8 1 0 2 T R O P E R L A U N N A X A M O K DRIVING DRIVING DRIVING AUTO AUTO AUTO- MATION MATION MATION FOR- FOR- FOR- WARD WARD WARD Annual Report 2018 E_00_GB_Komax_Umschlag_2018 [P]_2160873.indd 3 08.03.19 10:04 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 electric 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_2018 [P]_2160873.indd 4 08.03.19 10:04 KEY FIGURES in TCHF Order intake Gross profit in % of revenues Investments in non-current assets Free cash flow Net working capital 1 in % of revenues Total assets Net debt (–) / net cash (+) 2018 2017 +/− in % 496 683 449 736 297 903 256 476 62.1 41 340 –4 340 62.8 22 201 –7 582 203 682 168 361 38.8 37.3 462 904 414 458 –39 358 –10 544 10.4 16.2 86.2 –42.8 21.0 11.7 273.3 m Revenues in CHF (2017: 409m) 480 % 25.2 RONCE (2017: 23.8%) Operating profit (EBIT) in TCHF 80 000 60 000 40 000 13.2 20 000 15.8 14.1 13.5 14.0 2 0 1 8 4 8 3 9 9 4 4 2 4 5 5 9 6 0 5 5 4 5 2 7 6 2014 2 2015 2 2016 2 2017 2018 EBIT EBIT in % of revenues 20% 15% 10% 5% E_00_GB_Komax_Umschlag_2018 [P]_2160873.indd 5 08.03.19 10:04 2 006 Headcount as at 31.12.2018 (31.12.2017: 1 841 employees) %3.0 Dividend yield as at 31.12.2018 (31.12.2017: 2.0%) % 52.0 Payout ratio (2017: 59.2%) 1 Net working capital: receivables + inventories less current liabilities. 2 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The 2016 figures have been revised accordingly. The years 2014 and 2015 are reported according to IFRS. Shareholders’ equity in TCHF 320 000 240 000 160 000 80 000 100% 75% 73.2 71.0 68.9 62.3 60.8 50% 8 6 1 4 8 2 4 3 1 3 8 2 4 7 1 6 4 2 8 7 1 8 5 2 0 4 6 1 8 2 2014 2 2015 2 2016 2 2017 2018 25% Shareholders’ equity Shareholders’ equity in % of total assets Group profit after taxes (EAT) in TCHF 50 000 40 000 30 000 20 000 7.6 9.9 10.3 10.8 9.3 10 000 3 4 7 7 2 5 1 2 9 2 3 0 7 8 3 1 0 1 2 4 7 8 7 1 5 2014 2 2015 2 2016 2 2017 2018 EAT EAT in % of revenues R&D expenditure in TCHF 40 000 30 000 20 000 7.1 8.0 7.4 9.0 8.6 10 000 6 7 7 5 2 5 1 3 5 2 1 7 0 9 2 8 6 6 6 3 1 5 0 1 4 2014 2 2015 2 2016 2 2017 2018 R&D R&D in % of revenues 15% 12% 9% 6% 3% 12% 9% 6% 3% E_00_GB_Komax_Umschlag_2018 [P]_2160873.indd 6 08.03.19 10:04 CORPORATE GOVERNANCE 53 COMPENSATION REPORT 65 ANNUAL REPORT 2018 CONTENTS FINANCIAL REPORT Consolidated financial statements 80 Financial statements of Komax Holding AG 120 Five year overview 131 ANNUAL REPORT Shareholders’ letter 02 Locations 04 Market and innovation 09 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 38 Information for investors 49 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 1 08.03.19 09:53 01 ANNUAL REPORT 2018 SHAREHOLDERS’ LETTER DEAR SHAREHOLDER The Komax Group again wit- nessed strong growth in 2018 – with regard to both order intake and revenues – and was able to use this growth to further ex- pand its leading market position. To ensure that it continues to grow and shape the industry on the technology front, Komax placed a strong focus on invest- ment: in research and develop- ment, in digitalization, and in sev- eral projects aimed at capacity expansion. Implementation of the 2017–2021 strategy is progressing. As in past years, Komax outstripped growth in the market in 2018. Order intake increased by 10.4% to CHF 496.7 million (2017: CHF 449.7 million), while revenues rose by 17.4% to CHF 479.7 million (2017: CHF 408.5 million). The growth in revenues comprises a very high level of internal growth (+13.9%), acquisition-driven growth (+1.7%), and the positive impact of foreign currencies (+1.8%). Growth remained high throughout the year. Order intake dipped slightly towards the end of the year and was consequently higher in the first six months (first half 2018: CHF 256.0 million, second half 2018: CHF 240.7 million). Given the extremely strong order backlog, this did not impact revenues, which were marginally higher in the second half of the year (first half 2018: CHF 236.9 million, second half 2018: CHF 242.8 million). The book-to-bill ratio was 1.04 at the end of 2018. 02 Strong growth in all regions In 2018, Komax again benefited from having the broadest product portfolio and being able to offer customers a wide spectrum of automation solutions along the value chain. This produced strong growth in all regions. Africa saw the highest rate of growth (+49.8%), as the trend witnessed last year in the region continued: a number of harness manufacturers ex- panded their presence in North Africa due to the difficulties encountered in securing sufficient personnel in Eastern Europe. Despite this shift, Europe – Komax’s strongest region by far with 44.7% of revenues – also recorded growth of 3.0%. Business expanded strongly in North/South America (+29.0%) and Asia (+26.5%). While Asia continued to build on the growth trajectory witnessed over previous years, North/South America recovered from the temporary weak spell in 2017 (–2.1%), when investment activity in the United States in par- ticular was very low over the first six months. Increasing profitability Komax not only posted strong growth in 2018, it also secured a sharp rise in profitability. Operating profit (EBIT) was up 22.1% to CHF 67.3 million (2017: CHF 55.1 million) and the EBIT margin increased from 13.5% to 14.0%. This increase is notable in that the impact of foreign currencies was significant- ly lower than in the previous year. Whereas in 2017 positive foreign currency effects pushed up the EBIT margin by 1.0 per- centage points, in 2018 the rise amounted to only 0.2 percent- age points. The impact was substantially more positive in the first six months of the year, at +1.3 percentage points. Komax also increased Group profit after taxes (EAT), which was up 23.0% to CHF 51.8 million (2017: CHF 42.1 million) despite a financial result of CHF –5.2 million (2017: CHF –0.8 million). More than 50% of this financial result is attri butable to unrealized book losses on currencies of emerg- ing markets (including Brazil and Turkey) in which Komax has production operations. Basic earnings per share increased to CHF 13.52 (2017: CHF 11.05). Komax’s financial base continues to be very robust: as at 31 December 2018, shareholders’ equity totaled CHF 281.6 million (2017: CHF 258.2 million), while the equity ratio stood at 60.8% (2017: 62.3%). Free cash flow amounted to CHF –4.3 million (2017: CHF –7.6 million) and net debt was CHF 39.4 million (2017: CHF 10.5 million). E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 2 08.03.19 09:53 ANNUAL REPORT 2018 SHAREHOLDERS’ LETTER Board of Directors is proposing to the Annual General Meet- ing that Dr. Mariel Hoch be appointed as a new member of the Board. Dr. Mariel Hoch’s primary area of specialization is M&A transactions, and she advises listed companies on cor- porate and regulatory matters. Outlook The Komax Group remains on track in the implementation of its 2017–2021 strategy and is confident that it will achieve its ambitious targets. 2019 is set to be a very challenging year, however. A variety of economic and political factors in the individual regions are currently fuelling substantial uncertain- ty in the automotive industry. This is causing customers to put off a number of investment decisions and means that we are not able to benefit from our well-stocked project pipeline at present. Given that the pressures to increase automation continue unabated, our expectation is that this dip is tempo- rary and that the situation will improve over the course of the year. Consequently, despite this temporary phase of weak- ness, in 2019 we will continue to invest significant amounts in research and development as well as in digitalization. In light of the unexpectedly weak order intake in the first two months of 2019, we anticipate a result for the first six months of the year that is markedly lower than the record result witnessed in the first half of 2018. Yours sincerely, Dr. Beat Kälin Chairman of the Board of Directors 7 March 2019 Matijas Meyer CEO Additional unique selling propositions The automotive industry, Komax’s most important market segment at over 80% of revenues, is currently in a state of upheaval. Amid this upheaval, themes such as e-mobility, autonomous driving, and digitalization are an opportunity for Komax to develop additional unique selling propositions. This is why Komax is currently carrying out a high level of proac- tive investment, with expenditure of CHF 41.1 million (2017: CHF 36.7 million) in research and development in 2018. This corresponds to 8.6% of revenues and is therefore within the strategic bandwidth of 8%–9%. In order to effectively chan- nel the growth that is becoming apparent for the coming years, Komax is expanding its capacities at four production and development sites – one in Switzerland, one in Hungary and two in Germany. Construction activity has been under- way at these four sites since 2017/2018 and will be complet- ed on a staggered basis by the end of 2019. Given that cer- tain delays were experienced, some investments originally planned for 2018 were rescheduled for 2019. Komax’s objective in investing such significant amounts in research and development is to enable customers to contin- ually increase their level of automation in wire processing. In- dependently of the number of vehicles manufactured each year, customers are experiencing substantial pressures to increase automation. The key factors behind this are rising wage costs, a lack of staff availability, miniaturization in ca- bles, and the need for traceability of individual process steps for quality assurance reasons. Attractive dividend yield Based on the pleasing result for 2018, the Board of Directors is proposing to the Annual General Meeting of 16 April 2019 a dividend increase from CHF 6.50 to CHF 7.00 per share. This corresponds to a payout ratio of 52.0%. Despite the cur- rently very high level of investment in planned capacity ex- pansion, Komax is achieving its strategic target of a payout ratio of 50%–60%. Of the CHF 7.00 per share, CHF 0.80 will be distributed from capital contribution reserves and will therefore be tax-free for natural persons domiciled in Switzer- land who hold the shares as part of their private assets. The dividend yield (calculated on the basis of the 2018 year-end closing price of the Komax share) amounts to an attractive 3.0%. Changes in the Board of Directors After 14 years on the Board of Directors, the last five of which as Vice-Chairman, Daniel Hirschi has decided not to stand for re-election at the 2019 Annual General Meeting. The Board of Directors and Executive Committee wish to thank him most sincerely for his many years of commitment to Komax. The E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 3 08.03.19 09:53 03 ANNUAL REPORT 2018 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, high-value, 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_2018 [P]_2160707.indd 4 08.03.19 09:53 ANNUAL REPORT 2018 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_2018 [P]_2160707.indd 5 08.03.19 09:53 05 ANNUAL REPORT 2018 LOCATIONS GLOBAL LOCAL Komax produces standardized products and customer- specific systems at 19 locations worldwide. Customer proximity together with short reaction and supply times are crucial to success. This is why Komax has been applying the motto “global local” for many years now – global production with a unique local sales, engineering, and service network across all continents. More than 2 000 employees currently work in the 38 companies of the Komax Group. Komax has production sites spread across five continents: the company’s standardized (off-the-shelf) products for wire processing are manufactured 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, Morocco, Tunisia, and China. Customer proximity is very important when it comes to ensuring short supply times for testing adapters. Customer-specific systems are pro- duced at sites in Switzerland, Germany, France, Hungary, China, and the US. Thanks to its production sites in all the most important market regions of the world, Komax meets the expectations of its global customers, who require their suppliers to have a local presence. Making customer proximity a reality The Komax Group provides sales and service support in more than 60 countries through its subsidiaries and independent agents. Around 240 employees work in Komax’s global service organization. Custom- ers can also submit their orders via the e-commerce platform Komax Direct. Komax has a unique global presence that enables it to provide efficient and competent support to its locally and globally active customers at all times. The customer base in North America will be ex- panded from 2019, as Komax concluded an asset deal with the Application Tooling business area of TE Connectivity at the end of 2018. TE Connectivity, a leading global technology company and manu- facturer of connection and sensor solutions, has distributed Komax products in the US, Canada, and Mexico for more than 15 years while also providing services. Following this asset deal, Komax will be assuming direct responsibility for this distribution business, and will therefore be closer to more cus- tomers. Thanks to its customer proximity, Komax has its finger on the pulse of industry. This is crucial for Komax if it is to deploy its experience of more than 40 years to develop high-quality, innovative auto- mation solutions for local needs in global markets. In addition, the company’s international orientation helps mitigate the repercussions of currency fluctuations. Komax seeks to ensure that costs and reve- nues are generated or incurred in the same currencies to the greatest extent possible. 06 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 6 08.03.19 09:53 ANNUAL REPORT 2018 LOCATIONS Ongoing expansion of production capacity The demand for automation solutions continues to rise, which means Komax has been coming up against its capacity limits for a number of years now. In order to facilitate further growth, Komax has been continuously investing in the expansion of its production capacity in recent years – such as in 2016 at Komax SLE in Grafenau, Germany, and at TSK in Ergene/Tekirdağ, Turkey. In 2017, Komax expand- ed its capacity for the production of TSK test systems in North America and Europe by opening new production sites in Irapuato, Mexico, and Yambol, Bulgaria. In 2018, Komax founded the company Komax TSK Maroc, with a view to increasing customer prox- imity in the rapidly growing North African market and achieving an even stronger position in the testing business. The company is located in the port city of Tangier, on the Straits of Gibraltar. Previously, production for Moroccan customers had taken place at TSK companies in Tunisia and Turkey. To coin- cide with the founding of this new company, Komax acquired the assets and all the employees of the company TX Mechatronics, which manufactures test systems in Morocco. The latest addition to the Komax Group duly commenced operations in November 2018 with some 20 members of staff. Three become two in Switzerland In addition to the opening of new production and development sites, Komax continues to work on the expansion of its existing sites – be it through building extensions or new buildings. In total, Komax is investing more than CHF 90 million in new production and development sites between 2016 and 2019. Of this figure, more than CHF 70 million is being invested in the building extension at the company’s headquarters in Dierikon, which is expected to be ready for occupation by the end of 2019. This building is conceived in such a way that both the ground floor and the five other floors can be used for both production and office work. The lower ground floor will accommodate a state-of-the-art, automated storage area for small parts. Thanks to a high- density building design, Komax is using the available space optimally and will therefore end up with a “verti cal factory.” 07 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 7 08.03.19 09:53 ANNUAL REPORT 2018 LOCATIONS The goal of this major project was for all employees in Switzerland – who are currently spread across three different sites – to work together in Dierikon. However, the strong growth of recent years means that the overall area of the building extension – some 20 000 m² – will not suffice on its own. For the time being, therefore, Komax will not sell its building in Rotkreuz and will relinquish only the site it rents in Küssnacht am Rigi. In order to achieve its goal nonetheless, Komax could increase production capacity through construction of an additional building extension in a second phase. E-mobility and autonomous driving Komax is currently investing in new production development sites not just in Switzerland, but also in Germany and Hungary. A building extension is currently being constructed at Komax SLE in Grafenau, Germany, which will more than double the current floor area of some 5 000 m². With the rise of integrated networks in vehicles and the increasing prevalence of driver assistance systems, the era of autonomous driving is no longer that far off. Accordingly, there is considerable demand for the customer-specific systems produced in Grafenau for the manufacture of data lines and antennae. As the demand for taping and assembly technology is likewise continuously rising, the company Kabatec based in Burghaun, Germany, is also confronted by the challenge of capacity shortages. To eliminate this problem, a large production and assembly hall together with a three-story office building is currently being constructed at a new site in Burghaun. The growth in the number of manufactured electric vehicles is also driving demand for automation solu- tions for the processing of high-voltage cables (see page 15). Komax is harnessing this opportunity by developing and producing new solutions at its e-mobility center of competence in Budakeszi, Hungary. In order to keep pace with the growing prevalence of electric vehicles, Komax is also investing in a new building for production, engineering, and administration. All three buildings in Germany and Hungary will be ready for occupation over the course of 2019. Komax Thonauer in Hungary is the e-mobility center of competence within the Komax Group. 08 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 8 08.03.19 09:53 ANNUAL REPORT 2018 MARKET AND INNOVATION THE RISE OF AUTOMATION CONTINUES Demand for automation solutions in the area of wire processing was once again very strong in 2018. As a result, Komax was able to increase both its order intake and revenues significantly. As previously, it was the automotive market segment that exhibited the greatest dynamism, but the aerospace, data/telecom, and industrial market segments likewise made an important contribution to growth. The growth in production of cars and light commercial vehicles continued to slow in 2018. After amount- ing to 15.4% in 2016 and 2.2% in 2017, it declined again to 0.3% in 2018. Overall, more than 94 million cars and light commercial vehicles were manufactured in 2018 (source: IHS Markit). The automotive industry was confronted by various challenges in 2018, including a weakening of growth in China, the trade dispute between the US and China, and the WLTP (Worldwide Harmonized Light Vehicles Test Procedure), which has been mandatory in the European Union since 1 September 2017. Whereas the first two factors both had the effect of slowing growth, the changeover to the new WLTP standard de- layed the production of numerous vehicles, thereby weighing on production numbers. According to IHS Markit, China remains by far the largest automotive market, despite its current economic weakness. In 2018, 27.5 million vehicles were produced in China, which is 0.4% fewer than in the previous year. This market had grown by 1.8% in 2017, and by as much as 15.4% in 2016. IHS Markit is forecasting a reversal of this downward trend in China for 2019, namely positive growth of 2.3%. In both 2017 and 2018, Asia accounted for some 53% of all production of cars and light commercial vehicles. The most dynamic development in Asia was to be found in India, which increased production by 8.1% to 4.8 million vehicles. Just like China, Europe was unable to maintain its growth momentum of 2017 (+3.5%): 21.8 million vehicles were produced in 2018, which represents a decline of 0.3%. In North America (17.0 million manufactured vehicles), the volume of production fell for the second year in succession: negative growth of –3.9% in 2017 was followed by –0.3% in 2018. The region exhibiting the strongest growth was once again South America. Growth here amounted to 7.0% (3.5 million manufactured vehicles) in 2018, following growth of 19.7% the previous year. This is predominantly attributable to the momentum of the Brazilian automotive market (+8.7%). For 2019, IHS Markit is forecasting a 1.2% increase in global vehicle production. 09 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 9 08.03.19 09:53 ANNUAL REPORT 2018 MARKET AND INNOVATION Demand for Komax solutions on the rise Although global vehicle production increased only slightly in 2018, Komax was able to increase both its order intake and revenues significantly. Order intake increased by 10.4% to CHF 496.7 million. This means Komax has increased its order intake by 34.1% since 2016. Revenues likewise rose strongly, namely by 17.4% to CHF 479.7 million. Compared to 2016, this equates to an increase of 28.7%. This strong growth demonstrates that Komax is not solely dependent on the number of manu- factured vehicles per year. At least as important is its customers’ need to increase their degree of auto- mation in wire processing. Rising wage costs, a lack of staff availability, the trend towards miniaturiza- tion, and the need for traceability in the individual process steps for quality assurance purposes are decisive factors, which is why customers will continue to come under pressure to increase their degree of automation further (see also “Global megatrends” beginning on page 22). All four market segments contributing to growth The need for greater automation was evident in 2018 not just in the automotive industry, but also in the aerospace, data/telecom, and industrial market segments. Even though these three areas are much smaller than the automotive market segment, they nonetheless made an important contribution to Komax’s strong growth in revenues. Once again, Komax benefited from having the broadest solution portfolio, which enabled it to offer its customers a wide spectrum of automation solutions. The book-to-bill ratio came in at 1.04 in 2018, which is slightly lower than the high prior-year figure of 1.10. As Komax received several orders for large customer-specific systems in the last few months of 2017, this produced a high book-to-bill ratio, since orders of this type usually have longer delivery times than serial production machines. A good example is a major order received from the aerospace industry for a number of systems for automated wire processing. Delivery of this order from the end of 2017 will extend over the years 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. Order intake and revenues in CHF million 500 400 300 200 100 2 . 0 7 3 7 . 2 7 3 7 . 9 4 4 5 . 8 0 4 7 . 6 9 4 7 . 9 7 4 2016 1 2017 2018 Order intake Revenues 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The 2016 figures have been revised accord - ingly. Order intake and revenues of the Medtech business unit, which was sold in April 2016, are not included. 10 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 10 08.03.19 09:53 ANNUAL REPORT 2018 MARKET AND INNOVATION Shift from Eastern Europe to North Africa Komax recorded strong growth rates in all regions in 2018, and accordingly outstripped the growth of the overall market, just as it had done the year before. Africa recorded the most impressive revenue growth of all (+49.8%). The trend of some wire harness manufacturers strengthening their presence in North Africa due to an increasing scarcity of personnel in Eastern Europe, which was already observed back in 2017, continued in 2018. In North/South America (+29.0%) and Asia (+26.5%) too, Komax was able to increase revenues significantly. In 2017, Komax recorded a slight decline in revenues (–2.1%) in North/South America, as in the first half of the year investment activity was very subdued in the US in particular. In South America, Brazil remains by far the most important market for Komax. Made in China 2025 The decline in vehicle production volumes in China did not stop customers from investing further in automation. The need for automation solutions in China continues to be pronounced. The country’s “Made in China 2025” strategy comprises a number of initiatives aimed at restructuring the manufactur- ing sector with a view to making it more efficient and productive. Elements such as automation and digitalization play an important role in the implementation of this strategy, and Komax is reaping the benefits. The strong momentum of business in China means that Komax sold more in Asia than in North/South America for the second year in succession. At 3.3%, revenue growth was also good in Europe, Komax’s strongest region. This is especially true given that volume is twice as high as in Asia and that revenues in Europe witnessed a contraction following the relocation to North Africa. Market observations suggest that momentum will weaken in certain regions, at least in the first half of 2019. The importance of China is also reflected in the breakdown of revenues by currency. The proportion of revenues booked in CNY has increased from 11.5% to 13.6% since 2016. The changes in the key currencies and their respective sensitivities are set out on page 104. Revenues by region 2018 2017 +/– in % in TCHF Switzerland Europe Asia/Pacific North/South America Africa Total 8 454 8 842 205 936 199 297 102 929 98 270 64 109 81 379 76 184 42 807 479 698 408 509 – 4.4 3.3 26.5 29.0 49.8 17.4 A percentage breakdown of revenues by region can be found on page 87. E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 11 08.03.19 09:53 11 ANNUAL REPORT 2018 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 80% of revenues. Komax is continuously strengthening its presence in the other three segments – aerospace, data/telecom, and industrial – and exploiting the synergy potential 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 2018, more than 94 million vehicles were produced. 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 the experience gained in these areas when it comes to its core business too, as these themes continue to gain in importance in the automo- tive industry. Komax secured expertise in the aerospace area in a targeted way through its acquisition of Laselec in 2017 (see page 30). There is very little automation of wire processing in the aerospace industry. 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 late 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_2018 [P]_2160707.indd 12 08.03.19 09:53 ANNUAL REPORT 2018 MARKET AND INNOVATION Data/telecom The transfer of large volumes of data and the permanent networking of people have become standard practice in the data/telecom market seg- ment. The wiring used for these applications is being increasingly used in vehicles too, as cars become ever more interconnected, with comprehen- sive information systems that will facilitate autonomous driving in the future. Komax can therefore also use the experience gained from the data/telecom market segment in the automotive segment. Industrial The processing of wires for industrial applications such as control cabinets often involves working with very small batches. To ensure that automation is nevertheless a cost-efficient option for control cabinet manufacturers, Komax has developed specific machines of the Zeta type. These machines manufacture all the various 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. Manual 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 automo- tive industry for many years, and is now increasingly finding its way into in- dustrial applications. Service In all market segments, customers benefit from Komax’s global distri- bution and service network. Among other things, the service offering includes the Komax Academy, which provides a modular training pro- gram, including final certification. The training modules are aligned with the various customer needs, e.g. those of service and maintenance personnel, shift managers, and quality control staff. Participants receive certification based on both theoretical and practical learning assess- ments – involving standardized global criteria with identical quality lev- els. Komax conducts On.Site training in nine countries: Brazil, China, Germany, Mexico, Romania, Switzerland, Singapore, Tunisia, and the US. The course languages are German, English, Chinese, Spanish, and Portuguese. Since 2018, Komax has also offered a wide spectrum of courses which are also available as On.Line training and accessible to employees 24/7. 13 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 13 08.03.19 09:53 ANNUAL REPORT 2018 MARKET AND INNOVATION INNOVATION AS DRIVER OF SUCCESS In order to consolidate its market and technology lead- ership, Komax has been investing in research and devel op ment at an above-average rate – and will con- tinue to do so over the coming years. Global devel- opments such as e-mobility and autonomous driv ing give Komax the opportunity to develop additional unique selling propositions through its innovative strength. Since 2017, Komax has been spending 8%–9% of Group revenues on research and development (R&D) annually. The equivalent figure in prior years was 7%–8% annually. In 2018, Komax invested CHF 41.1 million or 8.6% (2017: 9.0%) in the optimization of existing and the development of new products. This is CHF 4.4 million or 12.0% more than the previous year. The figure includes expenditure on both inter- nal development services (CHF 32.3 million) and the development services of third parties (CHF 8.8 million). Over the last five years, Komax has spent CHF 158.0 million on research and development, thereby underscoring its determination to consolidate the Group’s technology leadership. R&D expenditure in CHF million 40 30 20 10 7.1 8.0 7.4 9.0 8.6 12% 9% 6% 3% 8 . 5 2 3 . 5 2 1 . 9 2 7 . 6 3 1 . 1 4 2014 1 2015 1 2016 1 2017 2018 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 2016 figures have been revised accordingly. The years 2014 and 2015 are reported according to IFRS. E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 14 08.03.19 09:53 ANNUAL REPORT 2018 MARKET AND INNOVATION Further unique selling propositions 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. Themes such as e-mobility, autonomous driving, and digitalization give Komax further opportunities to develop unique selling propositions. In order to exploit these oppor- tunities, Komax set the wheels in motion some years ago by significantly 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 chal- lenges. 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. E-mobility solution portfolio Komax will launch various new solutions in 2019 and the following years that will increase the level of customer automation, increase customer productivity and improve digitalization. In the area of e- mobility too, Komax will be creating competitive advantages for its customers thanks to its center of competence in Hungary (see page 8). In 2018, more than two million electric vehicles were produced in the form of pure battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs). While this may be but a fraction of the 94 million or so vehicles produced last year, volumes are rising continu ously. According to a study carried out by IHS Markit, the market share of electric vehicles will increase to around 10% by 2025. China in particular has emerged as a strong driver of e-mobility in recent years: in 2018, more than 50% of all electric vehicles were manufactured in China. To build an electrified drive chain, the manufacturer uses shielded high-voltage cables with specific plug systems. As things stand, the processing of these cables is primarily carried out manually, but as volumes rise, so will the demand for automation solutions. Komax already has a portfolio of solutions that covers the entire value chain, i.e. from the processing of high-voltage cables through to the testing of the final wire harnesses, and it will continue to optimize and expand this portfolio. In addition to the high-voltage wire harness, a traditional engine wire harness is required for the combustion engines of all vehicles that use hybrid technology. When it comes to the fully automatic production of such small and medium-sized wire harnesses, Komax has had a technology advantage for years, and – just like in other areas – this competitive advantage is patent-protected: with the Omega 740 and 750 (see page 33), the cutting, crimping, and fitting of the contact is executed on one and the same machine. As the manual fitting of contacts is particularly susceptible to error, the switch to automation has the effect of increasing process security and improving quality. Furthermore, Komax customers benefit from sig- nificant savings in time and logistics, since automation obviates other manual steps such as the interim storage of individual wires and transport. 390 staff employed in research and development, and engineering As at 31 December 2018, the Komax Group employed a total of 217 staff (2017: 200) in the research and development area. The majority of these staff (149 employees) work in Switzerland, which is why the lion’s share of R&D expenditure is incurred in Switzerland. In addition, Komax has development units in China, Germany, France, Japan, and Singapore. The Group’s innovative strength is further bol- stered by 173 engineers (2017: 166), who make an important contribution through the development of customer-specific applications. The personnel costs of these engineering employees are not contained in research and development expenditure if the staff in question have worked directly on customer projects. The number of employees working in research and development has risen by around 31% since 2016. This is attributable, on the one hand, to the takeovers of Laselec and Practical Solution in 2017, which have development teams in France and Singapore, respectively, and, on the other, to Komax’s desire to consistently seize any opportunities that present themselves in the current market environ- ment. This increase in headcount should be viewed as a form of investment in a sustainably successful future. 15 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 15 08.03.19 09:53 ANNUAL REPORT 2018 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. 2018 was no different in this regard. Komax was able to demonstrate its technology leadership impressively, setting new standards with numerous market launches. We provide a selection of these new products below. Mira 230 Q When processing large numbers of different wire products, a crucial aspect is to ensure that quality remains constant. In order to facilitate precise quality monitoring, Komax integrat- ed – for the first time – an electronic ACD (Automatic Conduc- tor Detector) into a benchtop stripping machine (Mira 230), thereby creating the Mira 230 Q. Komax develops and manu- factures this compact, handy stripping machine in Japan. The ACD technology detects and indicates even the slightest con- tact between blade and conductor, while additionally offering an automatic configuration aid, namely by modifying the blade incision values on the basis of the measured conductor diam- eter. This has the effect of increasing work process efficiency and therefore productivity. EasyTouch When wire harnesses are manufactured, the final assembly stage involves the wires typically being laid on plywood boards. This requires the operators to attach each wire on the board, one by one and precisely in the right place, until the harness is complete. With the development of EasyWir- ing, Laselec has digitalized this assembly process. Laselec has replaced the plywood boards with dynamic computer displays that show the operator where the individual wires need to be placed, as well as where they need to be pinned. In order to avoid errors, the operator reviews each step by scanning barcodes on the screen. In 2018, Laselec launched the additional function EasyTouch, which makes the manu- facture of a wire harness even more straightforward, rapid, and secure. With EasyTouch, the operator only needs to touch the extremity of a wire, and all the routing and pinning information associated with this wire will be displayed directly on screen. There is no need for the operator to use a barcode reader or to type in the wire identification number on the keyboard. 16 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 16 08.03.19 09:53 ANNUAL REPORT 2018 MARKET AND INNOVATION Drainwire In new vehicles, infotainment systems are continuously growing in importance, with an increasing number of wires and different high-quality wire types being required for the transfer of data. In order to help its customers master this challenge, Kabatec brought its Drainwire concept to market. Thanks to Drainwire, customers themselves can produce cables that are shielded against electromagnetic interfer- ence – in keeping with their individual requirements, and on a just-in-time basis. This has the effect of increasing flexibil- ity and reducing storage costs. This high-quality machine can process Alu tape, PVC tape and drain wire in a single working step and provides shielding by means of three sep- arate winding heads. Seal module S1441 The innovative S1441 seal module facilitates the reliable processing of over 400 different seal variants – particularly mini-seals. It can be used with a number of fully automated wire processing machines such as the Alpha 530/550, Zeta 640/650, and Omega 740/750. The operating param- eters that have been determined for individual seals are stored directly on the newly developed Smart Seal Track (SST). When subsequently re- used, the S1441 seal module automatically recognizes the operating parameters, so production can be started without any additional manual adjustment being required. Changeover times are shortened and entry errors eliminated, thereby increasing productivity and processing quality. TSK Connect With the new TSK Connect module system, TSK has taken an important step on the road to digitalization. These mod- ules, which are used in a testing system, have an integrated memory chip that gathers all the relevant module data. Thanks to NFC technology, the data of each individual mod- ule of a test system can be called up without any difficulty. This results in a significant reduction in the time required for a test system to be initiated. There are also further benefits in connection with the TSK Connect app for smartphones, which is likewise a new development. With this app, every module with TSK Connect technology installed can be con- figured and parameterized. E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 17 08.03.19 09:53 17 ANNUAL REPORT 2018 INTERVIEW 2018 financial year and 2017–2021 strategy WELL POSITIONED TO REACH 2021 TARGETS In 2018, Komax grew strongly, increased productivity, invested heavily in research and development, and drove forward capacity expansion and digitalization in a targeted way. Matijas Meyer, how would you summarize the 2018 financial year? Matijas Meyer: Our market is growing by an average of 4%–6% annually. We generated organic growth of 13.9% in 2018. In other words, we managed to expand our market leadership further, which pleases me very much. Moreover, this wasn’t a case of achieving growth at any price to gain market share – we made sure that we had our eye on profi- tability at all times. Continuous productivity increases en- abled us to improve the EBIT margin from 13.5% to 14.0%. This rise was possible despite significantly less advanta- geous foreign currency developments than in the prior year: the EBIT margin increased by one percentage point in 2017, compared with a lower rise of 0.2 percentage points in 2018. Beat Kälin, on the revenues front you have pretty much already reached the target you set for 2021. Will the Board of Directors now adjust that target? Beat Kälin: We set ourselves the target of generating reve- nues of between CHF 500 million and 600 million by 2021. 2018 was a record year. So while we unveiled an impressive figure of CHF 479.7 million, that’s still more than CHF 100 million short of the upper end of our strategic bandwidth. So from this perspective there is no need to adjust our medium- term 2017–2021 targets for the time being. What’s more, it should be remembered that we are not just looking to increase revenues – we have also defined strategic targets for EBIT, RONCE, and the payout ratio. The EBIT figure Beat Kälin, Chairman 18 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 18 08.03.19 09:53 ANNUAL REPORT 2018 INTERVIEW of CHF 67.3 million for 2018 shows that we still have some work ahead of us to reach the target range of CHF 80 million to 100 million by 2021. And what will Komax do to ensure that these targets are met? Matijas Meyer: We will continue to work on the optimization of our workflows in order to increase productivity step by step. I’m confident that our four new production and devel- opment sites in Switzerland, Germany, and Hungary will make an important contribution here. The new infrastruc- ture will enable us to increase production while at the same time streamlining processes. That said, the impact of this will not feed through until 2020 and 2021, as the buildings in question will only be ready for occupation over the course of 2019. Grafenau and Dierikon are likely to be the last to complete this work. The building extensions at these two locations are expected to be finished towards the end of 2019. “ We are determined to remain Number 1 and increase our advantage even further.” Matijas Meyer Have there been delays in any of these construction projects? Matijas Meyer: These four projects to boost our production capacity have an investment volume of more than CHF 90 million. There are inevitably challenges with construction work of this magnitude – such as the weather, having to wait for official construction approvals, and the availability of specialized workers – and these can often result in delays. We ex perienced problems like this too, although we are only talking about delays of a few weeks or months, depending on the project in question. But equally important is the cost side, and here we are very much on track. However, some of the investment originally planned for 2018 will actually only take place in 2019. For this reason, investment ex- penditure in 2018 overall – i.e. not just for the buildings – amounted to “only” CHF 41 million, while planned invest- ment for 2019 amounts to approximately CHF 90 million. There’s always the option of increasing profitability by lowering expenditure on research and development … Beat Kälin: That would be unsustainable, and would jeopard- ize our future success. In order to maintain or even increase Matijas Meyer, CEO our high profitability in the long term, it’s crucial that we launch new products every year with a view to bringing our customers competitive advantages. For this reason, we took the strategically important decision in 2017 to increase our investment on research and development from 7%–8% to 8%–9% of revenues. And we are persisting with that ap- proach. Our customers are currently grappling with a num- ber of different issues that are fundamentally changing the automotive industry and forcing them to increase their degree of automation in wire processing. E-mobility and autono- mous driving are two of these issues. As the automotive industry is working on new technologies, we have a huge opportunity to shape this trans formation. Even though this new generation of vehicles will not be seen on the roads for a few years yet, we need to invest now. Otherwise we will not be able to bring our products to market promptly when they are needed. Will your customers be benefiting from new Komax products in 2019, too? Matijas Meyer: Without wanting to give too much away at this stage, I can say that we will be offering our customers a broad range of new solutions. I am convinced that our cus- tomers will be able to further increase the level of automation in their plants as a result. These innovations will enable us to differentiate ourselves from the competition even more, thereby underscoring our technology leadership. And that will be the case over the next few years too, as our inno- vative employees are working continuously to renew and ex- pand our product portfolio. Since 2017, our increased R&D budget has allowed us not only to optimize and develop 19 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 19 08.03.19 09:54 ANNUAL REPORT 2018 INTERVIEW existing solutions, but also to research completely new con- cepts. Over the next few years, the results of this work will deliver decisive benefits not just for our customers, but also for Komax itself. We are determined to remain Number 1 and increase our advantage even further. Industry 4.0 and the Internet of Things are the buzzwords right now – are these major themes at Komax too? Matijas Meyer: Digital transformation is obviously a vital area for us, and one in which we are investing heavily. Our digi talization strategy is two-pronged, encompassing both internal and external digitalization. Within the Komax Group we are working to mold our system landscape and data structure into a stable, uniform fundament on which we can expand our digital services. As a parallel endeav - or, we are developing various digital solutions that will enable us to increase the degree to which our customers’ activities are networked, while at the same time providing them with more targeted support in the production pro- cess. Among others, the issue of traceability is crucial here. Our customers would like to be able to document the pro- duction of a complete wire harness seamlessly. Because this would then make it possible for specific batches of affected products to be recalled in the event of any error, rather than thousands of vehicles of a particular model having to be recalled to garages for scrutiny as a precautionary measure. “ We are nowhere near exhausting all our potential.” Beat Kälin When will the results of all this investment become apparent? Matijas Meyer: We are in the middle of various different test phases right now. A number of new digital solutions will be launched in 2019. But we have not yet reached the stage where these can deliver seamless traceability. Can Komax implement all of this on its own, or will you be looking to strengthen through acquisitions? Beat Kälin: Acquisitions are an important component of our strategy. Since 2016, we have executed four acquisitions and concluded four asset deals. Overall, this has brought nine new companies and some 250 employees with a huge amount of additional expertise to the Komax Group. Acqui sitions entail significant costs, as we set great store 20 by the careful integration of the acquired companies and their workforces. But this effort is very much worth it – as is clear from the very positive development of the companies that have been integrated into the Komax Group over the last few years. So we will continue to seize any opportunity that arises to acquire companies capable of bringing us that much closer to the attainment of our strategic targets. The main focus of our acquisition activity is not digitalization, however. In what areas do you see a need for acquisitions? Matijas Meyer: The driving force behind our acquisitions over the last few years has been the desire to close any existing gaps in our product portfolio. As a result, we can now offer our customers solutions along the entire value chain. Having achieved that position, we have no need to pursue this particular strategic priority further at the mo- ment. We are also making very good organic progress with the strategic priority of “innovative production concepts” thanks to substantial investment in research and develop- ment. By contrast, when it comes to “global customer proximity” and the “development of non-automotive mar- kets,” there will be situations where we can fulfil our poten- tial more quickly with an acquisition. Can you be more specific? Matijas Meyer: To give you a simple example: the Asia and North/South America regions account for some 60% of the market. By contrast, we generate 60% of our revenues in Europe and North Africa. On the one hand, that’s very pleas- ing, and we have absolutely no intention of giving up any market share in either of these regions. But it also indicates that we still have growth potential in Asia and North/South America. This does not prevent us from carrying out acqui- sitions in Europe, however, if such acquisitions would help reinforce our position in one or several market segments. Whether or not our growth will be generated organically or with the assistance of acquisitions will depend on what kind of opportunities present themselves. Does diversification play any role in your acquisition strategy? Beat Kälin: The sale of the Medtech business unit, which was completed in 2016, reflected our decision to focus our efforts on the wire processing business. Nothing has changed in this respect since then. We are nowhere near exhausting all our potential. And the transformation of the automotive industry referred to earlier gives us the opportunity to grow further in our core market over the next few years and thus expand our leading market position. If we are to exploit this opportunity fully, we must remain focused and invest in a targeted way – which rules out diversification. E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 20 08.03.19 09:54 ANNUAL REPORT 2018 INTERVIEW Your planned investment expenditure for 2019 amounts to around CHF 90 million. Will you be able to continue to afford a payout ratio of 50%–60% over the next few years? Beat Kälin: Komax invested heavily in capacity expansion in 2018. But despite this outlay, our free cash flow was only negative to the tune of CHF 4.3 million. While this nega- tive figure will certainly be greater in 2019 given that invest- ment will be some CHF 50 million higher, the investment volume will then decline again sharply from 2020 onwards, with the corresponding boost to free cash flow. So given the company’s very strong financial base, there’s no reason from today’s standpoint why we shouldn’t adhere to a target payout ratio of 50%–60% of Group profit after taxes going forward, even in years with significant investment activity. What will be the key areas of focus in the 2019 financial year? Matijas Meyer: A number of issues will have high priority for me in 2019. These include the successful launch of various new products that are expected to give us additional unique selling propositions. Then there are the ongoing projects in the areas of research and development, and digitalization – these need to be driven forward so that we can continue to excite our customers with new developments over the coming years. The on-time completion of our four con- struction projects is another very important issue this year. Furthermore, I continue to attach great importance to press- ing ahead with our operational excellence initiatives and delivering the corresponding profit increases. As it is not yet clear how any slowdown in global economic growth will affect the automotive industry over the medium term, it is important for Komax to be flexible so that it can react promptly to changing cus tomer needs. All in all, I am confi- dent that we are well positioned to master the challenges we face in 2019. “ At least half of our growth is generated in connection with new technologies, such as autonomous driving and e-mobility, and through the increasing pressure on our customers to embrace automation.” Matijas Meyer What strategic value do you attach to non-automotive market segments? Beat Kälin: The aerospace, data/telecom, and industrial mar- ket segments are very important to us. Although the com- bined volume of these segments may be only a fifth of the size of the automotive market, the reciprocal synergy potential here is huge. For example, many types of wire that we are familiar with from the data/telecom area – and for which we have already developed processing solutions – are now increasingly being used in vehicles. These wires facili- tate high data transmission rates, and are becoming increas- ingly prevalent as the industry continues to evolve in the direction of autonomous driving. After many years of exhibiting impressive growth, the automotive industry is by all accounts now expe- riencing a slowdown. To what extent can the other market segments compensate for this development? Matijas Meyer: We generate more than 80% of our revenues with customers from the automotive industry. So although the other market segments are developing very positively and we are recording pleasing growth figures, they are too small in overall terms to offset fluctuations in automotive. What’s more, this is not likely to change in the future, as it is predicted that the automotive industry will continue to account for some 60% of all processed wires. In other words, if the automotive industry were to experience a sharp slowdown, Komax would inevitably be affected. That said, our business is not solely dependent on the number of vehi- cles produced. At least half of our growth is generated in connection with new technologies such as autonomous driving and e-mobility, and through the increasing pressure on our customers to embrace automation. E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 21 08.03.19 09:54 21 ANNUAL REPORT 2018 GLOBAL MEGATRENDS GLOBAL MEGATRENDS The demand for automation solutions is rising con- tinuously and increasing Komax’s growth. 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 in vehicles, and automated processing is increasingly required for reasons of quality, efficiency, complexity, cost, miniaturization, and traceability. Global megatrends will support Komax’s business in the long term. These include growing environmen- tal awareness on the part of consumers and the associated goal of emission-free vehicles. A key role will be played in this respect by electric mobility. Another megatrend is increasing interconnectedness. Info tainment systems in vehicles are becoming increasingly comprehensive and complex, while inte- grated information systems are laying the basis for the future: autonomous driving. The need for great- er road traffic safety represents a further megatrend. Here the emphasis is now no longer just on pro- tection 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 350 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 strengthen further in the future. 22 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 22 08.03.19 09:54 ANNUAL REPORT 2018 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 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 auto- mation, the retrospective search for a source of error is more complicated. Intelligent automation solu- tions, quality assurance tools, and systems for testing harnesses before they are installed in vehicles 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 inexpen- sive 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 assem- blies, particularly harnesses, are becoming ever more complex. At the same time, the process of minia- turization 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 process- ing more difficult or even impossible. Advantages for Komax In recent years, Komax has benefited from the momentum of 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 1% to 3% over the next few years (IHS Markit forecast for 2019: 1.2% growth). However, the demand for automation solutions for wire processing is only partly deter- mined by the number of vehicles produced and sold. For Komax, various factors – such as rising wage costs, a lack of personnel, the ongoing process of miniaturization, seamless traceability, and higher quality and efficiency demands on the part of automotive manufacturers – are at least as important as growth 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 present- ed with the opportunity to develop additional unique selling propositions and therefore generate further growth. When viewed together, these factors give Komax additional 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_2018 [P]_2160707.indd 23 08.03.19 09:54 23 ANNUAL REPORT 2018 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_2018 [P]_2160707.indd 24 08.03.19 09:54 ANNUAL REPORT 2018 GLOBAL MEGATRENDS NUMBER OF VEHICLES PRODUCED WORLDWIDE 1 per year 39 million 49 million 58 million 78 million 94 million 1980 1990 2000 2010 2018 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 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 25 08.03.19 09:54 ANNUAL REPORT 2018 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, and block loading. Komax offers its customers fully automated and semi-automated serial production models as well as customer-specific systems (for all degrees of automation and individual- ization), which optimize processes while at the same time increasing productivity. These are supple- mented 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 availability of installed systems and test their productivity also form part of the range, as does intelligent software. All of this provides ideal conditions for Komax’s customers to consolidate and increase their compet- itive advantage. 26 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 26 08.03.19 09:54 ANNUAL REPORT 2018 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 Global customer proximity 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. Komax has the broadest portfolio of solutions, which means that it can address a whole range of customer needs in a targeted way. To en- able 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 collab- oration 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 research 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 dif- ferent processes and technologies reduces interfaces and lead times. At the same time, processing reliability is increased. 27 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 27 08.03.19 09:54 ANNUAL REPORT 2018 BUSINESS MODEL AND STRATEGY Global customer proximity 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’s customers need to be flexi- ble and select the optimal economic locations for their produc- tion processes – in other words, set up operations wherever their end customers are. This is also true for Komax. To ensure that it stays close to its customers, including when these customers choose to relocate, 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 page 7). Komax’s strong global presence is also reflected in the per- centage breakdown of its revenues by region. The individual regions – Europe (including Africa), Asia/ Pacific, and North/South America – each generated between 21% and 58% of Komax’s revenues in 2018. Development of non-automotive markets Komax now generates more than 80% of its revenues through customers in the automotive industry. Market estimates indicate that some 60% of globally processed wiring is used in automotive manu- facturing. 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, data communication and telecommunication (data/telecom), and industrial applications (industrial). As these offer attractive long- term growth opportunities, Komax is seeking to increase its penetration of these markets. If this is to be achieved, 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 re- ceived towards the end of 2017 from the aerospace industry, for example. Thanks to the large-scale systems that Komax will deliver to the customer by 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 other 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. Moreover, Komax uses the experience gained in these areas in the development of automation solutions for the automotive industry. Conversely, the aero- space, data/telecom, 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, specifi- cally develop new products for particular segments. 28 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 28 08.03.19 09:54 ANNUAL REPORT 2018 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 pursues this strategy as it intends to strengthen its leading market position, also making use of acquisitions and equity stakes. 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), Thonauer Group (2016; increase in global reach), and Laselec (2017; innovative production concepts and development of non-automotive markets). In addition, Komax has increased its global customer proximity further through asset deals with Practical Solution (2017; acquisition of development and production personnel in Singapore and sales personnel in Shanghai), TX Mechatronics (2018; acquisition of personnel in Morocco), and the Application Tooling business area of TE Connectivity (2018; acquisition of sales business in the US, Canada, and Mexico). Komax Group brands 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, data- com/telecom, 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 electrical- electronic assemblies and components. TSK products are used predominantly in the automotive sup- plier industry and wherever the functionality of complex assemblies needs to be tested in order to rec- ognize 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 2012. E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 29 08.03.19 09:54 29 ANNUAL REPORT 2018 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 has been part of Komax since 2016. Prior to this acquisition, the two compa- nies had been working together very successfully as partners for decades. 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 by Heinz Billing and Markus Reisinger, 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 systems. Kabatec has been part of Komax since 2016. The two companies had enjoyed a strategic partner- ship 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 (see page 16). These are used mainly in the aerospace industry. The company was founded in 2001 and has a subsidiary in the US. 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 has been part of Komax since 2017. Komax acquired 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 increasingly found their way into the automotive industry. 30 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 30 08.03.19 09:54 ANNUAL REPORT 2018 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) EBIT (in CHF million) RONCE (in %) 1 Payout ratio (in % of EAT) 2018 479.7 67.3 25.2 52.0 2017 408.5 55.1 23.8 59.2 1 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). 31 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 31 08.03.19 09:54 ANNUAL REPORT 2018 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_2018 [P]_2160707.indd 32 08.03.19 09:54 ANNUAL REPORT 2018 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 can be found in the cutting room. For the double-sided crimping and fitting of seals, Komax customers use the fully automated Alpha 550 crimping machine, which can twist and tinplate the braids, among other things. Semi-automatic crimping In order to be able to process individual lines at the pre-assembly stage, customers use a machine like the bt 722 benchtop crimp- ing 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, as with the KTR 160 from Kabatec. 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 cables. 33 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 33 08.03.19 09:54 ANNUAL REPORT 2018 BOARD OF DIRECTORS BOARD OF DIRECTORS Beat Kälin (1957) Non-executive, independent member and Chairman of the Board of Directors since 2015, elected until 2019, Swiss citizen, resident in Birmensdorf (CH). Daniel Hirschi (1956) Non-executive, independent member of the Board of Directors since 2005, Vice-Chairman since 2014, elected until 2019, Swiss citizen, resident in Biel (CH). David Dean (1959) Non-executive, independent member of the Board of Directors since 2014, elec ted until 2019, Swiss citizen, resident in Cham (CH). Member of the Board of Directors of listed company Huber + Suhner AG, Pfäffikon ZH, and of CabTec Holding AG, Rotkreuz, as well as Chairman of the Board of Direc- tors of Sevensense Robotics AG, Zurich. Beat Kälin holds a master’s degree and a doctorate in engineering from ETH Zurich. He also holds an MBA from INSEAD. From 1987 to 1997 he held various manage- ment positions in the Elektrowatt Group, Stäfa and Zug; from 1998 to 2004 he was a member of the Group Executive Board of SIG Schweizerische Industrie-Gesellschaft Holding AG, Neuhausen; from 2004 to 2006 he was a member of the Board of Management responsible for the Packaging Technology Division at Robert Bosch GmbH, Stuttgart (DE). He was COO of the Komax Group from 2006 to 2007, and CEO from 2007 to May 2015. Member of the Board of Directors of listed company Gavazzi Holding AG, Steinhausen. Daniel Hirschi holds a degree in engineering. From 1983 to 2005 he held various mana ge- ment 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. Member of the Board of Directors of listed company Agta Record AG, and of Haag- Streit Holding AG, Köniz, as well as mem- ber 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 in Zug 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. As at 31 December 2018 34 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 34 08.03.19 09:54 ANNUAL REPORT 2018 BOARD OF DIRECTORS Andreas Häberli (1968) Non-executive, independent member of the Board of Directors since 2017, elec ted until 2019, Swiss citizen, resident in Bubikon (CH). Kurt Haerri (1962) Non-executive, independent member of the Board of Directors since 2012, elected until 2019, Swiss citizen, resident in Birrwil (CH). Roland Siegwart (1959) Non-executive, independent member of the Board of Directors since 2013, elected until 2019, Swiss citizen, resident in Schwyz (CH). 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 Tech- no 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 (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 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 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. Member of the Board of Directors of Evatec Holding AG, Trübbach, of NZZ Media Group (AG für die Neue Zürcher Zeitung), Zurich, and of Sevensense Robotics AG, Zurich, as well as Chairman of the Board of Trustees of Gebert Rüf Stiftung, 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 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. E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 35 08.03.19 09:54 35 ANNUAL REPORT 2018 EXECUTIVE COMMITTEE EXECUTIVE COMMITTEE Matijas Meyer (1970) Chief Executive Officer (CEO) since 2015, member of the Executive Committee since 2010, at Komax since 2007, Swiss citizen, resident in Ebikon (CH). Andreas Wolfisberg (1958) Chief Financial Officer (CFO) since 1996, member of the Executive Committee since 1996, at Komax since 1991, Swiss citizen, resident in Adligenswil (CH). Marc Schürmann (1971) Executive Vice President, member of the Executive Committee from 1 January 2019, at Komax since 1995, Swiss citizen, resident in Zug (CH). Matijas Meyer holds a degree in engi- neering from ETH Zurich and an MBA from Cranfield University (UK). From 1998 to 2004, he was active in product develop- ment at OC Oerlikon / ESEC, Cham, and from 2005 to 2006 in product man- agement at Tornos SA, Moutier. He joined the Komax Group in 2007, heading up the French pro duction and development site in Rousset until 2010. He then took over as Head of the Wire business unit and was appointed member of the Komax Exec utive Com mittee. He has been CEO of the Komax Group since May 2015. Chairman of the Board of Directors of Kowema AG, Rotkreuz, and of its subsidi- ary CabTec Holding AG, Rotkreuz. Andreas Wolfisberg is a Swiss Certified Expert in Accounting and Controlling. Before joining the Komax Group, he worked in finance at von Moos Stahl AG in Lucerne. He joined the Komax Group in 1991, initially as department head in finance and accounting and since 1996 as CFO and, thus, member of the Execu - tive Committee. Marc Schürmann graduated as a busi - ness technician and has an Executive MBA through the Rochester-Bern executive program. He joined the Komax Group in 1995, initially as a service technician and then in various management positions in Switzerland and abroad. Among his various positions, Marc Schürmann worked for Komax France for five years and was General Manager of Komax China in Shang- hai for two years. From 2010 to 2017, he was a member of the Executive Committee of the Wire business unit of the Komax Group, latterly as Head of Marketing, Sales & Service. He has headed up a unit focusing on wire processing since 2018 and is General Manager of Komax AG in Switzer- land. As at 31 December 2018 36 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 36 08.03.19 09:54 ANNUAL REPORT 2018 EXECUTIVE COMMITTEE Marcus Setterberg (1978) Executive Vice President, member of the Executive Committee from 1 January 2019, at Komax since 2007, Swedish citizen, resident in Bäch (CH). Günther Silberbauer (1971) Executive Vice President, member of the Ex ecutive Committee from 1 January 2019, at Komax since 2014, Swiss citizen, resident in Grafenau (DE). Marcus Setterberg has a Master of Science in Industrial Engineering & Management from the KTH Royal Institute of Technology in Stockholm, as well as a Master of Science in Business Administration and Economics from the University of Stock- holm. From 2004 to 2007, he was a project manager and process engineer for SIG Pack / Bosch Packaging in Neuhausen am Rheinfall in post-merger projects and projects aimed at developing the service business. Marcus Setterberg joined the Komax Group in 2007, working first in Switzerland for the global service unit. He then spent around five years in China, three of which as General Manager of Komax China in Shanghai. Since August 2016 he has headed up a unit that focuses on testing systems for wire processing, and he is responsible for the TSK compa- nies. In both these functions, he was a member of the Executive Committee of the Wire busi ness unit of the Komax Group until the end of 2017. Günther Silberbauer has a degree in me- chanical engineering and business technol- ogy, as well as an Executive MBA through the Rochester-Bern executive program. From 1997 until 2010, he worked for Müller Martini in Zofingen and then until 2013 for the Bystronic Group in Niederönz. He was a member of executive management at both these companies, and held manage- ment positions in development and global distribution. Günther Silberbauer has been with Komax since 2014. He heads a unit that addresses automation along the value chain whose primary focus is on customer - specific solutions for wire processing; his roles include that of General Manager of Komax SLE in Grafenau (Germany). He was a member of the Executive Committee of the Wire business unit of the Komax Group until the end of 2017. E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 37 08.03.19 09:54 37 ANNUAL REPORT 2018 SUSTAINABILITY AND SOCIAL RESPONSIBILITY SUSTAINABILITY AND SOCIAL RESPONSIBILITY Sustainability and social responsibility are core elements of Komax’s corporate strategy. They are incorporated not only into the Group’s long-term targets, but also into its operating activities. Komax is determined to develop its competencies in questions of sustainability and social responsibility on an ongoing basis – for the benefit of its stake- holders 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. In 2018, it was completely revised and published in 15 languages. The new Code of Conduct builds on the ethical principles Komax has been applying for many years. It defines general rules of conduct and addresses issues such as equality of opportunity, conflicts of interest, health and safety, and sustainability. In addition, it defines the five core values – innovation, customer focus, success, quality, and responsibility – that constitute a key component of the Komax Group’s identity. All employees are given training on the Code of Conduct when they join the company. Violations of this code are not tolerated, and will have the corresponding consequences for the employ- ees concerned. Anyone becoming aware of a violation may report this to their line manager, to the HR department, or to the independent external whistleblowing service (codeofconduct@ssrlaw.ch). In its commercial relationships, Komax sets great store by respect, decency, social responsibility, and consistent adherence to international guidelines. For this reason, Komax has drawn up codes of conduct for both suppliers and business partners, and where possible makes compliance with these codes a contractual obligation. 38 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 38 08.03.19 09:54 ANNUAL REPORT 2018 SUSTAINABILITY AND SOCIAL RESPONSIBILITY OF THE KOMAX GROUP 5 CORE VALUES INNOVATION As a pioneering and visionary company, we ensure that our business activity has a long-term focus. We are always open to new ideas and regularly re-examine our approach. This includes looking beyond our immediate concerns. We are willing to take risks – on the basis of knowl- edge and understanding – in order to reinforce our leadership in terms of innovation. Following new paths can lead to mistakes. We realize and tolerate this because it gives us an oppor- tunity to become even better. We are increas- ing our lead by continuing to press ahead with innovations proactively, quickly, and deter- minedly while remaining committed to our usual high quality standards. CUSTOMER FOCUS The varying needs of our customers are at the center of our activities. We listen to them carefully and ask the right questions. Under- standing their requirements enables us to keep on improving. We strive to ensure that our solutions offer our customers added value, so that they can increase their efficiency and pro- ductivity and thus gain a competitive advan- tage. We are close to our customers, commu- nicate actively, and foster friendly, long-term relationships and partnerships based on respect and esteem. SUCCESS We pursue ambitious targets and make an effort to achieve them every day. As a market and technology leader we make high demands of ourselves and strive to find the best solution for our customers. Our long history of success encourages us to continue the success story and create sustainable value. This benefits our customers, employees, and investors. We want all these stakeholders to share equally in our success. We nurture competent, committed employees who enable us to retain loyal, satis- fied customers. QUALITY Our day-to-day work is driven by quality and a willingness to examine what we do critically. We provide our customers with solutions that fully meet our quality requirements and supply what we have agreed. This commit - ment lies at the heart of our long-term, trusting customer relationships. Our efforts to keep on getting better include always delivering the agreed quality and actively asking customers how we can improve further. It is clear to us that this creates trust, which is of inestimable value. RESPONSIBILITY We take our responsibility towards our custom- ers, employees, and investors seriously and act as a reliable, trustworthy partner. Our integ- rity and ability to keep to our agreements and meet our deadlines make us stand out from the crowd. We keep our word and ensure that our partners and colleagues do so too. A strong sense of shared responsibility is important to us and we are careful to foster it. We take responsibility for our actions, make decisions, and carry them out. If we pass our responsi- bility on to others, we do so deliberately and ensure that they assume it in turn. E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 39 08.03.19 09:54 39 ANNUAL REPORT 2018 SUSTAINABILITY AND SOCIAL RESPONSIBILITY 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, and it saves resources generally. Komax also ensures servicing and the availability of upgrades and replacement parts years be- yond its contractual obligations. Thanks to their modular con- struction, the machines can usually be adapted to new techno- logical developments or changing needs. As a result, numerous products have been used by customers for decades. times5 less energy required to cool a control cabinet 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 two types of machine developed over the last few years and now sold in large numbers each year, 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 consumption. 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 repercussions for the environment. Declining consumption of fuel and materials The wire processing solutions delivered by Komax do not contain any environmentally harmful compo- nents. In the automotive supply industry, these solutions are used to process wiring for new fuel-saving propulsion concepts such as electric and hybrid vehicles, among other things. 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 con- sumption. In addition, the automated taping solutions, for example, help Komax’s customers to use less adhesive tape then they would in the case of manual taping. Komax commissions independent market research companies to carry out customer satisfaction analyses on a regular basis. These evaluate the degree of customer loyalty and the extent to which Komax meets customer expectations, for example. 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. 40 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 40 08.03.19 09:54 ANNUAL REPORT 2018 SUSTAINABILITY AND SOCIAL RESPONSIBILITY Sustainability in procurement %5 reduction in consumption of electricity and drinking water by 2021 The company believes in long-term partnerships, and selects sup- pliers which demonstrate an environmentally aware approach and whose products conform to sustainability criteria. This is ascer- tained 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 at- tach to sustainability, quality, price, supply chain, delivery reliabil- ity, 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 environmentally aware and ethical way. Compliance with agreed guidelines and indicators is reviewed in regular supplier audits. If violations are uncovered, a supplier partnership may be immediately terminated as a result. In addition to the investment volume, key criteria when evaluating and selecting new production sys- tems 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 disposed of appro- priately, while the volume of waste is reduced continuously thanks to 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. A photovoltaic power plant is also being installed in the building extension currently under construc- tion in Dierikon (see page 7). This plant will be able to cover the electricity requirement of the new build- ing for around one month. In order to save resources, Komax is sparing in its use of technical solutions, such as artificial ventilation, illumination, and motorized shading. The internal courtyard will play a key role here, as it will bring plenty of light to the inner zone. In addition, as a vertical flue it will dissipate warm air and thereby stimulate natural ventilation via the external facade. When it comes to the heating of the new building, Komax has opted for district heating. The company also plans to heat its existing buildings in Dierikon in a CO2-neutral way from 2020 onwards, and is therefore intending to switch from oil heating to district heating for these buildings too. E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 41 08.03.19 09:54 41 ANNUAL REPORT 2018 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 2018, the number of occupational accidents across the Komax Group as a whole declined further, from 32 to 25. Komax has set itself the target of reducing occupational accidents by 10% (compared with the average for 2016 and 2017, namely 33 work-related accidents) by 2021. Komax has grown significantly over the last two years, and recorded some 20% more working hours in 2018 than in 2016 as a result of the in- crease in headcount. Despite this increase, the number of occupational accidents has fallen by some 25% over the same timeframe. Komax is keen to see this positive trend persist, and is looking to exceed the target it has set for 2021 thanks to the implementation of various measures. 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, as well as Komax SLE in Grafenau, TSK in Porta Westfalica, and SC Thonauer Automatic in Bucharest all have ISO 14001 certification. These six sites employ around 940 people. All have integrated management systems that encompass all company processes, the environment, 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 the Swiss sites in Dierikon and Rot- kreuz. For example, the target was to reduce electricity 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 went hand-in-hand with a substantial rise in headcount, Komax managed to surpass this target signifi- cantly: in 2018, Komax consumed 2 923 MWh of electricity at the two sites, which works out as 4.7 MWh per head. In other words, per head electricity consumption has fallen by some 20% since 2014. Komax has set itself the target of reducing per head electricity consumption by a further 3% (compared to 2018) by the end of 2021. 42 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 42 08.03.19 09:54 ANNUAL REPORT 2018 SUSTAINABILITY AND SOCIAL RESPONSIBILITY Even though it could result in a slight increase in electricity consumption, Komax is promoting e-mobility at its sites in Dierikon and Rotkreuz. From February 2019, a total of six charging stations at the two locations will be available for use by employees and customers for electric vehicles. The eco-bonus introduced in 2017 is helping to cut carbon emissions: all employees in Switzerland who forego motor- ized private transport on their journey to and from work will receive 100 Swiss francs a month. Komax is successively expanding its reporting on sustainability issues. To give just one example, Komax is reporting electricity consumption figures for all its production sites for the first time – thereby accounting for more than 80% of the electricity consumed by the Komax Group’s workforce. In 2017, around half of the production sites were covered for reporting purposes. Komax has set itself the target of reducing electricity and potable water consumption by 5% in each case compared to 2017. Electric- ity consumption per head declined significantly in 2018 (–5.2%), whereas drinking water consumption per head rose sharply (+5.5%). Sustainability: key figures Consumption / accidents 1 Electricity in MWh Electricity per head in MWh Number of occupational accidents Number of occupational accidents for every 1 000 employees Consumption / waste 2 Drinking water in m³ Drinking water per head in m³ Paper in kg Paper per head in kg Refuse in kg Refuse per head in kg 2018 2017 6 088 5 689 3.7 25 3.9 32 15.1 22.2 5 359 8.0 6 799 10.2 4 888 7.6 8 171 12.7 46 889 39 099 70.0 60.7 1 Covering all production sites of the Komax Group. 2 Covering the production sites in Dierikon (CH), Rotkreuz (CH), Küssnacht am Rigi (CH). 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 labor. 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. 43 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 43 08.03.19 09:54 ANNUAL REPORT 2018 SUSTAINABILITY AND SOCIAL RESPONSIBILITY “ Komax’s work- force of more than 2 000 em- ployees enjoy a world of oppor- tunities.” 44 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 44 08.03.19 09:54 ANNUAL REPORT 2018 SUSTAINABILITY AND SOCIAL RESPONSIBILITY Attractive employer At the end of 2018, Komax employed 2 006 staff worldwide (2017: 1 841 staff). Average headcount in 2018 worked out at 1 936 employees (2017: 1 720 employees). This increase is primarily explained by the acquisition of Laselec (October 2017), the persistently strong development of business, and the corresponding new appointments at various locations. Personnel expenses in the year under review amounted to CHF 157.4 million (2017: CHF 137.0 million). 2018 Production Research and development Engineering Marketing, sales, service Administration 2 Total headcount as at 31 December 2018 2017 Production Research and development Engineering Marketing, sales, service Administration 2 Total headcount as at 31 December 2017 CH 1 Europe 1 Americas 1 Asia 1 Africa 1 Total 241 149 31 205 51 677 309 38 97 196 77 717 84 0 19 111 36 250 78 30 15 114 27 264 45 0 11 33 9 98 757 217 173 659 200 2 006 CH Europe Americas Asia Africa 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 1 841 1 The individual companies and their locations are listed on page 108. 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 industry association Swissmem showed that pay at the Swiss production sites is in line with market averages and that men and women receive equal pay. The proportion of women in the Group’s global workforce was 20.4% in 2018 (2017: 19.0%). Komax is not alone within the industry in having a relatively low proportion of women in its workforce. The main reason for this phenomenon is the large number of technical positions within the company, for which the recruitment potential among women is limited. The Group’s staff turnover rate has been gratifyingly low for many years. In 2018, it amounted to 6.9% (2017: 7.2%). E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 45 08.03.19 09:54 45 ANNUAL REPORT 2018 SUSTAINABILITY AND SOCIAL RESPONSIBILITY Active employee development 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. In addition, the needs of employees themselves are not neglected, 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 individual training activities. Each year, Komax spends some 1% of its personnel budget on training. Moreover, Komax also encourages international exchanges to allow its staff to gain new experiences and expand their career perspectives. As the world’s leading company in automated wire processing, Komax gives its employees the op- portunity to shape the industry and take control of their careers. Here Komax relies on three principles: the scope to create change, responsibility, and togetherness. 46 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 46 08.03.19 09:54 ANNUAL REPORT 2018 SUSTAINABILITY AND SOCIAL RESPONSIBILITY Responsibility Commitment builds trust Room to maneuver requires commitment and shared responsibility. We challenge our employees. Everyone takes responsibility. We take and delegate responsibility, which forms commitment between us. Scope to create change Room for ideas We give our employees the room to maneuver to pursue their tasks and develop as individuals. Everyone counts. We facilitate development. Togetherness Inspiration through community We maintain a valued working atmosphere with interna - tio nal character and sense of to getherness. Everyone is part of the whole. We maintain an inspiring to getherness. Young Community @Komax In order to better understand the needs of our younger employees (those under 30) and thereby provide them with more targeted support, Komax founded the Young Community in Switzerland in 2018. The Young Community is a network comprising some 50 young Komax employees, and is organized like an association. It offers its members a platform on which they can communicate their needs relating to their employer and working environment, and develop any necessary measures and solutions. Once a year, the Young Community’s steering committee discusses with the CEO the themes that it has addressed; it is also responsible for maintaining a direct line of communication between younger em- ployees and their employer throughout the year. A multifaceted program involving workshops, special- ist talks, and events to strengthen the Community is spread across the year. A further core component is the promotion of knowledge exchange and an understanding of the different activities pursued at Komax. This is achieved, for example, by two members of the Young Community exchanging roles for half a day. Komax is convinced that it can continue to develop as an employer with the help of the Young Community, as well as making itself attractive to talented young employees. E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 47 08.03.19 09:54 47 ANNUAL REPORT 2018 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 2018, 47 apprentices (2017: 44) were undergoing training in eleven professions at the Group’s Swiss sites, and 43 apprentices (2017: 35) were being trained in Germany (Grafenau, Porta Westfalica, and Burghaun). Komax has steadily increased the number of apprenticeships on offer since 2016 – from 74 to 90. 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 to 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 vocational 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 in conjunction with external partners in recent years have for the most part been very positive, and in many places far above the industry average. No employee surveys were carried out in 2018. 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 locations by means of various measures. In Switzerland, for example, staff benefit from the occupational health management scheme fit@work. The focal points of the fit@work initiative are movement, nutrition, and relaxation. Komax helps its employees to improve their physical and mental fitness with a multi- faceted offering that encompasses free sports offers, fruit initiatives, workshops, and specialist talks. Another key element of fit@work is the employee health survey, which is conducted every three years. As a further measure 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 employ- ees to commute by bike as often as possible in the month of June. In 2018, 100 employees (2017: 108 employees) participated in this initiative, racking up more than 30 000 kilometers (2017: more than 29 000 kilometers) in the saddle. 48 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 48 08.03.19 09:54 ANNUAL REPORT 2018 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 2018, the daily closing price of the Komax share ranged between CHF 223.00 and CHF 329.00. The year-end closing price was CHF 230.00. This represents a decline of 28.0% on the 2017 year-end closing price (CHF 319.50). In this respect the Komax share has followed the trend of Swiss manufacturing companies generally, most of which declined by more than 20% in 2018. Over the last five years, the value of the Komax share has increased by around 70%. The SPI Extra has appreci- ated by around 44% over the same timeframe. Share price development (3 January 2014 – 31 December 2018) in CHF 350 300 250 200 150 100 50 2014 2015 2016 2017 2018 2019 Komax SPI Extra TR 49 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 49 08.03.19 09:54 ANNUAL REPORT 2018 INFORMATION FOR INVESTORS Listing Komax is listed on SIX Swiss Exchange. The market capitalization of the Komax Group at the end of 2018 was CHF 884.9 million. 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, the Netherlands, and the United States. 31% Cleared shares 11% Other countries 58% 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 31.12.2018 31.12.2017 3 787 1 964 247 25 4 3 082 1 713 220 28 5 The shareholder base widened significantly in 2018. At the end of 2018, 6 027 shareholders were entered in the share register. This represents an increase of 979 shareholders compared to the end of 2017. Over the last three years the company’s shareholder base has more than doubled (2 801 share- holders as at 31 December 2015). Free float The free float as defined by SIX Swiss Exchange stands at 100%. 50 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 50 08.03.19 09:54 ANNUAL REPORT 2018 INFORMATION FOR INVESTORS %3.0 dividend yield Disclosure of shareholdings / significant shareholders Under Art. 120 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. Information on these significant shareholders can be found on page 54 of this report. The reporting obligation applies to anyone who directly, indirectly, or in concert with third parties acquires or disposes of shares in a company incorporated in Switzerland whose equity securities are listed in whole or in part in Switzerland. 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. On the basis of the pleasing annual result, it is proposing to the Annual General Meeting of 16 April 2019 a dividend increase from CHF 6.50 to CHF 7.00 per share. CHF 0.80 per share will be distributed from capital contribution reserves, and will therefore be tax-free for natural persons domiciled in Switzerland who hold the shares as part of their private assets. Despite the very high level of investment expenditure at the moment, Komax is meeting its strategic target (payout ratio of 50%–60%) and distributing 52.0% of Group profit after taxes to its shareholders. The dividend yield as at 31 December 2018 amounted to an attractive 3.0% (2017: 2.0%). Financial calendar Annual General Meeting Dividend payment Half-year results 2019 Preliminary information on 2019 financial year Annual media and analyst conference on the 2019 financial results Annual General Meeting 16 April 2019 24 April 2019 20 August 2019 28 January 2020 17 March 2020 21 April 2020 51 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 51 08.03.19 09:54 ANNUAL REPORT 2018 INFORMATION FOR INVESTORS Komax registered share: key data Share capital as at 31 Dec. Number of shares as at 31 Dec. Average number of outstanding shares in TCHF No. No. 2018 385 2017 383 2016 1 2015 1 2014 1 377 369 361 3 847 510 3 834 482 3 774 148 3 691 651 3 605 101 3 830 864 3 810 276 3 741 364 3 652 728 3 552 840 Key data per share Par value Basic earnings EBITD EBIT Shareholders’ equity Distribution Payout ratio Dividend yield as at 31 Dec. Share price development Highest price Lowest price Closing price as at 31 Dec. Average daily trading volume P/E (price-earnings ratio) as at 31 Dec. Total return per share Distribution from prior-year profit Change in value Total (total return) Annual return 3 CHF CHF CHF CHF CHF CHF % % CHF CHF CHF No. CHF CHF CHF % 0.10 13.52 20.52 17.56 73.20 7.00 2 52.0 2 3.0 2 329.00 223.00 230.00 13 342 17.0 6.50 –89.50 –83.00 –25.98 0.10 11.05 17.35 14.45 67.33 6.50 59.2 2.0 0.10 10.34 17.22 14.81 65.23 6.50 63.4 2.6 0.10 8.00 16.19 13.67 76.70 6.00 75.0 3.1 0.10 7.64 15.99 13.34 78.82 5.00 65.4 3.5 319.50 251.25 194.90 152.40 243.50 180.10 122.90 124.60 319.50 251.25 194.90 144.50 12 274 28.9 8 191 24.3 7 881 24.4 8 613 18.9 6.50 68.25 74.75 29.75 6.00 56.35 62.35 31.99 5.00 50.40 55.40 38.34 4.50 9.20 13.70 10.13 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The 2016 figures have been revised accordingly. The years 2014 and 2015 are reported according to IFRS. 2 Proposal of the Board of Directors of Komax Holding AG: distribution of CHF 7.00 per registered share. 3 Change on prior-year-end closing price. Further information on the Komax registered share can be found on the Internet at www.komaxgroup.com. 52 E_00_GB_Komax_Berichtsteil_2018 [P]_2160707.indd 52 08.03.19 09:54 CORPORATE GOVERNANCE 2018 CONTENTS CORPORATE GOVERNANCE Corporate structure and shareholders 54 Shareholder participation rights 62 Changes of control and defense measures 63 Auditors 63 Information policy 64 Capital structure 55 Board of Directors 57 Executive Committee 61 Compensation, shareholdings, and loans 62 E_00_GB_Komax_Corporate Governance_2018 [P]_2160843.indd 53 08.03.19 10:03 53 ANNUAL REPORT 2018 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 108 and 109 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 page 50 (“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 2018: Shareholder / Shareholder group Max Koch, Meggen, Switzerland Swisscanto Fondsleitung AG, Zurich, Switzerland Leo Steiner, Steinhausen, Switzerland Number of shares 31.12.2018 Share in % 31.12.2018 1 190 285 2 131 218 3 126 954 4 4.962 3.422 3.311 1 The calculation is based on the 3 834 482 registered shares listed in the Commercial Register as at 31 December 2018. 2 Notification of position falling below 5% threshold on 13 March 2018. 3 Notification of breach of 3% threshold on 16 December 2016. 4 Notification of breach of 3% threshold on 19 December 2007. All shareholdings reported to Komax Holding AG and the Disclosure Office of SIX Swiss Exchange during the 2018 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. 54 E_00_GB_Komax_Corporate Governance_2018 [P]_2160843.indd 54 08.03.19 10:03 ANNUAL REPORT 2018 CORPORATE GOVERNANCE 384 751.00 249.00 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 details on conditional capital, please see page 103 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. In 2015, the allocation of share options was discontinued and replaced by share-based programs. The most recently allocated options, i.e. those allocated in 2014, were convertible into shares up to 31 December 2018 at the latest. Further information on the Komax Group’s employee participation programs can be found on pages 72 and 73 and 111 to 113 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, 2017 60 334, and for 2018 13 028. Conditional capital therefore amounted to CHF 249.00 as at 31 December 2018. The new capital created in 2018 was reported within the deadline stipulated under Art. 635h of the Swiss Code of Obligations (CO). Komax Holding AG has no authorized capital. Capital changes Details of capital changes in 2017 and 2018 can be found on page 82 of the financial section of this Annual Report. The corresponding information for 2016 can be found on page 76 of the financial section of the 2017 Annual Report. Shares, participation certificates, and bonus certificates As at 31 December 2018, Komax Holding AG had fully paid-up capital of CHF 384 751.00 and distribut- ed over 3 847 510 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 56). Registered shares are fully entitled to receive dividends. Komax Holding AG has not issued any participation certificates or bonus certificates. 55 E_00_GB_Komax_Corporate Governance_2018 [P]_2160843.indd 55 08.03.19 10:03 ANNUAL REPORT 2018 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 on the previous page under “Authorized and conditional capital in particular” as well as on page 111 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 19 notifications were submitted in the 2018 financial year. Published notifications can be found at www.six-exchange-regulation.com/en/home/publications/management-transactions.html (website of SIX Swiss Exchange). 56 E_00_GB_Komax_Corporate Governance_2018 [P]_2160843.indd 56 08.03.19 10:03 ANNUAL REPORT 2018 CORPORATE GOVERNANCE 3 Board of Directors The Board of Directors comprised six individuals as at 31 December 2018. 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 2019 2019 2019 2019 2019 2019 RC (Chairman) AC (Chairman) RC 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 additional mandates for listed companies, – five 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 due diligence obligations of the Board of Directors. Mandates with different companies that belong to the same cor- porate group count as a single mandate. Mandates undertaken by a member of the Board of Directors at the behest of a Group company or to exercise an office under public law are not covered by the re- striction 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. 57 E_00_GB_Komax_Corporate Governance_2018 [P]_2160843.indd 57 08.03.19 10:03 ANNUAL REPORT 2018 CORPORATE GOVERNANCE Daniel Hirschi will not be standing for re-election at the next Annual General Meeting on 16 April 2019. The Chairman and all other members of the Board of Directors are being proposed for re-election. In addition, the Board of Directors is proposing the election of Dr. Mariel Hoch as a new Board member. 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 elected by the Annual General Meeting unless that position becomes vacant during the year, the Board of Directors organizes itself. If the office of Chairman becomes vacant during the period of office, the Board of Directors will nominate a new Chairman for the remaining peri- od 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 were held in 2018. With the exception of one meet- ing, where Kurt Haerri was excused from attending, all board members were present at all meetings. On average, these meetings lasted around eight hours. However, these average 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 ex- clusively made up of non-executive Board members. Every year, the Board of Directors undertakes an evaluation of its own work as well as that of its committees. In addition, it regularly scrutinizes the composition of the Board. – 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 General Meeting. Re-election is permissible. The current members are Beat Kälin (Chair), Andreas Häberli, and Roland Siegwart. The Board of Directors is proposing to the Annual General Meeting of 16 April 2019 that the three existing members be re-elected. 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 2018, 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. 58 E_00_GB_Komax_Corporate Governance_2018 [P]_2160843.indd 58 08.03.19 10:03 ANNUAL REPORT 2018 CORPORATE GOVERNANCE 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 Associ- ation. 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 appoint- ment 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 Com- pensation Report on pages 65 to 77. – 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 2018, 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 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 re- viewed on a regular basis and amended where necessary. The most recent adjustments have been in force since 28 August 2018. 59 E_00_GB_Komax_Corporate Governance_2018 [P]_2160843.indd 59 08.03.19 10:03 ANNUAL REPORT 2018 CORPORATE GOVERNANCE To the extent permitted by law and by the Articles of Association, the Board of Directors has delegated operational management of the company to the CEO of the Komax Group. The Executive Committee is made up of the CEO and the CFO. The members of the Executive Committee are appointed by the Board of Directors at the proposal of the Remuneration Committee. 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 Commit- tee. 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 addi- tion, the Chairman of the Board of Directors and the CEO are in regular contact to discuss important questions of company policy. The risks associated with the Group’s commercial activities are systematically identified, ana lyzed, monitored, and managed through an institutionalized risk management function. These risks are 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, income 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 accounting records as well as timely preparation of reliable financial information. A report setting out the results of these investigations and the corresponding measures taken is 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 report the results of their investigations to the Audit Committee. The Audit Committee reviews and approves the scope of the audit, the audit plan, and the corres ponding responsibilities. It also decides on any measures to be implemented as a result of internal audit findings. 60 E_00_GB_Komax_Corporate Governance_2018 [P]_2160843.indd 60 08.03.19 10:03 ANNUAL REPORT 2018 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 The Executive Committee is being expanded from two to five members as at 1 January 2019. Biogra- phies of both the existing and the new members of the Executive Committee are provided on pages 36 and 37. Other activities and interests Aside from the mandates listed on page 36, 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 Decem- ber 2018. Statutory regulations with respect to the number of permissible activities as per Art. 12 para. 1 ERCO According to Section 26 para. 1 of the Articles of Association, the number of permissible mandates of members of the Executive Committee in the highest management or administrative bodies of legal entities which are obliged to have themselves entered in the Commercial Register or in a corresponding foreign register and which are not controlled by the company 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 corporate group count as a single mandate. Mandates undertaken by a member of the Executive Com- mittee 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 stipulat- ed 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_2018 [P]_2160843.indd 61 08.03.19 10:03 61 ANNUAL REPORT 2018 CORPORATE GOVERNANCE 5 Compensation, shareholdings, and loans Details of compensation, shareholdings, and loans are set out in the Compensation Report on pages 65 to 77 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 entitled to one vote. Treasury shares do not confer the right to vote. No single shareholder may directly or indirectly exercise the votes of more than 15% of the total number of shares recorded in the Com- mercial 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 Chairman of the Annual General Meeting shall decide on the permissibility of representation. The independent proxy is elected by the Annual General Meeting up until the end of the next Annual General Meeting. The Articles of Association provide no regulations regarding the appointment of the independent proxy that deviate from statutory provisions. The statu- tory 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. 62 E_00_GB_Komax_Corporate Governance_2018 [P]_2160843.indd 62 08.03.19 10:03 ANNUAL REPORT 2018 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; see also “Restrictions on transferability of shares and nominee registrations” on page 56). Invitation to the Annual General Meeting of 16 April 2019 All shareholders registered in the Komax Holding AG share register as at 5:00 p.m. on 9 April 2019 are entitled to vote in respect of the number of shares registered in their name at the Annual General Meeting of 16 April 2019. Shareholders registered on 8 March 2019 will receive an invitation indicating the pro- posals 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 9 April 2019 will receive the invitation at that time, or ballot materials will be waiting 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 opting- 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 Komax Group’s consolidated financial statements since 1994. Pursuant to the provisions of the Swiss Code of Obligations, the lead auditor is replaced after a maximum term of seven years. The lead auditor has been responsible for the audit mandate since 2017. Audit fee PricewaterhouseCoopers invoiced the Komax Group CHF 701 322 in the 2018 financial year for services in connection with auditing the annual statements of Komax Holding AG and the Group companies, as well as the consolidated statements of the Komax Group. Additional fees During the 2018 financial year, PricewaterhouseCoopers invoiced additional fees amounting to a total of CHF 76 936. This breaks down into fees of CHF 37 097 for tax and legal advice and CHF 39 839 for transaction services and other consultancy fees. 63 E_00_GB_Komax_Corporate Governance_2018 [P]_2160843.indd 63 08.03.19 10:03 ANNUAL REPORT 2018 CORPORATE GOVERNANCE 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 Committee on the basis of the quality of reporting and the audit reports, the implementation of the audit plan, and the level of cooperation with the internal audit team. The independence of the auditors is verified by 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. 53 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 Vice President Investor Relations / Corporate Communications Industriestrasse 6 6036 Dierikon Switzerland Phone +41 41 455 06 16 roger.mueller@komaxgroup.com 64 E_00_GB_Komax_Corporate Governance_2018 [P]_2160843.indd 64 08.03.19 10:03 COMPENSATION REPORT 2018 CONTENTS COMPENSATION REPORT Compensation, shareholdings, and options held by the Board of Directors in 2018 (audited) 74 Compensation, shareholdings, and options held by the Executive Committee in 2018 (audited) 75 Report of the auditors 77 Introduction by the Chairman of the Remuneration Committee 66 Tasks and competencies of the Remuneration Committee 67 Provisions of the Articles of Association on compensation 68 Principles of compensation policy 69 Structure of the compensation system 70 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 2018 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. 65 E_01_GB_Komax_Vergütungsbericht_2018 [P]_2161937.indd 65 08.03.19 10:04 ANNUAL REPORT 2018 COMPENSATION REPORT 1 Introduction by the Chairman of the Remuneration Committee Dear Shareholder The Komax Group delivered a pleasing result for the 2018 financial year, and expanded its market and technology leadership thanks to powerful growth. Komax remains on track from a strategic perspective, and is well positioned to continue to create competitive advantages for its customers as well as value for shareholders over the coming years. The Remuneration Committee addressed both personnel issues and the compensation system in 2018. On behalf of the Remuneration Committee, I would like to provide you with more detail on this over the following paragraphs. Following the decision by Daniel Hirschi, a member of the Board of Directors of Komax Holding AG since 2005 and Vice-Chairman since 2014, not to stand for re-election at the 2019 Annual General Meeting, the evaluation of a new Board member was a key task in 2018. We are proposing to the Gen- eral Meeting the election of Dr. Mariel Hoch as successor to Daniel Hirschi. Dr. Mariel Hoch acquired a PhD (Dr. iur.) from the University of Zurich and is a partner of the law firm Bär & Karrer AG in Zurich. In her capacity as an attorney, she specializes in M&A transactions and advises listed companies on cor- porate and regulatory matters. With effect from 1 January 2019, Marc Schürmann, Marcus Setterberg, and Günther Silberbauer were promoted to the Executive Committee, thereby expanding this body from two members to five, in keeping with good corporate governance. All three are heads of core business areas that focus primar- ily on the development and production of automation solutions along the value chain. In 2018, we de- fined the performance indicators for the compensation of the new Executive Committee members, aligning these consistently with the company’s strategic medium-term targets (2017–2021). In order to increase the transparency of our compensation system further, this Compensation Re- port discloses not only the compensation allocated in 2018, but also – for the first time – the realized compensation of the Executive Committee. On 1 January 2015, we introduced an incentive system that is aligned with the long-term interests of shareholders. Ever since, members of the Executive Committee have received Performance Share Units each year with a three-year vesting period. The magnitude of the payout at the end of the vesting period is dependent on attainment of a performance target ( for plan period 2015–2017: average EBIT margin over three years). With the first vesting period having expired on 31 December 2017, we are now disclosing the total value of the shares credited in 2018. At the Annual General Meeting on 16 April 2019, we will be proposing – just like in previous years – approval of the maximum possible total compensation for the Board of Directors and the Executive Committee for the 2020 financial year. At the Annual General Meeting you will once again have the opportunity to vote on this Compensation Report and thereby formally register your opinion on our compensation system. I can assure you that we are aware of our responsibility and will therefore adhere to our restrained compensation policy going forward. You can find detailed information on our compen- sation model and the compensation granted to the Board of Directors and the Executive Committee in 2018 on the following pages. Yours sincerely, Yours sincerely, Dr. Beat Kälin Chairman of the Remuneration Committee 66 E_01_GB_Komax_Vergütungsbericht_2018 [P]_2161937.indd 66 08.03.19 10:04 ANNUAL REPORT 2018 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 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- election is permissible. The 2018 Annual General Meeting elected Beat Kälin (Chairman), Andreas Häberli, 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- 67 E_01_GB_Komax_Vergütungsbericht_2018 [P]_2161937.indd 67 08.03.19 10:04 ANNUAL REPORT 2018 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 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. 68 E_01_GB_Komax_Vergütungsbericht_2018 [P]_2161937.indd 68 08.03.19 10:04 ANNUAL REPORT 2018 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 bench- mark comparison are publicly accessible data such as compensation reports and the Ethos study on remuneration in Swiss companies. As a number of benchmark studies were conducted in 2017 to review the compensation of Executive Committee members, no benchmark studies were conducted in 2018. The results of the 2017 studies showed that there was no need in principle to adjust the target amounts for compensation. As a consequence, these targets remained virtually unchanged in 2018. 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_2018 [P]_2161937.indd 69 08.03.19 10:04 69 ANNUAL REPORT 2018 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 Chairman of a committee Member of a committee Basic annual fee Attendance fee 187 500 75 000 75 000 0 0 5 000 2 500 2 500 5 000 2 500 Annual allocation of restricted shares1 60 000 30 000 25 000 0 0 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 April 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 2018. 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. 70 E_01_GB_Komax_Vergütungsbericht_2018 [P]_2161937.indd 70 08.03.19 10:04 ANNUAL REPORT 2018 COMPENSATION REPORT 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 resources b) Cash bonus The cash bonus depends on the financial performance of the company and the attainment of the indi- vidually agreed objectives in the year under assessment. The target amount (target bonus) may not exceed 50% of the annual fixed basic salary for the CEO and all other members of the Executive Com- mittee. The cash bonus is generally paid out in April of the following year. CEO and CFO The cash bonus payable to the CEO and CFO is calculated as follows: 75% on the basis of the financial performance of the Komax Group and 25% on the basis of individual performance. The reference val- ues relevant to the 2018 financial year were Group revenues and Group EBIT. The Board of Directors determines the performance achievement level and the amount of the cash bonus payable to the CEO annually on the recommendation of the Remuneration Committee. This also forms the basis for deter- mining 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, but no more than 100% of annual fixed compensation. E_01_GB_Komax_Vergütungsbericht_2018 [P]_2161937.indd 71 08.03.19 10:04 71 ANNUAL REPORT 2018 COMPENSATION REPORT Other members of the Executive Committee The cash bonus payable to the other members of the Executive Committee is calculated as follows: 25% on the basis of the financial performance of the Komax Group and 75% on the basis of individual performance. From the 2019 financial year, the financial value of relevance will be Group EBIT. The performance achievement level and corresponding bonuses are determined by the Remuneration Com- mittee on the recommendation of the CEO. If performance objectives are not attained, the cash bonus may fall to zero. If all objectives are significantly exceeded, the cash bonus may amount to a maximum of 175% of the target bonus, but no more than 100% of annual fixed compensation. 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 be both quantitative and qualitative (above all strategic) in nature. Strategic objectives may encompass, for example, the opening- up of new markets, the development of new products, the further development of a center of compe- tence, and the management of key projects or management targets. 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) Other members of the Executive Committee 25% EBIT (Group) Individual performance 25% individual objectives 75% individual objectives1 Payout bandwidth 0%–175% 0%–175% 1 Attainment of individual quantitative targets can fall anywhere within a bandwidth of 0% to 200%. To ensure that the Komax Group does not suffer any competitive disadvantage, the Board of Directors has resolved not to disclose the financial and individual objectives in detail. Any detailed communica- tion of these objectives would allow competitors to acquire an in-depth insight into Komax’s strategy, which could in turn jeopardize implementation of this strategy. The annually defined objectives are generally very ambitious, and are designed to help the Komax Group achieve its medium-term financial targets. 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 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 payout factor and the development of the share price over the course of the vesting period. 72 E_01_GB_Komax_Vergütungsbericht_2018 [P]_2161937.indd 72 08.03.19 10:04 ANNUAL REPORT 2018 COMPENSATION REPORT 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%) Duration of plan Plan period (2018 – 2020) 2018 plan year 2019 plan year 2020 plan year Average RONCE figure 1 January 2018 allocation of PSUs 31 December 2020 end of the vesting period (payout factor between 0% and 150%) In the event of any termination of 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 are immediately forfeited 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_2018 [P]_2161937.indd 73 08.03.19 10:04 73 ANNUAL REPORT 2018 COMPENSATION REPORT 6 Compensation, shareholdings, and options held by the Board of Directors in 2018 Section 6 of the Compensation Report was audited by the company’s external auditor. Compensation 6.1 In 2018, members of the Board of Directors received total compensation of CHF 940 687 (2017: CHF 898 274), of which CHF 692 500 was paid out in cash (2017: CHF 661 250), CHF 190 000 in the form of restricted shares (2017: CHF 181 667), and CHF 58 187 as social benefit contributions (2017: CHF 55 357). Contributions to pensions plans amounted to CHF 0 (2017: CHF 0). in CHF Basic annual fee 1 Allocation restricted shares 2 Social benefits 3 Total compensation 2018 Total compensation 2017 Beat Kälin Daniel Hirschi David Dean Andreas Häberli 4 Kurt Haerri Roland Siegwart Chairman 225 000 Member Member Member Member Member 92 500 97 500 92 500 90 000 95 000 60 000 30 000 25 000 25 000 25 000 25 000 11 564 9 559 9 559 9 168 8 973 9 364 296 564 132 059 132 059 126 668 123 973 129 364 291 537 142 814 132 036 75 899 126 647 129 341 Total Board of Directors 692 500 190 000 58 187 940 687 898 274 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 2018 was CHF 296.20. 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. No compensation was paid to former members of the Board of Directors for the 2017 and 2018 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 2018. 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 2018 6.2 As at the end of 2017 and 2018, members of the Board of Directors had the following holdings of shares and/or options in the company: Assets in units 31.12.2018 31.12.2017 Beat Kälin Daniel Hirschi David Dean Andreas Häberli Kurt Haerri Roland Siegwart Total Board of Directors Chairman Member Member Member Member Member Shares Options Shares Options 9 722 4 730 1 024 84 2 883 2 024 20 467 0 0 0 0 0 0 0 8 507 4 429 1 830 0 1 799 940 17 505 4 000 1 000 0 0 1 000 1 000 7 000 74 E_01_GB_Komax_Vergütungsbericht_2018 [P]_2161937.indd 74 08.03.19 10:04 ANNUAL REPORT 2018 COMPENSATION REPORT 7 Compensation, shareholdings, and options held by the Executive Committee in 2018 Section 7 of the Compensation Report was audited by the company’s external auditor. Compensation at grant value 7.1 In 2018, members of the Executive Committee received total compensation of CHF 1 608 759 (2017: CHF 1 363 710). Of this amount, CHF 751 820 was paid as fixed compensation (2017: 749 383) and CHF 458 670 as cash bonuses (2017: CHF 245 278), CHF 260 000 was granted as Performance Share Units (2017: CHF 230 000), and CHF 138 269 comprised social security and pension fund contributions (2017: CHF 139 049). in CHF Matijas Meyer 5 Total other members of the Executive Committee 6 Fixed compensation 1 Cash bonus 2 Allocation PSU (plan period 2018 – 2020) 3 Social benefits 4 Total compensation 2018 Total compensation 2017 CEO 433 500 294 377 180 000 77 617 985 494 826 775 318 320 164 293 80 000 60 652 623 265 536 935 Total Executive Committee 751 820 458 670 260 000 138 269 1 608 759 1 363 710 1 Expense allowances are not included in the fixed compensation as these are not considered as compensation. 2 Bonus for 2018, to be paid in April 2019. 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 2018 was CHF 295.00. 4 Includes mandatory employer contributions to social insurance of CHF 27 704 as well as contributions to occupational benefits (BVG). This amount entitles members of the Executive Committee to draw the maximum state-insured pension benefits in the future. 5 Highest compensated member of Executive Committee in 2018. 6 The CFO is the only other member of the Executive Committee. Notes on the compensation overview In 2018, the CEO’s cash bonus amounted to 68% of fixed compensation (2017: 36%). 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 52% of fixed com- pensation (2017: 28%). The PSUs granted to the CEO in the year under review corresponded to 42% of annual fixed com- pensation (2017: 37%) and 25% for the CFO (2017: 22%). The overall variable compensation of the CEO in 2018 therefore amounted to 109% of the annual fixed compensation (2017: 73%) and that of the CFO 77% (2017: 51%). 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 111 to 113 of the Financial Report 2018. No compensation was paid to former members of the Executive Committee for the 2017 and 2018 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 Decem- ber 2018. 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_2018 [P]_2161937.indd 75 08.03.19 10:04 75 ANNUAL REPORT 2018 COMPENSATION REPORT Realized compensation 7.2 31 December 2017 marked the end of the first three-year vesting period for the Performance Share Units that were granted to members of the Executive Board when the new long-term incentive system was introduced on 1 January 2015. For the plan period 2015–2017, members of the Executive Commit- tee received shares with a total value of CHF 483 567 (allocation amount on 1 January 2015: CHF 193 333, relevant share price: CHF 139.45) following the 2018 Annual General Meeting. The total compensation figure for 2018 of CHF 1 832 326 is significantly below the maximum amount of CHF 2 150 000 approved by the 2017 Annual General Meeting. in CHF Fixed compensation 1 Cash bonus 2 Compensation amount PSU plan period (2015 – 2017) Social benefits 3 Total compensation 2018 Matijas Meyer 4 Total other members of the Executive Committee 5 CEO 433 500 294 377 308 422 77 617 1 113 916 318 320 164 293 175 145 60 652 718 410 Total Executive Committee 751 820 458 670 483 567 138 269 1 832 326 1 Expense allowances are not included in the fixed compensation as these are not considered as compensation. 2 Bonus for 2018, to be paid in April 2019. 3 Includes mandatory employer contributions to social insurance of CHF 27 704 as well as contributions to occupational benefits (BVG). This amount entitles members of the Executive Committee to draw the maximum state-insured pension benefits in the future. 4 Highest compensated member of Executive Committee in 2018. 5 The CFO is the only other member of the Executive Committee. Holdings of shares and options as at 31 December 2018 7.3 As at the end of 2017 and 2018, members of the Executive Committee had the following holdings of shares and/or options in the company: Assets in units 31.12.2018 31.12.2017 Matijas Meyer Andreas Wolfisberg CEO CFO Total Executive Committee Shares Options Shares Options 4 534 500 5 034 0 0 0 4 000 600 4 600 0 0 0 76 E_01_GB_Komax_Vergütungsbericht_2018 [P]_2161937.indd 76 08.03.19 10:04 ANNUAL REPORT 2018 COMPENSATION REPORT Report of the statutory auditor to the Annual General Meeting of Komax Holding AG, Dierikon Report on the audit of the remuneration report We have audited the accompanying remuneration report (Art. 6 and 7) of Komax Holding AG for the year ended 31 Decem- ber 2018. 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 selected depend on the auditor’s judgment, including the assessment of the risks of material misstatements in the remuneration report, whether due to fraud or error. This audit also includes evaluating the reasonableness of the methods applied to value components of remuneration, as well as assessing the overall presentation of the 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 2018 complies with Swiss law and articles 14–16 of the Ordinance. PricewaterhouseCoopers AG Sebastian Gutmann Audit expert Thomas Brüderlin Audit expert Auditor in charge Basel, 8 March 2019 E_01_GB_Komax_Vergütungsbericht_2018 [P]_2161937.indd 77 08.03.19 10:04 77 This page has been intentionally left blank. E_01_GB_Komax_Vergütungsbericht_2018 [P]_2161937.indd 78 08.03.19 10:04 FINANCIAL REPORT 2018 CONTENTS FINANCIAL STATEMENTS OF KOMAX HOLDING AG Balance sheet 120 Income statement 121 Notes 122 Proposal for the appropriation of profit 127 Report of the auditors 128 CONSOLIDATED FINANCIAL STATEMENTS Consolidated income statement 80 Consolidated balance sheet 81 Consolidated statement of shareholders’ equity 82 Consolidated cash flow statement 83 Notes General information 84 Performance 86 Operating assets and liabilities 93 Capital and financial risk management 101 Group structure 105 Other information 110 Report of the auditors 116 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 79 08.03.19 09:59 79 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 2018 % 2017 % 477 819 1 879 479 698 1 061 –182 856 297 903 –157 355 –8 108 –3 252 –61 934 67 254 –5 225 62 029 392 0 100.0 62.1 14.0 12.9 62 421 13.0 –10 634 51 787 10.8 51 787 0 13.52 13.48 1.2 1.2 1.3 2.4 2.5 1.3 1.4 1.5 1.5 1.6 1.7 1.7 407 275 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 10.99 100.0 62.8 13.5 13.3 12.4 10.3 80 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 80 08.03.19 09:59 FINANCIAL REPORT 2018CONSOLIDATED 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 Intangible assets Deferred tax assets Other non-current receivables Total non-current assets Total assets 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 2.1 2.1 2.2 2.3 2.4 2.5 1.6 2.6 2.7 2.7 3.1 1.6 3.2 3.2 Notes 31.12.2018 % 31.12.2017 % 50 965 15 124 890 29 008 103 433 5 294 0 59 291 21 99 723 29 459 92 020 3 803 6 785 313 605 67.7 291 102 70.2 120 229 15 379 12 830 861 93 719 14 480 13 021 2 136 149 299 32.3 123 356 462 904 100.0 414 458 25 187 33 903 2 975 22 529 84 594 90 338 1 167 5 165 96 670 181 264 385 24 569 –2 311 258 997 281 640 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 18.3 20.9 39.2 60.8 Total liabilities and shareholders’ equity 462 904 100.0 414 458 29.8 100.0 18.9 18.8 37.7 62.3 100.0 81 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 81 08.03.19 09:59 FINANCIAL REPORT 2018CONSOLIDATED 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 Share- holders’ equity of Komax Holding AG 377 27 670 –2 105 –58 759 –732 279 723 220 232 246 174 3.2 6 6 707 –5 728 –2 098 149 Purchase of treasury shares 3.2 2.5 –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 2 456 383 28 649 –4 054 –72 026 1 724 303 502 233 200 258 178 42 101 42 101 42 101 0 0 6 713 –5 728 –19 094 –19 094 –19 094 772 0 772 –2 098 921 51 787 51 787 51 787 0 0 1 667 –5 745 –19 149 –19 149 –19 149 –474 0 –474 –254 1 523 3.2 2 1 665 –5 745 –254 1 997 Purchase of treasury shares 3.2 2.5 –241 –241 –241 385 24 569 –2 311 –72 267 –4 402 335 666 258 997 281 640 –6 126 –6 126 –6 126 Balance as at 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 as at 31 December 2017 Balance as at 1 January 2018 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 as at 31 December 2018 82 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 82 08.03.19 09:59 FINANCIAL REPORT 2018CONSOLIDATED 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 Group companies and participations1 Sale of Group companies2 Decrease in granted loans 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 non-current financial liabilities Capital increase (share-based payments) Distribution out of reserves from capital contributions Dividend paid Purchase 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 1 Less cash and cash equivalents acquired. 2 Less cash and cash equivalents sold. Notes 2018 2017 51 787 42 101 1.6 2.4 2.5 1.4 2.4 2.5 3.2 10 634 8 108 3 252 −1 210 1 523 5 225 6 1 115 −3 311 −9 939 670 −28 065 −14 755 3 366 1 223 29 629 −37 118 8 365 −4 222 0 −4 298 2 000 1 304 –33 969 –4 340 0 −533 21 431 1 667 −5 745 −19 149 −254 –2 583 −1 403 –8 326 59 291 50 965 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 −17 163 4 100 650 –34 349 –7 582 −153 −1 075 37 795 6 713 −5 728 −19 094 −2 098 16 360 1 982 10 760 48 531 59 291 83 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 83 08.03.19 09:59 FINANCIAL REPORT 2018CONSOLIDATED 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 automated 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 7 March 2019 and released for publication. Their approval by the Annual General Meeting, scheduled for 16 April 2019, 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 2018. 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. 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 87 92 95 99 100 100 84 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 84 08.03.19 09:59 FINANCIAL REPORT 2018CONSOLIDATED FINANCIAL STATEMENTS Key events of the reporting period As mentioned in the Shareholders’ letter on page 2 and 3, 2018 was characterized by strong growth in both order intake and revenues, as well as significant investment in capacity expansion, digitalization and research and development. Both the operating profit and profit after taxes increased by more than 20%. Profit after taxes was reduced by the negative financial result (CHF –5.2 million), which was to a significant extent caused by unrealized currency losses. In order to secure the financing of the high level of investment, the credit limit of the syndicated loan agreement was increased from CHF 140 million to CHF 160 million. The Komax Group therefore has credit limits amounting to a maximum of CHF 190 million (31 December 2017: CHF 165 million). In ad- dition to the increase in net working capital, the Group’s free cash flow, which was negative at CHF –4.3 million (2017: CHF –7.6 million), was above all attributable to high investment. With an equity ratio of more than 60%, Komax remains on a very solid financial footing. In addition to its investment in non-current assets, Komax also invested in expanding the capacity of its testing business in North Africa in 2018. Moreover, Komax strengthened its position in North America by concluding an asset deal with the Application Tooling business area of TE Connectivity. Events after the balance sheet date Komax has communicated on 22 February 2019 that it further expands its presence in North America with the acquisition of Artos Engineering. Founded in 1911, Artos Engineering stands out with its cus- tomer focus, portfolio of products and wealth of experience in developing innovative applications for wire processing equipment. With the exception of the before-mentioned event, no significant events occurred between the balance sheet date and the approval of the consolidated financial statements by the Board of Directors on 7 March 2019 which might adversely affect the information content of the 2018 consolidated financial statements or which would require disclosure. E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 85 08.03.19 09:59 85 FINANCIAL REPORT 2018CONSOLIDATED FINANCIAL STATEMENTS Performance 1 In this section, we provide details of the 2018 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 increased from CHF 55.1 million in 2017 to CHF 67.3 million in 2018. The chart below illustrates the year-on-year change between the current reporting peri- od and the prior year. in CHF million 100 80 60 40 20 55.1 41.4 –20.4 – 0.3 – 8.5 67.3 EBIT 2017 Gross profit Personnel expenses Depreciation Operating expenses EBIT 2018 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. 86 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 86 08.03.19 09:59 FINANCIAL REPORT 2018CONSOLIDATED FINANCIAL STATEMENTS Revenues Revenues by region 1.2 a) The percentage breakdown of revenues by region is as follows: 2018 1.8% Switzerland 21.4% Asia/Pacific 20.5% North and South America 13.4% Africa 42.9% Europe 2017 2.2% Switzerland 19.9% Asia/Pacific 18.6% North and South America 10.5% Africa 48.8% Europe Construction contracts b) In the current reporting period, revenues of CHF 17.2 million (2017: CHF 11.7 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 2018 436 284 1 085 74 1 879 2017 820 184 116 114 1 234 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_2018 [P]_2163047.indd 87 08.03.19 09:59 87 FINANCIAL REPORT 2018CONSOLIDATED 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 life, 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. 88 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 88 08.03.19 09:59 FINANCIAL REPORT 2018CONSOLIDATED 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) 2018 2017 −126 340 −109 448 −1 294 −32 −24 070 −5 619 −1 090 −284 −21 581 −4 579 Total personnel expenses −157 355 −136 982 b) Other operating expenses in TCHF 2018 2017 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 −2 299 −3 804 −15 105 −8 786 −13 101 −4 850 −8 363 −3 368 −2 258 −2 238 −3 078 −13 955 −7 128 −11 593 −4 225 −6 114 −2 921 −2 127 Total other operating expenses −61 934 −53 379 1.4 Financial result in TCHF Interest result (net) Exchange rate translation differences (net) Total financial expenses Result from associated companies Total financial result Recognition and measurement 2018 −1 434 −3 791 2017 −787 −558 −5 225 −1 345 0 −5 225 526 −819 Interest: Interest income and expenses are accrued using the effective interest rate method. E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 89 08.03.19 09:59 89 FINANCIAL REPORT 2018CONSOLIDATED FINANCIAL STATEMENTS Non-operating and extraordinary result 1.5 The non-operating result includes the income and expenses from non-operating properties. The non-operating property in York, USA, was sold in the first half of 2018, resulting in non-operating in- come of CHF 0.4 million. No extraordinary expenses or income were incurred in the current reporting period. In the same period of the previous year, extraordinary expenses of CHF 3.6 million had to be recognized, which related to the impairment of a loan granted to an associated company. 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 organization. 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 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 −10 634 2018 −10 508 −126 −10 634 2017 50 550 −7 521 −1 475 384 45 161 −189 136 −119 129 −8 449 2017 −8 766 317 −8 449 % 14.9 2.9 −0.8 −0.1 −0.3 0.4 −0.3 0.2 −0.2 16.7 2018 % 62 421 −10 922 −978 1 421 −177 417 −337 119 −258 81 17.5 1.6 −2.3 0.3 −0.7 0.5 −0.2 0.4 −0.1 17.0 90 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 90 08.03.19 09:59 FINANCIAL REPORT 2018CONSOLIDATED 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 17.4% (2017: 14.5%). b) Deferred tax assets and liabilities in TCHF 31.12.2018 31.12.2017 Property, plant, and equipment / intangible assets Trade receivables and inventories1 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 (–) 1 Including unrealized intragroup profit. 8 714 4 036 1 719 466 14 935 −2 105 12 830 2 928 3 589 665 88 7 270 9 870 4 107 1 146 684 15 807 −2 786 13 021 3 137 3 534 1 152 171 7 994 −2 105 −2 786 5 165 7 665 5 208 7 813 The non-capitalized and unused tax-loss carry forwards expire as follows: in TCHF Expiry of unutilized tax-loss carry forwards 31 December 2018 31 December 2017 Within 5 years After more than 5 years 5 450 3 382 62 019 65 888 Total 67 469 69 270 This results in a deferred tax claim (not recognized in the balance sheet) for as yet unutilized tax-loss carry forwards of CHF 18.6 million (31 December 2017: CHF 19.6 million) as well as CHF 3.4 million (31 December 2017: CHF 3.4 million) in not recognized tax credits. E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 91 08.03.19 09:59 91 FINANCIAL REPORT 2018CONSOLIDATED 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 meth- od. This method is based on the tax rates and tax regulations applicable on the balance sheet date or which have in essence been enacted and are expected to apply at the time the deferred tax claim is realized or the deferred tax liability is settled. Deferred and future taxes are calculated on the basis of the temporary differences in value between the individual balance sheets and balance sheets for tax purposes. Such differences primarily exist in the case of non- current assets, inventories, and some provisions. Deferred tax assets are recognized in the amount corresponding to the probability that the Group companies in question will generate sufficient future taxable income to absorb the rele- vant 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 2018 2017 Group profit (attributable to shareholders’ of Komax Holding AG) 51 786 663 42 100 813 Weighted average number of outstanding shares Basic earnings per share 3 830 864 3 810 276 13.52 11.05 Group profit (attributable to shareholders’ of Komax Holding AG) 51 786 663 42 100 813 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 Recognition and measurement 3 830 864 3 810 276 10 437 22 094 3 841 301 3 832 370 13.48 10.99 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. 92 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 92 08.03.19 09:59 FINANCIAL REPORT 2018CONSOLIDATED 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 31.12.2018 31.12.2017 112 759 −90 21 087 −8 866 12 221 124 890 94 413 −302 12 516 −6 904 5 612 99 723 Overdue trade receivables that had not been written down amounted to CHF 29.5 million on 31 Decem- ber 2018 (31 December 2017: CHF 21.6 million). Their maturity structure is set out in the following table: in TCHF Number of days as at 31 December 2018 as at 31 December 2017 15 394 8 698 5 102 6 134 3 633 2 532 1 467 1 646 3 890 2 631 29 486 21 641 1–30 31–60 61–90 91–120 >120 Total Other receivables b) In addition to prepayments to suppliers of CHF 1.1 million (31 December 2017: CHF 1.1 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_2018 [P]_2163047.indd 93 08.03.19 09:59 93 FINANCIAL REPORT 2018CONSOLIDATED 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 Recognition and measurement 31.12.2018 31.12.2017 64 482 16 889 31 642 53 336 13 974 33 371 113 013 100 681 −9 580 103 433 −8 661 92 020 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 two buildings in York, USA, and S. Domingos de Rana, Portugal, which were reported under “ Assets held for sale” as at 31 December 2017, were duly sold in the first half of 2018. 94 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 94 08.03.19 09:59 FINANCIAL REPORT 2018CONSOLIDATED 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 2016 1 635 15 197 82 424 36 653 8 652 3 560 148 121 Additions Disposals Change in scope of consolidation Reclassifications Currency differences 0 0 0 0 0 189 0 84 −633 112 670 −76 379 −3 810 628 3 269 −769 1 285 30 −6 1 915 −477 55 13 165 12 520 0 0 −95 0 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 Additions Disposals Reclassifications Currency differences As at 31 December 2018 Depreciation As at 31 December 2016 Additions Disposals Change in scope of consolidation Reclassifications Currency differences As at 31 December 2017 Additions Disposals Currency differences As at 31 December 2018 Book values As at 31 December 2016 As at 31 December 2017 As at 31 December 2018 0 0 −494 0 1 141 752 0 494 −174 16 021 1 370 −265 551 −1 083 80 788 3 406 −2 166 1 310 −816 2 181 −846 −50 −270 42 196 11 338 29 409 0 −1 811 −376 43 207 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 –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 −2 631 −3 675 −1 802 29 102 2 103 288 768 206 –43 787 –23 882 –6 793 0 0 0 0 0 0 0 0 0 0 0 1 635 1 635 1 141 15 197 14 949 16 021 41 414 38 928 37 001 18 036 17 864 18 314 3 899 4 358 4 545 3 560 15 985 43 207 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. 37 118 −3 277 0 −2 719 194 691 –64 380 −7 705 860 −1 131 2 802 −296 –69 850 −8 108 2 900 596 –74 462 83 741 93 719 120 229 95 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 95 08.03.19 09:59 FINANCIAL REPORT 2018CONSOLIDATED 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 Years 7–10 7 5 10 10–14 5–8 3–10 3–5 33 40 no depreciation 96 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 96 08.03.19 09:59 FINANCIAL REPORT 2018CONSOLIDATED FINANCIAL STATEMENTS 2.5 a) Intangible assets Movements in the intangible assets in TCHF Costs Software Patents and customer base Software in implementation Total intangible assets As at 31 December 2016 15 215 4 062 8 551 27 828 Additions Disposals Change in scope of consolidation Reclassifications Currency differences As at 31 December 2017 Additions Disposals Reclassifications Currency differences 3 074 −66 141 8 518 149 27 031 2 603 −358 371 −192 0 0 0 0 1 4 063 1 238 −12 0 0 As at 31 December 2018 29 455 5 289 Depreciation As at 31 December 2016 –9 474 –4 060 Additions Disposals Change in scope of consolidation Currency differences As at 31 December 2017 Additions Disposals Currency differences As at 31 December 2018 Book values As at 31 December 2016 As at 31 December 2017 As at 31 December 2018 −3 339 60 −117 −99 −2 0 0 −1 –12 969 –4 063 −3 252 350 143 0 12 0 –15 728 –4 051 5 741 14 062 13 727 2 0 1 238 8 551 418 414 385 0 0 −8 518 0 418 381 0 −371 −14 414 0 0 0 0 0 0 0 0 0 0 3 459 −66 141 0 150 31 512 4 222 −370 0 −206 35 158 –13 534 −3 341 60 −117 −100 –17 032 −3 252 362 143 –19 779 14 294 14 480 15 379 97 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 97 08.03.19 09:59 FINANCIAL REPORT 2018CONSOLIDATED 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 five years for trading companies acquired and ten 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: Goodwill subsidiaries Goodwill associated companies 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 as at 31 December Goodwill subsidiaries Goodwill associated companies 72 064 241 0 −67 72 238 –24 366 −7 499 0 9 –31 856 40 382 0 0 0 0 0 0 0 0 0 0 0 2018 Total 72 064 241 0 −67 57 308 14 797 0 −41 72 238 72 064 –24 366 −7 499 0 9 –17 781 −6 673 0 88 –31 856 –24 366 40 382 47 698 2017 Total 58 838 14 797 −1 530 −41 72 064 –18 084 −6 788 418 88 –24 366 47 698 1 530 0 −1 530 0 0 –303 −115 418 0 0 0 The capitalization and depreciation of goodwill would have the following theoretical impacts on share- holders’ equity and 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) 31.12.2018 31.12.2017 281 640 40 382 737 258 178 47 698 715 322 759 306 591 2018 51 787 −7 499 0 22 44 310 2017 42 101 −6 788 418 −235 35 496 98 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 98 08.03.19 09:59 FINANCIAL REPORT 2018CONSOLIDATED 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. Customer base: Customer bases are recognized at historical acquisition cost less cumulative amortization. Acquisi- tion costs are written down in a linear way over five to ten years. 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 recognized in the income statement. 2.6 Other non-current receivables in TCHF 31.12.2018 31.12.2017 Non-current loans to associates Rent deposit and other non-current receivables Total 0 861 861 1 337 799 2 136 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 99 08.03.19 09:59 99 FINANCIAL REPORT 2018CONSOLIDATED FINANCIAL STATEMENTS 2.7 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 31.12.2018 31.12.2017 13 084 1 427 6 125 2 408 −2 400 8 13 259 33 903 11 355 4 357 4 978 5 077 −2 451 2 626 11 122 34 438 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 2018 2 359 2 631 0 −1 183 −778 −54 2 975 2017 2 222 2 126 113 −1 448 −672 18 2 359 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. 100 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 100 08.03.19 09:59 FINANCIAL REPORT 2018CONSOLIDATED 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 Bank liabilities Bank liabilities Bank liabilities Currency 31.12.2018 31.12.2017 CHF EUR USD 59 000 24 408 6 930 46 000 18 906 4 950 Total financial liabilities 90 338 69 856 Komax Holding AG finalized an agreement with a bank syndicate for a credit line amounting to CHF 160 million (31 December 2017: CHF 140.0 million). Additionally, there are further local credit lines for subsidiaries available amounting to CHF 19.6 million, up to a maximum of CHF 30.0 million (31 Decem- ber 2017: CHF 19.9 million, up to a maximum of CHF 25.0 million). As at 31 December 2018 the Group has drawn on this credit limit to the amount of CHF 98.5 million (31 December 2017: CHF 74.2 million). Credit lines Komax Group in CHF million 200 160 120 80 40 0 8 1 8 9 0 6 1 4 7 31.12.2018 31.12.2017 Total credit lines Utilized credit lines The maturities of the financial liabilities (without interest) are as follows: in TCHF less than 1 year 1–5 years over 5 years Total as at 31 December 2018 as at 31 December 2017 Recognition and measurement 734 966 86 823 67 592 2 781 1 298 90 338 69 856 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_2018 [P]_2163047.indd 101 08.03.19 09:59 101 FINANCIAL REPORT 2018CONSOLIDATED FINANCIAL STATEMENTS Shareholders’ equity 3.2 This section shows the change in shareholders’ equity compared to the prior year. Shareholders’ equity in CHF million 600 450 300 150 100% 75% 60.8 62.3 50% 3 6 4 2 8 2 4 1 4 8 5 2 31.12.2018 31.12.2017 25% Balance sheet total Shareholders’ equity Shareholders’ equity in % of total assets a) Share capital Balance sheet date 31 December 2018 31 December 2017 31 December 2016 Number of shares 3 847 510 3 834 482 3 774 148 Par value in CHF 0.10 0.10 0.10 Par value in CHF 384 751 383 448 377 415 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 Transfer (share-based compensation) 2018 Number Average price in CHF Purchase costs (avg.) in TCHF Number 16 364 1 000 247.75 254.22 4 054 254 9 000 8 000 Average price in CHF 233.85 262.27 2017 Purchase costs (avg.) in TCHF 2 105 2 098 −8 061 247.75 −1 997 −636 233.85 −149 Total as at 31 December 9 303 248.44 2 311 16 364 247.75 4 054 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 Komax Holding AG. 102 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 102 08.03.19 09:59 FINANCIAL REPORT 2018CONSOLIDATED FINANCIAL STATEMENTS c) Conditional capital Total as at 1 January Exercise of options Total as at 31 December 2018 Number 15 518 −13 028 2 490 Par value in CHF Conditional share capi- tal in CHF Number Par value in CHF 0.10 0.10 0.10 1 552 75 852 −1 303 −60 334 249 15 518 0.10 0.10 0.10 2017 Conditional share capital in CHF 7 585 −6 033 1 552 There was no increase in conditional capital either in 2017 or in 2018. Conditional capital is created for management and employee share ownership schemes. Reserves d) The non-distributable reserves amounted to CHF 7.8 million as at 31 December 2018 (31 December 2017: CHF 8.0 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_2018 [P]_2163047.indd 103 08.03.19 09:59 103 FINANCIAL REPORT 2018CONSOLIDATED 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: 2018 13.1% CHF 10.4% Others 13.6% CNY 16.8% USD 2017 10.3% CHF 12.4% Others 14.1% CNY 17.1% USD 46.1% EUR 46.1% EUR The most important year-end and average exchange rates were as follows: Currency USD EUR CNY Year-end rate 31.12.2018 Average rate 2018 Year-end rate 31.12.2017 Average rate 2017 0.990 1.140 0.145 0.990 1.170 0.150 0.990 1.180 0.152 1.000 1.110 0.147 Komax is mainly exposed to currency risks relating to the USD, the EUR, and the CNY. Assuming that the average rates in 2018 against the CHF had been 10% lower or higher and that all other parameters 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 2018 Change EBIT margin 2017 +/– 1.0%-pt. +/– 0.8%-pt. +/– 0.7%-pt. +/– 1.0%-pt. +/– 0.8%-pt. +/– 0.8%-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. 104 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 104 08.03.19 09:59 FINANCIAL REPORT 2018CONSOLIDATED 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 2018 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 directly and indirectly held investments as at 31 December 2018. Scope of consolidation 4.1 The consolidated financial statements incorporate the individual financial statements of Komax Hold- ing AG, Dierikon, and its subsidiaries. A further subsidiary company was founded in 2018 in the form of Komax TSK Maroc Sàrl., Morocco. In addition, the no longer operationally active subsidiary company TSK Test Systems (Shanghai) Co. Ltd., China, was liquidated in 2018. The activities of this company had been transferred to Komax Shanghai Co. Ltd., China, back in 2016. In addition to the acquisitions listed under Note 4.2, two additional sub- sidiaries were founded in the prior-year period, namely Komax Manufacturing de México S. de R.L. de C.V., Mexico, and Komax Bulgaria EOOD, Bulgaria. 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_2018 [P]_2163047.indd 105 08.03.19 09:59 105 FINANCIAL REPORT 2018CONSOLIDATED FINANCIAL STATEMENTS Business combinations Acquisitions 2018 4.2 a) In December 2018 the newly founded company Komax TSK Maroc Sàrl., Morocco, took over the assets as well as all employees of TX Mechatronics Sàrl., Morocco. With this asset deal Komax is strengthen- ing its testing business in North Africa. Previously, production for Moroccan customers had taken place at the Komax companies in Tunisia and Turkey. Komax Morocco had also worked on an ad hoc basis with TX Mechatronics, which manufactured testing systems in Morocco. The repercussions of this acqui- sition for the presentation of the consolidated financial statements are not significant. b) 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 106 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 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 106 08.03.19 09:59 FINANCIAL REPORT 2018CONSOLIDATED FINANCIAL STATEMENTS 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 2017 revenues of CHF 3.9 million and a profit after taxes of around CHF 0.9 million. 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. Investments in associates 4.3 Komax holds interests in Xcell Automation Inc., York, USA, which is accounted for as an associated company. The valuation of investments as at 31 December 2018 was based on the unaudited financial statements. Any changes in these statements will be taken into account in the following period. The participation was valued at CHF 0.0 million as at 31 December 2018, as was the case at the end of 2017. 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. E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 107 08.03.19 09:59 107 FINANCIAL REPORT 2018CONSOLIDATED FINANCIAL STATEMENTS 4.4 Equity holdings Direct and indirect equity participation of Komax Holding AG as at 31 December 2018 Company Switzerland Komax Management AG Komax AG Europe Kabatec GmbH & Co. KG Komax Bulgaria EOOD Komax Consult Deutschland GmbH Komax France Sàrl. Komax Kabelverarbeitungs-Systeme Deutschland GmbH Komax Kabatec Verwaltungs GmbH Komax Portuguesa S.A. Komax SLE GmbH & Co. KG Komax SLE Verwaltungs GmbH Komax Thonauer Kft. Laselec SA 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. Komax TSK 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. 108 Place Dierikon, Switzerland Dierikon, Switzerland Burghaun, Germany Yambol, Bulgaria Nuremberg, Germany Epinay-sur-Seine, France Nuremberg, Germany Burghaun, Germany Alcabideche, Portugal Grafenau, Germany Grafenau, Germany Budakeszi, Hungary Toulouse, France Bucharest, Romania Vienna, Austria Brno, Czech Republic Bratislava, Slovakia Porta Westfalica, Germany Porta Westfalica, Germany Ergene/Tekirdağ, Turkey Bistrita, Romania Mohammédia, Morocco Tangier, Morocco Tunis, Tunisia São Paulo, Brazil Buffalo Grove, Illinois, USA Irapuato, Mexico Irapuato, Mexico Buffalo Grove, Illinois, USA Buffalo Grove, Illinois, USA Grand Prairie, Texas, USA Colombo, Brazil El Paso, Texas, USA York, Pennsylvania, USA Gurgaon, India Tokyo, Japan Shanghai, China Singapore E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 108 08.03.19 09:59 FINANCIAL REPORT 2018CONSOLIDATED 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 Regional services Sales Sales Administration Sales R&D, engineering, production, marketing, sales Administration Engineering, production, 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 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 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% 100% 25% 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 EUR HUF EUR 100 000 5 000 000 100 000 600 000 30 000 1 500 000 400 000 25 000 750 000 5 700 000 25 000 10 000 000 545 280 Full consolidation RON 2 200 000 Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation Full consolidation EUR CZK EUR EUR EUR TRY 36 336 200 000 6 639 4 000 000 1 764 700 14 950 000 Full consolidation RON 110 152 Full consolidation MAD 10 000 000 Full consolidation Full consolidation 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 EUR TND BRL USD MXN MXN USD USD USD BRL USD USD INR JPY USD SGD 300 000 366 000 200 000 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 12 210 000 2 600 000 109 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 109 08.03.19 09:59 FINANCIAL REPORT 2018CONSOLIDATED 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 2018 2017 Pension plans with surplus cover Total in TCHF Surplus cover as per FER 26 Economic share within the Group Economic share within the Group 0 0 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 2018 2017 Pension plans with surplus cover Total 0 0 4 536 4 536 4 536 4 536 4 168 4 168 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 111.4% as at 31 December 2018 (31 December 2017: 117.4%). The actuarial calculations are based on a technical interest rate of 2.5% (31 December 2017: 2.5%) as well as the technical basis of BVG 2015 (31 December 2017: BVG 2015). There were no material employer contribution reserves as at 31 December 2018 or as at 31 Decem- ber 2017. 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 accord- ance 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 prerequisites for the creation of a provision are met. 110 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 110 08.03.19 09:59 FINANCIAL REPORT 2018CONSOLIDATED FINANCIAL STATEMENTS Share-based compensation 5.2 As at 31 December 2018, the Komax Group had the following share-based compensation agreements: 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. 2018 2017 Weighted average exercise price Weighted average exercise price Number 18 489 0 −15 128 0 −3 361 CHF Number 129.21 0.00 129.21 0.00 129.21 95 173 0 −72 134 0 −4 550 CHF 115.46 0.00 115.00 0.00 67.03 Outstanding as at 1 January Granted Exercised Forfeited Expired Outstanding as at 31 December 0 0.00 18 489 129.21 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. Since the last options expired on 31 December 2018, there was no longer any need to con- sider any accruals for options (31 December 2017: 2 971 options with an accrual of CHF 0.6 million). E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 111 08.03.19 09:59 111 FINANCIAL REPORT 2018CONSOLIDATED 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 or RONCE over three years compared to the target determined in advance by the Board of Directors. 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 2018 Number of outstanding rights Vesting period Allocation Fair value on the day of granting Total fair value at allocation 2016–2018 2017–2019 2018–2020 2 785 3 years 2019 175.19 488 1 862 3 years 2020 241.98 451 2 826 3 years 2021 295.00 834 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 takes the form of shares. In the event of any termina- tion 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 2018 9 111 1 660 0 −3 526 7 245 2017 6 770 2 495 −154 0 9 111 The fair value on the day of granting amounted to CHF 295.00 (2017: CHF 241.98). 112 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 112 08.03.19 09:59 FINANCIAL REPORT 2018CONSOLIDATED 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 2018 4 268 1 189 −15 −1 748 3 694 2017 2 795 1 473 0 0 4 268 The fair value on the day of granting amounted to CHF 294.60 (2017: CHF 222.94). 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 2018 financial year, 640 shares (2017: 636 shares) with a fair value of CHF 270.00 (2017: CHF 259.07) 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_2018 [P]_2163047.indd 113 08.03.19 09:59 113 FINANCIAL REPORT 2018CONSOLIDATED 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 2018 36 0 69 0 0 69 0 2017 661 −410 125 −3 601 22 0 1 337 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 (2017: none). With the exception of the regular employer contribu- tions to the pension fund, no transactions were effected with related parties (2017: none). Off-balance-sheet transactions Contingent liabilities 5.4 a) Aside from a service performance guarantee of CHF 0.7 million (31 December 2017: CHF 1.1 million), there were other guarantees of CHF 8.1 million (31 December 2017: CHF 4.4 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 31.12.2018 31.12.2017 8 106 5 472 5 358 8 534 4 248 3 658 The pledged assets will be used to secure own liabilities. Contractual obligations c) As at 31 December 2018, contractual obligations of CHF 36.5 million were existing in respect of the acquisition of property, plant, and equipment (31 December 2017: CHF 28.4 million). Future liabilities arising from operating lease agreements amount to CHF 2.5 million due in 2019 and CHF 3.8 million due in 2020–2023 (31 December 2017: CHF 2.5 million due in 2018 and CHF 4.1 million due in 2019−2022). 114 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 114 08.03.19 09:59 FINANCIAL REPORT 2018CONSOLIDATED 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 other operating income in addition to net sales and is used for the calculation of important key figures. As gross profit is an important key figure for Komax, the corresponding interim total is reported sepa- rately 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 CHF, 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. 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. 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. 115 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 115 08.03.19 09:59 FINANCIAL REPORT 2018CONSOLIDATED 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 2018 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 80 to 115 give a true and fair view of the consolidated financial position of the Group as at 31 December 2018 as well as its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with Swiss GAAP FER and comply with Swiss law. 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 3 000 000 – We concluded full scope audit work at six group companies in five countries. Our audit scope addressed 60% 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 16% of net sales of the Group. – – As key audit matter, the following area of focus was identified: – Revenue recognition in the appropriate period 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. 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 116 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 116 08.03.19 09:59 FINANCIAL REPORT 2018CONSOLIDATED 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 3 000 000 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 goods delivered and 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 88 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 2018 and January 2019. 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 2018. E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 117 08.03.19 09:59 117 FINANCIAL REPORT 2018CONSOLIDATED FINANCIAL STATEMENTS 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. 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. 118 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 118 08.03.19 09:59 FINANCIAL REPORT 2018CONSOLIDATED FINANCIAL STATEMENTS 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, 8 March 2019 Sebastian Gutmann Audit expert E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 119 08.03.19 09:59 119 FINANCIAL REPORT 2018CONSOLIDATED 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 Total non-current assets 31.12.2018 % 31.12.2017 % 719 54 2 690 69 82 804 685 87 021 82 467 0 215 075 297 542 2 011 2 092 2 433 0 74 598 40 81 174 66 066 1 238 204 870 272 174 22.6 77.4 Total assets 384 563 100.0 353 348 Liabilities and shareholders’ equity Trade payables Other current liabilities third parties Other current liabilities Group Accrued expenses / deferred income Provisions Total current liabilities Non-current interest-bearing liabilities third parties 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 386 990 0 317 462 2 155 83 030 83 030 85 185 385 3 270 2 000 100 257 903 551 37 480 −2 311 299 378 0.6 21.6 22.2 385 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 77.8 283 381 Total liabilities and shareholders’ equity 384 563 100.0 353 348 23.0 77.0 100.0 1.4 18.4 19.8 80.2 100.0 120 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 120 08.03.19 09:59 FINANCIAL REPORT 2018FINANCIAL 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 Compensation Other operating expenses Value adjustment on financial investment Direct taxes Total expenses Profit after taxes 2018 37 622 8 099 690 46 411 −5 349 −786 −2 520 0 −276 −8 931 37 480 2017 37 734 8 759 637 47 130 −4 392 −419 −3 262 −2 370 −250 −10 693 36 437 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 121 08.03.19 09:59 121 FINANCIAL REPORT 2018FINANCIAL STATEMENTS OF KOMAX HOLDING AG Notes to the 2018 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 compensation. Information on balance sheet and income statement positions Assets 2 2.1 Other current receivables from Group companies increased by a total of CHF 0.3 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 8.2 million. This balance sheet item likewise encompasses the current account loan of Komax Holding AG to Komax AG, Switzerland. Financial investments Group comprise non-current financial loans. The Group’s financial investments have increased as a result of newly granted loans. 122 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 122 08.03.19 09:59 FINANCIAL REPORT 2018FINANCIAL STATEMENTS OF KOMAX HOLDING AG Liabilities 2.2 The amount outstanding from the acquisition of Laselec SA, France, and Laselec Inc., USA, 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, and Kabatec 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 160.0 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 2018, the Group had drawn on this credit limit to the amount of CHF 59.0 million, USD 7.0 million, and EUR 15.0 million (total drawing: CHF 83.0 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 37.6 million in the year under review (2017: CHF 37.7 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. Compensation comprises compensation paid to the Board of Directors as well as the cash settlement 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. Direct taxes contain expenses for taxes on earnings and corporation tax. E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 123 08.03.19 09:59 123 FINANCIAL REPORT 2018FINANCIAL STATEMENTS OF KOMAX HOLDING AG Company and legal form, registered office 3 Company: Legal form: Registered office: Dierikon, Canton Lucerne, Switzerland 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 in the consolidated financial statements on pages 108 and 109. Treasury shares 6 Details of the treasury shares of Komax Holding AG are provided in the consolidated financial state- ments on page 102. 7 Contingent liabilities in TCHF Joint liability for Group taxation value-added tax 31.12.2018 31.12.2017 p.m. p.m. Guarantees in EUR in USD in CHF Total 2 147 743 2 763 5 653 2 725 1 109 570 4 404 From the total contingent liabilities of CHF 5.7 million (31 December 2017: CHF 4.4 million), CHF 4.9 million (31 December 2017: CHF 3.3 million) are contingent liabilities in favor of subsidiaries. Conditional capital 8 Details of the conditional capital of Komax Holding AG are provided in the consolidated financial state- ments on page 103. 124 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 124 08.03.19 09:59 FINANCIAL REPORT 2018FINANCIAL STATEMENTS OF KOMAX HOLDING AG Major shareholders 9 As at 31 December 2018 the company had no major shareholders holding more than 5% of the votes. As at 31 December 2017 the company had the following major shareholders holding more than 5% of the votes: Shareholder / shareholder group as at 31 December 2017 No. of shares Share in %1 Veraison SICAV, Zurich, Switzerland Max Koch, Meggen, Switzerland 196 229 190 285 5.2% 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. 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 2018 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 2018. 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_2018 [P]_2163047.indd 125 08.03.19 09:59 125 FINANCIAL REPORT 2018FINANCIAL STATEMENTS OF KOMAX HOLDING AG 11 Holdings of shares and options Assets in units 31.12.2018 31.12.2017 Shares Options Shares Options Board of Directors Beat Kälin Daniel Hirschi David Dean Andreas Häberli Kurt Haerri Roland Siegwart Total Board of Directors Executive Committee Matijas Meyer Andreas Wolfisberg Total Executive Committee Chairman Member Member Member Member Member CEO CFO 9 722 4 730 1 024 84 2 883 2 024 20 467 4 534 500 5 034 0 0 0 0 0 0 0 0 0 0 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 Net release of hidden reserves 12 The total amount of the net released hidden reserves amounted to CHF 1.0 million (2017: CHF 2.1 million). 126 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 126 08.03.19 09:59 FINANCIAL REPORT 2018FINANCIAL STATEMENTS OF KOMAX HOLDING AG FINANCIAL REPORT 2018 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), and dividend: in CHF Balance carried forward from previous year Profit after taxes Transfer from capital contribution reserves 31.12.2018 31.12.2017 550 809 262 290 37 480 320 36 437 429 3 078 008 5 751 723 Total available for distribution 41 109 137 42 451 442 Payout from capital contribution reserves of CHF 0.80 per registered share (2017: CHF 1.50) which is not subject to withholding tax1 Dividend of CHF 6.20 gross per registered share (2017: CHF 5.00)1 Allocation to free reserves Profit carried forward Total 3 078 008 23 854 562 13 500 000 5 751 723 19 172 410 17 000 000 676 567 527 309 41 109 137 42 451 442 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 2019 upon exercise of options are also entitled to the payout from capital reserves. Therefore, the stated amount may be subject to change. E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 127 08.03.19 09:59 127 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 2018 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 2018 on pages 120 to 127 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 1 500 000 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 1 500 000 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 150 000 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 128 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 128 08.03.19 09:59 FINANCIAL REPORT 2018FINANCIAL STATEMENTS OF KOMAX HOLDING AG 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 215.1 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). Where a book value was higher than the recorded shareholders’ equity, we performed a detailed analysis of the valuation analysis 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 Management concerning the discount rate, long- term growth rates and margins. We compared the results of the year under review with the forecasts made in the prior year and as- sessed the appropriateness of the prior year’s as- sumptions. We consider the valuation process and the assump- tions applied by Management to be adequate and a sufficient basis for assessing the valuation 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_2018 [P]_2163047.indd 129 08.03.19 09:59 129 FINANCIAL REPORT 2018FINANCIAL 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, 8 March 2019 Sebastian Gutmann Audit expert 130 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 130 08.03.19 09:59 FINANCIAL REPORT 2018FINANCIAL STATEMENTS OF KOMAX HOLDING AG FIVE YEAR OVERVIEW FURTHER INFORMATION 2018 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 Share details Shares4 Par value Highest price Lowest price Closing price as at 31 December 2018 2017 20161 20151 20141 479 698 297 903 62.1 78 614 16.4 67 254 14.0 51 787 10.8 11 360 41 051 8.6 149 299 313 605 281 640 60.8 385 181 264 39.2 90 338 0 −39 358 462 904 29 629 41 340 −4 340 2 006 248 120 114 3 848 0.10 329.00 223.00 230.00 408 509 256 476 391 820 247 943 315 093 205 941 363 338 220 188 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 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 73.2 361 156 280 110 886 115 833 101 882 37.7 69 856 0 −10 544 414 458 26 767 22 201 −7 582 1 841 238 118 112 3 834 0.10 319.50 243.50 319.50 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 No. No. 1 000 CHF CHF CHF CHF 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The 2016 figures have been revised accordingly. The years 2014 and 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_2018 [P]_2163047.indd 131 08.03.19 09:59 131 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 2019 16 April 2019 24 April 2019 20 August 2019 Preliminary information on 2019 financial year 28 January 2020 Annual media and analyst conference on the 2019 financial results Annual General Meeting 17 March 2020 21 April 2020 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. 132 E_01_GB_Komax_Finanzbericht_2018 [P]_2163047.indd 132 08.03.19 09:59 Imprint Published by: Komax Holding AG, Dierikon Design and realization: Linkgroup AG, Zurich www.linkgroup.ch Produced on a climate-neutral basis by Multicolor Print AG, Baar E_00_GB_Komax_Umschlag_2018 [P]_2160873.indd 8 08.03.19 10:04 8 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_2018 [P]_2160873.indd 1 08.03.19 10:04
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