these two companies will now jointly occupy the new site. The rising demand for electric vehicles is an opportunity for Komax, as new solutions are required for the automated processing of high-voltage wires. Komax develops and produces these at its electro- mobility center of competence in Budakeszi, Hungary. Komax Thonauer brought the first machines to market in this field in 2017. Global production of hybrid and electric vehicles will rise significantly over the next few years. This in turn entails an increase in demand for solutions for the automatic processing of the wires in these vehicles. In order to meet this demand, Komax is erecting a new building in Buda- keszi. All three buildings in Germany and Hungary are expected to be ready for occupation at the end of 2018, and have an aggregated investment volume of more than CHF 20 million. Komax is close to its customers The Komax Group provides sales and service support in more than 60 countries through its subsidiaries and independent agents. Around 150 employees work in Komax’s global service organization. This gives Komax a unique global presence that enables it to provide efficient and competent support to its customers – both local and global – at all times. Customers can also submit their orders via the e-com- merce platform Komax Direct. Customer proximity as well as short reaction and supply times are crucial. 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 over 40 years’ experience. This global orientation reduces the impact of currency fluctuations. Moreover, Komax seeks to en- sure that costs and revenues are generated/incurred in the same currencies to the greatest extent possible. E_00_GB_Komax_Berichtsteil_2017 [P].indd 9 09 12.03.18 14:46 ANNUAL REPORT 2017 MARKET AND INNOVATION DYNAMIC MARKET Demand for automation solutions in the area of wire processing increased further in 2017. Komax benefited greatly from this development, recording a significant rise in both order intake and revenues. Momentum was particularly dynamic in the automo tive market segment, although the aerospace, telecom & datacom, and industrial market segments likewise contributed to growth. The automotive industry showed itself to be in robust shape once again in 2017. Global production of cars and light commercial vehicles increased by 2.2% to some 95 million vehicles (source: IHS Markit). According to IHS Markit, the largest automotive market remains China, which produced some 28 million vehicles last year. That was 1.8% more than in 2016. In comparison to 2016 (+15.4%), growth has slowed significantly. The European market is in good health, having produced 22.1 million vehicles (+3.5%). North America was one of the few regions to record no growth in 2017. The world’s third-largest market produced 17.2 million vehicles, or 3.9% less than in 2016. South America recorded growth of 19.7% (3.3 million vehicles produced). This is almost exclusively attributable to the production per formance of Brazil (+26.2%), which has returned to the path of growth (2016: –10.3%). For 2018, IHS Markit is forecasting a 1.8% increase in global vehicle production. Strong growth in order intake and sales The rise in vehicle production and the sharp increase in pressure to automate wire processing ensured a powerful rise in both the order intake and the revenues of Komax. While revenues rose by 9.6% to CHF 408.5 million, the order intake rose by as much as 21.5% to CHF 449.7 million. The aerospace, telecom & datacom, and industrial market segments likewise benefited from the ever-strengthening trend towards automation, making their own significant contribution to Komax’s growth. The book-to-bill ratio came in at a high 1.10, a significant rise on the prior-year figure of 0.99. One of the reasons for this rise is the significant number of customer-specific systems ordered in 2017. Orders of this type often have longer delivery times than serial production machines. A good example is the major order received from the aerospace industry for a number of systems for automated wire process- ing. The delivery dates for these systems range from 2018 to 2020. To ensure that the revenues from these systems are appropriately booked over the period in question, in keeping with their degree of completion, Komax applies the POC (percentage of completion) method to large orders of this kind. 10 E_00_GB_Komax_Berichtsteil_2017 [P].indd 10 12.03.18 14:46 ANNUAL REPORT 2017 MARKET AND INNOVATION Order intake and revenues in CHF million 500 400 300 200 100 7 . 9 4 4 5 . 8 0 4 2 . 0 7 3 7 . 2 7 3 2017 2016 1 Order intake Revenues Komax enjoyed stronger growth than the market as a whole. A contributory factor here was the signifi- cant growth rates seen in Europe, Asia and Africa. The strongest rise of all was recorded in Africa (+47.1%). Due to the increasing scarcity of personnel resources in Eastern Europe, a number of wire harness manufacturers have been strengthening their presence in North Africa. In North/South America, Komax recorded a slight decline in revenues (–2.1%). Following a sharp decline in the first half of the year, North/South America then recovered in the second half, almost matching the prior-year figure. In the US in particular, investment activity picked up as the year progressed, with the result that the decline in sales in the earlier part of the year was partly reversed. In South America, Brazil remains by far the most important market for Komax. The strong momentum in China meant that Komax sold more in Asia than in North/South America for the first time ever, to the point where Asia has now become the second-strongest region for the Group. Market observations suggest that this dynamism will persist in the individual regions, at least for the first half of 2018. Revenues by region 2017 2016 1 +/– in % in CHF million Switzerland Europe Asia/Pacific North/South America Africa Total 8.8 199.3 81.4 76.2 42.8 7.5 184.5 73.8 77.8 29.1 408.5 372.7 17.3 8.0 10.3 –2.1 47.1 9.6 The strong growth recorded in China is also reflected in the breakdown of revenues by currency. The proportion of revenues booked in CNY increased from 11.5% to 14.1%. The changes in the key curren- cies are set out on page 100. 11 12.03.18 14:46 1 Since the start of 2017, the con- solidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accord- ingly; order intake and revenues of the Medtech business unit, which was sold in April 2016, are not included. E_00_GB_Komax_Berichtsteil_2017 [P].indd 11 ANNUAL REPORT 2017 MARKET AND INNOVATION Market segments and service Komax focuses on four market segments. The core business is the automotive market segment, which accounts for more than 85% of revenues. Komax is continuously strengthening its presence in the oth- er three segments – aerospace, telecom & datacom, and industrial – and exploiting the synergy poten- tial with the core business. All segments benefit from the global service network of the Komax Group and from service offerings such as the Komax Academy. Automotive The automotive segment is by far the most important market segment for Komax. There are a number of reasons for this. In no other industry is the volume of wires to be processed so large; over the next five years, the volume of wires to be pro- cessed in the automotive industry is expected to rise by 2%–3% annually. In addition, the number of vehicles being produced continues to rise. In 2017, some 95 million vehicles were pro- duced. Although the automotive industry has no peer when it comes to the degree of standardization and automation in the production process, there is still plenty of potential for addition- al automation steps, as wire harnesses are still manufactured by hand to a large extent. Aerospace Issues such as safety, lightweight construction, and lower emissions have been at the forefront of developments in aerospace for many years. Komax can draw on these experiences when it comes to its core business too, as these issues are also gaining in importance in the automotive industry. Komax secured expertise in the aerospace area in a targeted way through its acquisition of Laselec in 2017 (see page 30). The degree of automation of wire processing in the aerospace industry is at a very low level. However, as the barriers to entry in this market are very high for suppliers, it has taken several years for Komax to record its first major success. The breakthrough was made in 2017. Following negotiations lasting many years, Komax suc- ceeded in winning new orders for several large-scale systems from two leading companies in this field. 12 E_00_GB_Komax_Berichtsteil_2017 [P].indd 12 12.03.18 14:46 ANNUAL REPORT 2017 MARKET AND INNOVATION Telecom & Datacom Large volume data transfer and the permanent networking of people have become standard practice in the telecom & datacom market seg- ment. The wiring used for these applications is being increasingly used in vehicles too, as cars become evermore interconnected, with compre- hensive information systems that will facilitate autonomous driving in fu- ture. Komax can therefore also use the experience gained from the tele- com & datacom market segment in the automotive segment. Industrial The processing of wires for industrial applications, such as electric control cabinets, for example, often involves working with very small batches. To ensure that automation is nevertheless a cost-efficient option for control cab- inet manufacturers, Komax has developed specific machines of the Zeta type. These machines manufacture all the various different wires that are needed automatically, ensuring that they are in the right sequence and of the right length. This has the effect of reducing manual labor to a minimum. Man- ual processes such as cutting, stripping, marking, and sleeve insertion are rendered obsolete. Automation of this kind has proven its worth in the area of wire processing in the automotive industry for many years, and is now in- creasingly finding its way into industrial applications. Service In all market segments, customers benefit from Komax’s global distribu- tion and service network. Among other things, the service offering in- cludes the Komax Academy, which provides a modular training program, including final certification. The training modules are tailored to custom- ers’ needs. Training programs are currently offered for all machines of- fered by Komax. These are broken down into the following modules: Ba- sic (operators), Advanced (machine setters and maintenance technicians), Specialist (shift managers, production heads, service technicians), and Expert (future instructors). Participants receive certification based on both theoretical and practical learning assessments – involving standard- ized global criteria with identical quality levels. Komax offers training courses in nine countries: Brazil, China, Germany, Mexico, Romania, Switzerland, Singapore, Tunisia, and the US. Training is available in Ger- man, English, Chinese, Spanish, and Portuguese. E_00_GB_Komax_Berichtsteil_2017 [P].indd 13 13 12.03.18 14:46 ANNUAL REPORT 2017 MARKET AND INNOVATION HIGH DEGREE OF INNOVATION In order to consolidate its market and technology leadership, Komax has been investing in research and development at an aboveaverage rate – and will do so even more in future. Global developments such as electromobility and autonomous driving give Komax the opportunity to demonstrate once again its exceptional ability to innovate. Over the last few years, Komax has invested some 7%–8% of Group revenues in research and devel- opment (R&D), and it will increase this figure to around 8%–9% over the next few years. In 2017, Komax invested 9.0% (2016: 7.4%) of Group revenues – or CHF 36.7 million – in research and development. That is some 26% more than the previous year. This figure includes expenditure on both internal devel- opment services (CHF 29.6 million) and the development services of third parties (CHF 7.1 million). R&D expenditure in CHF million 40 30 20 10 7.7 7.1 8.0 7.4 9.0 12% 9% 6% 3% 9 . 4 2 8 . 5 2 3 . 5 2 1 . 9 2 7 . 6 3 2013 1 2014 1 2015 1 2016 1 2017 R&D R&D in % of revenues 14 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly. The years 2013–2015 are reported according to IFRS. E_00_GB_Komax_Berichtsteil_2017 [P].indd 14 12.03.18 14:46 ANNUAL REPORT 2017 MARKET AND INNOVATION Electro-mobility and autonomous driving The automotive industry is currently in a state of flux, and the race to develop the “mobility of the future” is also having an impact on Komax. Issues such as electro-mobility and autonomous driving give Komax further opportunities to develop unique selling features. But if these opportunities are to be seized, the course needs to be set today. For this reason, Komax is increasing its investment in research and development. The technological transformation of the automotive industry means a rise in manufacturing demands, and the customers of Komax are confronted with a number of unusual challenges. In order to ensure the latest customer requirements are met in the best possible way, Komax often works with leading companies from the automotive industry on development projects. 366 staff employed in research and development and engineering As at 31 December 2017, the Komax Group employed a total of 200 employees (2016: 166) in the area of research and development. The majority (142 employees) work in Switzerland. In addition, Komax has development units in China, Germany, France, Japan, and Singapore. This innovative strength is additionally bolstered through 166 engineers (2016: 177) who make a key contribution through the de- velopment of customer-specific applications. The personnel costs of these employees are not con- tained in research and development expenditure if the staff in question have worked directly on custom- er projects. There are a number of reasons for the year-on-year increase of approximately 20% in headcount in the research and development area. In addition to the two acquisitions made in 2017 (Laselec and Practical Solution), this increase is also attributable to Komax’s determination to consist- ently seize the opportunities that present themselves in the current market environment. This increase in headcount should be viewed as a form of investment in a sustainably successful future. Multiple awards The innovative successes of Komax have convinced not only the company’s customers in 2017, but also a number of specialist juries. These juries have conferred upon Komax the Red Dot Design Award, the Productronica Innovation Award, and the Innovation Prize of the Chamber of Commerce and Indus- try of Central Switzerland (IHZ). Komax received the renowned Red Dot Design Award for its design of the Mira 230, a benchtop machine for the professional stripping of electrical wires. Another jury singled out the Sylade 7H laser wire stripper from Laselec (see page 17) for the Productronica Innovation Award. Two other innovations were also nominated: the Mira 340 developed by Komax Japan and the completely new operating software Komax HMI (see page 16). Furthermore, Komax was awarded the IHZ Innovation Prize for the first time since 1987. This was for its Alpha 530/550 machine platform (fully automatic crimping machine), the development of which required the deployment of around 50 employees over many years. E_00_GB_Komax_Berichtsteil_2017 [P].indd 15 15 12.03.18 14:46 ANNUAL REPORT 2017 MARKET AND INNOVATION New products Thanks to its targeted investment in research and development, Komax succeeds in bringing a variety of new products and product enhancements to market every year. 2017 was no different in this regard. Komax was able to demonstrate its technology leadership impressively, setting new standards with numerous market launches. Below we provide a selection of these new products. Komax HMI Fully automated, high-performance wire processing machines are complex things. In order to allow these machines to none- theless be operated in a way that is as straightforward, efficient and error-free as possible, Komax has spent many years devel- oping its operating software Komax HMI (Human Machine In- terface). Thanks to consistent logic and direct guidance, opera- tion of this software can be learned in a short space of time. It helps the user avoid errors during setup and changeover, as well as during the production process itself, and assists with the manufacture of products of reliably high quality. At the same time, the reject rate is minimized. Thanks to an open interface, Komax HMI can be linked to a manufacturing execution system such as Komax MES. This facilitates the transparent analysis of production data in real time – and at any time. All data is docu- mented and traceable without exception. Lambda 240 SP The significance of electro-mobility continues to rise, and this development will become even more accentuated over the next few years. Produced by Komax Thonauer in Hungary, the Lambda 240 SP is a compact, semi-automatic solu- tion for processing the shielded braid of high-voltage wires. Ultimate precision is called for if the shielded wires that are used in electrical vehicles are to avoid being damaged during processing. The cutting tube ensures that the inner in- sulation is not damaged during stripping, while the shielded braid is trimmed with the utmost precision. The reliable, controlled stripping of inner conductors and the removal of filling material is then executed by a freely configurable, rotating cutting unit. 16 E_00_GB_Komax_Berichtsteil_2017 [P].indd 16 12.03.18 14:46 ANNUAL REPORT 2017 MARKET AND INNOVATION Omega 740 / 750 For wire harness production with double-sided in- sertion of housings, Komax has developed fully au- tomatic block loader machines in the form of the Omega 740 (five process modules) and Omega 750 (eight process modules). As manual steps, i.e. in- terim storage of individual wires and transport, are no longer required with the Omega, savings are made in both time and logistics. Cutting, crimping, and loading of the terminals all take place on the same machine. The Omega series is the economi- cal answer to ongoing miniaturization and ever smaller production batches. Thanks to these ma- chines, a variety of stand-alone wire harnesses can be manufactured simultaneously. The automatic wire changer provides up to 36 different wires from the entire cross-section range without any need for changeovers. Sylade 7H The Sylade 7H from Laselec is the handheld version of the Sylade 7 benchtop laser wire stripper. The patented Sylade laser technology uses high-precision semiconductor lasers that rotate around the wire perfectly and cut the insula- tion to the programmed depth with great repetition accuracy. At the touch of a button, the laser beam can process round, non-round, shielded, and twisted- pair wires with even the thinnest of insulation. Sylade 7H is perfectly suited for processing the wires used in the aerospace industry, but it is also suitable for industrial applications – such as the processing of aluminum wires for cars where the sensitive braids must not be damaged under any circumstances. KTR 160 Kabatec has developed the KTR 160 taping machine for taping wire harnesses and modules, such as door wire har- nesses, battery wire harnesses, and roof wire harnesses. It is also well suited to the taping of high-voltage wires with large cross-sections. As cost considerations require wire harness manufacturers to develop their products ever more efficiently and with ever higher quality, requirements as re- gards the operability and process accuracy of the corre- sponding machinery are continually rising. With the KTR 160, Kabatec has developed a stable, agile machine that significantly increases efficiency in the manufacture of wire harnesses – thanks to the high-precision belt feed system, operational assistance in the form of an intuitive touch screen and an automatically closing protective hood. E_00_GB_Komax_Berichtsteil_2017 [P].indd 17 17 12.03.18 14:46 ANNUAL REPORT 2017 INTERVIEW 2017 financial year and 2017–2021 strategy INVESTING TO GENERATE FURTHER GROWTH Komax strengthened its market leadership in 2017, putting itself in a good position to exploit the growth opportunities offered by new technologies such as electromobility and autonomous driving. Beat Kälin, how would you assess the 2017 financial year? Beat Kälin: In 2017, Komax reached a number of important milestones on its way to fulfilling its ambitious medium- term targets for 2017–2021. These include the successful launch of numerous new products, the step-by-step integration of the companies acquired in 2016, the expan- sion of the Group’s market presence in Asia, the acquisition of Laselec, the booking of the first major order from the aerospace industry, and the start of work on the capacity expansion in Dierikon. So is Komax on track from a strategic perspective? Beat Kälin: The automotive market, which is by far the most important market for us, is going through a fascinating period right now. Themes such as electro-mobility and auto- nomous driving will change the industry. As market and technology leader, we have the opportunity to actively shape this transformation and further strengthen our leading position. In 2017, we took a number of steps to achieve this and thus lay the groundwork for lasting success. Matijas Meyer, what have you done specifically? Matijas Meyer: New technologies bring new challenges. If we are to meet these challenges, it is crucial that we get to grips with them at an early stage. This is the only way of ensuring that we can bring new solutions to market. A good example of this is electro-mobility. True, only just over 1% Beat Kälin, Chairman 18 E_00_GB_Komax_Berichtsteil_2017 [P].indd 18 12.03.18 14:46 ANNUAL REPORT 2017 INTERVIEW of the 95 million vehicles produced globally in 2017 had electric engines. So the number of high-voltage wires requir- ing incorporation into car engines is still relatively low. But we have nonetheless been preoccupied with this theme for quite a while now, and were therefore able to bring a number of convincing solutions for the processing and test- ing of high-voltage wires to the market in 2017. Thanks to the high-voltage center of competence we established in Hungary last year, we are well positioned to deal with the eventuality of electric vehicle production rising dramatically over the next few years. What kind of potential do you see in autonomous driving? Matijas Meyer: Autonomous driving essentially offers us far greater opportunities than electro-mobility. Because the former phenomenon requires a very large number of sensors, which accordingly means additional wires to be processed. What’s more, the very highest quality – to the point of zero tolerance in the error rate – is called for, as is the seamless traceability of the individual process stages. This by definition requires the deployment of auto- mation solutions, which is very positive for us. Thanks to our targeted investment in research and development, I am confident that we are very well equipped to meet the challenges of autonomous driving. “ As market and techno logy leader, we have the opportunity to actively shape the transformation and further strengthen our leading position.” Beat Kälin You spent a record CHF 36.7 million on research and development in 2017. Was that a strategic decision? Beat Kälin: Due to the developments mentioned earlier, the automotive industry is currently in a state of upheaval. In addition, there are a number of trends unfolding that will keep ratcheting up the pressure on manufacturers to automate wire processing. So the companies that want to be successful in the future need to be investing now – because the next few years will decide who has the edge in these new technologies. Obviously we are determined to remain the number 1 and increase our advantage even Matijas Meyer, CEO further. It was therefore a strategically important decision to increase our investment in research and development to 8%–9% of revenues. But that will squeeze margins ... Matijas Meyer: In the short term, this higher expenditure will mean slightly less strong growth in EBIT. But we are ab- solutely convinced that this investment will pay off in the medium to long-term, thus enabling us to achieve our ambi- tious 2021 EBIT target of CHF 80–100 million. What does that mean for 2018? Matijas Meyer: We are continually working to improve our operational excellence and thereby increase profitability. For 2018, we are anticipating an increase in EBIT in absolute figures. However, given the very high sums we are continuing to channel into research and development and the ever-greater proportion of customer-specific systems, there will be limits to our ability to increase the EBIT margin this year. Are these customer-specific systems comparable to the systems business of the Medtech business unit, which you divested back in 2016? Beat Kälin: Our first response to new challenges in the market is typically to develop customer-specific solutions. Only once demand has reached a certain critical size do we start the cost-intensive process of developing a serial production machine. We therefore aim to develop a serial production machine or at least a modular solution once it E_00_GB_Komax_Berichtsteil_2017 [P].indd 19 19 12.03.18 14:46 ANNUAL REPORT 2017 INTERVIEW has become clear that demand is sufficiently great, as well as standardized. At the moment, for example, we are proceeding with the development of the first solutions for the processing of high-voltage wires. However, these customer-specific systems are not comparable to the high-risk systems business, as the corresponding orders are significantly smaller than they were for Medtech. More- over, the orders we receive now always relate to our core area, in other words, the automation of wire processing. How did the business with serial production machines develop in 2017? Matijas Meyer: Our new Alpha 530/550 machine platform has enabled us to successfully penetrate the market in our core business (crimp to crimp) in all regions. The new machines are proving very popular with our customers, and have replaced existing products much more quickly than we had expected. In 2017, we launched a number of new products along the entire value chain. This investment of personnel and financial resources has been re- warded: The market has received our new solutions very quickly and positively. As is customary after all new product launches, we will now set about optimizing our production processes continuously so that we can gradually improve profitability. “ The market has received our new solutions very quickly and positively.” Matijas Meyer In 2017 you received your first major order from the aerospace industry. Did the client in question order serial production machines or customer-specific systems? Matijas Meyer: Basically these are customer-specific systems, though they are based on the serial production ma- chines of the Zeta type. The receipt of this seven-figure order in 2017 was a milestone that we have been working for years to achieve. This project is only implementable because we can bring together experts from different fields who possess great expertise and offer outstanding so- lutions for individual process stages. These also include the laser applications of our subsidiary Laselec. Thanks to our systems, the automation of wire processing in the aero- 20 space industry will reach unprecedented levels. That’s why we are confident of being able to win further customers and generate further orders in this market segment over the next few years. Are large orders of this kind the reason why the order intake has risen more strongly than revenues? Matijas Meyer: Customer-specific systems tend to have longer delivery times, which is one of the reasons for the high current book-to-bill ratio of 1.10. Another reason is that some CHF 10 million worth of machinery is already complete or nearly complete, but has not yet fed through into revenue. That makes it all the more impressive that we have still been able to boost revenues by 9.6%. Of that figure, the lion’s share – or 6.0% – was organic. I was particularly pleased to see the order intake increase by 21.5% to some CHF 450 million. This rise shows that we were able to increase our market share, and that we are on course to achieve our ambitious targets for 2017–2021. This is all down to the work of more than 1 800 Komax employees, who played such a large part in our ability to excite our cus- tomers time and again with new solutions in 2017. So many thanks for this outstanding commitment! Komax generated higher Group profit after taxes (EAT) in 2017 than it did in 2016. So why have you not increased the dividend? Beat Kälin: In our 2017–2021 strategy, we specified that the payout ratio would amount to 50%–60% of EAT. With the distribution proposed by the Board of Directors, we are paying out more than 59%, right at the top end of that bandwidth. In addition, you should not forget that we will be investing more than CHF 90 million in infrastructure pro- jects over the period 2017–2020. So it’s actually a very posi- tive sign that we can distribute more than 59% of profit to our shareholders, despite this high level of investment. Is that investment a response to capacity issues? Matijas Meyer: There are a number of different reasons for the various construction projects. At our headquarters in Switzerland, work began in August 2017 on a large new production and office building encompassing some 20 000 m2. The goal is for all employees in Switzerland – who are currently spread across three different sites – to be based at our headquarters one day. The new building is ex- pected to be ready for occupation in the second half of 2019. As I mentioned earlier, we are currently in the process of buil ding up our high-voltage center of competence in Hungary. In order to meet the rising demand for high-voltage solutions in the future, we need significantly more capacity. As things stand, we are expecting the new building to be completed by the end of 2018. E_00_GB_Komax_Berichtsteil_2017 [P].indd 20 12.03.18 14:46 ANNUAL REPORT 2017 INTERVIEW exception. So in the event of a vehicle model being subject to a general recall due to an error in its wire processing, this traceability is a huge benefit. Because this means the prob lem can be better contained, which in turn means a significant reduction in the number of vehicles that have to be recalled. We are currently working on a number of different digitalization themes that will help us to offer our customers greater added value over the coming years. What are the big themes on your agenda in 2018? Matijas Meyer: As mentioned earlier, we are investing strongly in research and development, as well as in new pro- duction sites. Adhering to our budgets and achieving our targets will require us to maintain a sharp focus here. The optimization of our processes is an ongoing theme. We have had to work on that continuously as a result of the huge growth – both organic and acquisition-based – achieved over the last few years. Process optimization is a crucial aspect for us if we are to continue to increase pro- fitability. The integration of the companies and employees acquired in 2017 is another area of focus. There are numerous other themes that I could mention too. But in summary, I can confirm that I am very confident that we will make further progress in the implementation of our 2017–2021 strategy in 2018 too. “ Our success is all down to the work of our more than 1 800 employees, who played such a large part in our ability to excite our customers time and again with new solutions in 2017.” Matijas Meyer And why are you building in Germany? Matijas Meyer: Komax SLE in Grafenau is our center of com- petence for infotainment and high-frequency technology in the automotive sector. The customer-specific systems we build there will be increasingly in demand, particularly in connection with the theme of autonomous driving. We will be more than doubling the existing space with an ex- tension that will provide enough room to build all the systems we require. In addition, the demand for taping and as- sembly technology is also on the rise. We are therefore con- structing a new building for Kabatec in Burghaun. We are planning to complete both of these construction projects by the end of 2018. In addition to your building projects, you are also in- vesting in digitalization. Which has the greater priority? Beat Kälin: We need both! In 2017, we introduced a new ERP system in Switzerland and in Singapore, which will be important if we are to simplify processes and increase efficiency. However, we have a fair bit of homework to com- plete before we reach that stage, which is not uncommon for a large ERP project of this kind. We will be introducing ERP at other locations over the next few years. Digital transformation is essentially a key strategic theme for Komax. It encompasses not just internal digitalization, but also supporting customers during this transformation. How do you support your customers? Matijas Meyer: By developing solutions that enable them to implement industry 4.0 in their production processes. For example, our operating software Komax HMI, which we launched in 2017, allows our customers to network their machines with a manufacturing execution system. This means they can analyze their production data in real time, at any time. All data is documented and therefore traceable without E_00_GB_Komax_Berichtsteil_2017 [P].indd 21 21 12.03.18 14:46 ANNUAL REPORT 2017 GLOBAL MEGATRENDS GLOBAL MEGATRENDS The demand for automation solutions is rising con tinuously and accelerating the growth of Komax. Global megatrends such as environmental awareness, safety, and integrated and affordable vehicles are major drivers of this phenomenon. Each of these trends is resulting in more and new types of wire being installed into vehicles, and automated processing is increasingly required for reasons of quality, efficiency, complexity, cost, miniaturization, and traceability. Global megatrends support Komax’s business in the long term. These include growing environmental awareness on the part of consumers and the associated goal of emission-free vehicles. A key role will be played in this respect by electro-mobility. Another megatrend is increasing interconnectedness. In- fotainment systems in vehicles are becoming increasingly comprehensive and complex, while integrat- ed information systems are laying the basis for the future: autonomous driving. The need for greater road traffic safety represents a further megatrend. Here the emphasis is now no longer just on protec- tion in the event of an accident, but above all on avoiding accidents. As a consequence, the number of sensors in vehicles will continue to rise. Finally, a global megatrend towards affordable vehicles is emerging. This requires greater cost efficiency in manufacturing, which in turn is increasing the pres- sure to automate wire processing further. More wires per vehicle Together, these megatrends are driving the ongoing electrification of vehicles. Accordingly, the number of wires that need to be assembled per vehicle is on the rise. The electrical systems in today’s compact passenger cars comprise as many as 1 300 wires, 2 300 crimp contacts, and 250 plug housings. Full- size vehicles require as many as 1 800 wires, 3 200 crimp contacts, and 300 plug housings. Innovations 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 wires and crimp contacts. This trend, which has been per- ceptible for a number of years now, will accelerate and strengthen further in the future. 22 E_00_GB_Komax_Berichtsteil_2017 [P].indd 22 12.03.18 14:46 ANNUAL REPORT 2017 GLOBAL MEGATRENDS Pressure for automation A large part of the wire harness manufacturing process is still done by hand, but rising wage costs and an increasing scarcity of personnel resources are driving the trend towards automation solutions. As systems become increasingly complex, the potential sources of error in manual wire processing and assembly become more numerous. Manual processes are becoming less capable of meeting these demands. Furthermore, the end-to-end traceability of the individual process steps cannot be ensured with the same degree of reliability that comes with automation solutions. For example, in the absence of automation, the retrospective search for a source of error is more complicated. Intelligent automation solutions, quality assurance tools, and systems for testing harnesses before they are installed in vehi- cles help to guarantee and increase the efficiency and reliability of the production process. This has been recognized by automotive manufacturers, who are therefore increasingly calling on their suppliers to further automate their production processes. Increasing complexity and miniaturization The automotive 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 confronting direct suppliers to the automotive industry, but also upstream suppliers and business partners. Furthermore, the individual subsystems and assemblies, particularly harnesses, are becoming ever more complex. At the same time, the process of miniaturiza- tion is being driven forward. In order to reduce manufacturing costs, weight, and fuel consumption, the individual components to be processed are becoming ever smaller, which makes manual processing more difficult or even impossible. Advantages for Komax In recent years, Komax has benefited from the overall boom in the automotive industry. Thanks to its global presence, it has not only been able to balance out differences in regional cycles, it has also grown much more strongly than the automotive industry. Forecasts for global automotive demand indi- cate average annual growth of around 2% to 3% over the next few years. However, the demand for automation solutions for wire processing is only partly determined by the number of vehicles produced and sold. For Komax, the factors referred to above – the increasing complexity of electrical systems, the ongoing process of miniaturization, and greater quality and efficiency demands on the part of automo- tive manufacturers – are just as important as drivers of automation solutions. Moreover, due to the emergence of new types of wire (e.g. for infotainment systems or electrical vehicles) and new materials (e.g. aluminum), Komax is being presented with the opportunity to develop additional unique selling features and therefore generate further growth. When viewed together, these factors give Komax addi- tional growth potential of some 2% to 3% annually. 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 vehicles work perfectly. This is understandable, as defective wire harnesses require considerable time and expense – at the cost of productivity and profitability – to repair or replace once they have been fitted in a vehicle. Moreover, functional defects in the electronic systems of delivered vehicles can result in serious repu- tational damage. Komax possesses a broad spectrum of solutions that provides its customers with convincing an- swers to the current global megatrends. Komax is also seeing a number of trends from the automotive industry gain momentum in other market segments in which it is active. Thanks to its expertise and the market proximity of its product range, Komax is in a very good position to generate growth outside the automotive industry, too. E_00_GB_Komax_Berichtsteil_2017 [P].indd 23 23 12.03.18 14:46 ANNUAL REPORT 2017 GLOBAL MEGATRENDS GLOBAL MEGATRENDS Safety Environmental awareness Affordable vehicles Integrated vehicles GROWTH DRIVERS Number of wires Complexity of vehicle power supply systems Quality and efficiency demands Miniaturization New types of wires and new materials ADVANTAGES OF KOMAX Technology leader Broadest solution portfolio High degree of innovation Global distribu- tion and service network 24 E_00_GB_Komax_Berichtsteil_2017 [P].indd 24 12.03.18 14:46 ANNUAL REPORT 2017 GLOBAL MEGATRENDS NUMBER OF VEHICLES PRODUCED WORLDWIDE 1 per year 39 million 49 million 58 million 75 million 95 million 1980 1990 2000 2010 2017 1 Passenger cars and light commercial vehicles (source: IHS Markit). INCREASING ELECTRIFICATION Compact 1300 2 300 250 Wires Crimp contacts Plug housings Wire length (total) Full-size 1800 3 200 350 2 000 m 4 000 m 25 12.03.18 14:46 E_00_GB_Komax_Berichtsteil_2017 [P].indd 25 ANNUAL REPORT 2017 BUSINESS MODEL AND STRATEGY BUSINESS MODEL AND STRATEGY Developing solutions for automated wire processing in four market segments is Komax’s strength. Here Komax is a pioneer, as well as a market and technology leader, and is looking to further consolidate this leading global position. To this end, it pursues four key strategic priorities. Above average profitability and further sustainable growth are important objectives here. This goes hand in hand with environmentally conscious, socially aware, and responsible conduct towards all stakeholder groups. Komax specializes in innovative solutions for all wire processing applications and for the testing of wire harnesses. The emphasis is on processes such as measuring, cutting, stripping, crimping, taping wires, block loading, and testing wire harnesses. Komax offers its customers fully automated and semi-auto- mated serial production models as well as customer-specific systems (for all degrees of automation and individualization), which optimize processes while at the same time increasing productivity. These are supplemented by an extensive range of quality assurance modules, testing devices and networking solutions for the reliable and efficient production of wire harnesses. Solutions that increase the availa- bility of installed systems and test their productivity also form part of the range, as does intelligent software. All of this gives Komax’s customers the ideal armory with which to consolidate and increase their competitive advantage. 26 E_00_GB_Komax_Berichtsteil_2017 [P].indd 26 12.03.18 14:46 ANNUAL REPORT 2017 BUSINESS MODEL AND STRATEGY Four key strategic priorities Komax has more than 40 years’ experience in the development of customer-oriented solutions for wire processing. The company is both the technology and market leader in its field, with a market share more than twice that of its nearest competitor. In order to further strengthen this global leadership position, Komax pursues a growth strategy that involves four key priorities: Solutions along the value chain Innovative production concepts Increase in global reach Development of non- automotive markets Solutions along the value chain Thanks to many decades of experience and its proximity to its customers, Komax understands their needs and offers them a comprehensive range of innovative and reliable automation solutions. The of- fering covers the most capital-intensive and critical processes of customer value chains – from mea- suring and cutting wires to the taping process and finally the testing of the completed wire harness (see pages 32 and 33). Komax relies not only on its proprietary developments, but also on the expertise of established partners. As a result, customers receive solutions for the key wire processing applications from a single source. This approach is unique in the world. Thanks to a number of acquisitions in recent years, Komax has succeeded in closing the existing gaps in its spectrum of products and solutions, with the result that it can now offer its customers end-to-end solutions. To enable its customers to continue to increase productivity in the future, Komax works with a number of partners in the fields of logistics and software, among others. Komax strives to network and manage the individual processes in the value chain, such as through the Komax MES (Manufacturing Execution System), a form of production control software for the wire processing industry 4.0 launched in collaboration with iTAC Software. Innovative production concepts For a market leader like Komax, innovations are of maximum strategic importance. Komax has therefore been investing in innovations to optimize its existing product range, as well as in new developments, for many years (see pages 16 and 17). Every year, Komax channels some 8%–9% of revenues into re- search and development. All activities are systematically geared to customer needs and expectations. That is why Komax typically employs interdisciplinary teams – consisting of marketing experts, product managers and development engineers – on innovation projects. For example, skillfully combining differ- ent processes and technologies reduces interfaces and lead times. At the same time, processing reli- ability is increased. E_00_GB_Komax_Berichtsteil_2017 [P].indd 27 27 12.03.18 14:46 ANNUAL REPORT 2017 BUSINESS MODEL AND STRATEGY Increase in global reach Komax has 19 production sites located in Europe, Asia, North and South America, and Africa. The company provides sales and service support in more than 60 countries through its subsidi- aries and independent agents, which gives it a unique global presence. It has set itself the goal of being close to its customers so that it can provide outstanding service combined with the shortest possible response and supply times. % R+D expenditure accounts for % of revenues8 –9 To remain competitive, Komax customers need to be flexible and select the optimal economic locations for their production processes – in other words, set up operations wherever their end customers are. This is also true for Komax. To ensure it stays close to its customers, including when these customers choose to relocate their operations, Komax likewise has to show flexibility. For this reason, Komax seeks to expand its global reach in a targeted way, be it through acquisitions – as described in the section entitled “Selective acquisitions” – or through the establishment of new sites (see from page 6). Komax’s strong global presence is also reflected in the percentage breakdown of its revenues by region. The individual regions – Europe (in- cluding Africa), Asia/Pacific, and North/South America – each generated between 19% and 61% of Komax revenues in 2017. Development of non-automotive markets Komax now generates more than 85% of its revenues through customers in the automotive industry. Market estimates indicate that some 60% of globally processed wiring is used in automotive manufac- turing. This high proportion is explained by the fact that the automotive industry 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 are key arguments in favor of auto- mated solutions. In addition to the automotive industry, there are countless other markets in which numerous wires are processed. Komax focuses predominantly on three additional market segments (see pages 12 and 13), all of which have synergy potential with the core business: aerospace, telecommunications, and data communication (telecom & datacom) and industrial applications (industrial). These areas currently account for a relatively minor share of sales. However, Komax is seeking to increase penetration in these markets, as they offer attractive growth opportunities in the longer term. If these opportunities are to be harnessed, targeted investment in marketing and sales will continue to be essential. The success of this approach over many years is bearing fruit, as is evident from the fact that a first major order was received in 2017 from the aerospace industry, for example. Thanks to the large-scale systems that Komax will deliver to the customer between 2018 and 2020, the automation of wire processing will be raised to a level that has never been seen before in the aerospace industry. The megatrends evident in the automotive sector are influencing these three market segments in different ways. However, the potential for synergies with the existing core business in the automotive industry is considerable. The three new market segments are already addressing issues such as safety, lightweight construction, multimedia, small-batch production, and integrated production/Industry 4.0, and in some cases have been doing so for years. Komax draws on these experiences when developing automation solutions for the automotive industry. Conversely, the aerospace, telecom & datacom and industrial market segments benefit from Komax’s great expertise in the core business: in particular, Komax can adapt existing automotive solutions and, where necessary, specifically develop new prod- ucts for particular segments. 28 E_00_GB_Komax_Berichtsteil_2017 [P].indd 28 12.03.18 14:46 ANNUAL REPORT 2017 BUSINESS MODEL AND STRATEGY Selective acquisitions The primary goal of the Komax Group is to grow organically. In addition, potential candidates and op- portunities for acquisitions are carefully examined as part of a clearly defined acquisition strategy that revolves around its four key strategic priorities. Komax intends to strengthen its leading market position with further acquisitions and participations. The acquisitions made in recent years have played a significant role in the implementation of the strategic priorities. Examples of such acquisitions include the TSK Group (2012; solutions along the value chain), SLE quality engineering (2014; innovative production concepts) and Thonauer Group (2016; increase in global reach). In the reporting year, Komax acquired the assets of Practical Solution (incl. some 30 employees working at the development and production site in Singapore and the distri- bution site in Shanghai), as well as the French company Laselec (see page 30). Practical Solution strengthens Komax’s position in the growth market that is Asia, while Laselec opens up the aerospace market segment for Komax as well as facilitating the further development of non-automotive markets. Brands of Komax Group The acquisitions of recent years mean that the Komax Group is present in the market with four further brands in addition to the Komax brand itself. Komax manufactures innovative serial production machines as well as customer-specific systems for automated wire processing. These are used for the automation of various processes, such as cutting, stripping, labelling, crimping, and twisting, but they can also be used for the fully automatic production of entire wire harnesses. Komax’s customers are active primarily in the automotive, aerospace, telecom & datacom, and industrial market segments. When it was founded by Max Koch in 1975, Komax was just a three-man operation. But even in these very early days, the company was noted for its pioneering spirit. It launched the first cutting and stripping machine with a stepping motor drive after just one year, and would go on to develop the world’s first microprocessor-controlled fully automatic crimping machine in 1982. Expansion abroad likewise started at an early stage – with the foundation of Komax USA in 1981. Komax’s headquarters and largest production site are located in Dierikon, Switzerland. Outside of Europe, Komax has production sites in Asia. TSK develops and sells test systems and adaptation units for testing wire harnesses and further electri- cal-electronic assemblies and components. TSK products are used predominantly in the automotive supplier industry and wherever the functionality of complex assemblies needs to be tested in order to recognize errors within the manufacturing process at an early stage. TSK has decades of experience in quality assurance in wire assembly. The company was founded in 1983 by Helmut Kahl as Test Systeme Kahl, or TSK for short, and has its headquarters in Porta West- falica, Germany. The TSK Group manufactures in Europe, North and South America, Africa, and Asia. It has been part of the Komax Group since August 2012. E_00_GB_Komax_Berichtsteil_2017 [P].indd 29 29 12.03.18 14:46 ANNUAL REPORT 2017 BUSINESS MODEL AND STRATEGY Thonauer was founded in 1988 by Friedrich Thonauer in Austria, and is headquartered in Vienna. In addition to Austria, Thonauer is also represented in Romania, the Czech Republic, Hungary, and Slova- kia. The main focus of its activities is the sale of machines for wire processing, particularly for the auto- motive, electric systems, and electronics industries. The Thonauer Group employs around 70 people and has been part of Komax since 2016. Prior to this acquisition, the two companies had been working together very successfully as partners for de- cades. Thonauer has been Komax’s representative in seven countries in Central and Eastern Europe right from the start. Kabatec is a global market leader in the field of taping technology systems. This leading technology company, which is headquartered in Burghaun, Germany, specializes in taping, bundling, and fixing of holding parts to wire harnesses. Founded in 2008, its core expertise involves the development and production of semi-automatic and fully automatic machines for processing adhesive and non-adhesive tapes. It mainly serves customers in the automotive supply industry, offering them both serial production machines and customized sys- tems. Kabatec employs around 70 people and has been part of Komax since July 2016. The two compa- nies had enjoyed a strategic partnership for several years prior to that. Headquartered in Toulouse (France), Laselec develops laser-based solutions for stripping and marking wires as well as intelligent assembly boards for wire harness manufacturing. These are used mainly in the aerospace industry. The company was founded in 2001 and has a subsidiary in the US, among others. Laselec is one of the leading companies in the world for the development and production of serial production machines and customized solutions for laser-based wire processing. The company meets all significant international quality standards in the aviation industry and counts renowned aircraft manufacturers among its customers. Laselec employs around 70 people and has been part of Komax since October 2017. Komax ac- quired a 20% stake in Laselec back in 2015, and the two companies have been working successfully together on various projects since then. Thanks to this partnership, Laselec’s solutions have increasing- ly found their way into the automotive industry. 30 E_00_GB_Komax_Berichtsteil_2017 [P].indd 30 12.03.18 14:46 ANNUAL REPORT 2017 BUSINESS MODEL AND STRATEGY Ambitious targets for 2017–2021 The Komax Group is distinguished by its very robust equity base and strong profitability. This solid foundation enables Komax to systematically pursue opportunities to develop the company further. As an additional benefit, it offers security in challenging times. For the strategy period 2017–2021, Komax has set itself ambitious targets for growth, profitability, and return on capital. These are designed to consolidate its leading position and increase the value of the company further via profitable growth. 500– 600 80– 100 Avg. 25 50– 60 Revenues 2021 in CHF million EBIT 2021 in CHF million RONCE (return on net capital employed) in % Payout ratio in % of EAT Through a business strategy that is geared to long-term success, Komax is seeking to create sustain- able value that will benefit investors, too. It has set itself the goal of distributing 50%–60% of Group profit after taxes (EAT) to its shareholders every year until 2021. The targeted revenues figure of CHF 500–600 million by 2021 is to be achieved through both organ- ic and acquisition-based growth. Here Komax is anticipating that it can deliver, between now and 2021, an annual organic growth rate that at least matches the continuous rise in automotive production and the increasing number of wires in vehicles (CAGR: 4%–6%). Komax has positioned itself as a total solution provider. It supports its customers with solutions along the entire value chain. Since the profitability of the solutions it supplies can fluctuate, Komax’s focus is not on the EBIT margin, but on increasing absolute EBIT (to CHF 80–100 million) by 2021. Revenues (in CHF million) 2 EBIT (in CHF million) RONCE (in %) 3 Payout ratio (in % of EAT) 2017 408.5 55.1 23.8 59.2 2016 1 372.7 55.4 26.6 63.4 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly. 2 The revenues of the Medtech business unit, which was sold in April 2016, are not included. 3 The return on net capital employed (RONCE) is calculated on the basis of EBIT and average net capital em- ployed. Average net capital employed is the sum of all current and non-current operating assets (excluding intangible assets and deferred tax assets), adjusted for non-interest-bearing liabilities. Non-interest-bearing liabilities are the short-term debt capital amounts available to the operating business on which no interest is payable (excluding provisions and accruals/deferrals). E_00_GB_Komax_Berichtsteil_2017 [P].indd 31 31 12.03.18 14:46 ANNUAL REPORT 2017 BUSINESS MODEL AND STRATEGY SOLUTIONS ALONG THE VALUE CHAIN Komax automation solutions at work Komax MES – Manufacturing Execution System Order Planning Drawing Production data Omega 750 Taping Pre-assembly line Cutting area Raw material Supply Alpha 550 bt 722 KTR 160 Final assembly Testing Final product Delivery TS1500 HV 32 E_00_GB_Komax_Berichtsteil_2017 [P].indd 32 12.03.18 14:46 ANNUAL REPORT 2017 BUSINESS MODEL AND STRATEGY The majority of Komax customers are wire harness manufacturers whose business consists of process- ing the individual wires – predominantly by hand – into wire harnesses and delivering these to vehicle manufacturers (OEMs). Komax offers its customers a wide range of solutions and systems for the auto- mated and efficient processing of wires and for the taping and testing of wire harnesses. These are used in the cutting room, at the pre-assembly stage, and when taping and testing. In addition, Komax sup- ports its customers along the entire value chain – from planning through to delivery – with the Komax MES. This software automates the planning, controlling, monitoring and analysis of all resources and production processes. This has the effect of optimally deploying machines, materials, and employees, so that wire harnesses can be completed to deadline, as well as to the requisite quality. Cutting, stripping, crimping, block loading With the Omega 750, the cutting, stripping, crimping, and loading of terminals is undertaken with just one machine. The end product is a wire harness fitted with contact housings on both sides, produced in a fully automated way. Cutting, stripping, crimping Fully automatic crimping (crimp to crimp) and twisting machines at work in the cutting room. For the double-sided crimping and fitting of seals, Komax customers use the fully automated Alpha 550 crimping machine, which among other things can also twist and tinplate the braids. Semi-automatic crimping In order to be able to process individual lines at the pre-assem- bly stage, customers use a machine like the bt 722 benchtop crimping press. The programmable crimp height, integrated crimp force analysis and bad crimp cutter ensure a final product of top quality. Taping In order to reduce sources of noise and prevent electromagnetic disruptions, wire harnesses are taped; such as with the KTR 160 from Kabatec, for example. The act of bundling wires or attaching clips to wire harnesses is likewise covered by this section of the value chain. Testing Before Komax customers deliver the completed wire harnesses to the OEM, they subject every single wire harness to a connec- tion test (electrical test). For this they resort to the test systems of TSK, such as the TS1500 HV for high-voltage wires. E_00_GB_Komax_Berichtsteil_2017 [P].indd 33 33 12.03.18 14:46 ANNUAL REPORT 2017 BOARD OF DIRECTORS BOARD OF DIRECTORS Daniel Hirschi holds a degree in engineering. From 1983 to 2005 he held various mana- gement 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 in Uzwil; he was a member of the Board of Directors of the same company from 2009 to August 2016. In the last three years, Daniel Hirschi has not been a member of the Executive Committee or had any material business relationships with the Komax Group. David Dean (1959) Nonexecutive, independent member of the Board of Directors since 2014, elec ted until 2018, Swiss national, resident in Meilen, member of the Board of Directors of listed company Agta Record AG, and member of the Industry Executive Advisory Board of the Executive MBA in Supply Chain Management at ETH Zurich. 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 diploma and is a certified accountant. Further- more, he has also completed management 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 relationships with the Komax Group. Beat Kälin (1957) Nonexecutive, dependent member and Chairman of the Board of Directors since 2015, elected until 2018, Swiss national, resident in Birmensdorf, member of the Board of Directors of the listed company Huber + Suhner AG, Pfäffikon ZH, and member of the Investment Committee of the Valyou investment foundation, Neuhaus. 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 Schweizer- ische Industrie-Gesellschaft Holding AG, Neuhausen, from 2004 to 2006 he was a member of the Board of Management re- sponsible for the Packaging Technology Division at Robert Bosch GmbH, Stuttgart (DE), and from 2007 until May 2015 he was CEO of the Komax Group. Daniel Hirschi (1956) Nonexecutive, independent member of the Board of Directors since 2005, ViceChairman since 2014, elected until 2018, Swiss national, resident in Biel, member of the Board of Directors of the listed company Schaffner Holding AG, Luterbach, and the listed company Gavazzi Holding AG, Steinhausen. As at 31 December 2017 34 E_00_GB_Komax_Berichtsteil_2017 [P].indd 34 12.03.18 14:46 ANNUAL REPORT 2017 EXECUTIVE COMMITTEE EXECUTIVE COMMITTEE Matijas Meyer (1970) Chief Executive Officer (CEO) since 2015, at Komax since 2007, Swiss national, resident in Ebikon. Matijas Meyer holds a degree in engineer- ing from ETH Zurich and an MBA from Cranfield University (UK). Prior to his current position, he was Head Business Unit Wire and Head of the site in Rousset (FR). Be- fore joining Komax, he worked at Tornos SA in Moutier and OC Oerlikon/ESEC in Cham. Andreas Wolfisberg (1958) Chief Financial Officer (CFO) since 1996, at Komax since 1991, Swiss national, resident in Adligenswil, Chairman of the Board of Directors of Kowema Beteili gungs AG, Baar. Andreas Wolfisberg is a Swiss Certified Expert in Accounting and Controlling. Before joining Komax, he worked at von Moos Stahl in Lucerne. since 1987, and was based in China from 1996 to 2003. He returned to Shanghai in 2017, where he currently manages the new installations business of Schindler China. From 2006 to 2013, Kurt Haerri was the President of the Swiss-Chinese Chamber of Commerce. He is also a lec turer at ETH Zurich, where he is respon sible for the Asia module of an Exe cutive MBA program. 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. Roland Siegwart (1959) Nonexecutive, independent member of the Board of Directors since 2013, elected until 2018, Swiss national, resident in Schwyz. Member of the Board of Directors of Evatec Holding AG, Trübbach, GE Inspection Robotics AG, Zurich, and NZZ Mediengruppe (owner of the Neue Zürcher Zeitung), Zurich, Trustee of the Gebert Rüf Foundation, Basel. Roland Siegwart holds a master’s degree in mechanical engineering as well as a doctorate from ETH Zurich. He was pro- fessor at EPFL Lausanne from 1996 to 2006, and Vice-President of Research and Corporate Relations at ETH Zurich from 2010 to 2014. He 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 center of ETH Zurich and the University of Zurich, since 2015. In the last three years, Roland Siegwart has not been a member of the Executive Committee or had any material business relationships with the Komax Group. Andreas Häberli (1968) Nonexecutive, independent member of the Board of Directors since 2017, elec ted until 2018, Swiss national, resident in Bubikon. Andreas Häberli holds a master’s degree in electrical engineering from ETH Zurich. He then went on to obtain a doctorate (Dr. sc. tech.) at ETH Zurich’s Laboratory for Physical Electronics. Since 2003, he has held various management roles at the dormakaba Group (formerly Kaba Group), where he has been Chief Techno- logy Officer (CTO) and a member of the Executive Committee since 2011. He was a member of the Executive Board of Sen- sirion AG in Stäfa from 1999 to 2003, and worked for Invox Technology (Canada/ USA) from 1997 to 1999. In the last three years, Andreas Häberli has not been a member of the Executive Committee or had any material business relationships with the Komax Group. Kurt Haerri (1962) Nonexecutive, independent member of the Board of Directors since 2012, elected until 2018, Swiss national, resident in Birrwil. Kurt Haerri holds a degree in mechanical engineering from Lucerne University of Applied Sciences as well as an Execu- tive MBA HSG from the University of St. Gallen. He has worked for Schindler E_00_GB_Komax_Berichtsteil_2017 [P].indd 35 35 12.03.18 14:46 ANNUAL REPORT 2017 SUSTAINABILITY AND SOCIAL RESPONSIBILITY SUSTAINABILITY AND SOCIAL RESPONSIBILITY Sustainability and social responsibility are core ele ments of Komax’s corporate strategy. They are incorporated not only into the Group’s longterm tar gets, but also into its operating activities. Komax is determined to develop its competencies in questions of sustainability and social responsibility on an on going basis – for the benefit of its stakeholders and the environment. The way Komax is perceived by its customers, business partners, shareholders, and other stakeholders depends to a significant extent on the conduct of its employees. For this reason, Komax has a code of conduct that is binding for all employees of the Group and reviewed on a regular basis. The code of conduct defines general rules of behavior and guidelines on how to act towards the Group’s business partners and competitors. In addition, it addresses issues such as discrimination, safety, health, and environmental protection. All employees are given training on the code of conduct when they join the company. 36 E_00_GB_Komax_Berichtsteil_2017 [P].indd 36 12.03.18 14:46 ANNUAL REPORT 2017 SUSTAINABILITY AND SOCIAL RESPONSIBILITY times5 less energy required to cool a control cabinet Product sustainability The machines developed by Komax are characterized by their exceptionally high quality and longevity. The Group’s own global service network and its collaboration with partners ensure that these machines are professionally maintained. This has a posi- tive impact on their performance, value retention, and life span, as well as saving resources generally. Komax also ensures ser- vicing and the availability of upgrades and replacement parts years beyond its contractual obligations. Thanks to their modu- lar construction, the machines can usually be adapted to new technological developments or changing needs. Increasing energy efficiency When developing new machines, Komax goes to great lengths to ensure that the consumption of re- sources is continuously reduced – both in the production process and during the life cycles of the ma- chines at the factories of its customers. For example, in a recently developed type of machine now sold in large numbers, particular attention was paid to the consumption of electricity for the ventilation of a control cabinet. The ventilation of the new machines requires only a fifth of the electricity of the previous model. Thanks to the optimized cooling concept and the improved performance of the fans, the new machines are able to work at higher environmental temperatures, despite their lower energy consump- tion. If one extrapolates the energy saving achieved on one single machine to the annual production of these two machine models, the annual saving works out at more than 300 MWh. Moreover, Komax has also ensured oil-free pneumatics for this new generation of machine, which likewise has positive reper- cussions for the environment. Declining consumption of fuel and materials Komax supplies solutions for wire processing applications, in particular for the automotive supply in- dustry. These solutions are also used to process wiring for new fuel-saving propulsion concepts such as electric and hybrid vehicles. Moreover, the innovative technologies mean that ever smaller wire cross- sections and innovative materials such as aluminum can be machine-processed, thereby contributing to a reduction in vehicle weight and, as a result, fuel consumption. In addition, the automated taping solutions, for example, help Komax customers to use less adhesive tape then they would in the case of manual taping. Komax’s products do not contain any ecologically harmful components. The attainment of custom- ers’ expectations and the extent of their loyalty are measured by means of regular satisfaction analyses conducted in conjunction with external partners. Komax sets particular store by customer feedback on improvement potential. In 2011, Komax launched its “Oekomax” program in Switzerland with the aim of continually optimiz- ing environmental protection. Ever since, a team comprising employees from various areas of the com- pany has been looking at sustainability issues. The spectrum of themes ranges from campaigns that motivate employees to be sparing in the use of resources through to ideas as to how the energy effi- ciency of newly developed machinery can be increased. E_00_GB_Komax_Berichtsteil_2017 [P].indd 37 37 12.03.18 14:46 ANNUAL REPORT 2017 SUSTAINABILITY AND SOCIAL RESPONSIBILITY Sustainability in procurement The company believes in long-term partnerships, and selects suppliers which demonstrate an environmentally aware ap- proach and whose products conform to sustainability criteria. This is ascertained with the assistance of a supplier evaluation questionnaire, which evaluates new as well as existing partners on the basis of uniform criteria. These criteria include the status that suppliers attach to sustainability, quality, price, supply chain, delivery reliability, and production technology. Furthermore, in a code of conduct drawn up specially for suppliers, Komax obliges its suppliers to comply with legislation and to act in an environ- mentally aware and ethical way. Compliance with agreed guide- lines and indicators is reviewed in regular supplier audits. If violations are uncovered, a supplier partnership may be immedi- ately terminated as a result. %5 reduction in consumption of electricity and drinking water by 2021 In addition to the investment volume, key criteria when evaluating and selecting new production systems include energy efficiency, environmental friendliness, and the economical use of resources. Sustainability in production The Komax Group’s business focuses mainly on the production of machines and systems, as well as provision of the corresponding maintenance services. A large proportion of the company’s value crea- tion consists of engineering services. The majority of components are manufactured and supplied by third parties, which means that actual production at Komax primarily comprises the assembly of com- ponents. Accordingly, Komax generates relatively few emissions compared to other industrial compa- nies. Operational Excellence Highly automated, state-of-the-art production systems are used for strategically important components that Komax manufactures in-house. These are based on lean management concepts, the aims of which include the avoidance of errors and minimization of rejects. The careful and efficient use of resources has top priority: wherever possible, waste materials and wastewater are recycled or then disposed of appropriately. Waste volumes are continuously reduced as part of optimization programs. Wherever possible, Komax uses renewable energies such as solar or hydroelectric power. For example, in Swit- zerland – the country in which Komax has the highest production volume – the company obtains natural energy from Central Switzerland’s RegioMix scheme, and has its own photovoltaic power plant on the roof of its production building in Rotkreuz. 38 E_00_GB_Komax_Berichtsteil_2017 [P].indd 38 12.03.18 14:46 ANNUAL REPORT 2017 SUSTAINABILITY AND SOCIAL RESPONSIBILITY Key factors in Komax’s pursuit of Operational Excellence include safety and the protection of its em- ployees’ health. Management attaches high priority to this issue, which is why internal processes are regularly reviewed for safety and health risks. Furthermore, employees are sensitized to possible risks in the workplace at the individual production sites in a targeted way. The low number of occupational accidents over a period of many years is testimony to the success of initiatives in this area. In 2017, the number of registered occupational accidents throughout the Komax Group recorded a slight year-on- year decline from a low level – from 34 to 32 incidents. This trend should be viewed all the more posi- tively since the Komax workforce completed some 10% more working hours in 2017 than it did in 2016, as a result of the Group’s strong growth and the associated rise in headcount. As in previous years, reported absences due to accidents in 2017 were mainly the result of accidents suffered by employees while engaging in leisure activities. Komax has set itself the target of reducing occupational accidents by 10% (compared with the average for 2016 and 2017) by 2021. Certification status and integrated management system The key production locations of the Komax Group, namely in Brazil, China, Germany, France, Switzer- land, Tunisia, Turkey, Hungary, and the US, are all ISO 9001-certified. In addition, Komax AG’s sites in Dierikon, Rotkreuz, and Küssnacht am Rigi, Komax SLE in Grafenau, TSK in Porta Westfalica, and SC Thonauer Automatic in Bucharest all have ISO 14001 certification. These six sites employ around 890 people. All have integrated management systems that encompass all company processes, the environ- ment, health protection, and workplace safety. Country Company Certification Switzerland Komax AG Brazil China TSK do Brasil Ltda. Komax Shanghai Co. Ltd. Germany Komax SLE GmbH & Co. KG France Austria TSK Prüfsysteme GmbH Laselec SA Thonauer Gesellschaft m.b.H. Romania SC Thonauer Automatic s.r.l. Czech Republic Thonauer spol. s.r.o. Tunisia Turkey TSK Tunisia s.a.l. TSK Test Sistemleri Ltd. Şti. Hungary Komax Thonauer Kft. USA Komax Corporation TSK Innovations Co. ISO 9001 ISO 9001 ISO 9001 ISO 9001 ISO 9001 ISO 9001 ISO 9001 ISO 9001 ISO 9001 ISO 9001 ISO 9001 ISO 9001 ISO 9001 ISO 9001 ISO 14001 OHSAS 18001 ISO 14001 DE AEOC 104360 ISO 14001 ISO 14001 OHSAS 18001 Resource and energy savings targets In collaboration with the Energy Agency for the Economy (Energie-Agentur der Wirtschaft, EnAW), Komax has established resource and energy savings targets for 2018 and 2020 for the Swiss sites in Dierikon and Rotkreuz. For example, the target is to reduce energy consumption by at least 6% by the end of 2018 (2014 basis: 2 822 MWh or 5.9 MWh per head). Despite the strong growth in revenues since 2014, which was related to a substantial rise in headcount, Komax had largely stabilized its electricity consumption by the end of 2017: in total, consumption rose only slightly to 2 888 MWh; in per head terms, however, consumption was down by around 17% to 4.9 MWh. EnAW pursues a systematic ap- proach to help more than 3 800 manufacturing firms, industrial plants and service companies increase energy efficiency and reduce their CO2 emissions. E_00_GB_Komax_Berichtsteil_2017 [P].indd 39 39 12.03.18 14:46 ANNUAL REPORT 2017 SUSTAINABILITY AND SOCIAL RESPONSIBILITY Komax is successively expanding its reporting on sustainability issues. In the table below, for instance, it is disclosing consumption data for production sites outside of Switzerland for the first time. This data details consumption figures for the majority of large production sites where 60% of all Komax Group employees work. In extending its reporting in this way, Komax has also set itself targets for reducing the consumption of electricity and drinking water at these production sites. By 2021, the aim is to have lowered the consumption of electricity and drinking water by 5% versus 2017. Sustainability key figures Consumption 1 Electricity in MWh Electricity per head in MWh Drinking water in m3 Drinking water per head in m3 Waste 2 Refuse in kg Refuse per head in kg Accidents 3 2017 2016 4 517 4.0 7 457 6.6 4 087 3.9 7 900 7.5 39 099 36 134 60.7 60.4 Number of occupational accidents 32 34 Number of occupational accidents for every 1 000 employees 22.2 26.0 1 Covering the production sites in Dierikon (CH), Rotkreuz (CH), Küssnacht am Rigi (CH), Grafenau (DE), Porta Westfalica (DE), El Paso (US), Colombo (BR), Shanghai (CN), Tokyo (JP). 2 Covering the production sites in Dierikon (CH), Rotkreuz (CH), Küssnacht am Rigi (CH). 3 Covering all production sites of the Komax Group. Contribution to regional development Komax has been firmly rooted in the Canton of Lucerne, Switzerland, since 1975, where it is one of the region’s biggest employers. The Group is committed to Switzerland as a business location because it offers a good environment, facilitates very high productivity, and has a large pool of highly qualified la- bor. As well as being an important employer in the region, Komax is also committed to advancing young people in a number of different areas (including education, sport, the arts, and social involvement). The production and distribution sites that the Group has established around the world since 1975 remain in their original locations, which generates a strong sense of identification with local areas. 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 commer- cial sense. 40 E_00_GB_Komax_Berichtsteil_2017 [P].indd 40 12.03.18 14:46 ANNUAL REPORT 2017 SUSTAINABILITY AND SOCIAL RESPONSIBILITY Attractive employer At the end of 2017, Komax employed 1 841 staff worldwide (2016: 1 633). Average headcount in 2017 worked out at 1 720 employees (2016: 1 609 employees). This increase is primarily explained by the two acquisitions, the persistently strong development of business, and the corresponding new appoint- ments at various locations. Personnel expenses in the year under review amounted to CHF 137.0 million (2016: CHF 131.6 million). 2017 Production Research and development Engineering Marketing and sales Administration 2 Total headcount as at 31 December 2017 2016 Production Research and development Engineering Marketing and sales Administration 2 Total headcount as at 31 December 2016 CH 1 Europe 1 Americas 1 Asia 1 Africa 1 Total 231 142 30 194 47 644 263 35 87 182 66 633 67 0 23 110 31 231 72 23 16 110 26 247 41 0 10 29 6 86 674 200 166 625 176 1841 CH Europe Americas Asia Africa Total 225 130 28 171 44 598 227 20 95 140 50 532 66 1 35 86 30 60 15 9 94 26 218 204 39 0 10 27 5 81 617 166 177 518 155 1 633 1 The individual companies and their locations are listed on page 106. 2 Including management. The companies of the Komax Group ensure that their employees enjoy equal opportunities, equal treat- ment and fair employment conditions, receive pay that is in line with the market, and benefits that are in line with national and industry standards. Participation in the pay comparison survey conducted by in- dustry association Swissmem showed that pay at the Swiss production sites is in line with market av- erages and that men and women receive equal pay. The proportion of women in the Group’s global workforce remained unchanged at around 19% in 2017 (2016: 19%). Komax is not alone within the in- dustry in having a relatively low proportion of women in its workforce. The main reason for this phenom- enon is the large number of technical positions within the company, for which the recruitment potential among women is limited. Active employee development The Group’s staff turnover rate has been gratifyingly low for many years. In 2017 it amounted to just over 7% (2016: less than 6%). Komax has a very good reputation as an attractive employer, which is partly explained by its corporate culture. This is characterized by mutual respect, trust, and awareness of the paramount importance of quality. Moreover, the needs of employees themselves are not neglect- ed, despite ambitious targets. 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 individ- ual training activities. Komax also encourages international exchanges to allow its staff to gain new experiences and career perspectives. E_00_GB_Komax_Berichtsteil_2017 [P].indd 41 41 12.03.18 14:46 ANNUAL REPORT 2017 SUSTAINABILITY AND SOCIAL RESPONSIBILITY Major investment in tomorrow’s workforce Komax is committed to the training of tomorrow’s professional specialists as a way of safeguarding its global market and technology leadership. In 2017, 44 apprentices (2016: 41) were undergoing training in seven professions at the Group’s Swiss sites. 35 apprentices (2016: 33) were being trained in Germa- ny (Grafenau, Porta Westfalica, and Burghaun). Komax offers its apprentices a wide-ranging training experience. The young professionals are right at the heart of the action, actively following every step of a machine’s development from inception through to production readiness. During their training, they get an insight into the various departments’ activities and thus gain an understanding of the numerous processes that take place in a company. Komax has state-of-the-art workstations as well as well-equipped mechanical workshops and assem- bly areas for the specific apprenticeship subjects. The budding professionals are supervised by a moti- vated team of trainers who not only possess strong technical and teaching skills, but also sensitivity to the social needs of the young people in their charge. In addition to professional training, Komax also offers apprentices a number of interesting benefits such as language courses, cultural events, preventive health measures, and its own team building events. Once apprentices have completed their training, Komax helps them make the transition into full professional life, either at the site where they trained or at one of the company’s locations abroad. More- over, the company supports the people it has trained in their professional development and further vo- cational training. Satisfied and healthy employees Employee satisfaction is systematically measured and evaluated in the course of annual performance 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 conducted with external partners were for the most part highly positive, and in many cases were significantly above the industry average. In 2017, employee surveys were conducted at all sites in Switzerland and Germany. It goes without saying that Komax satisfies all legal requirements with respect to working conditions in the countries it operates in. Furthermore, it actively promotes the health of its staff at the various lo- cations by means of various measures. In Switzerland, for example, the occupational health manage- ment scheme “fit@work” means that staff benefit from free sports offers, fruit campaigns, and work- shops and specialist talks, among other things. In order to promote the health of its workforce, Komax also takes part in the “bike to work” initiative that takes place in Switzerland every year. This involves Komax encouraging its employees to commute by bike as often as possible in the month of June. In 2017, 108 employees participated in this initiative, racking up more than 29 000 kilometers in the saddle. 42 E_00_GB_Komax_Berichtsteil_2017 [P].indd 42 12.03.18 14:46 ANNUAL REPORT 2017 INFORMATION FOR INVESTORS INFORMATION FOR INVESTORS Komax cultivates a policy of open and transparent communication with its investors. It allows sharehold ers to participate in the company’s success through its attractive, sustainable dividend policy (payout ratio 50%–60%). Over the course of 2017, the daily closing price of the Komax share ranged between CHF 243.50 and CHF 319.50. The year-end closing price was CHF 319.50. This represents an increase of 27.2% on the closing price of the previous year. The value of the Komax share has risen by a multiple of roughly 4.5 over the last five years. The SPI Extra slightly more than doubled its points tally over the same timeframe. Share price development in CHF 350 300 250 200 150 100 50 2013 2014 2015 2016 2017 2018 Komax SPI Extra TR E_00_GB_Komax_Berichtsteil_2017 [P].indd 43 43 12.03.18 14:46 ANNUAL REPORT 2017 INFORMATION FOR INVESTORS Listing Komax is listed on SIX Swiss Exchange. The market capitalization of the Komax Group at the end of 2017 was CHF 1.225 billion. ISIN Security number Bloomberg code Thomson Reuters code CH0010702154 1070215 KOMN SW KOMN.S Geographical distribution of shareholdings The majority of shares not held in Switzerland are held in the United Kingdom, Germany, Luxembourg, and the United States. 29% Cleared shares 11% Other countries 60% Switzerland Breakdown of shareholders by number of registered shares held 1–100 101–1 000 1 001–10 000 10 001–100 000 > 100 000 3 082 1 713 220 28 5 The shareholder base widened significantly in 2017. At the end of 2017, 5 048 shareholders were en- tered in the share register. This represents an increase of 1 898 shareholders compared to the end of 2016. Free float The free float as defined by SIX Swiss Exchange stands at 95%. 44 E_00_GB_Komax_Berichtsteil_2017 [P].indd 44 12.03.18 14:46 ANNUAL REPORT 2017 INFORMATION FOR INVESTORS %59 payout ratio Disclosure of shareholdings / significant shareholders Under Art. 110 of the Financial Market Infrastructure Act, FinMIA, anyone who acquires or sells equity se- curities 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 exer- cised), is subject to a reporting obligation. Informa- tion on these significant shareholders can be found on page 48 of this report. The reporting obligation applies to anyone who directly, indirectly or in concert with third parties ac- quires or disposes of shares in a company incorporated in Switzerland whose equity securities are listed in whole or in part in Switzerland. It also applies to anyone who can exercise the voting rights attached to such equity securities at their own discretion. Disclosure must be made to the company and stock exchanges on which the equity securities in question are listed. Dividend policy The Board of Directors defined an attractive dividend policy in its 2017–2021 strategy. Based on the very pleasing 2017 result, the Board of Directors is proposing to the Annual General Meeting of 19 April 2018 a distribution at the upper end of the strategic bandwidth (payout ratio 50%–60%): CHF 6.50 per share (2016: CHF 6.50), of which CHF 1.50 will be distributed from capital contribution reserves. The payout ratio is therefore 59.2% (2016: 63.4%), and the dividend yield as of 31 December 2017 stood at 2.0%. 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. Financial calendar Annual General Meeting Dividend payment Halfyear results 2018 Investors Day Preliminary information on 2018 financial year Annual media and analyst conference on the 2018 financial results Annual General Meeting 19 April 2018 25 April 2018 21 August 2018 26 October 2018 22 January 2019 14 March 2019 16 April 2019 E_00_GB_Komax_Berichtsteil_2017 [P].indd 45 45 12.03.18 14:46 ANNUAL REPORT 2017 INFORMATION FOR INVESTORS Key data Komax registered share 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 Distribution per share Highest price Lowest price Closing price as at 31 Dec. Average daily trading volume P/E (priceearnings ratio) as at 31 Dec. Dividend yield as at 31 Dec. No. No. CHF CHF CHF CHF CHF CHF CHF CHF CHF No. % 2017 383 2016 1 2015 1 2014 1 2013 1 377 369 361 352 3 834 482 3 774 148 3 691 651 3 605 101 3 523 780 3 810 276 3 741 364 3 652 728 3 552 840 3 458 379 0.10 11.05 17.35 14.45 67.33 6.50 2 319.50 243.50 319.50 12 274 28.9 2.0 2 0.10 10.34 17.22 14.81 65.23 6.50 0.10 8.00 16.19 13.67 76.70 6.00 0.10 7.64 15.99 13.34 78.82 5.00 0.10 7.33 14.92 12.29 74.92 4.50 251.25 194.90 152.40 138.00 180.10 122.90 124.60 72.35 251.25 194.90 144.50 135.30 8 191 24.3 2.6 7 881 24.4 3.1 8 613 18.9 3.5 9 999 18.5 3.3 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly. The years 2013–2015 are reported according to IFRS. 2 Proposal of the Board of Directors of Komax Holding AG: distribution of CHF 6.50 per registered share. Further information on the Komax registered share can be found on the Internet at www.komaxgroup.com. 46 E_00_GB_Komax_Berichtsteil_2017 [P].indd 46 12.03.18 14:46 CORPORATE GOVERNANCE 2017 CONTENTS CORPORATE GOVERNANCE Corporate structure and shareholders 48 Shareholder participation rights 56 Changes of control and defense measures 57 Auditors 57 Information policy 58 Capital structure 49 Board of Directors 51 Executive Committee 55 Compensations, shareholdings and loans 56 E_00_GB_Komax_Corporate Governance_2017 [P].indd 47 12.03.18 14:25 47 ANNUAL REPORT 2017 CORPORATE GOVERNANCE Ensuring good corporate governance is very important to Komax. Objectives in this area include safe- guarding company value and success 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 Gover- nance (Directive Corporate Governance, DCG) of SIX Exchange Regulation, and gives account of devel- opments 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 gov- ernance and initiates the corresponding adjustments where appropriate. 1 Corporate structure and shareholders Corporate structure The Group structure and subsidiaries belonging to the Group are set out on pages 106 and 107 of the Annual Report. With the exception of Komax Holding AG, no companies with listed participation secu- rities 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 43 to 46 (“Information for investors”). Major 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 Financial Market Infrastructure Act (FinMIA). According to the disclosure reports submitted, the company had the following major shareholders holding more than 3% of the votes as at 31 December 2017: Shareholder / Shareholder group Veraison SICAV, Zurich, Switzerland Max Koch, Meggen, Switzerland Swisscanto Fondsleitung AG, Zurich, Switzerland Leo Steiner, Steinhausen, Switzerland Number of shares 31.12.2017 Share in % 31.12.2017 1 196 229 2 190 285 132 410 3 126 954 5.199 5.042 3.508 3.364 1 The calculation is based on the 3 774 148 registered shares listed in the Commercial Register as at 31 December 2017. 2 Notification of breach of 5% threshold on 23 May 2015. 3 Notification of breach of 3% threshold on 16 December 2016. All shareholdings reported to Komax Holding AG and the Disclosure Office of SIX Swiss Exchange during the 2017 financial year as per Art. 120 of the Financial Market Infrastructure Act have been published on SIX Swiss Exchange AG’s electronic publication platform, and can be viewed at www.six-exchange-regulation.com/en/home/publications/significant-shareholders.html. Cross-shareholdings There are no cross-shareholdings. 48 E_00_GB_Komax_Corporate Governance_2017 [P].indd 48 12.03.18 14:25 ANNUAL REPORT 2017 CORPORATE GOVERNANCE 383 448.20 1 551.80 0.00 2 Capital structure Capital in CHF Ordinary capital Conditional capital Authorized capital Further details are provided in the sections below. Authorized and conditional capital in particular For detail on conditional capital, please see page 99 of the consolidated financial statements of Komax Holding AG as well as 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, thereby allowing the share capital of the company at that time to rise by up to CHF 46 248 to cover the exercising of option or subscription rights issued as part of the Executive and Employee Participation Programs of Komax Holding AG. The subscription and advance subscrip- tion rights of the remaining shareholders in the company are excluded. The allocation of options was undertaken in a framework determined by the Remuneration Commit- tee. The option plan of Komax Holding AG was authoritative. The individual allocation of options was at the discretion of the Board of Directors and senior management. These options have a duration of five years and are subject to a three-year lock-in period. The predetermined exercise price of the option 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. The allocation of share options was discontinued in 2015 and replaced by share-based programs. Further information on the Komax Group’s employee participation programs, can be found on pages 66 and 67 and 109 to 111 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 exer cised in 2013 amounted to 79 991; the figure for 2014 was 81 321, for 2015 86 550, 2016 82 497 and for 2017 60 334. Conditional capital therefore amounted to CHF 1 551.80 as at 31 December 2017. The new capital created in 2017 was reported within the deadline stipulated under Art. 635h of the Swiss Code of Obligations (CO). The Komax Holding AG has no authorized capital. Capital changes Details of capital changes in 2016 and 2017 can be found on page 76 of the Financial Report. The cor- responding information for 2015 can be found on page 85 of the financial section of the 2016 Annual Report. Shares, participation certificates, and bonus certificates As at 31 December 2017, Komax Holding AG had fully paid-up capital of CHF 383 448.20 and distribut- ed over 3 834 482 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 regis- ter as a “voting shareholder” (see also “Restrictions on transferability of shares and nominee registra- tions” on page 50). Registered shares are fully entitled to receive dividends. Komax Holding AG has not issued any participation certificates or bonus certificates. E_00_GB_Komax_Corporate Governance_2017 [P].indd 49 12.03.18 14:25 49 ANNUAL REPORT 2017 CORPORATE GOVERNANCE 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 15% 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 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 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. 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 his/her own name and for his/her 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 consequence of false statements by the acquirer. The acquirer must be informed of the deletion immediately. 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 page 109 of the Annual Report. Management transactions The Listing Rules of SIX Swiss Exchange stipulate a disclosure obligation for management transactions. 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 28 notifications were submitted in the 2017 financial year. Published notifications can be found at www.six-exchange-regulation.com/en/home/publications/management-transactions.html (website of SIX Swiss Exchange). 50 E_00_GB_Komax_Corporate Governance_2017 [P].indd 50 12.03.18 14:25 ANNUAL REPORT 2017 CORPORATE GOVERNANCE 3 Board of Directors The Board of Directors comprised six individuals as at 31 December 2017. Other than the Chairman, 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 rela- tionship with any Group companies. Members of the Board of Directors Beat Kälin, Chairman Daniel Hirschi, Vice-Chairman David Dean Andreas Häberli Kurt Haerri Roland Siegwart AC: Audit Committee RC: Remuneration Committee Appointed Term expires Committees 2015 2005 2014 2017 2012 2013 2018 2018 2018 2018 2018 2018 RC RC (Chairman) AC (Chairman) AC RC 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 pages 34 and 35 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 mandates 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 four addi- tional mandates for listed companies, five additional mandates for non-listed companies, and five addi- tional 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 dif- ferent companies that belong to the same corporate group count as a single mandate. Mandates un- dertaken 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 in respect of the company. The reimbursement of expenses does not count as compensation. 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 elect- ed individually by the Annual General Meeting for a term lasting until the end of the next Annual Gener- al 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 reg- ulations regarding the appointment of the Chairman and the members of the Board of Directors that deviate from statutory provisions. The Chairman and all other members of the Board of Directors will be proposed for re-election at the next Annual General Meeting on 19 April 2018. 51 E_00_GB_Komax_Corporate Governance_2017 [P].indd 51 12.03.18 14:25 ANNUAL REPORT 2017 CORPORATE GOVERNANCE 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 be- comes 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 member 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 entitled to demand that a meeting be called to discuss a particular topic. In this case, the Chairman convenes the meeting within 14 days of receiv- ing the request. The Board of Directors is deemed to have a quorum if an absolute majority of its members are pres- ent 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 cas- es of urgency, a meeting of the Board of Directors may be held by telephone or other appropriate me- dium. Resolutions by circular letter are permissible provided no Board member calls for verbal discus- sion. Five ordinary meetings of the Board of Directors took place in 2017, with all members being present on all occasions. On average, these meetings lasted around eight hours. However, these aver- age times pertain to the actual duration of the meetings themselves, and do not take into account the 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 Remunera- tion Committee consists of a maximum of three non-executive members. The Committee is elected by the Annual General Meeting. Members’ term of office ends with the conclusion of the next Annual Gen- eral Meeting. Re-election is permissible. The current members are Daniel Hirschi (Chair), Beat Kälin, and Roland Siegwart. The Board of Directors is proposing to the Annual General Meeting of 19 April 2018 the re-election of Beat Kälin and Roland Siegwart, and the election of Andreas Häberli as a new Com- mittee member. 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 remain- ing 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 meetings 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 members of the Board of Directors. In 2017, the Committee held two ordinary meetings as well as one extraordinary meeting; in each case, all members were present. On average, these meetings lasted a good four hours. These average times do not include the preparatory and follow-up work done by the individual members. The tasks of the Remuneration Committee include supporting the Board of Directors in the fulfilment of the compensation and staff policy duties assigned to it by current legislation and the Articles of As- sociation. 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 ap- pointment and remuneration of members of the Board of Directors and the Executive Committee. The detailed tasks and competencies of the Remuneration Committee are formulated in a set of Regulations for the Remuneration Committee. Further details on the Remuneration Committee can be found in the Compensation Report on pages 59 to 71. 52 E_00_GB_Komax_Corporate Governance_2017 [P].indd 52 12.03.18 14:25 ANNUAL REPORT 2017 CORPORATE GOVERNANCE – Audit Committee The members of the Audit Committee are David Dean (Chair) and Kurt Haerri. The Committee meets at least twice a year. Two ordinary meetings took place in 2017, with all members being present on both occasions. On average, these meetings lasted four hours. These average times do not include the pre- paratory and follow-up work done by the individual members. The tasks of the Audit Committee include the overall supervision of the external and internal auditors, as well as financial reporting. The Audit Committee sets out the scope and schedule of the audits to be carried out by the two auditing bodies and also coordinates their work. Both the external and internal auditors draw up a report on their audit work, and the Audit Committee monitors implementation of the audit findings. Furthermore, the Audit Committee evaluates the reliabil- ity 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 Board 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. Definition of areas of responsibility According to Art. 716a para. 1 CO 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 Regula tions 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 adjust- ments have been in force since 1 January 2017. To the extent permitted by law and by the Articles of Association, the Board of Directors has dele- gated operational management of the company to the CEO of the Komax Group. The Executive Com- mittee is made up of the CEO and the CFO. The members of the Executive Committee are appointed by the Board of Directors at the proposal of the Remuneration Committee. E_00_GB_Komax_Corporate Governance_2017 [P].indd 53 12.03.18 14:25 53 ANNUAL REPORT 2017 CORPORATE GOVERNANCE Information and control instruments in respect of 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 ques- tions 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 amal- gamated into groups according to their nature, namely general external risks, business 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 individ ual 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. The MIS of the Komax Group is organized as follows: each subsidiary’s key balance sheet and prof- it and loss figures are compiled and consolidated once a month. The subsidiaries’ balance sheets, in- come statements, cash flow statements and various indicators are compiled and consolidated on a quarterly, half-yearly and yearly basis. A comparison is then made with the previous year and the budget. The budget forecast is checked for attainability against the quarterly statements for each indi- vidual company and on a consolidated basis. Using key controls, the internal control system (ICS) ensures proper and efficient management, safe- guards assets, prevents and identifies offences and errors, and ensures accurate and complete ac- counting 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 submitted to the Audit Com- mittee. The internal audit function evaluates the effectiveness of the ICS as well as management and moni- toring 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 business areas of the parent entity at regular intervals, and on the basis of an annually updated audit plan. The internal auditors re- port the results of their investigations to the Audit Committee. The Audit Committee reviews and ap- proves 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 internal audit findings. 54 E_00_GB_Komax_Corporate Governance_2017 [P].indd 54 12.03.18 14:25 ANNUAL REPORT 2017 CORPORATE GOVERNANCE 4 Executive Committee The Executive Committee of the Group comprises the CEO and the CFO. Matijas Meyer, CEO Andreas Wolfisberg, CFO Function exercised since 2015 1996 Biographies of the individual members of the Executive Committee are provided on page 35. Other activities and interests Aside from the mandates listed on page 35, 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 2017. 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 manage- ment 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 compa- ny or do not control the company shall be two additional mandates for listed companies, two additional mandates for non-listed companies, and five additional mandates for charitable 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 different companies that belong to the same corpo- rate 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 numerical restriction, as long as these mandates are unremunerated and do not interfere with the Executive Committee member’s fulfilment of his obligations regarding the company. The reimbursement 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_00_GB_Komax_Corporate Governance_2017 [P].indd 55 12.03.18 14:25 55 ANNUAL REPORT 2017 CORPORATE GOVERNANCE 5 Compensations, shareholdings and loans Details of compensations, shareholdings and loans are set out in the Compensation Report on pages 59 to 71 of this Annual Report. 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/articles-of-association. Voting rights and representation restrictions Shareholders registered in the Komax Holding AG share register are entitled to vote; each share is en- titled 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 15% of the total number of shares recorded in the Commer- cial 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. 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 elec- tronic or written power of attorney. The Chair of the Annual General Meeting shall decide on the permis- sibility 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 repre- sented, unless prevailing legislation or the Articles of Association contain mandatory provisions 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 and agenda The convocation of the Annual General Meeting is governed by applicable law. Shareholders rep- resenting 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 company. 56 E_00_GB_Komax_Corporate Governance_2017 [P].indd 56 12.03.18 14:25 ANNUAL REPORT 2017 CORPORATE GOVERNANCE Entries in the share register Any person acquiring shares is listed as a “shareholder with voting rights” up to a maximum of 15% of the total number of shares published in the Commercial Register. Any person owning more than 15% of the published shares will be entered as a “non-voting shareholder” for the portion in excess of 15% (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 can 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 his/her own name and for his/her 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 informed of the deletion im- mediately. Nominees are listed in the share register as “non-voting shareholders.” Invitation to the Annual General Meeting of 19 April 2018 All shareholders registered in the Komax Holding AG share register as at 5.00 p.m. on 12 April 2018 are entitled to vote in respect of the number of shares registered in their name at the Annual General Meet- ing of 19 April 2018. Shareholders registered on 14 March 2018 will receive an invitation 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 12 April 2018 will receive the invitation at that time, or ballot materials will be wait- ing for them at the front desk of the Annual General 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. 7 Changes of control and defense 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. 135 FinMIA). The Articles of Association do not contain any opt- ing-out or opting-up regulations. Clauses on change of control At the Komax Group, change-of-control clauses are not included in employment contracts. However, the members of the Board of Directors, Executive Committee, and middle management are entitled to exercise their options or share-based remuneration in part or in full, without regard to the applicable time limits, in the event of a change in control. 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 Ko- max 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 2017. Audit fee PricewaterhouseCoopers invoiced the Komax Group CHF 702 963 in the 2017 financial year for servic- es 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. 57 E_00_GB_Komax_Corporate Governance_2017 [P].indd 57 12.03.18 14:25 ANNUAL REPORT 2017 CORPORATE GOVERNANCE Additional fees During the 2017 financial year, PricewaterhouseCoopers invoiced additional fees amounting to total CHF 87 644. This breaks down into fees of CHF 30 292 for tax and legal advice and CHF 57 352 for transaction services and other consultancy fees. Information instruments of the external audit The Audit Committee is responsible for evaluating the external auditors, who submit an audit report 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 (man- agement 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 Swiss GAAP FER 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 Commit- tee 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 comparing the fee for additional services charged by the external auditors with the audit fee, taking into account the scope of these additional services. 9 Information policy Komax Holding AG informs all stakeholders transparently, rapidly, and simultaneously. The CEO, CFO, and the Head of Investor Relations and Corporate Communications are available as contact partners for information purposes. The consolidated financial statements are compiled in conformity with Swiss GAAP FER 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 in- formed of significant changes and developments. Komax Holding AG publishes facts relevant to its share price in conformity with the disclosure poli- cies 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. 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, media releases, and Komax Holding AG’s Articles of Asso- ciation and Organizational Regulations are available at www.komaxgroup.com. Media and analyst con- ferences are held at least once a year. Anyone who wants to receive all media releases of Komax Holding AG by e-mail should sign up to the mailing list on the Komax website. Contact Komax Holding AG Roger Müller Industriestrasse 6 6036 Dierikon Switzerland Phone +41 41 455 06 16 roger.mueller@komaxgroup.com 58 E_00_GB_Komax_Corporate Governance_2017 [P].indd 58 12.03.18 14:25 COMPENSATION REPORT 2017 CONTENTS COMPENSATION REPORT Compensation, shareholdings and options held by the Board of Directors in 2017 (audited) 68 Compensation, shareholdings and options held by the Executive Committee in 2017 (audited) 69 Report of the auditors 71 Introduction by the Chairman of the Remuneration Committee 60 Tasks and competencies of the Remuneration Committee 61 Provisions of the Articles of Association on compensation 62 Principles of compensation policy 63 Structure of the compensation system 64 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 Directors and the Executive Committee. In addition, the compen sation paid in 2017 is disclosed in detail. The Compensation Report has been drawn up in accordance with the provisions of the Ordi n ance against Excessive Remuneration in Listed Companies Limited by Shares (ERCO), the Directive Corporate Governance (DCG) of SIX Swiss Exchange, and the principles of the “Swiss Code of Best Practice for Corporate Governance” of Economiesuisse. 59 E_01_GB_Komax_Vergütungsbericht_2017 [P].indd 59 12.03.18 14:28 ANNUAL REPORT 2017 COMPENSATION REPORT 1 Introduction by the Chairman of the Remuneration Committee Dear Shareholder, The 2017 financial year developed very positively for Komax, and showed that the company is on track to meet its strategic objectives. The Remuneration Committee looked at a number of personnel issues in 2017, as well as reviewing the compensation system. On behalf of the Remuneration Committee, I would like to provide you with more detail on this over the following paragraphs. In 2017, we evaluated several potential members for the Board of Directors, all of whom possess considerable expertise in the area of digital transformation. In the person of Dr. Andreas Häberli, we have found a proven specialist who was elected to our Board of Directors with a resounding majority at the 2017 Annual General Meeting. Given the continuous growth of recent years, we have also looked at the organizational structure of the Komax Group. With an eye on good corporate governance, we have decided to expand the Executive Committee from two to five members. The planned change will enter into force with effect from 1 January 2019, assuming the 2018 Annual General Meeting approves the proposed compensation for the expanded Executive Committee. Three heads of core business areas that focus primarily on the development and production of automation solutions along the value chain are being promoted to the Executive Committee: Marc Schürmann (wire processing), Marcus Setterberg (test systems), and Günther Silberbauer (customer-specific solutions). We reviewed the compensation systems of the Board of Directors and the Executive Committee in 2017, and have geared the performance indicators of the Executive Committee to the 2017–2021 stra- tegic targets. These performance indicators (revenues, EBIT, RONCE, individual targets) are now aligned with the medium-term financial targets. There was no need to adjust the compensation system of the Board of Directors. At the next Annual General Meeting on 19 April 2018, we will be proposing approval of the maximum possible total compensation for the Board of Directors and the Executive Committee for the 2019 finan- cial year. In addition, you will as usual be given the opportunity at the Annual General Meeting to cast an advisory vote on this Compensation Report and thereby express your opinion on our compensation system. We are aware of our responsibility in this area. I can therefore assure you that we will continue to adopt a restrained approach to the budget available. When you read the Compensation Report, you will see that the compensation granted to both the Board of Directors and the Executive Committee in 2017 was in keeping with the provisions of the Articles of Association. You can find detailed information on our compensation model and the compensation granted to the Board of Directors and the Executive Committee in 2017 on the following pages. Yours sincerely, Daniel Hirschi Chairman of the Remuneration Committee 60 E_01_GB_Komax_Vergütungsbericht_2017 [P].indd 60 12.03.18 14:28 ANNUAL REPORT 2017 COMPENSATION REPORT 2 Tasks and competencies of the Remuneration Committee Under the Articles of Association, Organizational Regulations and Regulations of the Remuner ation 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 remunera- tion and nomination committee. It has the following responsibilities and competencies: – Development and regular review of staff policy and compensation policy, including the principles of variable compensation and shareholding program Annual review of and determination of the maximum total compensation amounts 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 within the limits approved by the Annual General Meeting Resolutions on the compensation payable to the other members of the Executive Committee within the limits approved by the Annual General Meeting 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 monitors and regularly discusses trends and developments in the area of compensation, including 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 program Maximum total compensation for the Board of Directors and the Executive Committee Individual compensation of the members of the Board of Directors Evaluation of the performance of the CEO Compensation of the CEO Evaluation of the performance of the other members of the Executive Committee CEO Committee BoD AGM proposes approves proposes submits proposes approves proposes approves proposes approves approves (binding vote) proposes approves Individual compensation of the other members of the Executive Committee proposes approves Compensation Report proposes approves confirms (advisory vote) 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 General Meeting. Members’ term of office ends with the conclusion of the next Annual General Meeting. Re-elec- tion is permissible. The 2017 Annual General Meeting elected Daniel Hirschi (Chairman), Beat Kälin, and Roland Siegwart to the Committee. The Remuneration Committee meets as often as business requires, but at least twice a year, gener- ally in March and December. Compensation issues are discussed at the March meeting. These discus- sions include the assessment of the individual performance of the CEO and other members of the Executive Committee for the previous year, the determination of the individual compensation payable to members of the Board of Directors and the Executive Committee, and the approval of the Compen- sation Report. At the December meeting, staffing questions are discussed, along with corporate gov- ernance issues. In addition, the performance targets for the CEO and the other members of the Execu- 61 E_01_GB_Komax_Vergütungsbericht_2017 [P].indd 61 12.03.18 14:28 ANNUAL REPORT 2017 COMPENSATION REPORT tive Committee are set for the following year. In the reporting year, the Committee held two ordinary meetings and one extraordinary meeting; in each case, all members were present. The Chairman of the Committee may invite the CEO and other members of the Executive Committee to meetings in an advi- sory (non-voting) capacity. However, they do not take part in discussions concerning their own perfor- mance 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 avail- able 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. 3 Provisions of the Articles of Association on compensation In compliance with the Ordinance against Excessive Remuneration in Listed Companies Limited by Shares (ERCO), the Articles of Association contain provisions relating to remuneration which are reproduced below in abbreviated form (as an excerpt) and set out in detail in sections 13 and 25 of the Articles of Association: Principles for the compensation of members of the Board of Directors Principles for the compensation of members of the Executive Committee – 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 program. – 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 program. – The Board of Directors determines the conditions for the performance-related com- pensation component on an annual basis. These are linked to the attainment of one or more performance 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 attained, the performance-related compensation may fall to zero. If all targets are significantly exceeded, it may go up 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. Binding vote on the compensation paid to the Board of Directors and Executive Committee – The Annual General Meeting holds a separate vote each year on the total amount of compensation payable to the Board of Directors and to the Executive Committee. – The vote has binding effect, and applies for the coming financial year to the relevant total maximum amounts that may be paid to members of the Board of Directors and the Executive Committee. Additional sum for pay- ments to members of the Executive Committee appointed after the binding vote of the AGM – The additional amount for the compensation of members of the Executive Committee appointed after the Annual General Meeting may not exceed 30% of the approved total amount of compensation payable to the Executive Committee. Pension benefits – The pension benefits of members of the Executive Committee are only paid within occupational domestic and foreign pension plans provided by the company or its Group companies. – The benefits and the employer contributions are solely drawn from the above-men tioned occupational plans. – Retirement benefits are provided solely within the context of the company’s ordinary pension plans. The Articles of Association of Komax Holding AG can be found at www.komaxgroup.com/articles-of-association. 62 E_01_GB_Komax_Vergütungsbericht_2017 [P].indd 62 12.03.18 14:28 ANNUAL REPORT 2017 COMPENSATION REPORT 4 Principles of compensation policy Board of Directors The members of the Board of Directors only receive fixed compensation. This ensures that they are independent in their supervision of the Executive Committee. Their compensation is paid in cash and restricted shares, thereby ensuring alignment with the long-term interests of shareholders. The amount of compensation reflects the importance of the mandate in question, and is generally based on the typical levels of compensation paid to board members of other listed Swiss industrial companies of comparable size and complexity. Executive Committee The compensation policy for members of the Executive Committee is determined by the Board of Directors. It is geared to key principles that take into account the corporate strategy of the Komax Group, which aims for profitable growth, as well as the company’s wider values with respect to sustain- ability and social responsibility. The compensation system is intended to provide an incentive to create and preserve value for shareholders. It is also designed to motivate top managers to achieve exception- al performance and to retain them in the long term. The amount of compensation awarded reflects the company’s long-term financial success. Performance orientation A significant proportion of compensation is directly linked to the operating and financial performance of the company and the attainment of individual objectives. Alignment with shareholder interests A proportion of compensation consists of Performance Share Units, which are intended to align the interests of management more closely with the long-term interests of the shareholders. Furthermore, there is a direct correlation between the amount of compensation paid and the long-term success of the company. Market comparability The compensation rates are in line with the market when compared with similar positions in comparable companies. Fair compensation The compensation reflects the job profile, the responsibility, the capabilities and the experience of the function holder. Transparency The compensation system is straightforward and transparent. The compensation paid to the Executive Committee is determined on the basis of the following key factors: Practice of competitors Performance Available financial re - sources of the company and market situation Compensation paid by other listed international Swiss industrial companies of com- parable complexity, size, and geographic reach. The sources used for the benchmark comparison are publicly accessible data such as compensation reports and the Ethos study on remuneration in Swiss companies. With no benchmark comparison having been undertaken in recent years, various specific benchmarks studies were conducted in 2017, on the basis of which the compensation of the members of the Executive Committee was reviewed. The results of the study indicate that there is no need to adjust the target amounts for compensation. The financial performance of the company and its relevant business areas, and the attainment of individual targets agreed as part of the annual performance management process. Budget-related considerations, inflation, and wage trends in the local market. E_01_GB_Komax_Vergütungsbericht_2017 [P].indd 63 12.03.18 14:28 63 ANNUAL REPORT 2017 COMPENSATION REPORT 5 Structure of the compensation system Board of Directors 5.1 The members of the Board of Directors only receive fixed compensation. To strengthen the alignment of their interests with the long-term interests of shareholders, their compensation is paid partly in cash and partly in restricted shares. The allocation of share options to members of the Board of Directors has been discontinued. 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 of the Board of Directors Vice-Chairman of the Board of Directors Board member and Chairman of a committee Board member without committee chairmanship Basic annual fee Attendance fee 187 500 75 000 75 000 75 000 5 000 2 500 5 000 2 500 Annual allocation of restricted shares1 60 000 30 000 25 000 25 000 1 Fixed amount in CHF: is divided by the share price as per allocation date (average closing price over the last 40 trading days prior to allocation) and rounded up to the nearest number of full shares. The basic annual fee in cash (incl. expense allowance) and attendance fees are paid out in June and December for the current calendar year. Restricted shares are allocated at the end of the member’s period of office shortly before the Annual General Meeting; the lock-in period is three years. In the event of retirement, death, or disability, the entitlement to restricted shares is calculated on a pro rata tempo- ris basis. In such cases, the lock-in period may be either continued or rescinded at the discretion of the Board of Directors. In the event of a change in company control, the lock-in period is automatically rescinded. Additional compensation may be paid for exceptional efforts that cannot be considered part of the ordinary Board of Directors activity. No such additional compensation was paid in 2017. The Compensation granted 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 pension plans of Komax. 64 E_01_GB_Komax_Vergütungsbericht_2017 [P].indd 64 12.03.18 14:28 ANNUAL REPORT 2017 COMPENSATION REPORT CEO and Executive Committee 5.2 In keeping with the principles of performance orientation and alignment with the long-term interests of shareholders, the CEO and the other members of the Executive Committee receive a fixed salary com- ponent, a variable, performance-related cash bonus, a long-term incentive component in the form of Performance Share Units, and occupational benefits. Fixed compensation Attract, retain, motivate Function, market comparability – Ongoing Monthly cash payments Purpose Driver Performance criterion Period Instrument Cash bonus Long-term incentive system Pay for performance Align with shareholder interests, pay for performance Financial and individual performance Revenues, EBIT, individual objectives One year Yearly cash payment Function RONCE Three years Performance Share Units (PSUs) Retirement savings / insurance plan Occupational benefits Protect against risks Market comparability – Ongoing a) 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 regula- tions. Expense allowances are not included, as these are not considered compensation. The fixed salary component and the cash bonus for 100% target attainment form the so-called target salary. The target salary is determined 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. skills, capabilities, experience, and performance the company’s available financial affordability – b) Cash bonus The cash bonus depends on the financial performance of the company and its business areas as well as the attainment of the individually agreed objectives in the year under assessment. The target value (target bonus) is expressed as a proportion of fixed annual basic salary, and amounts to 50% for the CEO and for the other members of the Executive Committee. CEO and CFO The cash bonus for the CEO and CFO is based entirely on the financial performance of the Komax Group. The reference values relevant to the 2017 financial year were Group revenues and Group EBIT. The Board of Directors determines the performance achievement level and the amount of the cash bo- nus payable to the CEO annually on the recommendation of the Remuneration Committee. This also forms the basis for determining the performance achievement level and cash bonus of the CFO, which is likewise determined by the Remuneration Committee. 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 175% of the target bonus or a maximum of 100% of annual fixed compensation. E_01_GB_Komax_Vergütungsbericht_2017 [P].indd 65 12.03.18 14:28 65 ANNUAL REPORT 2017 COMPENSATION REPORT Target attainment The attainment of financial targets is evaluated after the end of the financial year; it may fall anywhere within a bandwidth of 0% to 200%. The individual performance component is based on the attainment of personal objectives agreed as part of the annual performance management process. These objectives may also include non-quantita- tive objectives of a predominantly strategic nature, such as the opening up of new markets, the devel- opment of new products, the management of key projects, and leadership objectives. Attainment of personal objectives is evaluated after the end of the financial year and may fluctuate within a range of 0% to 100%. Financial performance CEO and CFO 25% Revenues (Group) 50% EBIT (Group) Individual performance 25% individual objectives Payout bandwidth 0%–175% The cash bonus is generally paid in April of the following year. c) Long-term incentive system To ensure that the interests of the Executive Committee are aligned with long-term shareholder inter- ests, the Komax Group has a long-term incentive system linked to the company’s financial performance. This plan comprises Performance Share Units (PSUs) with a three-year vesting period that are depend- ent on the attainment of a performance target (average RONCE figure over three years) and the contin- uation of the employment relationship. The Board of Directors determines the allocation amounts in CHF, taking account of the importance of the function and its impact on corporate results. Calculation of PSU allocation The number of PSUs allocated is calculated by dividing a fixed CHF amount by the average closing share price during the 60 days preceding the start of the vesting period. 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 RONCE figure over three years compared to the target margin determined in advance by the Board of Directors. The payout factor may range between 0% and 150%. The actual value of the allocation at the end of the vesting period depends therefore on the pay- out factor and the development of the share price over the course of the vesting period. Shares are definitively issued according to the following vesting rule: – RONCE figure below threshold value: 0% of PSUs are converted into shares (forfeiture rate of 100%) RONCE figure achieved: 100% of PSUs are converted into shares RONCE figure at maximum performance level: 150% of PSUs are converted into shares (cap) – – The payout factor between the threshold value, the target level, and the cap is obtained by linear inter- polation. Number of shares allocated at time of vesting = Number of PSUs originally granted to the individual in question X Vesting factor (0%–150%) 66 E_01_GB_Komax_Vergütungsbericht_2017 [P].indd 66 12.03.18 14:28 ANNUAL REPORT 2017 COMPENSATION REPORT Duration of plan Plan period (2017 – 2019) 2017 plan year 2018 plan year 2019 plan year Average RONCE figure 1 January 2017 allocation of PSUs 31 December 2019 vesting: allocation of shares (payout factor between 0% and 150%) In the event of any termination of the employment, pro rata vesting applies at the ordinary vesting date. The calculation is based on the number of whole months that have elapsed within the vesting period until the departure date. Dismissals for cause are excluded from this regulation; in such cases, all unvested PSUs immediately forfeit and become worthless. In the event of a change in control, accelerated pro rata vesting applies. The calculation is based on the number of whole months that have elapsed until the date of change in control. This date is deter- mined at the discretion of the Board of Directors. d) Occupational benefits Members of the Executive Committee are insured under Komax’s ordinary staff pension scheme in Switzerland. The amount insured is the annual fixed base salary multiplied by a factor of 1.2 in order to additionally insure at least a proportion of the variable compensation. 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. e) Other provisions in employment contracts The employment contracts of members of the Executive Committee are concluded for an inde finite period and stipulate a maximum notice period of 12 months. They do not contain any severance agree- ment or change of control provisions. E_01_GB_Komax_Vergütungsbericht_2017 [P].indd 67 12.03.18 14:28 67 ANNUAL REPORT 2017 COMPENSATION REPORT 6 Compensation, shareholdings and options held by the Board of Directors in 2017 Section 6 of the Compensation Report was audited by the company’s external auditor. Compensation 6.1 In 2017, members of the Board of Directors received total compensation of CHF 898 274 (2016: CHF 904 330), of which CHF 661 250 was paid out in cash (2016: CHF 673 750), CHF 181 667 in the form of restricted shares (2016: CHF 175 417) and CHF 55 357 as social benefit contributions (2016: CHF 55 163). Contributions to pensions plans amounted to CHF 0 (2016: CHF 0). in CHF Basic annual fee 1 Allocation restricted shares 2 Social benefits 3 Total compensation 2017 Total compensation 2016 Beat Kälin Daniel Hirschi David Dean Andreas Häberli 4 Kurt Haerri Roland Siegwart Leo Steiner 5 Chairman Member Member Member Member Member Member 220 000 102 500 97 500 53 750 92 500 95 000 n.s. 60 000 30 000 25 000 16 667 25 000 25 000 n.s. 11 537 10 314 9 536 5 482 9 147 9 341 n.s. 291 537 142 814 132 036 75 899 126 647 129 341 n.s. 300 287 149 551 136 078 n.s. 130 689 134 731 52 994 Total Board of Directors 661 250 181 667 55 357 898 274 904 330 1 Basic annual fee in cash (incl. expense allowance) and attendance fees. 2 Fixed amount in CHF: is divided by the share price as per allocation date (average closing price over the last 40 trading days prior to allocation) and rounded up to the nearest number of full shares. The share price applied in 2017 was CHF 259.07. 3 Includes mandatory employer contributions to social insurance. This amount entitles members of the Board of Directors to draw the maximum insured pension benefits in the future. 4 Member of the Board since 12 May 2017. 5 Member of the Board until 12 May 2016. No compensation was paid to former members of the Board of Directors for the 2016 and 2017 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 2017. 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. Holdings of shares and options as at 31 December 2017 6.2 As at the end of 2016 and 2017, members of the Board of Directors had the following holdings of shares and/or options in the company: Assets in units 31.12.2017 31.12.2016 Beat Kälin Daniel Hirschi David Dean Andreas Häberli 1 Kurt Haerri Roland Siegwart Chairman Member Member Member Member Member Shares Options Shares Options 8 507 4 429 1 830 0 1 799 940 4 000 1 000 0 0 1 000 1 000 9 135 3 713 1 068 n.s. 703 844 13 000 2 000 666 n.s. 2 000 1 000 Total Board of Directors 17 505 7 000 15 463 18 666 1 Member of the Board since 12 May 2017. 68 E_01_GB_Komax_Vergütungsbericht_2017 [P].indd 68 12.03.18 14:28 ANNUAL REPORT 2017 COMPENSATION REPORT 7 Compensation, shareholdings and options held by the Executive Committee in 2017 Section 7 of the Compensation Report was audited by the company’s external auditor. Compensation 7.1 In 2017, members of the Executive Committee received total compensation of CHF 1 363 710 (2016: CHF 1 546 147). Of this amount, CHF 749 383 was paid in the form of fixed compensation (2016: 780 626), CHF 245 278 in the form of cash bonuses (2016: CHF 383 959), CHF 230 000 were granted in the form of Performance Share Units (2016: CHF 226 806) and CHF 139 049 comprised social security and pen- sion fund contributions (2016: CHF 154 756). Fixed compensation 1 Cash bonus 2 Allocation Performance Share Units 3 Social benefits 4 Total compensation 2017 Total compensation 2016 CEO 433 500 155 268 160 000 78 007 826 775 846 403 315 883 90 010 70 000 61 042 536 935 699 744 749 383 245 278 230 000 139 049 1 363 710 1 546 147 in CHF Matijas Meyer 5 Total other members of the Executive Committee 6 Total Executive Committee 1 Expense allowances are not included in the fixed compensation as these are not considered as compensation. 2 Bonus for 2017, to be paid in April 2018. 3 Fixed amount in CHF: is divided by the share price as per allocation date (average closing price over the last 60 trading days prior to allocation) and rounded up to the nearest number of full shares. The share price applied in 2017 was CHF 241.98. 4 Includes mandatory employer contributions to social insurance of CHF 28 483 as well as contributions to occupational benefits (BVG). This amount enti- tles members of the Executive Committee to draw the maximum state-insured pension benefits in the future. 5 Highest compensated member of Executive Committee in 2017. 6 With the sale of the Medtech business unit on 15 April 2016, the Head of the Medtech business unit left the Executive Committee. The CFO is therefore the only other member of the Executive Committee. Notes on the compensation overview In 2017, the CEO’s cash bonus amounted to 36% of fixed compensation (2016: 52%). This payout level is due to the development of revenues and EBIT and the attainment of individual objectives. For the other member of the Executive Committee (CFO), the cash bonus amounted to 28% of fixed com- pensation (2016: 46%). The PSUs granted to the CEO in the year under review corresponded to 37% of annual fixed com- pensation (2016: 37%) and 22% for the CFO (2016: 23%). The overall variable compensation of the CEO in 2017 therefore amounted to 73% of the annual fixed compensation (2016: 89%) and that of the CFO 50% (2016: 69%). This is in line with the provi- sions of the company’s Articles of Association, which allows for a maximum level of 100% of annual fixed base salary for each element of variable compensation. Further details on the participation plans can be found in the notes to the consolidated financial statements, on pages 109 to 111 of the Financial Report. No compensation was paid to former members of the Executive Committee for the 2016 and 2017 financial years. Komax Group companies had not granted any guarantees, loans, advances or credits to members of the Executive Committee or parties closely linked to such persons as at 31 December 2017. No members of the Executive Committee or persons closely linked to them are or were involved in Komax Group transactions outside their normal duties. E_01_GB_Komax_Vergütungsbericht_2017 [P].indd 69 12.03.18 14:28 69 ANNUAL REPORT 2017 COMPENSATION REPORT Holdings of shares and options as at 31 December 2017 7.2 As at the end of 2016 and 2017, members of the Executive Committee had the following holdings of shares and/or options in the company: Assets in units 31.12.2017 31.12.2016 Matijas Meyer Andreas Wolfisberg CEO CFO Total Executive Committee Shares Options Shares Options 4 000 600 4 600 0 0 0 2 000 600 2 600 3 000 3 000 6 000 70 E_01_GB_Komax_Vergütungsbericht_2017 [P].indd 70 12.03.18 14:28 ANNUAL REPORT 2017 COMPENSATION REPORT Report of the statutory auditor to the Annual General Meeting of Komax Holding AG, Dierikon We have audited the accompanying remuneration report (Art. 6 and 7) of Komax Holding AG for the year ended 31 De- cember 2017. Board of Directors’ responsibility The Board of Directors is responsible for the preparation and overall fair presentation of the remuneration report in accord- ance with Swiss law and the Ordinance against Excessive Compensation in Stock Exchange Listed Companies (Ordi- nance). The Board of Directors is also responsible for designing the remuneration system and defining individual remuner- ation packages. Auditor’s responsibility Our responsibility is to express an opinion on the accompanying remuneration report. We conducted our audit in accord- ance 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 se- lected depend on the auditor’s judgment, including the assessment of the risks of material misstatements in the remuner- ation report, whether due to fraud or error. This audit also includes evaluating the reason ableness of the methods applied to value components of remuneration, as well as assessing the overall presentation 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 2017 complies with Swiss law and articles 14–16 of the Ordinance. PricewaterhouseCoopers AG Thomas Brüderlin Audit expert Auditor in charge Korbinian Petzi Audit expert Basel, 9 March 2018 E_01_GB_Komax_Vergütungsbericht_2017 [P].indd 71 12.03.18 14:28 71 This page has been intentionally left blank. E_01_GB_Komax_Vergütungsbericht_2017 [P].indd 72 12.03.18 14:28 FINANCIAL REPORT 2017 CONTENTS FINANCIAL STATEMENTS OF KOMAX HOLDING AG Balance sheet 118 Income statement 119 Notes 120 Proposal for the appropriation of profit 125 Report of the auditors 126 CONSOLIDATED FINANCIAL STATEMENTS Consolidated income statement 74 Consolidated balance sheet 75 Consolidated statement of shareholders’ equity 76 Consolidated cash flow statement 77 Notes General information 78 Performance 81 Operating assets and liabilities 89 Capital and financial risk management 97 Group structure 101 Other information 108 Report of the auditors 114 E_01_GB_Komax_Finanzbericht_2017 [P].indd 73 73 12.03.18 14:27 Consolidated income statement in TCHF Net Sales Other operating income Revenues Change in inventory of unfinished and finished goods Cost of materials Gross profit Personnel expenses Depreciation on property, plant, and equipment Depreciation on intangible assets Other operating expenses Operating profit (EBIT) Financial result Ordinary profit Non-operating result Extraordinary result Group profit before taxes (EBT) Income taxes Group profit after taxes (EAT) Of which attributable to: – Shareholders’ of Komax Holding AG – Non-controlling interest Basic earnings per share (in CHF) Diluted earnings per share (in CHF) Notes 2017 % 20161 % 407 275 1 234 408 509 8 076 –160 109 256 476 –136 982 –7 705 –3 341 –53 379 55 069 –819 54 250 –99 –3 601 50 550 –8 449 42 101 42 101 0 11.05 10.99 1.2 1.2 1.3 2.4 2.6 1.3 1.4 1.5 1.5 1.6 1.7 1.7 100.0 62.8 13.5 13.3 12.4 10.3 389 455 2 365 391 820 5 911 –149 788 247 943 –131 588 –6 914 –2 082 –51 935 55 424 –2 148 53 276 –198 –3 688 49 390 –10 687 38 703 38 703 0 10.34 10.22 100.0 63.3 14.1 13.6 12.6 9.9 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 74 E_01_GB_Komax_Finanzbericht_2017 [P].indd 74 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Consolidated balance sheet in TCHF Assets Cash and cash equivalents Securities Trade receivables Other receivables Inventories Accrued income and prepaid expenses Assets held for sale Total current assets Property, plant, and equipment Non-operating properties Intangible assets Investments in associates Deferred tax assets Other non-current receivables Total non-current assets Total assets Liabilities Current financial liabilities Trade payables Other payables Current provisions Accrued expenses and deferred income Total current liabilities Non-current financial liabilities Other non-current liabilities Deferred tax liabilities Total non-current liabilities Total liabilities Share capital Capital surplus Treasury shares Retained earnings Equity attributable to shareholders’ of Komax Holding AG Notes 31.12.2017 % 31.12.20161 % 2.1 2.1 2.2 2.3 2.4 2.5 2.6 4.3 1.6 2.7 3.1 2.8 2.8 3.1 1.6 3.2 3.2 59 291 21 99 723 29 459 92 020 3 803 6 785 48 531 0 85 190 25 319 70 410 2 429 0 291 102 70.2 231 879 64.9 93 719 0 14 480 0 13 021 2 136 123 356 83 741 5 311 14 294 670 12 169 8 996 29.8 125 181 35.1 414 458 100.0 357 060 100.0 0 22 348 34 438 2 359 19 361 78 506 69 856 2 710 5 208 77 774 156 280 383 28 649 –4 054 233 200 258 178 78 18 776 28 146 2 222 21 097 70 319 31 445 3 922 5 200 40 567 110 886 377 27 670 –2 105 220 232 246 174 18.9 18.8 37.7 62.3 19.7 11.4 31.1 68.9 100.0 Total liabilities and shareholders’ equity 414 458 100.0 357 060 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). E_01_GB_Komax_Finanzbericht_2017 [P].indd 75 75 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of shareholders’ equity in TCHF Notes Share capital Premium Treasury shares Goodwill offset Currency differences Other retained earnings Total retained earnings Equity share- holders’ of Komax Holding AG 369 25 548 –2 191 0 –29 760 289 168 259 408 283 134 0 0 0 –38 866 29 760 –32 861 –41 967 –41 967 369 25 548 –2 191 –38 866 0 256 307 217 441 241 167 3.2 8 5 457 –5 623 2 288 –2 105 2 060 131 3.2 3.2 2.6 38 703 38 703 38 703 0 0 5 465 –5 623 –16 870 –16 870 –16 870 0 0 1 583 1 583 –2 105 4 348 1 714 –19 893 –19 893 –19 893 –732 –732 –732 377 27 670 –2 105 –58 759 –732 279 723 220 232 246 174 377 27 670 –2 105 –58 759 –732 279 723 220 232 246 174 Balance on 31 December 2015 (according to IFRS) Swiss GAAP FER adjustments1 Balance on 1 January 2016 Swiss GAAP FER Group profit after taxes Capital increase from exercise of options Distribution out of reserves from capital contributions Dividend paid Purchase of treasury shares Sale of treasury shares Share-based payments Goodwill offset with shareholders’ equity Currency translation differences recorded in the reporting period Balance on 31 December 2016 Balance on 1 January 2017 Group profit after taxes Capital increase from exercise of options Distribution out of reserves from capital contributions Dividend paid Share-based payments Goodwill offset with shareholders’ equity Currency translation differences recorded in the reporting period Balance on 31 December 2017 3.2 6 6 707 –5 728 –2 098 149 Purchase of treasury shares 3.2 42 101 42 101 42 101 0 0 6 713 –5 728 –19 094 –19 094 –19 094 772 0 772 –2 098 921 2.6 –13 267 –13 267 –13 267 383 28 649 –4 054 –72 026 1 724 303 502 233 200 258 178 2 456 2 456 2 456 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 76 E_01_GB_Komax_Finanzbericht_2017 [P].indd 76 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS 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 − Net financial result − Other non-cash items Interest received and other financial income Interest paid and other financial expenses Taxes paid 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 Investments in intangible assets Sale of intangible assets Investments in associates Investments in Group companies and participations2 Sale of Group companies3 Purchase of minority interests Decrease in granted loans Sale of securities Total cash flow from investing activities Free cash flow Cash flow from financing activities Decrease in current financial liabilities Decrease in non-current financial liabilities Increase in current financial liabilities Increase in non-current financial liabilities Capital increase (share-based payments) Distribution out of reserves from capital contributions Dividend paid Purchase of treasury shares Sale of treasury shares 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 Notes 2017 20161 42 101 38 703 1.6 2.4/2.5 2.6 1.4 2.4/2.5 2.6 3.2 3.2 8 449 7 898 3 341 −50 921 819 2 475 1 345 −2 566 −10 101 7 −11 409 −15 526 2 691 −3 628 26 767 −18 742 259 −3 459 6 0 −17 163 4 100 0 650 0 10 687 7 105 2 082 −190 1 714 2 148 1 333 1 507 −6 631 −11 766 −1 149 3 703 −7 154 2 420 −7 606 36 906 −18 171 1 086 −4 656 6 −34 −36 428 23 589 −2 233 357 19 –34 349 –36 465 –7 582 441 −153 −1 075 0 37 795 6 713 −5 728 −19 094 −2 098 0 16 360 1 982 10 760 48 531 59 291 −2 483 0 78 14 309 5 465 −5 623 −16 870 −2 105 4 349 –2 880 87 –2 352 50 883 48 531 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 2 Less cash and cash equivalents acquired. 3 Less cash and cash equivalents sold. E_01_GB_Komax_Finanzbericht_2017 [P].indd 77 77 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements General information Headquartered in Dierikon, Switzerland, Komax Holding AG (parent company), together with its subsid- iary companies (the Komax Group), is a pioneer and market leader in the field of automatic wire pro- cessing, providing clients with innovative, future-oriented solutions in any situation that calls for precise contact connections. The present consolidated financial statements were adopted by the Board of Directors of Komax Hold- ing AG on 8 March 2018 and released for publication. Their approval by the Annual General Meeting, scheduled for 19 April 2018, is pending. Accounting policies The consolidated financial statements of the Komax Group are based on the individual financial state- ments of the Group companies, compiled in accordance with uniform standards, as at 31 December 2017. With effect from 1 January 2017, the consolidated financial statements have been drawn up in accordance with the entire existing guidelines of Swiss GAAP FER (Swiss Accounting and Reporting Recommendations). Furthermore, the provisions of the Swiss company law have been complied with. The consolidated financial statements are based on the principle of historic acquisition cost (with the exception of securities and derivative financial instruments, which are recorded at their fair values), and have been drawn up under the “going concern” assumption. The accounting and valuation principles relevant to an understanding of the annual financial statements are described in the relevant explanatory notes. Adjustments in connection with the change of accounting principles In its media release of 21 March 2017, Komax announced that it was changing its accounting standard from IFRS to Swiss GAAP FER with effect from the 2017 financial year. The change was driven by the following key considerations: – The constant widening of the scope of regulation under IFRS and the ever-increasing num- ber of complex and formal detailed regulations. – The Swiss GAAP FER accounting standard is particularly suited to the needs of medium- sized companies like the Komax Group. – The latter standard continues to guarantee shareholders transparent reporting in keeping with the “true and fair” principle. The accounting standards applied in the preparation and presentation of the consolidated financial statements for 2017 deviate from the consolidated financial statements for 2016 drawn up in accor- dance with IFRS in the following key points: Goodwill from acquisitions and associated companies a) Goodwill and technologies from acquisitions and associated companies are directly offset against re- tained earnings in shareholders’ equity, in keeping with the option that applies at the point of acquisition under Swiss GAAP FER 30 “Consolidated financial statements.” Under IFRS, goodwill was capitalized and reviewed for impairment on an annual basis, whereas prior to acquisitions not capitalized technol- ogies were separately capitalized as part of the purchase price allocation process and amortized over their estimated economic lifetime. According to Swiss GAAP FER, they are not separately recognized, but remain subsumed under goodwill. Under Swiss GAAP FER, transaction costs incurred in connec- tion with acquisitions are treated as a component part of acquisition costs. Under IFRS, transaction costs were recognized in the income statement. 78 E_01_GB_Komax_Finanzbericht_2017 [P].indd 78 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Employee benefits b) Under Swiss GAAP FER 16 “Pension benefit obligations,” the economic obligations and benefits of Swiss pension schemes are ascertained on the basis of figures drawn up in accordance with Swiss GAAP FER 26 “Accounting of pension plans.” The economic impact of the pension schemes of foreign subsidiaries is ascertained in accordance with locally applied valuation methods. Employer contribution reserves and comparable items are capitalized under Swiss GAAP FER 16. Under IFRS, defined-bene- fit pension plans were calculated according to the “projected unit credit method” and recorded in the balance sheet in accordance with IAS 19. Tax-loss carry forwards c) Komax has elected not to capitalize future tax savings from offsettable tax-loss carry forwards. The use of these tax-loss carry forwards is recorded upon realization. Under IFRS, deferred tax claims in con- nection with tax losses were taken into account to the extent that it was deemed probable that future taxable profits would be generated so that these losses could be used in the foreseeable future. Deferred income taxes d) The above-mentioned valuation and accounting adjustments have the corresponding repercussions for deferred income taxes in the balance sheet and the income statement. Reclassification in shareholders’ equity e) As part of the changeover to Swiss GAAP FER, the cumulative currency translation differences were reset/reversed as of 1 January 2016 and offset against retained earnings. Under Swiss GAAP FER, the result from divestments (discontinued operations) therefore only contains the currency translation dif- ferences arising after 1 January 2016. The presentation and format of the balance sheet, income statement, statement of shareholders’ equity, and cash flow statement were adjusted in keeping with the requirements of Swiss GAAP FER. Prior periods were adjusted accordingly to facilitate comparability with the new presentation of the current reporting period (restatement). The repercussions of the above-mentioned adjustments for sharehold- ers’ equity and the income statement of Komax are summarized in the following tables: Adjustment effects − shareholders’ equity in TCHF Shareholders’ equity under IFRS Adjustments under Swiss GAAP FER 31.12.2016 01.01.2016 311 910 283 134 Offsetting of goodwill against shareholders’ equity −47 441 −30 662 Offsetting of technology against shareholders’ equity as component part of goodwill (incl. deferred taxes) IAS 19 adjustments (incl. deferred taxes) Non-capitalization of deferred taxes from offsettable tax-loss carry forwards −9 712 7 732 −8 204 13 919 −16 315 −17 020 Shareholders’ equity under Swiss GAAP FER 246 174 241 167 E_01_GB_Komax_Finanzbericht_2017 [P].indd 79 79 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Adjustment effects − Group profit after taxes (EAT) in TCHF Group profit after taxes (EAT) under IFRS Adjustments under Swiss GAAP FER Transaction costs from acquisitions Amortization of intangible assets IAS 19 adjustments (incl. deferred taxes) Discontinued operations (effect of currency translation differences) Impact of non-capitalization of deferred taxes from offsettable tax-loss carry forwards Group profit after taxes (EAT) under Swiss GAAP FER 2016 35 489 192 1 492 −963 944 1 549 38 703 Key recognition and measurement assumptions Preparation of the consolidated financial statements requires the Board of Directors and Group Management to make estimates and assumptions, whereby such estimates and assumptions have an effect on the accounting principles applied and are reflected in the amounts stated under assets, liabilities, income, expenses, and related disclosures. Their estimates and assumptions 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. The following material estimates are included in the consolidated financial statements: Recognition of revenue according to POC method Current and deferred income taxes Impairment of property, plant, and equipment Impairment of intangible assets and goodwill Contingent consideration Provisions Page 83 88 91 95 96 96 Key events of the reporting period As mentioned in the Shareholders’ letter on pages 2 and 3, the year 2017 was characterized by strong growth in order intake and revenues, the acquisitions of Laselec and Practical Solution, as well as sig- nificant investment in research and development. The operating profit matches almost the prior-year figure and Group profit after taxes rose by 8.8%. The credit line of the syndicated loan agreement was increased from CHF 100 million to CHF 140 million in order to ensure the financing of the high investments. Mainly due to these investments, free cash flow resulted in a negative figure. With an equity ratio of more than 62%, Komax continues to be very robust- ly financed. With effect from 1 January 2017, Komax changed the accounting standard from IFRS to Swiss GAAP FER. The accounting policies disclose in detail that this change mainly had an impact on the valuation of goodwill, the employee benefits and the deferred tax assets. Events after the balance sheet date No significant events occurred between the balance sheet date and the approval of the consolidated financial statements by the Board of Directors on 8 March 2018 which might adversely affect the infor- mation content of the 2017 consolidated financial statements or which would require disclosure. 80 E_01_GB_Komax_Finanzbericht_2017 [P].indd 80 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Performance 1 In this section, we provide details of the 2017 result of the Komax Group. In addition to earnings per share, we also provide details on revenues, expenses, the financial result, and taxes. The operating profit (EBIT) of the Komax Group decreased from CHF 55.4 million in 2016 to CHF 55.1 million in 2017. The chart below illustrates the year-on-year change between the current reporting peri- od and the prior-year. in CHF million 8.5 – 5.4 55.4 –2.0 –1.4 55.1 75 60 45 30 15 EBIT 2016 Gross profit Personnel expenses Depreciation Operating expenses EBIT 2017 Segment information 1.1 The Komax Group is a global technology company that focuses on markets in the automation sector. As a manufacturer of innovative and high-quality solutions for the wire processing industry, Komax helps its customers implement economical and safe manufacturing processes, especially in the auto- motive supply sector. All Group companies are active in wire processing, have a uniform client base, and are centrally managed. The Board of Directors and the Group Executive Committee, which make the key strategic and operating decisions, manage the Komax Group primarily on the basis of the finan- cial statements of the individual companies, the Management Information System, and the consolidated financial statements. Due to the commercial similarity and interconnections of the Group companies, Komax presents its business in amalgamated form as a single segment, in accordance with Swiss GAAP FER 31. E_01_GB_Komax_Finanzbericht_2017 [P].indd 81 81 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Up until the sale of the Medtech business unit in April 2016, the Komax Group had two segments. The corresponding segment information is set out below: in TCHF 2017 20161 Net sales from external customers Net sales from other segments Total net sales EBIT Wire2 Medtech Group Wire2 Medtech Group 407 275 − 407 275 55 069 − − − − 407 275 370 398 19 057 389 455 − 0 0 0 407 275 370 398 19 057 389 455 55 069 55 202 222 55 424 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 2 Including elimination of intersegment revenues and corporate costs. Revenues Revenues by region 1.2 a) The percentage breakdown of revenues by region is as follows: 2017 2.2% Switzerland 19.9% Asia/Pacific 18.6% North and South America 10.5% Africa 48.8% Europe 2016 2.3% Switzerland 18.9% Asia/Pacific 22.2% North and South America 7.4% Africa 49.2% Europe 82 E_01_GB_Komax_Finanzbericht_2017 [P].indd 82 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Construction contracts b) In the current reporting period, sales of CHF 11.7 million (2016: CHF 23.3 million) were recorded from long-term construction contracts on the basis of the POC method. c) Other operating income in TCHF Own work capitalized Government grants Gains from the disposal non-current assets Other income Total other operating income 2017 820 184 116 114 1 234 20161 1 630 68 305 362 2 365 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). Key recognition and measurement assumptions Automated assembly and production contracts are measured according to the POC method, provided the as- sessment meets the requirements of Swiss GAAP FER 22 “Long-term contracts”. Although projects are assessed monthly and in good faith in accordance with comprehensive project management guidelines, subsequent cor- rections may be required. These corrections are made in the following period and may have a positive or negative impact on revenue in this period. E_01_GB_Komax_Finanzbericht_2017 [P].indd 83 83 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Recognition and measurement 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. For any intermediated transactions, only the value of services provided by Komax itself is reported. Transactions with a number of individually identifiable component parts are recorded and valued separately. Sale of goods: Revenue from the sale of goods is recognized when risk and rewards of ownership have been trans- ferred to the buyer. All expenses connected with sales are recognized on an accrual basis. Sale of services: Revenue from the sale of services is recognized in accordance with progress on the service accord- ing to the ratio of completed to still outstanding services to be performed during the financial year in which the services are rendered. Manufacturing contracts: Manufacturing contracts in the automated assembly and production business units, in- volving the customer-specific manufacture of systems, are valued according to the “percentage of completion” method (POC method) in accordance with Swiss GAAP FER 22. On the balance sheet, these are reported either under “Trade receivables” or “Other payables,” 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 recognized in full in the income statement. Any costs of debt capital are capitalized provided debt capital is raised for the purpose of financing the project and its costs can be directly attributed to a manufacturing contract. Leases with Komax as lessor: Contractual relationships in which Komax acts as lessor are reported as financial leases if all risks and returns 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 character- istics, and are written down at the normal rates that apply to assets of that type. Lease income is recognized in the income statement on a linear basis over the term of the lease. Leases with Komax as lessee: Only in exceptional cases does Komax act as lessee in financial lease agreements. A financial lease arises when the lessor transfers virtually all the risks and benefits associated with ownership of the leas- ing object to the lessee. At the beginning of the contract term, the object in question is recorded on the balance sheet as both an investment asset and a liability at its fair value or (if lower) at the net cash value of future leasing payments. Every lease instalment is broken down into financing costs on the one hand and repayment of the residual debt on the other, so that the interest rate remains constant for the residual liability. Financing costs are booked directly to the income statement as an expense. Capitalized leasing objects are depreciated over their estimated economically useful lives, or (if lower) over the contractual period in question. An operating lease agreement arises when a substantial proportion of the risks associated with ownership remain with the lessor. Payments for operating leasing agreements are booked to the income statement as an expense in a linear way for the entire duration of the agreement. 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 income,” 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 relating to an asset are deducted from the carrying amount. 84 E_01_GB_Komax_Finanzbericht_2017 [P].indd 84 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS 1.3 a) Expenses Personnel expenses in TCHF Wages and salaries Share-based payments settled with equity instruments Share-based payments settled in cash Social security and pension contributions Other personnel costs (in particular training and development) 2017 20161 −109 448 −102 369 −1 090 −284 −21 581 −4 579 −1 777 −1 541 −21 271 −4 630 Total personnel expenses −136 982 −131 588 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). b) Other operating expenses in TCHF Expenditure on operating equipment and energy Rental expenses Repair and maintenance expenses Third-party services for development expenses Representation and marketing expenses Legal and consultancy expenses Shipping and packaging expenses Expenditure on administration and sales Other expenditure 2017 −2 238 −3 078 −13 955 −7 128 −11 593 −4 225 −6 114 −2 921 −2 127 20161 −2 266 −2 886 −12 542 −6 064 −11 338 −5 040 −6 649 −3 102 −2 048 Total other operating expenses −53 379 −51 935 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 1.4 Financial result in TCHF Financial income Interest income Exchange rate gains on foreign currencies Total financial income Financial expenses Interest expenses Exchange rate losses on foreign currencies Change in fair value of contingent consideration arrangements Total financial expenses Result from associated companies Total financial result 2017 20161 454 7 078 7 532 −1 241 −7 636 0 −8 877 526 −819 333 6 245 6 578 −1 802 −6 984 −79 −8 865 139 −2 148 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). E_01_GB_Komax_Finanzbericht_2017 [P].indd 85 85 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Recognition and measurement Interests: Interest income and expenses are accrued using the effective interest rate method. Non-operating and extraordinary result 1.5 The non-operating result includes the income and expenses from non-operating properties. The extraordinary result contains expenses of CHF 3.6 million relating to an impairment of a loan grant- ed to an associated company. In the corresponding prior-year period, the expenses incurred in connec- tion with the restructuring at the Porta Westfalica site in Germany (CHF 2.4 million) and the result from the sale of the former Medtech business unit (CHF 1.3 million) are contained in the extraordinary result. Recognition and measurement Non-operating result: Non-operating result is expense and income which arise from events or transactions that clearly differ from the usual business activities of the organisation. Extraordinary result: Expense and income which arise extremely rarely in the context of the ordinary operations and which are not predictable are considered as extraordinary. 1.6 a) Taxes Income taxes in TCHF Current income taxes Deferred tax income (+) / tax expenses (–) Total income taxes 2017 −8 766 317 20161 −10 636 −51 −8 449 −10 687 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). Analysis of the tax rate in TCHF Group profit before taxes (EBT) Expected tax expenses Impact of non-capitalized tax-loss carry forwards Utilization of non-capitalized tax-loss carry forwards Effect of changes in tax rate Tax credits / charges from prior-years Effect of non-deductible expenses Effect of non-taxable income Non-reclaimable withholding taxes Others Effective tax expenses 2017 50 550 −7 521 −1 475 384 45 161 −189 136 −119 129 −8 449 % 14.9 2.9 −0.8 −0.1 −0.3 0.4 −0.3 0.2 −0.2 16.7 20161 49 390 −7 959 −4 516 1 228 −17 1 293 −287 67 −563 67 −10 687 % 16.1 9.1 −2.5 0.0 −2.6 0.6 −0.1 1.1 −0.1 21.6 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 86 E_01_GB_Komax_Finanzbericht_2017 [P].indd 86 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS As the Group is internationally active, its income taxes are dependent on a number of different tax juris- dictions. The expected income 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. The expected tax rate based on the ordinary result was at 14.5% (2016: 15.5%). b) Deferred tax assets and liabilities in TCHF 31.12.2017 31.12.20161 Property, plant, and equipment / intangible assets Trade receivables and inventories2 Provisions 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 Net deferred tax assets (+) / tax liabilities (–) 9 870 4 107 1 146 684 15 807 −2 786 13 021 3 137 3 534 1 152 171 7 994 9 666 3 160 1 145 1 080 15 051 −2 882 12 169 3 722 2 715 726 919 8 082 −2 786 −2 882 5 208 7 813 5 200 6 969 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 2 Including unrealized intragroup profit. The non-capitalized and unused tax-loss carry forwards expire as follows: in TCHF Expiry of unutilized tax-loss carry forwards 31 December 2017 31 December 2016 Within 5 years After more than 5 years 3 382 2 034 65 888 62 379 Total 69 270 64 413 This results in a deferred tax claim (not recognized in the balance sheet) for as yet unutilized tax-loss carry forwards of CHF 19.6 million (31 December 2016: CHF 22.0 million) as well as CHF 3.4 million (31 December 2016: CHF 3.5 million) not recognized tax credits. E_01_GB_Komax_Finanzbericht_2017 [P].indd 87 87 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Key recognition and measurement assumptions 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 factors may have favorable and unfavorable 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. Recognition and measurement Deferred taxes: 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 es- sence 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-cur- rent 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. Loss carry forwards: Future tax savings from offsettable tax-loss carry forwards are not capitalized. The use of these tax-loss carry forwards is recorded upon realization. Temporary differences on investments in subsidiaries and associates: Deferred tax liabilities are provided on temporary differences arising on investments in subsidiaries 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. 1.7 Earnings per share (EPS) in CHF 2017 20161 Group profit (attributable to equity holders of the parent company) 42 100 813 38 703 234 Weighted average number of outstanding shares Basic earnings per share 3 810 276 3 741 364 11.05 10.34 Group profit (attributable to equity holders of the parent company) 42 100 813 38 703 234 Weighted average number of outstanding shares Adjustment for dilution effect of share options Weighted average number of outstanding shares for calculating diluted earnings per share Diluted earnings per share 3 810 276 3 741 364 22 094 46 729 3 832 370 3 788 093 10.99 10.22 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). Recognition and measurement Earnings per share: 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. Diluted earnings per share are calcu- lated by adding all option rights and non-vested equity rights which would have had a dilutive effect to the average number of shares outstanding. 88 E_01_GB_Komax_Finanzbericht_2017 [P].indd 88 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Operating assets and liabilities 2 In this section we describe the current and non-current operating assets and liabilities. Among other things, this includes further details on receivables, inventories, tangible assets, and intangible assets. 2.1 a) Current receivables Trade receivables in TCHF Trade receivables less provision for impairment Accruals for construction contracts less prepayments for construction contracts Receivables arising from POC Total 31.12.2017 31.12.20161 94 413 −302 12 516 −6 904 5 612 99 723 83 519 −1 142 6 125 −3 312 2 813 85 190 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). Overdue trade receivables that had not been written down amounted to CHF 21.6 million on 31 Decem- ber 2017 (31 December 2016: CHF 19.2 million). Their maturity structure is set out in the following table: in TCHF Number of days 1–30 31–60 61–90 91–120 >120 Total as at 31 December 2017 as at 31 December 20161 8 698 8 275 6 134 2 653 2 532 3 658 1 646 2 659 2 631 1 923 21 641 19 168 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). Other receivables b) In addition to prepayments to suppliers of CHF 1.1 million (31 December 2016: CHF 0.7 million), other receivables mainly comprise credits due from government organizations (tax authorities) and bills re- ceivable. Recognition and measurement Current receivables: Receivables are recorded at nominal value. Impaired receivables are value-adjusted on an indi- vidual basis; no flat-rate value adjustments are calculated for the remaining portfolio. For manufacturing contracts of systems, the inventory includes all costs associated with the systems as well as the production 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. E_01_GB_Komax_Finanzbericht_2017 [P].indd 89 89 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS 2.2 Inventories in TCHF Manufacturing components and spare parts Semi-finished goods / work in process Finished goods Gross value inventories less impairment Inventories 31.12.2017 31.12.20161 53 336 13 974 33 371 100 681 −8 661 92 020 41 724 9 038 28 037 78 799 −8 389 70 410 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). Recognition and measurement Inventories: Inventories are valued at the lower of acquisition / production costs and net market value. Acquisition / production costs encompass all direct and indirect expenses incurred in bringing inventories to their current location or state (full costs). Discounts are treated as acquisition price reductions. For all inventory components, the ascertainment of value is undertaken for the most part in accordance with the FIFO method. The current market price in the sales market in question is assumed when determining net market value. Assets held for sale 2.3 The building in York (USA) that was reported under non-operating properties in the past, is shown as held for sale since the end of 2017. The sales process has been started at the end of 2017 and was already concluded in January 2018. In addition, the building in S. Domingos de Rana (Portugal) is also reported as held for sale and was therefore regrouped from the property, plant, and equipment. The sales process has also been started at the end of 2017 and is expected to be completed in the first quarter 2018. 90 E_01_GB_Komax_Finanzbericht_2017 [P].indd 90 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS 2.4 Property, plant, and equipment in TCHF Costs Undeveloped property Land Buildings Machines and equipment Other tangible fixed assets Assets under construction Total property, plant, and equipment As at 31 December 20151 1 141 15 727 72 057 37 391 7 756 4 770 138 842 Additions Disposals Change in scope of consolidation Reclassifications Currency differences As at 31 December 20161 Additions Disposals Change in scope of consolidation Reclassifications Currency differences 0 0 494 0 0 1 635 0 0 0 0 0 13 −467 0 0 −76 15 197 189 0 84 −633 112 7 851 −310 5 3 358 −537 5 458 −2 015 −4 566 458 −73 82 424 36 653 670 −76 379 −3 810 628 3 269 −769 1 285 30 −6 2 243 −377 −944 0 −26 8 652 1 915 −477 55 13 165 2 606 0 0 −3 816 0 3 560 12 520 0 0 −95 0 18 171 −3 169 −5 011 0 −712 148 121 18 563 −1 322 1 803 −4 495 899 As at 31 December 2017 1 635 14 949 80 215 40 462 10 323 15 985 163 569 Depreciation As at 31 December 20151 Additions Disposals Change in scope of consolidation Currency differences As at 31 December 20161 Additions Disposals Change in scope of consolidation Reclassifications Currency differences As at 31 December 2017 Book values As at 31 December 20151 As at 31 December 20161 As at 31 December 2017 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 –38 485 –20 571 –4 687 −2 543 −3 044 −1 327 73 0 −55 1 952 3 060 −14 318 948 −5 –41 010 –18 617 –4 753 −2 756 −3 461 −1 488 0 −116 2 802 −207 479 −979 0 −20 381 −36 0 −69 –41 287 –22 598 –5 965 0 0 0 0 0 0 0 0 0 0 0 0 1 141 1 635 1 635 15 727 15 197 14 949 33 572 41 414 38 928 16 820 18 036 17 864 3 069 3 899 4 358 4 770 3 560 15 985 –63 743 −6 914 2 343 4 008 −74 –64 380 −7 705 860 −1 131 2 802 −296 –69 850 75 099 83 741 93 719 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). Key recognition and measurement assumptions Property, plant, and equipment are tested for impairment 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. E_01_GB_Komax_Finanzbericht_2017 [P].indd 91 91 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Recognition and measurement Property, plant, and equipment: Property, plant, and equipment are accounted for at historical acquisition or pro- duction cost less accumulated depreciation. Borrowing costs that incurred during the construction phase through the financing of assets under construction, are part of the acquisition cost if they are material. Depreciation is linear over the expected service lifetime. Depreciation period Asset category Machinery Tools Measuring, testing, and controlling devices Operating installations Warehouse installations Vehicles Office equipment Information technology Factory buildings Office buildings Land 2.5 Non-operating properties Changes in gross values in TCHF Total as at 1 January Additions Regrouping to assets classified as held for sale Currency differences Total as at 31 December Changes in depreciation in TCHF Total as at 1 January Depreciation Regrouping to assets classified as held for sale Currency differences Total as at 31 December Net value non-operating properties Recognition and measurement Years 7–10 7 5 10 10–14 5–8 3–10 3–5 33 40 no depreciation 2016 6 660 0 0 200 6 860 2016 –1 311 −191 0 −47 –1 549 5 311 2017 6 860 179 −6 771 −268 0 2017 –1 549 −193 1 679 63 0 0 Non-operating properties: Investment property encompasses land and buildings held with a view to generating rental income or for purposes of capital appreciation, and not for internal production purposes, the delivery of goods or the provision of services, administrative purposes, or sales in the context of ordinary business activity. Investment property is valued at acquisition or construction cost less cumulative depreciation. 92 E_01_GB_Komax_Finanzbericht_2017 [P].indd 92 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS 2.6 a) Intangible assets Movements in the intangible assets in TCHF Costs Software Patents Software in implementation Total intangible assets As at 31 December 20151 14 868 4 051 Additions Disposals Change in scope of consolidation Reclassifications Currency differences As at 31 December 20161 Additions Disposals Change in scope of consolidation Reclassifications Currency differences 2 499 −163 −1 987 22 −24 0 0 11 0 0 15 215 4 062 3 074 −66 141 8 518 149 0 0 0 0 1 As at 31 December 2017 27 031 4 063 Depreciation As at 31 December 20151 Additions Disposals Change in scope of consolidation Currency differences As at 31 December 20161 Additions Disposals Change in scope of consolidation Currency differences As at 31 December 2017 Book values As at 31 December 20151 As at 31 December 20161 As at 31 December 2017 –9 192 –4 050 −2 072 131 1 650 9 –9 474 −3 339 60 −117 −99 −10 0 0 0 –4 060 −2 0 0 −1 –12 969 –4 063 5 676 5 741 14 062 1 2 0 6 416 8 551 418 6 416 2 157 0 0 −22 0 8 551 385 0 0 −8 518 0 418 0 0 0 0 0 0 0 0 0 0 0 25 335 4 656 −163 −1 976 0 −24 27 828 3 459 −66 141 0 150 31 512 –13 242 −2 082 131 1 650 9 –13 534 −3 341 60 −117 −100 –17 032 12 093 14 294 14 480 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). E_01_GB_Komax_Finanzbericht_2017 [P].indd 93 93 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Goodwill b) Goodwill is offset against Group shareholders’ equity upon the acquisition of a subsidiary or the interest in an associated company. Assuming a useful life of 5 years for trading companies acquired and 10 years for production operations acquired plus depreciation on a straight-line basis, the theoretical cap- italization of goodwill would have the following impact on the consolidated balance sheet: in TCHF Historical costs as at 1 January Additions Disposals Currency differences Historical costs as at 31 December Theoretical accumulated depreciation as at 1 January Theoretical depreciation Theoretical depreciation on disposals Currency differences Theoretical accumulated depreciation as at 31 December Theoretical net book value 31 December Goodwill subsidiaries Goodwill associated companies 57 308 14 797 0 −41 72 064 –17 781 −6 673 0 88 –24 366 47 698 1 530 0 −1 530 0 0 –303 −115 418 0 0 0 2017 Total 58 838 14 797 −1 530 −41 72 064 –18 084 −6 788 418 88 Goodwill subsidiaries 37 362 32 016 −12 102 32 57 308 –24 574 −5 282 12 102 −27 Goodwill associated companies 1 504 26 0 0 2016 Total 38 866 32 042 −12 102 32 1 530 58 838 –150 −153 0 0 –24 724 −5 435 12 102 −27 –24 366 –17 781 –303 –18 084 47 698 39 527 1 227 40 754 The capitalisation and depreciation of the goodwill would have the following theoretical impacts on the shareholders’ equity and the group profit after taxes: in TCHF Shareholders’ equity according to balance sheet Theoretical capitalization of net book value of goodwill Theoretical tax impacts Theoretical shareholders’ equity in TCHF Group profit after taxes (EAT) according to income statement Theoretical goodwill depreciation Theoretical impact of goodwill disposals Theoretical tax impacts Theoretical Group profit after taxes (EAT) 31.12.2017 31.12.2016 258 178 47 698 715 246 174 40 754 985 306 591 287 913 2017 42 101 −6 788 418 −235 35 496 2016 38 703 −5 435 12 102 28 45 398 94 E_01_GB_Komax_Finanzbericht_2017 [P].indd 94 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Key recognition and measurement assumptions Intangible assets and Goodwill are tested for impairment if indicators reflect a possible impairment. 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. Recognition and measurement 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 seven years. Costs associated with the development or maintenance of software are recorded as expenses at the time they are incurred. Patents: Patents are recognized at historical acquisition cost less cumulative amortization. Acquisition costs are writ- ten down in a linear way over patent life. Research and development: Research and development expenditure is fully charged to the income statement. These costs are contained in the positions “Personnel expenses” and “Other operating expenses.” Goodwill: Companies acquired over the course of the year are revalued and consolidated at the point of acquisition in keeping with standardized Group principles. The difference between the acquisition cost (including material transaction costs) and the prorated fair value of the net assets acquired is described as goodwill. Any potentially existing but not previously capitalized intangible assets taken over as part of the acquisition – such as brands, technology, rights of use, or client lists – are not separately recognized, but remain subsumed under goodwill. Goodwill can also arise from invest- ments in associated companies, whereby this amounts to the difference between the acquisition cost of the investment and the prorated fair value of the net assets acquired. The goodwill resulting from acquisitions is directly offset against Group shareholders’ equity. If the purchase price contains components that are dependent on future results, these components are estimated as accurately as possible at the point of acquisition and then capitalized. In the event of deviations when the purchase price is definitively settled at a later date, the goodwill offset against shareholders’ equity is adjusted accordingly. In case of disposal, acquired goodwill offset with equity at an earlier date is to be considered at original cost to determine the profit or loss recognised in the income statement. 2.7 Other non-current receivables in TCHF 31.12.2017 31.12.20161 Present value of minimum lease payments Non-current loans to associates Contingent consideration Rent deposit and other non-current receivables Total 0 1 337 0 799 2 136 46 5 501 2 000 1 449 8 996 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). E_01_GB_Komax_Finanzbericht_2017 [P].indd 95 95 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS 2.8 a) Other liabilities Other payables in TCHF Prepayments by customers Contingent consideration Current income tax liabilities Prepayments on construction contracts less accruals / deferrals in respect of construction contracts Liabilities arising from POC Other positions Total other payables 31.12.2017 31.12.2016 11 355 4 357 4 978 5 077 −2 451 2 626 11 122 34 438 7 456 3 900 5 628 2 640 −1 955 685 10 477 28 146 Key recognition and measurement assumptions For the determination of the fair value of a contingent consideration, profit and revenue forecasts as well as the current exchange rates are used that might result in a higher or lower fair value measurement. In addition, the continued employment of certain selling shareholders was assumed. b) Current 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 2017 2 222 2 126 113 −1 448 −672 18 2 359 2016 3 666 2 141 −287 −2 588 −711 1 2 222 Current provisions are warranty provisions that include material and personnel costs in relation to war- ranty work. Key recognition and measurement assumptions 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. 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. Recognition and measurement Provisions: Provisions are formed if the Group has a current legal or constructive obligation arising from an event in the past, if it appears probable that the asset base will be negatively impacted by settlement of the obligation, and if the amount of the provision can be reliably determined. Provisions for warranties are based on past payments, revenues in prior-years and current contracts. Komax normally gives a one-year warranty on machines and systems. 96 E_01_GB_Komax_Finanzbericht_2017 [P].indd 96 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Capital and financial risk management 3 In addition to details on shareholders’ equity, details are also provided on financial risk management at the Komax Group. 3.1 Financial liabilities in TCHF Current account liabilities Bank liabilities Bank liabilities Bank liabilities Currency 31.12.2017 31.12.20161 EUR CHF EUR USD 0 46 000 18 906 4 950 78 16 000 9 265 6 180 Total financial liabilities 69 856 31 523 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). Komax Holding AG finalized an agreement with a bank syndicate for credit line amounting to CHF 140 million. Additionally there are further local credit lines for subsidiaries available amounting to CHF 20 million (up to a maximum of CHF 25 million). As at 31 December 2017 the Group has drawn on this credit limit to the amount of CHF 74.2 million (31 December 2016: CHF 35.5 million). Credit lines Komax Group in CHF million 160 140 120 100 80 60 40 20 0 6 1 4 7 3 1 1 6 3 31.12.2017 31.12.2016 Total credit lines Utilized credit lines The maturities of the financial liabilities (without interests) are as follows: in TCHF less than 1 year 1–5 years Over 5 years Total as at 31 December 2017 as at 31 December 20161 966 514 67 592 29 374 1 298 1 635 69 856 31 523 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). Recognition and measurement Financial liabilities: Financial liabilities comprising bank loans, mortgages, and bonds are valued at amortized cost. Financial liabilities are recorded as current liabilities in the balance sheet unless the Group has the unconditional right to defer settlement of the liability to a point in time at least twelve months after the relevant balance sheet date. E_01_GB_Komax_Finanzbericht_2017 [P].indd 97 97 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Shareholders’ equity 3.2 This section shows the change in shareholders’ equity compared to the prior-year. Shareholders’ equity in CHF million 400 350 300 250 200 150 100 50 4 1 4 8 5 2 7 5 3 6 4 2 31.12.2017 31.12.2016 Balance sheet total Shareholders’ equity a) Share capital Balance sheet date 31 December 2017 31 December 2016 31 December 2015 Number of shares 3 834 482 3 774 148 3 691 651 Par value in CHF 0.10 0.10 0.10 Par value in CHF 383 448 377 415 369 165 All registered shares are fully paid up. The share capital increased due to the exercise of options com- pared to the prior-year. b) Treasury shares Total as at 1 January Purchases Sales Transfer (share-based compensation) 2017 Number Average price in CHF Purchase costs (avg.) in TCHF Number 9 000 8 000 0 233.85 262.27 0.00 2 105 2 098 19 522 9 000 0 −18 355 Average price in CHF 112.27 233.85 112.27 2016 Purchase costs (avg.) in TCHF 2 191 2 105 −2 060 −636 233.85 −149 −1 167 112.27 −131 Total as at 31 December 16 364 247.75 4 054 9 000 233.85 2 105 Both at the end of the reporting year and at the end of the prior-year period, all treasury shares were envisaged for share-based compensation programs. All treasury shares are held by Komax Holding AG. Neither the other Group companies nor the staff pension scheme of Komax AG hold any shares of Ko- max Holding AG. 98 E_01_GB_Komax_Finanzbericht_2017 [P].indd 98 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS c) Conditional capital Total as at 1 January Exercise of options Total as at 31 December 2017 Number 75 852 −60 334 15 518 Par value in CHF Conditional share capi- tal in CHF Number Par value in CHF 0.10 0.10 0.10 7 585 158 349 −6 033 −82 497 1 552 75 852 0.10 0.10 0.10 2016 Conditional share capital in CHF 15 835 −8 250 7 585 There was no increase in conditional capital either in 2016 or in 2017. Conditional capital is created for management and employee share ownership schemes. Reserves d) The non-distributable reserves amounted to CHF 8.0 million as at 31 December 2017 (31 December 2016: CHF 4.5 million). Recognition and measurement Treasury shares: Treasury shares are recognized at the average weighted cost of acquisition, including the trans- action costs assignable to them, and are then offset against shareholders’ equity. When treasury shares are sold or issued, the consideration received is credited to shareholders’ equity. Issuance of shares: Costs that are directly assignable to the issuance of new shares are recognized in shareholders’ equity in net form as a deduction from the issue proceeds. Preferred shares: No preferred shares have been issued to date. Financial risk management 3.3 The Komax Group is exposed to various financial risks, for example currency, credit, liquidity, and inter- est 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 poten- tial negative impact on the Group’s financial position. The Group uses derivative financial instruments to protect itself against interest rate, currency, and credit risks. Risk management is conducted by the finance department of Komax Holding AG in conformity with the guidelines issued by the Board of Di- rectors. 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. E_01_GB_Komax_Finanzbericht_2017 [P].indd 99 99 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Currency risk a) 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 recognized in the bal- ance sheet, and investment in foreign companies. Komax Group generates its revenues in the following currencies: 2017 10.3% CHF 12.4% Others 14.1% CNY 17.1% USD 2016 15.9% CHF 11.3% Others 11.5% CNY 18.6% USD 46.1% EUR 42.7% EUR The most important year-end and average exchange rates were as follows: Currency USD EUR CNY Year-end rate 31.12.2017 Average rate 2017 Year-end rate 31.12.2016 Average rate 2016 0.990 1.180 0.152 1.000 1.110 0.147 1.030 1.090 0.148 0.990 1.100 0.151 Komax is mainly exposed to currency risks relating to the USD, the EUR, and the CNY. Assuming that the average rates 2017 against the CHF had been 10% lower respectively higher and that all other pa- rameters remained largely unchanged, the EBIT margin would have been changed as follows: EUR/CHF average rate +/– 10% USD/CHF average rate +/– 10% CNY/CHF average rate +/– 10% Change EBIT margin 2017 Change EBIT margin 2016 +/– 1.0%-pt. +/– 0.8%-pt. +/– 0.8%-pt. +/– 1.1%-pt. +/– 0.7%-pt. +/– 0.6%-pt. Credit risk b) Credit risks may exist with regard to bank account balances, derivative financial instruments, and re- ceivables from customers. Komax regularly reviews the independent ratings of financial institutions. Moreover, all risks pertaining to cash and cash equivalents are further minimized by using a variety of banks rather than one single bank. 100 E_01_GB_Komax_Finanzbericht_2017 [P].indd 100 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Capital risk c) 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 fi- nancial 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. Liquidity risk d) 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. Interest rate risk e) Neither at 31 December 2017 nor at the prior-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 fi- nance 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. Group structure 4 This section contains details on the scope of consolidation, including any changes (acquisitions, busi- ness areas to be discontinued). The list of investments additionally contains all direct and indirectly held investments as per 31 December 2017. Scope of consolidation 4.1 The consolidated financial statements incorporate the individual financial statements of Komax Hold- ing AG, Dierikon, and its subsidiaries. In addition to the acquisitions listed under Note 4.2, two further subsidiaries were founded in 2017, namely Komax Manufacturing de México S. de R.L. de C.V., Mexico, and Komax Bulgaria EOOD, Bul- garia. In the prior-year period, other than the acquisitions listed in Note 4.2 and the sale of the former Medtech business unit (see Note 4.4), there were no changes in the scope of consolidation. Recognition and measurement Subsidiaries: Subsidiaries are fully consolidated if Komax Holding AG exercises control over their financial and busi- ness policies. As a rule, this is the case if Komax Holding AG directly or indirectly holds more than 50% of the subsid- iary’s voting capital. Date of consolidation: Subsidiaries are included in the consolidated financial statements from the date on which the Group assumes control. They are deconsolidated from the date on which control is ceded. Intragroup eliminations: Intragroup transactions, intragroup balances, and unrealized gains or losses from transac- tions between Group companies are eliminated from the scope of consolidation. E_01_GB_Komax_Finanzbericht_2017 [P].indd 101 12.03.18 14:27 101 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS 4.2 a) Business combinations Acquisitions 2017 in TCHF Acquired net assets at fair value Cash and cash equivalents Securities Trade receivables Other receivables Inventories Accrued income and prepaid expenses Property, plant, and equipment Intangible assets Deferred tax assets Other non-current receivables Total assets Current financial liabilities Trade payables Other payables Current provisions Accrued expenses and deferred income Non-current financial liabilities Other non-current liabilities Deferred tax liabilities Total liabilities Acquired net assets Acquisition costs Goodwill Total consideration Contingent consideration Investment in associates Transferred consideration less acquired cash and cash equivalents Net cash out 2017 Practical Solution Laselec Total 0 0 0 0 1 176 0 54 0 0 0 1 230 0 0 0 0 0 0 0 0 0 1 230 0 4 499 5 729 1 597 0 4 132 0 4 132 579 22 891 365 3 700 1 276 618 17 346 88 7 902 −74 −863 −316 −113 −1 450 −1 655 −386 −38 579 22 891 365 4 876 1 276 672 17 346 88 9 132 −74 −863 −316 −113 −1 450 −1 655 −386 −38 −4 895 −4 895 3 007 198 4 237 198 10 298 14 797 13 305 19 034 1 006 2 755 9 544 −579 8 965 2 603 2 755 13 676 −579 13 097 Laselec As at 1 October 2017 Komax has taken over 100% of Laselec SA in Toulouse (France) and its subsidiary in Grand Prairie (USA). The acquired company generated in the fourth quarter revenues of CHF 3.9 million and a profit after taxes of around CHF 0.9 million. 102 E_01_GB_Komax_Finanzbericht_2017 [P].indd 102 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Practical Solution As at 3 March 2017 Komax has taken over the business of Practical Solution Pte Ltd, Singapore, as well as Practical Solution Trading (Shanghai) Co., Ltd, China, by means of an asset deal. With the business acquired Komax generated revenues of CHF 1.0 million and a profit after taxes of CHF 0.1 million in 2017. b) Acquisitions 20161 in TCHF Acquired net assets at fair value Cash and cash equivalents Securities Trade receivables Other receivables Inventories Accrued income and prepaid expenses Property, plant, and equipment Intangible assets Deferred tax assets Other non-current receivables Total assets Current financial liabilities Trade payables Other payables Current provisions Accrued expenses and deferred income Other non-current liabilities Deferred tax liabilities Total liabilities Acquired net assets Acquisition costs Goodwill Thonauer Group Ondal Tape Processing GmbH Kabatec GmbH & Co. KG SLE Electronics USA, Inc. 6 246 19 11 467 178 1 816 38 720 59 186 97 84 0 479 17 807 7 33 19 22 0 20 826 1 468 0 −8 982 −2 363 0 −331 0 −65 0 −587 −74 0 −89 −580 0 300 0 1 235 158 1 586 17 312 14 6 849 53 10 524 −2 483 −205 −439 −20 −438 0 −16 −11 741 −1 330 −3 601 0 0 0 0 469 0 1 432 0 0 0 1 901 0 0 0 0 0 0 0 0 Total 6 630 19 13 181 353 4 678 62 2 497 92 7 057 150 34 719 −2 483 −9 774 −2 876 −20 −858 −580 −81 −16 672 9 085 138 6 923 1 901 18 047 0 0 192 0 192 9 350 4 987 16 863 816 32 016 Total consideration 18 435 5 125 23 786 2 717 50 063 Contingent consideration Transferred consideration less acquired cash and cash equivalents 1 504 16 931 −6 246 0 5 297 204 7 005 5 125 −84 18 489 −300 2 513 0 43 058 −6 630 Net cash out 2016 10 685 5 041 18 189 2 513 36 428 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). E_01_GB_Komax_Finanzbericht_2017 [P].indd 103 12.03.18 14:27 103 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Thonauer Group Komax acquired 100% of Thonauer Gesellschaft m.b.H. in Vienna, Austria, including all its subsidiaries with effect from 1 January 2016. The acquired company achieved CHF 38.7 million revenues in 2016, as well as CHF 2.9 million profit after taxes. Ondal Tape Processing GmbH Komax acquired 100% of Ondal Tape Processing GmbH in Hünfeld, Germany, with effect from 1 Jan- uary 2016. The acquired company achieved CHF 4.4 million revenues in 2016, as well as CHF 0.4 million profit after taxes. Kabatec GmbH & Co. KG Komax acquired 100% of Kabatec GmbH & Co. KG in Burghaun, Germany, with effect from 1 July 2016. The acquired company achieved CHF 4.9 million revenues in the second half of 2016, as well as CHF 0.9 million profit after taxes. SLE Electronics USA, Inc. With effect from 1 February 2016, Komax acquired SLE Electronics USA, Inc., in El Paso, USA, by means of an asset deal. The repercussions of the acquisition of the business of SLE Electronics USA, Inc., for the presentation of the consolidated year-end results are not significant. Investments in associates 4.3 Komax holds interests in Xcell Automation Inc., York (USA), which is accounted for as associated com- pany. The valuation of investments as at 31 December 2017 was based on the unaudited financial statements. Any changes in these statements will be taken into account in the following period. As at the end of 2016 Komax still held 20.8% on Laselec SA, Toulouse (France). As at 1 October 2017 Komax acquired 100% of Laselec SA whereupon such company will be fully consolidated. in TCHF Participation 31.12.2017 31.12.20161 Xcell Automation Inc., USA Laselec SA, France Total investments in associates 25.0% − 0 0 0 77 593 670 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). Recognition and measurement Investments in associates: Companies in which the Komax Group holds at least 20% of voting rights but in which it has a stake of less than 50% or on which it exerts a key influence in other ways are recognized by the equity method, and initially recorded at the corresponding acquisition cost. 104 E_01_GB_Komax_Finanzbericht_2017 [P].indd 104 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Discontinued operations 4.4 Komax did not divest or discontinue any business areas in the current reporting period. By contrast, in 2016 Komax sold the Medtech business unit, comprising the three companies Komax Systems LCF SA, Switzerland, Komax Systems Malaysia Sdn. Bhd., Malaysia, and Komax Systems Rockford Inc., USA. In 2016, the sales generated by the discontinued business areas amounted to CHF 19.1 million, while the operating profit amounted to CHF 0.2 million. The following net assets were sold in 2016: in TCHF Cash and cash equivalents Other current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Total net assets sold Medtech1 6 865 49 510 16 374 72 749 −34 714 −598 −35 312 37 437 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). E_01_GB_Komax_Finanzbericht_2017 [P].indd 105 12.03.18 14:27 105 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS 4.5 Equity holdings Direct and indirect equity participation as at 31 December 2017 Place Dierikon, Switzerland Dierikon, Switzerland Burghaun, Germany Yambol, Bulgaria Nuremberg, Germany Epinay-sur-Seine, France Burghaun, Germany S. Domingos de Rana, Portugal Grafenau, Germany Grafenau, Germany Budakeszi, Hungary Toulouse, France Hünfeld, Germany Bucharest, Romania Vienna, Austria Brno, Czech Republic Bratislava, Slovakia Porta Westfalica, Germany Porta Westfalica, Germany Ergene / Tekirdag, Turkey Bistrita, Romania Mohammédia, Morocco Tunis, Tunisia São Paulo, Brazil Buffalo Grove, Illinois, USA Irapuato, Mexico Irapuato, Mexico Buffalo Grove, Illinois, USA York, Pennsylvania, USA Grand Prairie, Texas, USA Colombo, Brazil El Paso, Texas, USA York, Pennsylvania, USA Gurgaon, India Tokyo, Japan Shanghai, China Singapore Shanghai, China Company Switzerland Komax Management AG Komax AG Europe Kabatec GmbH & Co. KG Komax Bulgaria EOOD Komax Deutschland GmbH Komax France Sàrl. Komax Kabatec Verwaltungs GmbH Komax Portuguesa S.A. Komax SLE GmbH & Co. KG Komax SLE Verwaltungs GmbH Komax Thonauer Kft. Laselec SA Ondal Tape Processing GmbH SC Thonauer Automatic s.r.l. Thonauer Gesellschaft m.b.H. Thonauer spol. s.r.o. Thonauer s.r.o. TSK Beteiligungs GmbH TSK Prüfsysteme GmbH TSK Test Sistemleri San. Ltd. Şti. TSK Test Systems SRL Africa Komax Maroc Sàrl. TSK Tunisia s.a.l. North/South America Komax Comercial do Brasil Ltda. Komax Corp. Komax de México S. de R.L. de C.V. Komax Manufacturing de México S. de R.L. de C.V. Komax Holding Corp. Komax York Inc. Laselec Inc. TSK Sistemas de Testes do Brasil Ltda. TSK Innovations Co. Xcell Automation Inc. Asia Komax Automation India Pvt. Ltd. Komax Japan K.K. Komax Shanghai Co. Ltd. Komax Singapore Pte. Ltd. TSK Test Systems (Shanghai) Co. Ltd. Komax Holding AG Dierikon, Switzerland Purpose: Holding of equity interests Listed on: SIX Swiss Exchange Swiss security ID code: 001070215 Share capital: CHF 383 448 Market capitalization: CHF 1.225 billion 106 E_01_GB_Komax_Finanzbericht_2017 [P].indd 106 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Purpose Participation Consolidation Ordinary capital Group services and management R&D, engineering, production, marketing, sales R&D, engineering, production, marketing, sales Engineering, production, marketing, sales Sales Sales Administration Sales R&D, engineering, production, marketing, sales Administration Engineering, production, sales R&D, engineering, production, marketing, sales R&D, engineering, production, marketing, sales Sales Sales Sales Sales Holding of equity interests R&D, engineering, production, marketing, sales Engineering, production, marketing, sales Sales Sales Engineering, production, marketing, sales Sales Sales Sales Production Holding of equity interests Administration Sales Engineering, production, marketing, sales Engineering, production, marketing, sales R&D, engineering, production, marketing, sales Sales R&D, production, marketing, sales R&D, production, sales R&D, production, sales 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% 100% 100% 100% 100% 100% 100% 100% 100% 25% 100% 100% 100% 100% 100% Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation CHF CHF EUR BGN EUR EUR EUR EUR EUR EUR HUF EUR EUR 100 000 5 000 000 100 000 600 000 400 000 1 500 000 25 000 1 500 000 5 700 000 25 000 10 000 000 545 280 30 000 Full consolidation RON 2 200 000 Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation EUR CZK EUR EUR EUR TRY RON 36 336 200 000 6 639 4 000 000 1 764 700 265 500 110 152 Full consolidation MAD 10 000 000 Full consolidation TND 366 000 Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Equity method Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation BRL USD MXN MXN USD USD USD BRL USD USD INR JPY USD SGD CNY 200 000 1 000 000 3 000 3 000 8 160 000 150 1 362 500 1 000 000 560 000 10 000 000 90 000 000 4 410 000 2 600 000 3 275 902 107 E_01_GB_Komax_Finanzbericht_2017 [P].indd 107 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Other information 5 This section contains all the information not addressed in the previous sections, e.g. information on employee benefits and share-based compensation. 5.1 Employee benefits in TCHF 2017 2016 Pension plans with surplus cover Total in TCHF Surplus cover as per FER 26 Economic share within the Group Economic share within the Group 2 816 2 816 0 0 0 0 Change compared to prior-year / expense of reporting period Contributions accrued for the period Employee benefits expenditure in personnel expenses Employee benefits expenditure in personnel expenses 2017 2016 Pension plans with surplus cover Total 0 0 4 168 4 168 4 168 4 168 3 883 3 883 The employee benefits expenditure stated only comprises contributions made to the benefit schemes at the expense of the company. The pension plans with surplus cover are related to the staff pension scheme of Komax AG in Switzer- land. The coverage rate amounted to 117.4% as at 31 December 2017 (31 December 2016: 115.2%). The actuarial calculations are based on a technical interest rate of 2.5% (31 December 2016: 2.75%) as well as the technical basis of BVG 2015 (31 December 2016: BVG 2015). There were no material employer contribution reserves neither as at 31 December 2017 nor as at 31 December 2016. Recognition and measurement Employee benefits: The key companies are based in Switzerland, where employee benefits are amalgamated in a legally independent foundation regulated by the Federal Law on Old-Age, Survivors’ and Disability Insurance (“BVG”). No significant pension plans are managed abroad. The ascertainment of any surplus or shortfall in respect of Swiss pension plans is undertaken on the basis of the annual financial statements of the corresponding pension schemes in accordance with Swiss GAAP FER 26. Any benefit arising from employer contribution reserves is recognized as an asset. The capitalization of an additional economic benefit (as a result of a pension scheme having surplus cover) is not intended, nor are the prerequisites for such a step met. An economic obligation is carried as a liability if the prerequi- sites for the creation of a provision are met. 108 E_01_GB_Komax_Finanzbericht_2017 [P].indd 108 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Share-based compensation 5.2 As per 31 December 2017, the Komax Group had the following share-based compensation agree- ments: Share option plan of the Komax Group a) The share option plan takes the form of share-based compensation settled in equity instruments by means of a capital increase (equity-settled plan) for the board of directors and the Komax Group man- agement. The number of options allocated depends on the individual performance of the entitled em- ployee. 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. Outstanding as at 1 January Granted Exercised Forfeited Expired 2017 Weighted average exercise price 2016 Weighted average exercise price Number 95 173 0 −72 134 0 −4 550 CHF Number 115.46 0.00 115.00 0.00 67.03 186 637 0 −84 047 −3 757 −3 660 CHF 92.67 0.00 66.91 118.33 66.21 Outstanding as at 31 December 18 489 129.21 95 173 115.46 The allocation of share options was discontinued at the end of 2015. As an alternative to selling a reg- istered 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 exer- cise price. A corresponding accrual of CHF 0.6 million (31 December 2016: CHF 2.5 million) for 2 971 options (31 December 2016: 19 321 options) was taken into account as per 31 December 2017. The market value of the Komax Holding AG share as per 31 December 2017 of CHF 319.50 (31 December 2016: CHF 251.25) was used for calculation purposes together with an average exercise price of CHF 129.21 (31 December 2016: CHF 123.55). The expenses were spread over three years, in keeping with the lock-in period. E_01_GB_Komax_Finanzbericht_2017 [P].indd 109 12.03.18 14:27 109 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Komax Performance Share Unit Plan (PSU) b) The plan (equity-settled plan) for the executive management comprises PSUs with a three-year vesting period which are dependent on the attainment of a performance target and the continuation of the em- ployment relationship. The number of PSUs allocated is calculated by dividing a fixed amount by the average closing share price during the 60 days preceding the start of the vesting period. 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 determined in advance by the Board of Direc- tors. 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. In the event of any termination of the employment relationship, pro rata vesting applies at the ordinary vesting date. Terms of outstanding rights as at 31 December 2017 Number of outstanding rights Vesting period Allocation Fair value on the day of granting Total fair value at allocation 2015–2017 2016–2018 2017–2019 3 948 3 years 2018 139.45 550 2 758 3 years 2019 175.19 483 1 999 3 years 2020 241.98 484 CHF TCHF Komax Long-term Share Incentive Plan c) The plan (equity-settled plan) for managers is currently not linked to profitability conditions, and con- tains a three-year vesting period. The number of shares allocated is calculated by dividing a fixed amount by the average closing share price during the 60 days preceding the start of the vesting period. The actual payout at the end of the vesting period in shares is dependent on the share price develop- ment during the vesting period. In the event of any termination of the employment relationship, pro rata vesting applies at the ordinary vesting date. Number of rights Total as at 1 January Granted 1 January Forfeited Transferred to participants Total as at 31 December 2017 6 770 2 495 −154 0 9 111 2016 3 612 3 158 0 0 6 770 The fair value on the day of granting amounted to CHF 241.98 (2016: CHF 175.19). 110 E_01_GB_Komax_Finanzbericht_2017 [P].indd 110 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Komax Long-term Cash Incentive Plan d) The plan (cash-settled plan) for managers is currently not linked to profitability conditions, and contains a three-year vesting period. The actual payout at the end of the vesting period is determined at the end of the performance period, and is based on a multiplication of the allocation amount by the share price performance factor (ratio of final share price to starting share price). Number of rights Total as at 1 January Granted 1 January Forfeited Transferred to participants Total as at 31 December 2017 2 795 1 473 0 0 2016 1 070 1 725 0 0 4 268 2 795 The fair value on the day of granting amounted to CHF 222.94 (2016: CHF 166.09). Komax Restricted Share Plan e) Restricted shares are allocated to Board members at the end of their period of office shortly before the Annual General Meeting (equity-settled plan); the lock-in period is three years. In the event of resigna- tion from office as a result of retirement, death, or disability, the entitlement to restricted shares is cal- culated on a pro rata temporis basis. In such cases, lock-in periods may be either continued or rescind- ed at the discretion of the Board of Directors. In the 2017 financial year, 636 shares (2016: 873 shares) with a fair value of CHF 259.07 (2016: CHF 218.11) on the date of granting were allocated to the Board of Directors. Recognition and measurement Share-based compensation: All share-based compensation granted to staff is estimated at fair value as per the date it is granted, and is charged evenly across the vesting period to the corresponding income statement positions within the operating result. In the case of compensation plans involving remuneration in the form of equity instruments, the expense of the granted compensation is booked as an increase in shareholders’ equity, and any funds received from the exercise of this compensation following the vesting period are booked as a change in shareholders’ equity. The fair value of the amount that is to be paid to employees in respect of share appreciation rights and settled in the form of cash is booked as an expense with a corresponding increase in debt over the period in which employees acquire unrestricted access to these payments. E_01_GB_Komax_Finanzbericht_2017 [P].indd 111 12.03.18 14:27 111 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS 5.3 Related party transactions Transactions with associated companies in TCHF Sale of goods and services Purchase of goods and services Interest income Extraordinary expenses Trade receivables as at 31 December Other receivables (current and non-current) as at 31 December Granted loans as at 31 December Trade payables as at 31 December 2017 661 −410 125 −3 601 22 0 1 337 0 2016 897 −485 192 0 110 1 201 5 501 68 Related party transactions include members of the Board of Directors, members of the Executive Com- mittee, pension funds, and key shareholders, as well as companies controlled by the same. In the year under review, no transactions were entered into with closely linked persons in connection with the sale and purchase of goods and services (2016: none). With the exception of the regular employer contribu- tions to the pension fund, no transactions were effected with related parties (2016: none). Off-balance-sheet transactions Contingent liabilities 5.4 a) Aside from a service performance guarantee of CHF 1.1 million (31 December 2016: CHF 1.4 million), there were other guarantees of CHF 4.4 million (31 December 2016: CHF 4.0 million) granted, these al- most exclusively comprise guarantees granted to customers for advance payments. In addition to the above-mentioned guarantees, there were other contingent liabilities associated with the sale of busi- ness units that could protect the buyer against potential tax, legal, and/or other imponderables in con- nection with the acquired business unit. On the basis of its current risk appraisal, Komax does not ex- pect any cash outflows in connection with the above-mentioned contingent liabilities. b) Ownership restrictions for own liabilities in TCHF Book value real estate Lien on real estate Utilization 31.12.2017 31.12.2016 8 534 4 248 3 658 7 721 3 924 3 893 The pledged assets will be used to secure own liabilities. Contractual obligations c) As at 31 December 2017, contractual obligations of CHF 28.4 million were existing in respect of the acquisition of property, plant and equipment (31 December 2016: CHF 0.9 million). Future liabilities arising from operating lease agreements amount to CHF 2.5 million due in 2018 and CHF 4.1 million due in 2019–2022 (31 December 2016: CHF 2.0 million due in 2017 and CHF 3.5 million due in 2018−2021). 112 E_01_GB_Komax_Finanzbericht_2017 [P].indd 112 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Other key accounting principles Key figures not defined under Swiss GAAP FER 5.5 a) By stating its free cash flow in the cash flow statement, the Komax Group is reporting an item that is not in conformity with Swiss GAAP FER but is nonetheless a key figure for Komax, as well as being widely used and recognized in the financial sector. This key figure is an amalgamation of cash flow from oper- ating activities and cash flow from investing activities. In the income statement Komax discloses the revenues as an additional subtotal that is not defined under Swiss GAAP FER. This subtotal includes beside the net sales as well the other operating income and is being used for the calculation of impor- tant key figures. As gross profit is an important key figure for Komax, the corresponding interim total is reported separately in the income statement. Gross profit comprises revenues (net sales and other operating income) minus the cost of materials and changes in inventory of unfinished and finished products. b) Currency conversion Recognition and measurement 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. 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 trans- actions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement. 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 shareholders’ equity and reported on a separate line within the retained earnings. 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 exchange rate differences are reported in income as part of the gain or loss from the sale. c) Other important accounting policies Recognition and measurement 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 account overdrafts are shown on the balance sheet as payables to credit institutions under current financial liabilities. Trade payables: Trade payables are valued initially at fair value, which is normally the amount originally invoiced, and subsequently measured at amortized cost. Transactions with minorities: Changes in ownership interests in subsidiaries are recognized as equity capital trans- actions provided control remains intact. Impairment of non-monetary assets: Assets subject to planned amortization are also tested for impairment 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. E_01_GB_Komax_Finanzbericht_2017 [P].indd 113 12.03.18 14:27 113 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Report of the statutory auditor to the General Meeting of Komax Holding AG, Dierikon Report on the audit of the consolidated financial statements Opinion We have audited the consolidated financial statements of Komax Holding AG and its subsidiaries (the Group) which comprise the consolidated balance sheet as at 31 December 2017 and the consolidated income statement, consolidated cash flow statement, consolidated statement of changes in equity for the year then ended and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements on pages 74 to 113 give a true and fair view of the consolidated financial position of the Group as at 31 December 2017 and its consolidated financial perfor- mance and its consolidated cash flows for the year then ended in accordance with Swiss GAAP FER and comply with Swiss law. Basis for opinion We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Our responsibilities under those provisions and standards are further described in the “Auditor’s responsibilities for the audit of the consoli- dated financial statements” section of our report. We are independent of the Group in accordance with the provisions of Swiss law and the requirements of the Swiss audit profession and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our audit approach Overview – Overall Group materiality: CHF 2 500 000 – We concluded full scope audit work at six group companies in five countries. Our audit scope addressed 62% of net sales of the Group. Additionally, an audit of account balances was performed at one other Group company, which addressed a further 14% of net sales of the Group. We obtained additional assurance through the audits of the statutory financial statements of a further eight companies (six different countries). These addressed a further 15% of net sales of the Group. – – As key audit matters, the following areas of focus were identified: – – Revenue recognition in the appropriate period Change to Swiss GAAP FER Audit scope We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting pro- cesses and controls, and the industry in which the Group operates. The consolidated financial statements include within their scope 38 entities. We identified six Group companies for which, in our opinion, an audit of the complete financial information was necessary on the grounds of their size or risk characteristics. For one other Group company, an audit of account balances was performed to address signif- icant items adequately. We obtained additional assurance from the timely performance of audits of the statutory financial statements of eight Group companies. All of the Group companies in the described audit scope were audited by local national PwC firms. None of the Group companies excluded from our audit of the consolidated financial statements accounted individually for more than 5% of Group net sales. The Group auditor performed the audit of the consolidation, the acquisition concluded in 2017 and the change of accounting framework from International Financial Reporting Standards (IFRS) to Swiss GAAP FER. To provide appropriate guidance to and monitor the work of the auditors of the Group companies, the Group audit team performed selected reviews of the audit working papers and held telephone conferences with the auditors of the Group companies. Materiality Audit scope Key audit matters 114 E_01_GB_Komax_Finanzbericht_2017 [P].indd 114 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Materiality The scope of our audit was influenced by our application of materiality. Our audit opinion aims to provide reasona- ble assurance that the consolidated financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate, on the consolidated financial statements as a whole. Overall Group materiality CHF 2 500 000 How we determined it 5% of group profit before taxes, rounded Rationale for the materiality benchmark applied We chose group profit before taxes as the benchmark because, in our view, it is the benchmark against which the performance of the Group is most commonly measured, and it is a generally accepted benchmark for materiality considerations. We agreed with the Audit Committee that we would report to them misstatements above CHF 250 000 identified during our audit as well as any misstatements below that amount which, in our view, warranted reporting for quali- tative reasons. Report on key audit matters based on the circular 1/2015 of the Federal Audit Oversight Authority Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Revenue recognition in the appropriate period Key audit matter How our audit addressed the key audit matter We consider revenue recognition in the appropriate period to be a key audit matter because of the scope for judgement involved in determining, as required, exactly when the risks and rewards associated with services rendered are transferred in accordance with the Swiss GAAP FER accounting requirements. On the basis of the agreed delivery terms (Incoterms), the expected average delivery times until the effective transfer of the risks and rewards of ownership to the customer and taking into account special cases (e.g. delivery delays), Komax realises revenue from sales of goods in the period in which it transfers the risks and rewards of ownership. Please refer to page 84 of the notes to the consolidated financial statements. We checked on a sample basis that revenue was recog- nised in the correct period for the months of December 2017 and January 2018. For the selected samples, we assessed the underlying Incoterms and in critical cases checked the average delivery times. In some cases, we interviewed the persons responsible, including those from other departments. We concluded that the criteria for revenue recognition in the appropriate period in accordance with the Swiss GAAP FER requirements were complied with in the consolidated financial statements for the year ended 31 December 2017. E_01_GB_Komax_Finanzbericht_2017 [P].indd 115 12.03.18 14:27 115 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Change to Swiss GAAP FER Key audit matter How our audit addressed the key audit matter The change in accounting framework from IFRS to Swiss GAAP FER in 2017 resulted in numerous chang- es to the existing accounting policies. These changes are summarised on pages 78 to 80 of the annual report. The change in accounting framework affects various items in the consolidated financial statements, notably the treatment of goodwill, intangible assets, deferred tax assets arising from tax loss carry forwards and tax credits, and pension obligations. The effects of the change in accounting framework have a significant influence on the presentation of the con- solidated financial statements and require estimates to be made in exercising the options relating to Swiss GAAP FER; for this reason, they were a focus of the audit procedures performed in the year under review. – We examined the effects of the change in accounting framework from IFRS to Swiss GAAP FER as follows: – We obtained from Management a summary of the effects of the change in accounting framework, which included an analysis of the effects on the consolidated financial statements and, in particu- lar, on the opening balance sheet as at 1 January 2016. On the basis of this assessment by Management, we compared the newly elaborated accounting policies, the information presented in the balance sheet, income statement and cash flow statement, and the disclosures in the notes with the require- ments of Swiss GAAP FER and, with the help of one of our specialists, we assessed their correct application. The most significant changes affected the following items on the balance sheet: – Identifiable intangible assets and goodwill re- lating to various acquisitions were offset against equity in accordance with the chosen option, which led to a decrease of CHF 38.9 million in shareholders’ equity as at the open- ing balance sheet date. The application of Swiss GAAP FER resulted in a decrease in the pension obligations and a corresponding increase in shareholders’ equi- ty of CHF 13.9 million as at the opening bal- ance sheet date. In accordance with the chosen option, the de- ferred tax assets arising from tax loss carry forwards were no longer capitalised, which led to a decrease in shareholders’ equity of CHF 17.0 million at the opening balance sheet date. – – – We tested the correct calculation and implemen- tation of the effects of the change in accounting framework on the consolidated financial state- ments for the year ended 31 December 2016 and on the opening balance sheet as at 1 January 2016. We concluded that the first-time application of the ac- counting policies in accordance with Swiss GAAP FER in the accompanying consolidated financial statements was performed and presented correctly. Responsibilities of the Board of Directors for the consolidated financial statements The Board of Directors is responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with Swiss GAAP FER and the provisions of Swiss law, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. 116 E_01_GB_Komax_Finanzbericht_2017 [P].indd 116 12.03.18 14:27 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law and Swiss Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these con- solidated financial statements. As part of an audit in accordance with Swiss law and Swiss Auditing Standards, we exercise professional judge- ment and maintain professional scepticism throughout the audit. We also: – Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material mis- statement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, for- gery, intentional omissions, misrepresentations, or the override of internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. Conclude on the appropriateness of the Board of Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. – – – – – We communicate with the Board of Directors or its relevant committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in inter- nal control that we identify during our audit. We also provide the Board of Directors or its relevant committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Board of Directors or its relevant committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation pre- cludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on other legal and regulatory requirements In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists which has been designed for the 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 Thomas Brüderlin Audit expert Auditor in charge Basel, 9 March 2018 Korbinian Petzi Audit expert E_01_GB_Komax_Finanzbericht_2017 [P].indd 117 12.03.18 14:27 117 FINANCIAL REPORT 2017CONSOLIDATED FINANCIAL STATEMENTS Balance sheet of Komax Holding AG in TCHF Assets Cash and cash equivalents Other current receivables third parties Other current receivables Group Other current receivables associates Financial loans Group Accrued income / prepaid expenses Total current assets Financial investments Group Financial investments associates Investments in subsidiaries Investments in associates Other non-current receivables third parties Total non-current assets 31.12.2017 % 31.12.2016 % 2 011 2 092 2 433 0 74 598 40 81 174 66 066 1 238 204 870 0 0 23.0 996 3 290 9 594 41 29 829 60 43 810 74 996 5 057 180 705 2 025 2 000 272 174 77.0 264 783 Total assets 353 348 100.0 308 593 Liabilities and shareholders’ equity Trade payables Current interest-bearing liabilities Group Other current liabilities third parties Other current liabilities Group Accrued expenses / deferred income Provisions Total current liabilities Total non-current liabilities Total non-current liabilities Total liabilities Share capital Capital contribution reserves Other statutory capital reserves Statutory profit reserves Profit reserves determined by resolution Retained earnings Profit after taxes Treasury shares Total shareholders’ equity 385 0 3 389 54 886 144 4 858 65 109 65 109 69 967 383 7 350 2 000 100 240 903 262 36 437 −4 054 283 381 1.4 18.4 19.8 315 4 120 5 332 82 3 087 1 025 13 961 27 630 27 630 41 591 377 6 371 2 000 100 237 903 573 21 783 −2 105 80.2 267 002 Total liabilities and shareholders’ equity 353 348 100.0 308 593 14.2 85.8 100.0 4.5 9.0 13.5 86.5 100.0 118 E_01_GB_Komax_Finanzbericht_2017 [P].indd 118 12.03.18 14:27 FINANCIAL REPORT 2017FINANCIAL STATEMENTS OF KOMAX HOLDING AG Income statement of Komax Holding AG in TCHF Dividend income Other financial income Other operating income Total income Financial expenses Personnel expenses Other operating expenses Value adjustment on financial investment Direct taxes Total expenses Profit after taxes 2017 37 734 8 759 637 47 130 −4 392 −419 −3 262 −2 370 −250 2016 38 499 10 612 1 031 50 142 −20 242 −4 004 −3 775 0 −338 −10 693 −28 359 36 437 21 783 E_01_GB_Komax_Finanzbericht_2017 [P].indd 119 12.03.18 14:27 119 FINANCIAL REPORT 2017FINANCIAL STATEMENTS OF KOMAX HOLDING AG Notes to the 2017 financial statements of Komax Holding AG Principles General 1 1.1 These annual financial statements were drawn up according to the provisions of Swiss accounting law (Section 32 of the Swiss Code of Obligations). The key valuation principles applied other than those prescribed by law are described below. Here it should be remembered that use has been made of the option to create and release hidden reserves for the purpose of securing the company’s lasting prosperity. As Komax Holding AG draws up a set of consolidated financial statements in line with a recognized accounting standard (Swiss GAAP FER), it has elected not to include in these financial statements – in keeping with statutory guidelines – explanatory notes on interest-bearing liabilities and audit fees, as well as the presentation of a cash flow statement. Financial investments 1.2 Financial investments comprise non-current financial loans. Granted loans are valued at the respective balance sheet date, whereby unrealized losses are accounted for but unrealized gains are not (imparity principle). Investments 1.3 Investments are initially recognized at cost. The valuation of investments is reviewed annually on an individual basis and if necessary adjusted to a lower recoverable amount. Treasury shares 1.4 Treasury shares are recorded at the time they are acquired as minus items in shareholders’ equity, at acquisition cost. In the event of a later resale, the profit or loss is recognized in the income statement as financial income or financial expense. Share-based compensation 1.5 If treasury shares are used for the share-based compensation of Board members, the difference be- tween the acquisition cost and the actual payment to Board members when the shares are allocated is booked to personnel expenses. Information on balance sheet and income statement positions Assets 2 2.1 Other current receivables from Group companies decreased by a total of CHF 7.2 million. This balance sheet item contains open interest receivables in respect of subsidiary companies. The Group’s current financial loans increased by a total of CHF 44.8 million. This balance sheet item likewise encompasses the current account loan of Komax Holding AG towards Komax AG, Switzerland. Financial investments Group comprise non-current financial loans. The Group’s financial investments have decreased as a result of repayments and reclassifications of loans. The “Financial investments associates” item comprises a non-current financial loan to Xcell Automation Inc., USA. 120 E_01_GB_Komax_Finanzbericht_2017 [P].indd 120 12.03.18 14:27 FINANCIAL REPORT 2017FINANCIAL STATEMENTS OF KOMAX HOLDING AG Liabilities 2.2 The amount outstanding from the acquisition of Kabatec GmbH & Co. KG, Germany, is reported un der “Other current liabilities third parties.” The provisions relate to taxes on earnings as well as open tax claims in respect of corporation tax to be paid on the holding in Komax SLE GmbH & Co. KG, Germany. Komax Holding AG and a syndicate of banks led by Credit Suisse have a valid credit agreement for a credit limit of CHF 140.0 million. The credit agreement is valid until 31 January 2022. In addition, there is an option to extend the credit agreement by one year to 31 January 2023. 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. As at 31 December 2017, the Group had drawn on this credit limit to the amount of CHF 46.0 million, USD 5.0 million and EUR 12.0 million (total drawing: CHF 65.1 million). In accordance with the applicable capital contribution principle, capital contributions (share premiums) made after 31 December 1996 are disclosed in the separate equity item “Statutory capital reserves.” Repayments to shareholders from this account are treated in the same way as the repayment of nominal capital and are not subject to withholding tax. Income 2.3 Dividend income amounted to CHF 37.7 million in the year under review (2016: CHF 38.5 million). Other financial income contains interest income on granted loans as well as realized and unrealized exchange rate gains on cash and cash equivalents, and loans in foreign currency. Other operating income comprises billed amounts for holding fees and licences, as well as incidental revenues of third parties and the Group. Expenses 2.4 The “Financial expenses” item comprises, among other things, interest expenses and commissions, securities losses, and unrealized and realized exchange rate losses on cash and cash equivalents, and loans in foreign currency. Personnel expenses comprise compensation paid to the Board of Directors as well as the cash settle- ment of options redeemed. The “Other operating expenses” item includes patents and licence costs, advisory and legal expenses, investor relations expenses, representation expenses, insurance premiums, and other operating ex- penditure items. One individual loan was the subject of an impairment in the year under review. This amount is displayed in the row “Value adjustment on financial investment.” Direct taxes contain expenses for taxes on earnings and corporation tax. E_01_GB_Komax_Finanzbericht_2017 [P].indd 121 12.03.18 14:27 121 FINANCIAL REPORT 2017FINANCIAL STATEMENTS OF KOMAX HOLDING AG Company and legal form, registered office 3 Company: Legal form: Registered office: Dierikon, Canton Lucerne Komax Holding AG Aktiengesellschaft (company limited by shares) Full-time employees 4 Komax Holding AG does not have any employees. Participations 5 The direct and indirect participations of Komax Holding AG are set out on pages 106 and 107 of the consolidated financial statements. Treasury shares 6 Details of the treasury shares of Komax Holding AG are provided in the consolidated financial state- ments on page 98. 7 Contingent liabilities in TCHF Joint liability for Group taxation value-added tax 31.12.2017 31.12.2016 p.m. p.m. Guarantees in EUR in USD in CHF Total 2 725 1 109 570 4 404 3 207 1 407 0 4 614 From the total contingent liabilities of CHF 4.4 million (2016: CHF 4.6 million) CHF 3.3 million (2016: CHF 3.2 million) are contingent liabilities in favor of subsidiaries. Conditional capital 8 Details of the conditional capital of Komax Holding AG are provided on page 99 of the consolidated fi- nancial statements. 122 E_01_GB_Komax_Finanzbericht_2017 [P].indd 122 12.03.18 14:27 FINANCIAL REPORT 2017FINANCIAL STATEMENTS OF KOMAX HOLDING AG 9 Major shareholders Shareholder / shareholder group at 31 December 2017 No. of shares Share in %1 Veraison SICAV, Zurich, Switzerland2 Max Koch, Meggen, Switzerland 196 229 190 285 5.2% 5.0% Shareholder / shareholder group at 31 December 2016 No. of shares Share in %1 Veraison SICAV, Zurich, Switzerland2 Max Koch, Meggen, Switzerland Vontobel Fonds Services AG, Zurich, Switzerland3 218 329 187 069 185 127 5.9% 5.1% 5.0% 1 Calculated on the basis of 3 774 148 shares that were registered as at the balance sheet date of 31 December 2017 (31 De- cember 2016: 3 691 651). 2 Notification of breach of 5% threshold on 23 May 2015. 3 Reported figure as at 7 October 2016. Externally regulated capital requirements (covenants) 10 The Group’s financial liabilities are subject to the following externally regulated capital requirement (covenant) as per the syndicated loan agreement: The gearing factor may not exceed 3.25 either at 31 December 2017 or thereafter at each quarter-end balance sheet date. The Komax Group has complied with all capital requirements since the contract signing date as well as at 31 December 2017. Within the scope of the syndicated loan agreement, Komax Holding AG guaran- tees for the liabilities of any member of the Komax Group. E_01_GB_Komax_Finanzbericht_2017 [P].indd 123 12.03.18 14:27 123 FINANCIAL REPORT 2017FINANCIAL STATEMENTS OF KOMAX HOLDING AG 11 Holdings of shares and options Assets in units 31.12.2017 31.12.2016 Board of Directors Beat Kälin Daniel Hirschi David Dean Andreas Häberli1 Kurt Haerri Roland Siegwart Total Board of Directors Executive Committee Matijas Meyer Andreas Wolfisberg Total Executive Committee Shares Options Shares Options Chairman Member Member Member Member Member CEO CFO 8 507 4 429 1 830 0 1 799 940 17 505 4 000 600 4 600 4 000 1 000 0 0 1 000 1 000 7 000 0 0 0 9 135 3 713 1 068 n.s. 703 844 13 000 2 000 666 n.s. 2 000 1 000 15 463 18 666 2 000 600 2 600 3 000 3 000 6 000 1 Member of the Board of Directors since 12 May 2017. Net release of hidden reserves 12 The total amount of the net released hidden reserves amounted to CHF 2.1 million (2016: CHF 1.4 million). 124 E_01_GB_Komax_Finanzbericht_2017 [P].indd 124 12.03.18 14:27 FINANCIAL REPORT 2017FINANCIAL STATEMENTS OF KOMAX HOLDING AG FINANCIAL REPORT 2017 PROPOSAL FOR THE APPROPRIATION OF PROFIT Proposal for the appropriation of profit The Board of Directors proposes the following appropriation of profit, payout from the capital contribu- tion 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 31.12.2017 31.12.2016 262 290 573 368 36 437 429 21 783 182 5 751 723 5 661 222 Total available for distribution 42 451 442 28 017 772 Payout from capital contribution reserves of CHF 1.50 per registered share (2016: CHF 1.50) which is not subject to withholding tax1 Dividend of CHF 5.00 gross per registered share (2016: CHF 5.00)1 Allocation to free reserves Profit carried forward Total 5 751 723 19 172 410 17 000 000 527 309 5 661 222 18 870 740 3 000 000 485 810 42 451 442 28 017 772 1 The stated amount covers the requirement for the payout from capital reserves for all registered shares outstanding. Registered shares which will be issued after 1 January 2018 upon exercise of options are also entitled to the payout from capital reserves. Therefore, the stated amount may be subject to changes. E_01_GB_Komax_Finanzbericht_2017 [P].indd 125 12.03.18 14:27 125 FINANCIAL REPORT 2017 FINANCIAL STATEMENTS OF KOMAX HOLDING AG Report of the statutory auditor to the General Meeting of Komax Holding AG, Dierikon Report on the audit of the financial statements Opinion We have audited the financial statements of Komax Holding AG which comprise the balance sheet as at 31 De- cember 2017 and the income statement and notes for the year then ended, including a summary of significant accounting policies. In our opinion, the accompanying financial statements as at 31 December 2017 on pages 118 to 125 comply with Swiss law and the articles of incorporation. Basis for opinion We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Our responsibilities under those provisions and standards are further described in the “Auditor’s responsibilities for the audit of the financial statements” section of our report. We are independent of the entity in accordance with the provisions of Swiss law and the requirements of the Swiss audit profession and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our audit approach Overview – – Overall materiality: CHF 1 400 000 We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the financial statements as a whole, taking into account the structure of the entity, the accounting processes and controls, and the industry in which the entity operates. As key audit matter the following area of focus has been identified: – Valuation of investments in subsidiaries Audit scope We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we considered where subjective judgements were made; for example, in respect of sig- nificant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material mis- statement due to fraud. Materiality The scope of our audit was influenced by our application of materiality. Misstatements may arise due to fraud or error. They are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall materiality for the financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate, on the financial statements as a whole. Overall materiality CHF 1 400 000 How we determined it 0.5% of net assets, rounded Rationale for the materiality bench- mark applied We chose net assets as the benchmark for materiality considerations because the Company primarily holds investments and grants loans to Group companies. We agreed with the Audit Committee that we would report to them misstatements above CHF 140 000 identified during our audit as well as any misstatements below that amount which, in our view, warranted reporting for quali- tative reasons. Materiality Audit scope Key audit matters 126 E_01_GB_Komax_Finanzbericht_2017 [P].indd 126 12.03.18 14:27 Report on key audit matters based on the circular 1/2015 of the Federal Audit Oversight Authority Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Valuation of investments in subsidiaries Key audit matter How our audit addressed the key audit matter The shares of the capital of subsidiaries held by the Komax Holding AG are recognised in the financial statements under “Investments in subsidiaries” (CHF 204.9 million). Investments in subsidiaries are valued individually and stated at acquisition cost less necessary impairment charges. The company tests these investments for impairment by comparing the book value of the investment with the shareholders’ equity according to Swiss GAAP FER or the value in use of the subsidiary concerned. To deter- mine the value in use, an in-depth valuation analysis is performed using cash flow forecasts based on the busi- ness plans approved by Management and the Board of Directors. This valuation analysis is based on Management’s as- sumptions, which involve significant scope for judge- ment. For this reason, we deemed the impairment testing of investments in subsidiaries to be a key audit matter. Please refer to note 1.3 (Investments in subsidiaries). Where a book value was higher than the recorded shareholders’ equity, we performed a detailed analy- sis of the impairment test performed by the client. This included: – Discussion with Management of the results and fu- ture prospects of specific subsidiaries. Assessment of the correctness and mathematical accuracy of the applied valuation methods. Plausibility check of the assumptions applied by rate, Management concerning longterm growth rates and margins. Where possible, we compared the results of the year under review with the forecasts made in the prior year and assessed the appropriateness of the prior year’s assumptions. the discount – – – We consider the valuation process and the assump- tions applied by Management to be adequate and a sufficient basis for testing the impairment of invest- ments in subsidiaries. Responsibilities of the Board of Directors for the financial statements The Board of Directors is responsible for the preparation of the financial statements in accordance with the pro- visions of Swiss law and the company’s articles of incorporation, and for such internal control as the Board of Directors determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Board of Directors is responsible for assessing the entity’s ability to con- tinue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law and Swiss Auditing Standards will always detect a material misstatement when it exists. Misstate- ments can arise from fraud or error and are considered material if, individually or in the aggregate, they could rea- sonably be expected to influence the economic decisions of users taken on the basis of these financial statements. E_01_GB_Komax_Finanzbericht_2017 [P].indd 127 12.03.18 14:27 127 FINANCIAL REPORT 2017FINANCIAL STATEMENTS OF KOMAX HOLDING AG As part of an audit in accordance with Swiss law and Swiss Auditing Standards, we exercise professional judge- ment and maintain professional scepticism throughout the audit. We also: – – – – Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is suffi- cient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, inten- tional omissions, misrepresentations, or the override of internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Conclude on the appropriateness of the Board of Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or condi- tions that may cast significant doubt on the entity’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related dis- closures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our con- clusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the entity to cease to continue as a going concern. We communicate with the Board of Directors or its relevant committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in inter- nal control that we identify during our audit. We also provide the Board of Directors or its relevant committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Board of Directors or its relevant committee, we determine those mat- ters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on other legal and regulatory requirements In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an 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 complies with Swiss law and the com- pany’s articles of incorporation. We recommend that the financial statements submitted to you be approved. PricewaterhouseCoopers AG Thomas Brüderlin Audit expert Auditor in charge Basel, 9 March 2018 Korbinian Petzi Audit expert 128 E_01_GB_Komax_Finanzbericht_2017 [P].indd 128 12.03.18 14:27 FINANCIAL REPORT 2017FINANCIAL STATEMENTS OF KOMAX HOLDING AG FIVE YEAR OVERVIEW FURTHER INFORMATION 2017 FIVE YEAR OVERVIEW in TCHF Income statement Revenues Gross profit in % of revenues EBITD in % of revenues Operating profit (EBIT) in % of revenues 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 liabilities Current financial liabilities Net cash (+) / net indebtedness (−) Total assets Cash flow statement Cash flow from operating activities Investments in non-current assets Free cash flow Employees Headcount as at 31 December Revenues per employee3 Gross value added per employee3 Net value added per employee3 Key data Komax registered share Shares4 Par value Highest price Lowest price Closing price as at 31 December 2017 20161 20151 20141 20131 408 509 256 476 62.8 66 115 16.2 55 069 13.5 42 101 10.3 11 046 36 668 9.0 123 356 291 102 258 178 62.3 383 156 280 37.7 69 856 0 −10 544 414 458 26 767 22 201 −7 582 No. 1 841 238 118 112 3 834 0.10 319.50 243.50 319.50 No. 1 000 CHF CHF CHF CHF 391 820 247 943 315 093 205 941 363 338 220 188 323 959 196 634 63.3 64 420 16.4 55 424 14.1 38 703 9.9 8 996 29 071 7.4 125 181 231 879 246 174 68.9 377 65.4 59 123 18.8 49 938 15.8 29 215 9.3 9 185 25 315 8.0 160 940 238 027 283 134 71.0 369 60.6 57 663 15.9 48 102 13.2 27 743 7.6 9 561 25 776 7.1 145 562 242 490 284 168 73.2 361 110 886 115 833 101 882 31.1 31 445 78 17 008 357 060 36 906 22 827 441 1 633 255 122 116 3 774 0.10 251.25 180.10 251.25 29.0 16 518 0 34 365 398 967 49 612 18 850 24 519 1 347 248 128 121 3 692 0.10 194.90 122.90 194.90 26.3 23 670 0 29 211 388 052 30 295 15 566 14 412 1 498 261 126 119 3 605 0.10 152.40 124.60 144.50 60.7 52 577 16.2 43 297 13.4 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 22 616 357 591 31 734 8 032 24 545 1 282 262 125 117 3 524 0.10 138.00 72.35 135.30 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). The years 2013–2015 are reported according to IFRS. 2 Equity attributable to equity holders of the parent company. 3 Calculated on the basis of the average headcount. 4 Changes resulting from the exercising of option rights. E_01_GB_Komax_Finanzbericht_2017 [P].indd 129 12.03.18 14:27 129 Komax Holding AG Investor Relations / Corporate Communications Roger Müller Industriestrasse 6 6036 Dierikon Switzerland Phone +41 41 455 04 55 komaxgroup.com Financial calendar Annual General Meeting Dividend payment Half-year results 2018 Investors Day 19 April 2018 25 April 2018 21 August 2018 26 October 2018 Preliminary information on 2018 financial year 22 January 2019 Annual media and analyst conference on the 2018 financial results Annual General Meeting 14 March 2019 16 April 2019 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 behavior 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. 130 E_01_GB_Komax_Finanzbericht_2017 [P].indd 130 12.03.18 14:27 Imprint Published by: Komax Holding AG, Dierikon Design and realization: Linkgroup AG, Zurich www.linkgroup.ch Steiner Kommunikationsberatung, Zurich/Uitikon www.steinercom.ch Produced on a climate-neutral basis by Multicolor Print AG, Baar E_00_GB_Komax_Umschlag_2017 _P_-gelöst.indd 8 13.03.18 09:57 7 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 komaxgroup.com E_00_GB_Komax_Umschlag_2017 _P_-gelöst.indd 1 13.03.18 09:57
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