CREATING VALUE, EVERY STEP OF THE WAY ANNUAL REPORT COVER TO OUR SHAREHOLDERS CONSOLIDATED MANAGEMENT REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS FURTHER INFORMATION 003 The Value Chain of NORMA Group 027 The Management Board 047 Principles of the Group 004 Two Strong Distribution Channels 028 Letter from the 058 Economic Report 005 Financial Figures 2017 006 Research and Development 010 Purchasing 014 Production 018 Logistics 022 Sales Management Board 030 NORMA Group on the Capital Market 034 Supervisory Board Report 038 Corporate Governance Report 080 Forecast Report 085 Risk and Opportunity Report 097 Remuneration Report 103 Other Legally Required Disclosures 106 Report on Transactions with Related Parties 200 Glossary 204 List of Graphics 205 List of Tables 207 Overview by Quarter 2017 208 Multi-Year Overview 210 Financial Calendar 2018, Contact and Imprint 108 Consolidated Statement of Comprehensive Income 109 Consolidated Statement of Financial Position 110 Consolidated Statement of Cash Flows 111 Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 Appendix to the Notes to the Consolidated Financial Statements 193 Responsibility Statement 194 Independent Auditor’s Report 2 NORMA Group SE – ANNUAL REPORT 2017 THE VALUE CHAIN OF NORMA GROUP NORMA Group is an international market and technology leader in engineered joining technology (joining, connecting and fluid handling technology) and offers more than 40,000 high-quality products and solutions to around 10,000 customers in more than 100 countries. NORMA Group’s joining products are used in various industries and can be found in vehicles, ships, trains, aircraft, domestic appliances, engines and plumbing systems as well as in applications for the pharmaceutical and biotechnology industry. From its headquarters in Maintal near Frankfurt, Germany, the Company coordinates a global network consisting of 27 production facilities as well as numerous sales and distribu- tion sites across Europe, the Americas, and Asia-Pacific. 3 NORMA Group SE – ANNUAL REPORT 2017 TWO STRONG DISTRIBUTION CHANNELS Innovative joining technology and the highest quality standards have secured NORMA Group’s market position for over 60 years now. The Company offers solutions for many different industries with its ad- vanced products. In fact, NORMA Group ranks as one of the world’s market and technology leaders in the area of joining technology thanks to the personal dedication of more than 7,000 employees and an intellectual property rights portfolio that consists of more than 700 patents. ENGINEERED JOINING TECHNOLOGY (EJT) The business area of EJT focuses on customized, en- gineered solutions which meet the specific require- ments of original equipment manufacturers (OEM). For these customers NORMA Group develops innova- tive, value-adding solutions for a wide range of appli- cation areas and various industries. No matter wheth- er it is a single component, a multi-component unit or a complex system, all products are individually tai- lored to the exact requirements of the industrial cus- tomers while simultaneously guaranteeing highest quality standards, efficiency and assembly safety. NORMA Group’s EJT products are built on the exten- sive engineering expertise and proven leadership in this field. 4 DISTRIBUTION SERVICES (DS) In the area of DS, NORMA Group sells a wide range of high-quality, standardized joining technology products for various applications through different distribution channels. Among the customers are distributors, OEM aftermarket customers, technical wholesalers and hardware stores. In the DS business area NORMA Group benefits not only from its extensive geographic presence and global manufacturing, distribution and sales capacities, but also from its well-known brands, the customized packaging and the high availability of its products at the point of sale. NORMA Group mar- kets its joining technology products under its well- known brand names: B R A N D NORMA Group SE – ANNUAL REPORT 2017 FINANCIAL FIGURES 2017 5 NORMA Group SE – ANNUAL REPORT 2017T 00120172016change in %Order situationOrder book (Dec 31)EUR millions329.1302.48.9Income statementRevenue EUR millions1,017.1894.913.7Adjusted gross profit ¹EUR millions601.3545.610.2Adjusted EBITA ¹EUR millions174.5157.510.8Adjusted EBITA margin ¹%17.217.6n / aEBITAEUR millions166.8150.410.9Adjusted profit for the period ¹EUR millions105.094.611.0Adjusted earnings per share ¹EUR3.292.9611.0Profit for the period EUR millions119.875.957.9Earnings per shareEUR3.762.3858.0Cash flowCash flow from operating activities EUR millions146.0149.2– 2.1Net operating cash flow EUR millions132.9148.5– 10.5Cash flow from investing activitiesEUR millions– 70.8– 133.8– 47.1Cash flow from financing activitiesEUR millions– 77.749.6n / aDec 31, 2017Dec 31, 2016change in %Balance sheetTotal assetsEUR millions1,312.01,337.7– 1.9EquityEUR millions534.3483.610.5Equity ratio%40.736.2n / aNet debtEUR millions344.9394.2– 12.5EmployeesCore workforce6,1155,45012.2Share dataIPOApril 2011Stock exchangeFrankfurt Stock Exchange, XetraMarket segmentRegulated Market (Prime Standard), MDAXISINDE000A1H8BV3Security identification numberA1H8BVTicker symbolNOEJHighest price 2017 ²EUR63.79Lowest price 2017 ²EUR39.95Year-end share price as of Dec 31, 2017 ²EUR55.97Market capitalization as of Dec 31, 2017 ²EUR millions1,783Number of shares31,862,4001_The adjustements are described in the Notes to the Consolidated Financial Statements. NOTES, P. 139 2_Xetra price RESEARCH AND DEVELOPMENT IT ALL STARTS WITH AN IDEA Solutions for tomorrow’s joining technology VPP profile clamp for usage in turbo charging of hybrid vehicles A technology company like NORMA Group thrives on ideas. New inspiration, improvements to existing solutions and preparing today for tomorrow’s challenges are the foundation of our ongoing successful development. Our products – however inconspicuous they may seem – are mission-critical components. Our customers in all industries depend on us to provide them with innovative and reliable joining solutions. In the area of Engineered Joining Technology (EJT), we develop tailor-made products and sys- tems for our customers’ very specific require- ments. Manufacturers involve us closely in their own development activities – our engineers some times even join their teams as so-called ‘Resident Engineers.’ Distribution Services (DS) is another way we provide reliable joining solu- tions to our markets by offering our standard solutions and products. Their development is constantly inspired by the know-how generated in our EJT business. We are always making waves in the market with our innovative products available on a global scale at all times. RESEARCH AND DEVELOPMENT MEETING THE NEEDS OF MOBILITY Electromobility, hybrid drives and diesel vehicles – car manufacturers are currently up against a multitude of challenges. Facing them also de- pends on the right joining solutions. Demands on the exhaust aftertreatment of diesel vehicles are increasing, driven by legal emission requirements. NORMA Group already supplies most of the world’s automotive manu- facturers with heated Selective Catalytic Reduc- tion (SCR) lines. These transport the urea solu- tions necessary for exhaust purification. We further developed this system in light of new requirements: the urea fluid is injected at two different points – close to the engine and in the underbody. Longer, dual lines increase the number of interfaces. This poses technical chal- lenges for which we already have the solutions. We develope connecting systems not only adapted for quick and easy installation, but that also reliably withstand high pressure and extreme temperatures. The number of hybrid drives is growing. Manu- facturers have gone every which way in their combinations of internal combustion engine and electric drive – but all of these systems are high- ly complex, adding many more critical interfaces to vehicles. Optimally adapting our products to limited installation space allows us to develop value-adding solutions for our customers. Not fuel, but powerful batteries: Car makers around the globe are working on solutions to make electric vehicles more efficient. Battery temperature must be optimally regulated to max- imize life expectancy. The entire vehicle also needs to be designed to be as light as possible – the weight of every component counts. NORMA Group uses its expertise and existing technical infrastructure to develop new solutions for the electromobility market. Our R & D department is already excellently positioned in thermal man- agement, with the equipment, expertise and global test laboratories for plastics processing and testing. 7 NORMA Group SE – ANNUAL REPORT 2017 FACTS AND FIGURES Number of R & D employees “ Being innovative means not resting on existing products and successes, but working to stay the future technology leader in your field.” Stephan Mann Director Research & Development Number of global test laboratories S TORY: IR RIGATIO N THAT S AV ES WAT E R Number of invention applications 2017 Water is a scarce resource in California. The landscape is dry, and especially slopes and hills are becoming more and more desolate. The usu- al irrigation systems are inefficient and waste too much water. How can enough precious water get into a plant’s root system so that it can grow and protect the landscape from erosion and forest fire? A Californian real estate and landscape plan- ning firm asked itself this question, and com- missioned NORMA Group's subsidiary NDS with the solution. Engineers, landscape planners and materials scientists teamed up to develop an in- novative solution for irrigation technology. A tube system made of new solid material, dura- ble joining technology and precisely controllable water emitters can reach the root system even on high slopes. For the customer, the invest- ment is more than worthwhile. ‘Our develop- ment saves around 60% water, reduces instal- lation costs by 70%, and has a life expectancy of around 30 years,’ says Scott Forsyth, Sus- tainable Stormwater Product Manager at NDS. And what the numbers don’t capture: commu- nities are better protected from drought, erosion and fire by fresh greenery. R & D expenses R & D ratio in relation to EJT sales V2-XC Quick Connector for air intake and crankcase ventilation for trucks and heavy duty vehicles HIGH EST R ESISTANCE FOR THE A UTOM OTIVE I NDUSTRY Less weight, more recycled material and greater resis- tance to high pressure and extreme temperatures. In light of these requirements, NORMA Group is expand- ing its testing technology and laboratories worldwide. We are putting materials and technologies to the test. The results are leading to optimized products. One re- cent result of extensive testing is the successful development of a new V2-XC (X-treme conditions) quick connector used in air intake and crankcase ventilation for trucks and heavy commercial vehicles. 8 NORMA Group SE – ANNUAL REPORT 2017 NORMA GROUP'S INNOVATION SYSTEM G 001 “We’re looking for original thinkers” Dr. Stefan Stangler Vice President Research & Development Innovation Scouts share ideas with the R & D department. THE IDEA MANAGEM ENT S YSTEM O F N O R MA G R O U P Dr. Stefan Stangler is something like the father of our idea management. The Vice President Research & Development launched the program and is responsible for idea and innovation man- agement, technology scouting and Innovation Scouts. His responsibilities also include fore- sight management, trend analysis, innovation roadmapping and technology projects in mate- rials, processes, methods and new fields of application. How does NORMA Group's idea management system work? We believe that there are people at every site and at every level who are thinking outside the box, questioning current methods and coming up with new ideas. The question is how can they bring these ideas to light and turn them into successful products? Idea management is a structure for exactly that: all employees are encouraged to communicate their ideas – no matter how crazy – directly to the Research and Develop- ment (R & D) department. We honor original thinkers by appointing them Innovation Scouts. R & D experts analyze whether proposals can be implemented based on various criteria and what added value they offer our customers. Promising ideas will then be pursued. Please explain the NORMA Group Innovation Roadmap. An idea is good if it offers a solution to a specific current or future challenge. The Innovation Road- map is a kind of coordinate system we use to determine what we can achieve with a particular idea. Based on two of NORMA Group’s key meg- atrends of climate change and scarcity of re- sources, forecasts for market development and future requirements are identified. These analy- ses have helped identify several fields that will be very important in the future, such as electromo- bility and smart products. This gives us targeted control over developments so we can drive inno- vations with focus. 9 How has innovation management been going so far? The program was launched in early 2016 and has been gaining momentum rather quickly. To- gether with the Innovation Scouts, we gathered 156 ideas from EMEA at a two-day Innovation Summit in 2017 alone. Evaluation with the help of the Innovation Roadmap has shown that twelve of these are very promising – we are cur- rently researching them intensively. We keep all the others in the back of our minds: they are re- checked at regular intervals. As the market or the environment changes, these ideas can help us move forward. The innovations also had a high proportion of the more than 30 invention disclo- sures that we had this year. R & D rates the ideas according to eleven criteria. Trend Market Product Technology 10 years If the ideas also match the search fields of the Innovation Road- map, they are pursued further. At the end of the process there is an innovative product, a new process or a new material. NORMA Group SE – ANNUAL REPORT 2017 PUR CHA SI NG NORMA GROUP ON SHOPPING TOUR Transparent and defined processes as well as firm rules make for efficient purchasing SO PHI STI CATE D SU PPLI E R M AN AG E ME NT Smooth production heavily depends on the availability, quality and price of raw materials. We select our suppli- ers very carefully to minimize default risks and control price fluctuations. Quality: Before we sign new contracts, a team of employees from the areas of purchasing, application & process engi- neering, quality management, and logistics ensures the optimal quality of the material. Suppliers with whom we have been working for a long time are also subject to regular quality control. Availability: New production material suppliers may undergo on-site auditing of management and process capability, but we may also visit and evaluate proven suppliers as part of regular quality management. We work closely with our logistics department to identify possible default risks and determine alternative options before delivery bottlenecks can occur. We also ensure availability through consign- ment warehouse agreements with major suppliers, which improves our working capital. Price control and avoidance of dependencies: Contract terms of usually up to twelve months make it easier for us to control price fluctuations in production materials. We test alternative materials to further reduce dependence on individual materials. It is par- ticularly important to NORMA Group to ensure a bal- anced composition of the supplier base: the ten most important suppliers account for less than 32% of the purchasing volume. GLOBALLY COORDINATED PURCHASING WITH LOCAL EXPERTISE To achieve competitive prices and maximize economies of scale, purchasing is organized in the form of a matrix structure by region and com- modity groups for all NORMA Group production sites. While centralized management of all activ- ities takes place from Group headquarters, ex- pert teams at the local and regional level apply their know-how on specific local market condi- tions. As a result, risks from market-related price fluctuations can be minimized. In supplier management, we rely on defined pro- cedures and transparent processes in line with our compliance guidelines. This ensures that the same professional standards apply throughout the Company. At the same time, our purchasing structure allows for the necessary flexibility to continuously improve processes. As we engage in new industries and integrate newly acquired companies, we harmonize sys- tems by helping our new colleagues adapt to existing structures. Wolfgang Geiger (2nd from left), Vice President Global Group Purchasing, during a team meeting NORMA Group purchases production materials on a large scale at its 27 production sites on several continents. Spending on steel, metal components, polyamides, elastomer products and other materials is the Company’s largest expense, having a major impact on earnings. This means significant potential can be generated in purchasing to increase value creation. 11 NORMA Group SE – ANNUAL REPORT 2017 DIGITAL SOLUTION FOR GLOBAL PURCHASING Since 2015, NORMA Group has been using stan- dardized global procurement software to suc- cessfully control and manage its global pur- chasing activities. It encompasses transparent sourcing and ordering processes, supplier management and evaluation. Additionally, it gen- erates reliable analysis and reports anytime upon request. This harmonizes processes and pro- motes compliance across all divisions. Mis- matched agreements in the awarding process are avoided by employing standardized process- es. Examining all relevant data and reviewing the activities of all suppliers ensures a transparent decision-making basis for integrating new sup- pliers or excluding existing ones. The software significantly reduces the administrative tasks, thus enabling purchasing to focus on strategic initiatives resulting in savings, pricing transpar- ency, and a consolidated supplier base. Since 2017, an e-catalog has also been introduced which allows employees at all production sites to order non-production materials and services with the ‘push of the button.’ TO UNDERSTAND `WHAT IS GOING ON´ IN THE GLOBAL MARKET Whether due to political factors or the price of crude oil: commodity markets are volatile. The prices of steel and plastics fluctuate particularly strongly. Accurate knowledge of the development of raw materials in the markets is crucial to pur- chasing. The better global and regional cost driv- ers are understood, the more professional the basis for discussion and negotiation with suppli- ers will be. That is why our Commodity Managers keep a constant eye on the development of raw material prices: they keep up to date with price trends through regular information sessions on key commodity price drivers. This forms the basis 12 for central and regional management to develop strategies for local, regional and global procure- ment and to negotiate contracts with suppliers. The Commodity Managers additionally share their market expertise with their purcha sing colleagues in the plants, exchanging ideas about the best course of action. Crucial knowledge of market development thus reaches those who ul- timately make the purchases. Metal coils (left) and synthetic granules (right) two major commodities of NORMA Group C ORPO RATE R ESPO N SIB ILI TY IN PU RC H A SIN G – FA Q How does NORMA Group ensure that ethical standards are adhered to throughout its supply chain? Besides its internal compliance and risk manage- ment system, NORMA Group also uses its influ- ence on suppliers to ensure compliance with human rights and appropriate work and social benefits. The Supplier Code of Conduct was in- troduced in 2015 in support of this effort. It is based on the international regulations ILO, UDHR, UN Global Compact and SA 8000. NORMA Group only considers partnerships with companies that commit to complying with this Code of Conduct. What requirements does NORMA Group place on its suppliers? Besides their ability to compete and innovate, we also expect liquidity, well-established logistics and the excellent and legally compliant quality of the material to be delivered. In addition, we set high standards for business practices. This in- cludes recognizing the principles set out in our Supplier Code of Conduct: respect for and observance of human rights › › prohibition of forced and compulsory labor › ban on child labor › safety at work › business integrity (anti-corruption) How does the compliance strategy affect supplier management? Since the introduction of the Supplier Code of Conduct, all preferred suppliers have signed the commitment. NORMA Group has been cooperat- ing with these partners for a long time and plans to further strengthen this cooperation in the fu- ture. Sustainability criteria such as the consider- ation of environmental and ethical aspects al- ready play an important role in the selection of suppliers. NORMA Group was awarded Gold Status in the EcoVadis rating of its sustainability activities in 2016. NORMA Group SE – ANNUAL REPORT 2017 FAC TS AND FIGURES Purchasing turnover 2017 Purchasing turnover is the performance indicator that is used to internally manage global purchasing at NORMA Group. It is calculated in a different way compared to the material costs and is adjusted for currency effects. The pur- chasing turnover amounted to EUR 433 million in fiscal year 2017. Production material turnover accounted for 68% of this amount. Adjusted cost of materials ratio The adjusted cost of materials ratio in fiscal year 2017 amounted to 41.2% of sales revenue (2016: 39.4%). Generally difficult conditions on the international commodity markets and the resulting rise in material prices, particularly for alloy surcharges and engineering plastics, led to an increase in NORMA Group’s cost of materials ratio. Ewa Roch, employee from the technical quality department in Pilica, Poland PROCESS FOR AS SU RI NG DELI V ERY Q U AL I T Y G 002 Whoever is interested in joining NORMA Group’s supplier pool must first complete an intensive tender process: Financial audit and competitive- ness benchmark Activation in the system as a NORMA Group supplier 1 A new supplier applies to NORMA Group Registration for ‘onboarding‘ on the central e-procurement platform Specification of commodity groups, development of a profile, detailed company description, upload of industry-specific quality certificates such as ISO, TS etc. Acceptance of the NORMA Group Supplier Code of Conduct Activation on the e-procurement platform triggers examination by the responsible commodity man- ager / local purchasing manager Group-specific qualification of the new supplier with involvement of cross-functional experts Decision on accreditation by the commodity manager / local purchasing manager 1_If the supplier changes its location – depending on the regulations of the specific industry – re-examination usually takes place. 13 NORMA Group SE – ANNUAL REPORT 2017 PRODU CTI ON HIGH LEVEL OF VERTICAL INTEGRA- TION FOR MAXIMUM ADDED VALUE Optimized production processes at all sites worldwide NORMA Group has also grown through acquisitions over many decades. Thus its product diversity has risen sharply. Today we produce many thousands of different joining products at 27 sites. There is always potential for improvement in underlying processes. Identifying it and continuously increasing efficiency in production is our defined goal. NUMBER OF PRODUCED PARTS AT THE BIGGEST NORMA GROUP SITES (IN MILLIONS) G 003 Saltsburg Lindsay Auburn Hills Juarez Maintal Anderstorp Pilica Subotica Changzhou Qingdao By bringing our products as close to the custom- er as possible, we minimize delivery and travel time, gain flexibility and reduce lead times and customs costs. We rely on the highest possible level of vertical integration: we create value at our own sites. Our continuous opti mization of production processes plays a decisive role. Our Operational Excellence Leaders introduce new methods for streamlining processes at our sites worldwide and ensure their implementation. Whether in stock or ‘just in time’ deliveries: the uninterrupted supply of the market with high-quality products is the focus of our efforts. Economical even with small batches, our produc- tion is constantly improving. We orient ourselves in production as well as in our entire value chain to the principles of lean management. 15 NORMA Group SE – ANNUAL REPORT 2017 KA IZ E N: TH E WAY TO B ET TER THI N GS ‘Kaizen’ is the guiding principle of lean management. The Japanese term means ‘way to better things.’ A methodological concept that describes a quest for con- tinuous improvement lies behind it. In business administration, Kaizen has been developed into a man- agement system that focuses on quality improvements and cost reductions. In the NPS, we don’t see kaizen as a theoretical measure or workshop, but as an intensive and systematic examination of a particular process step. Each kaizen includes a set of elements, from the definition of a goal over to the tasks for everyone involved to the communication of the successes. Jörg Möller-Gaden, Vice President Operational Global Excellence, and Maximilian Storck, Mechatronics engineer, during the daily Gemba walk Knowing what's going on Merely looking at processes is not enough. Only analysis and evaluation under certain aspects provide the basis for change. The lean manage- ment theory provides more than 100 instru- ments for this. An intensive review process across all sites evaluated what would work best for NORMA Group production. The result was a set of lean and leadership tools that help achieve process definition and avoid waste, leading to what is known as kaizens. The pro- cess closely examined specific steps or produc- tion elements for an entire week. The NORMA Production System (NPS): systematic analysis for continuous improvement of performance Connectors, lines, clamps – as with any manu- facturing company, everything revolves around the product. Production is therefore also at the core of NORMA Group and one of the most im- portant pillars of value creation. Everyday pro- duction determines both product quality and production costs. Since 2014, we have intro- duced a number of tools to streamline produc- tion and avoid errors. These were merged in 2014 under the umbrella of the NORMA Pro- duction System (NPS). NORMA Group has thus embarked on a new and ambitious path to im- proving efficiency and quality across all sites. Using selected instruments, the NPS scrutinizes all production processes. Its key objectives: de- fining processes, avoiding waste and improving results. And it’s succeeding: the NPS has now been introduced at almost all production sites worldwide. This is also an important step for us towards permanently expanding our leading role in international competition. 16 7 + 1 WASTES: › 1. Overproduction › 2. Maintenance › 3. Transport › 4. Complex processes › 5. Movement › 6. Quality defects › 7. Stocks › (7+1) Unused creativity Lean processes that avoid waste in every form – that is the core concern of the NPS. Whether time, manpower, material or energy – waste is always a cost factor. On closer inspection, a number of wasteful processes can be identified in every production: long search paths due to dis- order, process fluctuations due to a lack of stan- dardization, too long of set-up times or machine failures due to inadequate maintenance. Impro- ving sub-optimal processes has considerable po- tential for added value. NORMA Group SE – ANNUAL REPORT 2017 Sébastien Villeneuve, Operator in production at NORMA Autoline France TOOLS I N THE NPS TOOLBOX G 004 TWO SU CC ESS STORIE S OF THE NPS 5S organization, safety and ergonomics of the workplace SMED set-up time optimization Standard Work SMARTER working Kanban material flow optimization TPM total productive maintenance of machinery and equipment PSP problem-solving process for all areas Poka-Yoke complete error prevention VSM value stream mapping to improve process control in production and service TPI transaction process improvement Lean Layout layout for existing and newly built plants DVM daily visual management, Gemba walks and KPI visualization DIVE Board problem-solving process that creates long-term solutions for our customers by investigating root causes 17 Poka-Yoke: zero system errors Faulty parts are the epitome of waste. More than just valuable material is lost. All other process steps necessary for production are shut down for nothing. It pays to focus on products that often receive customer complaints due to production errors. This tool is called the Poka-Yoke standard. Its aim is nothing short of completely eliminating defects in product manufacturing – sophisticated quality assurance indeed! The O-ring, a sealing ring in our quick connectors, is an example of the tool’s successful use. After some products were reported to have sealing problems, Poka-Yoke went into action: all manufacturing steps that could have caused the defect were checked carefully. We were thus able to eliminate the source of the defect, no matter if it was wrong positioning or deviations in ring diameter. An ad- ditional automatic final inspection now ensures that only perfectly produced and positioned O-rings are installed. As a result of the measures we’ve implemented, the number of complaints was reduced within a year from 65 to three. Making one from two: leaner process in Brazil At NORMA Brazil, an assembly process involv- ing two employees working in parallel was ana- lyzed with software support. Originally, the pro- cess consisted of several steps that were performed in parallel. The process included the employees having to cover ground and wait for each other. There was room for improvement: analysis allowed work steps to be redesigned so that travel and waiting times were virtually elim- inated. The result: all work steps are now exe- cuted in one line. On top of that, the change saves nearly 20% more space and increases productivity by over 50%. NORMA Group SE – ANNUAL REPORT 2017 LOGISTI CS MASTERING COMPLEXITY Close to our customers with high-performance logistics Incoming goods at NORMA Group's biggest plant at its headquarters in Maintal At the right place at the right time: The task of logistics is to make products readily avail- able. NORMA Group relies on localization to achieve ideal timing and maximize added value: our production facilities and distribution centers make us globally present on site – and always close to every customer. Avoiding unnecessary intermediate steps lets us increase our flexibili- ty and reduce logistics costs and supply risks. Automation and standardization help us opti- mize logistical processes and further increase dynamics. In line with our two distribution channels, we are also double-tracked in logistics: In the area of Distribution Services, we deliver standardized joining products to customers such as sales representative, the aftermarket segment in the automotive industry or home improvement stores. Some products are packaged in the fac- tory ready for shipment and then kept in stock in the distribution center. As soon as the customer orders, we remove the goods from the ware- house and prepare the shipping documents. De- pending on the customer’s request, the goods are then sent by delivery service, as general car- go or kept ready for pick-up. (OEM). From In the area of Engineered Joining Techno- logy, we cooperate closely with Original Equip- inter- ment Manufacturers faces for digital data transmission through de- livery in specified circulation containers to building consignment warehouses, we tailor our logistics processes to our partners’ needs. Our strength: we can supply almost every vehicle manufacturer from all production plants – worldwide. Our customers appreciate the prox- imity of our production facilities and close dia- logue with our logistics experts. Optimized supply chains are essential for a company operating internationally, manufacturing on four continents and covering a wide variety of business areas. Efficient, flexible logistics enables dynamic processes and makes us attractive as a supplier to our customers. They benefit from our ability to tailor our logistics processes to their individual requirements. Just one more thing that makes NORMA Group a reliable partner. 19 NORMA Group SE – ANNUAL REPORT 2017 Admir Dedic, NORMA Group employee in the automated warehouse at the Swedish plant in Anderstorp AUTOMATION IN AC T ION FACTS AND FIGURES Logistics is (almost) self-sufficient on its 2,000 m² of floor space: The highly automated warehouse in Anderstorp, Sweden, is equipped with a packing machine, special warehouse paternoster starters and scanners for selecting ordered goods. This minimizes shipping errors and optimizes delivery times. A study has shown that NORMA Group’s automated warehouse works more efficiently than average. NORMA Group operates 34 distribution centers in 20 countries: A LOGI STICS SI TE I N NU MBERS D IS TRIB UTION OF COSTS FOR TR AN SP ORT BY TRAFFIC CARRIER 1 G 005 in EMEA From its plant in Subotica, NORMA Serbia supplies almost all European car makers with second- generation UREA lines, fuel transport and tank ventilation line systems and transmission oil cooling lines. Business with OEMs accounts for a large share: in one quarter different delivery locations were served in this area alone, with product orders delivered. Of about delivery items a day, an average of were to OEMs. In total, NORMA Serbia delivered around different products in different packaging variants in 2017. The Logistics division employs permanent NORMA Group employees and is sometimes supported by temporary workers. 1_Numbers are based on FY 2016 data. in Asia-Pacific in Americas 20 Land freight: 75%Sea freight: 13%Air / special freight: 12%NORMA Group SE – ANNUAL REPORT 2017 LEAN LOGIS TICS TREN D S AN D DEVEL OPM ENT S INFO R MAT IO N A ND MAT ERIAL FLOW IN THE VE HICLE INDUSTRY G 006 Besides production, the logistics sector has par- ticular potential to make a contribution to in- creasing company value. It’s worth taking a clos- er look and capitalizing on the potential for improving logistics. Lean management methods have been used at every site since 2016 for pre- cisely this reason. The goal: to eliminate all steps that don’t contribute to value creation. This rang- es from optimally arranging warehouse shelves to avoiding unnecessary transport routes through local procurement and production. We are grad- ually streamlining all logistics processes and in- creasing efficiency. This not only saves us freight, storage and personnel costs, but also conserves resources and improves our carbon footprint. SECUR I TY I N THE SUPPLY CHAI N Changes in customs regulations and foreign trade law, terrorism and piracy threats – the framework conditions of global trade are changing rapidly. This increases demands on securing goods traffic. We are responding by ensuring the compliance of our stan- dards and processes with international standards and participating in various security programs: Five sites of NORMA Group have already been approved as Au- thorized Economic Operators (AEO) in Europe and Asia, as well as certified by the American initiative ‘Customs and Trade Partnership Against Terrorism’ (C-TPAT). This is how we create the conditions for secure and reliable logistics worldwide. 21 Big Data: Height, width, weight – more and more information about the flow of goods will be recorded in our ERP system in the future. The ad- vantage: qualified data uses storage areas more efficiently while optimally loading forwarders. Setting standards: By standardizing packaging and pallets for deliveries to Asia and within Eu- rope, the logistical effort is further reduced. One barcode, lots of information: Unlike the usual one-dimensional barcodes, the new 2-D barcodes have not just one, but seven to eight pieces of information such as part name, quanti- ty and source. They accompany every shipment throughout the supply chain, ensuring traceabili- ty and preventing relabeling and renaming. Direct line to forwarding: We are working to extend remote data transmission. In the future, an integrated message will automatically be sent to the logistics company for each delivery mes- sage to the customer. It includes data relevant to planning such as scope of delivery and weight. PRODUCTION PLANT / DISTRIBUTION CENTER NORMA France 1. FILLING OF THE CIRCULATING CONTAINERS WITH SCR LINES ALREADY DURING PRODUCTION 4. EMPTY CIRCULATING CONTAINERS ARE RETURNED TO NORMA GROUP 2. SHIPPING BY A FORWARDING AGENT 3. DELIVERY TO THE CUSTOMER Forecast › Advance notice from the customer about his needs in the next six to 18 months › The quantity ordered may deviate from the forecast by up to 15%. Order › Order requests for the next four weeks are accurate to the day. › Products are picked up every day. › If not canceled at short notice, the Data transmission › Announcement of the delivery to the customer and forwarding of the freight data to the forwarding agent › Notification of the return of empty order is considered fixed. containers to the warehouse NORMA Group SE – ANNUAL REPORT 2017 Bild kommt neu SALES IT ALL DEPENDS ON THE CONNECTION We nurture long-term customer relationships Mit leistungsstarker Logistik nah an unseren Kunden Over 40,000 joining solutions for more than 10,000 customers in over 100 countries. Our sales department thinks in all directions to ensure everyone’s satisfaction. We know about fields of application, are familiar with requirements and framework conditions, and have an eye on future developments – always in direct, partnership-based communication with our customers. 23 Jean-François Surlève, Global Product Manager FTS, and Audrey Vauleon, Quality Technician at NORMA Autoline, in a team meeting If you want to offer good solutions, you have to understand the problems in applications. That is why the Business Development unit was created in 2010, and has since ensured coordinated de- velopment and sales activities. Today, NORMA Group has around 350 sales and development employees in close contact with our customers. Intensive exchange keeps them familiar with their current needs. They are also in close coor- dination with our development engineers, con- cerned with the megatrends that will shape fu- ture industry development: climate change and resource scarcity. The changing conditions of the future mean previously proven solutions will no longer meet our customers' requirements. We are therefore always developing new, tailor-made solutions and adapting them to the requirements of their respective regional markets. We rely on our innovative strength: it is our motivation to penetrate new, future-oriented sectors such as e-mobility and water management. From reliable standard solutions to new tailor-made developments We take the diversity of our customers into account: we have sales offices around the world and actively approach our customers. Our broad portfolio of standard applications already offers the right solutions for many applications. Expert advice meets immediate availability. NORMA Group SE – ANNUAL REPORT 2017 Innovation-driven industries often demand new solutions. That is why we create products for our customers that are tailored to their needs. We often exceed our customers' requirements: our innovative materials and sophisticated pro- duction technology lets us develop particularly lightweight, durable and easy-to-assemble solu- tions. That’s how we start long-term partner- ships. Together with our customers, we tackle challenges and develop the future. Our product portfolio responds to the requirements of our customers › Product availability: our global presence ensures that our customers around the world are supplied as quickly as possible. › Weight reduction: an ongoing trend in many industries – our Fluid products offer solutions. › Emission reduction: legal frameworks are becoming ever stricter. We are already setting standards for tomorrow. › Reduction of assembly times: OEMs are under constant cost pressure. We help with easy-to-assemble solutions, thus shortening assembly times and reducing costs. › Leakage reduction: our secure, leak-free joining solutions help our customers reduce warranty costs. 24 “ Our product portfolio responds to our customers' requirements.” Florent Pellissier Vice President Group Marketing WH Y WE K NO W WHAT O UR C USTO M E RS WA N T As Vice President of Group Marketing, Florent Pellissier develops strategies and action plans for regional and local marketing teams. He works closely with the departments Communi- cation, Research and Development and Busi- ness Development. His activities focus on brand concept and global brand strategy, product communication and digital marketing infrastructure concepts. In order to know the expectations of its partners and customers, NORMA Group has systematically asked its customers about their satisfaction since 2009. What is the Customer Satisfaction Survey (CSS) about? The focus is on how our service is received: are customers satisfied with our products and ser- vices? How do they rate their quality? Is product training helpful? Do customer service and sales meet the requirements of the target audience? Do our logistics fulfill customer expectations? What factors influence customer purchasing decisions? Our customers are committed to optimizing their processes, adhering to specifications and stand- ards and improving their products. We want to know: are our products helping them to do so? Where can we improve? Emotional aspects and the subjective view of our company also play a part in decisions. These factors can best be grasped by requesting and entering into dialogue. How are the results of the CSS used? The CSS is an important indicator of further de- velopments in various business areas for us. We have steadily developed the CSS since its first implementation and established processes to implement the improvements derived from the survey. Keeping track of what moves our customers lets us not only keep pace, but also think ahead. NORMA Group SE – ANNUAL REPORT 2017 KN OWL E DG E T RA NSF E R: SCR TE CH NO L OG Y F OR OF F -ROAD VE H ICL E S We’ve been there from the start: NORMA Group has extensive experience in the development of components for exhaust purification in diesel engines. We have been supplying numerous large car makers and suppliers with heated SCR (Selective Catalytic Reduction) lines for cars and trucks since 2008. These lines are strong and durable – they are used in exhaust aftertreatment and contribute significantly to climate protection. New emissions regulations in 2017 also confronted manufacturers of off-road vehicles with the chal- lenge of adapting their technologies to the new requirements. Our experience in road vehicles also offers solutions to manufacturers of agricultural and construction machinery. Our proven standard products have helped us devel- op a modular kit for SCR lines. It is tailored to production conditions for off- road vehicles and allows a large variety even in small quantities – elaborately developed special solutions aren’t needed. This active approach has seen us very successfully and quickly open up a new market. FACTS AND FIGURES Claudia Lemos, Sales Manager, and Carlos Almeida, Production Supervisor at Lifial Production sites worldwide Distribution centers Developing the future Seven years after the creation of the new Busi- ness Development unit, the evidence is clear: our strategy is working. The unit is a bridge between the market and development. It enables us to op- timally tailor our products to customer require- ments and market development. The successes we have achieved in the automotive industry are the result of many years of preparatory work and intensive networking. We are continuing to grow and open up new areas on this solid foundation. Our focus is particularly on the Asia-Pacific region: cities in this region are booming, the mid- dle class is growing and mobility is increasing. At the same time, we can see that emission protec- tion, water management and innovative mobility solutions are needed for sustainable develop- ment in the region. A future market with enor- mous potential is forming. NORMA Group is in a perfect position to benefit from it. 25 NORMA Group SE – ANNUAL REPORT 2017 MANAGEMENT REPORT 2017A TO OUR SHAREHOLDERS CONSOLIDATED 027 The Management Board 047 Principles of the Group COVER 003 The Value Chain of NORMA Group 004 Two Strong Distribution Channels 028 Letter from the 058 Economic Report 005 Financial Figures 2017 006 Research and Development 010 Purchasing 014 Production 018 Logistics 022 Sales Management Board 030 NORMA Group on the Capital Market 034 Supervisory Board Report 038 Corporate Governance Report 080 Forecast Report 085 Risk and Opportunity Report 097 Remuneration Report 103 Other Legally Required Disclosures 106 Report on Transactions with Related Parties 26 FURTHER INFORMATION 200 Glossary 204 List of Graphics 205 List of Tables 207 Overview by Quarter 2017 209 Multi-Year Overview 211 Financial Calendar 2018, Contact and Imprint CONSOLIDATED FINANCIAL STATEMENTS 108 Consolidated Statement of Comprehensive Income 109 Consolidated Statement of Financial Position 110 Consolidated Statement of Cash Flows 111 Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 Appendix to the Notes to the Consolidated Financial Statements 193 Responsibility Statement 194 Independent Auditor’s Report NORMA Group SE – ANNUAL REPORT 2017 THE MANAGEMENT BOARD BERND KLEINHENS CHIEF EXECUTIVE OFFICER (CEO) — Member of the Management Board since 2011 Appointed until December 31, 2022 027 028 The Management Board Letter from the Management Board 030 NORMA Group on the Capital Market 034 038 Supervisory Board Report Corporate Governance Report 27 DR . MICHAEL SCHNEIDER CHIEF FINANCIAL OFFICER (CFO) — Member of the Management Board since 2015 Appointed until June 30, 2023 NORMA Group SE – ANNUAL REPORT 2017ATO OUR SHAREHOLDERS LETTER FROM THE MANAGEMENT BOARD DEAR SHAREHOLDERS, CUSTOMERS AND BUSINESS PARTNERS, ‘Creating value, every step of the way’ is the title of this year’s Annual Report – and this is also our aspi- ration when it comes to directing our entrepreneurial activities. Our goals for growth, profitability, innovation and sustainability are high, and we are working to exceed them every year. In 2017, we managed to achieve this to the greatest possible extent, and so we look back on a successful fiscal year in which we continued to lay important foun- dations for the future development of NORMA Group and consistently pursued our strategic objectives. The increase in Group sales to more than EUR 1 billion for the first time makes us proud and represents an important milestone in the Company’s history. Sales growth of 13.7% to EUR 1,017.1 million once again demonstrated the very strong position of our product portfolio and services, and that we have the expertise needed to benefit from current growth trends. Due to the positive conditions on the end markets rel- evant to us and, in particular, the rapid recovery of the US market for commercial vehicles and agricultural machinery, last year’s organic growth of 8.6% was significantly higher than we forecast in the 2016 Annual Report. As a result, we revised our sales fore- cast upwards in July 2017 and specified it again in January 2018. Besides organic growth, the companies Lifial and Fengfan that we acquired last year also contributed to the increase in sales. The acquisition of the joining specialists continued our acquisition strategy in fiscal year 2017 as we purchased two companies whose products contribute to the further diversification of our portfolio and sustainably strengthen our Distribution Services business. The two companies acquired in 2017, together with the Autoline business acquired in late 2016, contributed EUR 57.3 million or 6.4% to sales growth. In fiscal year 2017, we were able to increase our adjusted EBITA by 10.8% to EUR 174.5 million com- pared to the previous year. With an adjusted EBITA margin of 17.2%, we stayed sustainably above the sec- tor average despite the challenging environment on the international commodity markets and increased raw material prices. We are very satisfied with the adjusted earnings for the period, amounting to EUR 105.0 mil- lion, and our adjusted earnings per share of EUR 3.29. The end of fiscal year 2017 also marked the end of the term of office of our former CEO, Werner Deggim, who retired on December 31 after more than 10 years at the head of NORMA Group. Mr. Deggim played a key role in the development of the Company since 2006. He guided NORMA Group onto the stock mar- ket in 2011 and has since developed it into what it is today: a globally active, financially sound and suc- cessful Group. We would like to take this opportunity to thank Mr. Deggim once again for his many years of commitment. Our thanks also go to our former Board member col- league and COO, John Stephenson, who left NORMA Group at his own request at the end of January. Mr. Stephenson, too, made a significant contribution to the success of the Group with his energetic commit- ment. His position is to be filled in the coming months. The new Management Board structure under the new Chairman and former Board member for Business Development Bernd Kleinhens gives us cause to be optimistic about the future. While the composition of the Management Board has changed, our strategic objectives remain the same: we want to continue to 027 028 The Management Board Letter from the Management Board 030 NORMA Group on the Capital Market 034 038 Supervisory Board Report Corporate Governance Report 28 NORMA Group SE – ANNUAL REPORT 2017ATO OUR SHAREHOLDERS 027 028 The Management Board Letter from the Management Board 030 NORMA Group on the Capital Market 034 038 Supervisory Board Report Corporate Governance Report grow profitably and further expand our market and technology leadership in the field of advanced joining technology. In order to achieve these objectives, we are already preparing for the challenges of tomorrow. recent years, particularly since the acquisition of NDS. Here, too, our job is to provide our customers with modern, reliable joining products and to solve current problems. The current debate on the further reduction of nitro- gen oxide emissions and a potential ban on diesel vehicles as well as the efforts of automobile manufac- turers to develop alternative drive systems worldwide determine our product strategy and our activities in the area of research and development. Particular emphasis is placed on the development of product and system solutions for electromobility, for example in the field of thermal management, concerning the temperature regulation of the powertrain and the bat- teries in hybrid and electric vehicles. We already offer many solutions for this that we can manufacture for the most part with our current technical equipment and machines. But we are not only positioning ourselves in the original equipment segment. The water manage- ment industry has also become more important in Our product portfolio and strategic orientation address global challenges such as climate change and the scarcity of resources and emphasize the sustainability of our products. This is also reflected in our develop- ment, purchasing and manufacturing processes. In all divisions and across the entire value chain, we attach great importance to the responsible use of the resources available to us, sustainable product solu- tions and a safe working environment for our em- ployees. In doing so, we also create value, every step of the way. Since 2013, we have been reporting extensively on our sustainability efforts and objectives in our own Corporate Responsibility Report. As of this year, it will be published annually and at the same time as the Annual Report and will also contain the non-financial statement required by the CSR Directive since 2017, as well as comprehensive information on important sustainability aspects. Dear shareholders, we would like to thank you for the trust you have shown us in the past. We will do our utmost to continue developing your Company suc- cessfully in the future, continuing NORMA Group’s growth history. Of course, we want you to play your part in the Company’s success again this year. For this reason, we will be proposing a dividend of EUR 1.05 per share for fiscal year 2017 at the Annual Gen- eral Meeting to be held in Frankfurt on May 17, 2018. We will thus be increasing the dividend for the sixth year in a row and distributing 31.9% of our adjusted net profit for the period. We also owe our thanks to our more than 7,000 employees worldwide for their commitment in 2017, whose dedication and inventiveness contribute to the success of NORMA Group every day. Furthermore, we would like to thank our customers and business part- ners. We are looking forward to continuing our good collaboration and to a successful 2018. Sincerely, Bernd Kleinhens Dr. Michael Schneider 29 NORMA Group SE – ANNUAL REPORT 2017ATO OUR SHAREHOLDERS NORMA GROUP ON THE CAPITAL MARKET › NORMA Group share beats MDAX performance › Dividend of EUR 0.95 resolved at the Annual General Meeting › 2016 Annual Report and Investor Relations work win several awards POSITIVE BALANCE ON THE CAPITAL MARKETS WORLWIDE 2017 was a very strong year for global stock markets. Nearly all of the world’s stock markets ended the year with significant gains. This was aided by the continued loose monetary policy of central banks worldwide, strong global growth, the approval of the tax reform in the US and a lively M&A market. The US interest rate turnaround was not enough to slow down the stock market. Thus the Dow Jones closed the year up 25.1%, and the S&P 500 also ended the year with a substantial gain of 19.4%. The leading German index DAX reached a new high of 13,526 points in November, closing at 12,917 points at the end of the year, an increase of 12.5% com- pared to the end of 2016. The MDAX ended the year at 26,201 points, an increase of 18.1%. PERFORMANCE OF THE NORMA GROUP SHARE 2017 was also a positive year on the stock market for the NORMA Group share. The good performance of the first half of the year accelerated further as a result of the increase in the sales forecast in July 2017. In November 2017, the NORMA Group share achieved a new all-time high of EUR 63.79 and ended the year with a year-on-year increase of 38.0% at EUR 55.97 (2016: EUR 40.55). This result saw NORMA Group’s share clearly outperform the benchmark index MDAX. Market capitalization as of December 31, 2017, was EUR 1.78 billion (2016: EUR 1.29 billion). This is based on an unchanged number of shares as in the previous year of 31,862,400 shares. In terms of free float market capitalization that is of relevance in determining index membership, which has been at 100% since 2013, the NORMA Group share ranked 42nd out of 50 in the MDAX in Decem- ber 2017 (Dec. 2016: 46th place). TRADING VOLUME INCREASED The average Xetra trading volume of the NORMA Group share increased from last year to 96,906 shares per day (2016: 73,571 shares). The NORMA Group share thus ranked 46th out of 50 (2016: 48th) in the MDAX in December 2017 based on trading vol- ume. This represents an increased average trading volume per day compared to the previous year of EUR 4.7 million (2016: EUR 3.2 million). G 007 INDEX-BASED COMPARISON OF NORMA GROUP’S SHARE PRICE PERFORMANCE IN 2017 WITH THE MDAX AND DAX NORMA Group SE MDAX DAX IN % 50 40 30 20 10 0 – 10 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 027 028 The Management Board Letter from the Management Board 030 NORMA Group on the Capital Market 034 038 Supervisory Board Report Corporate Governance Report 30 NORMA Group SE – ANNUAL REPORT 2017ATO OUR SHAREHOLDERS The total average number of shares traded per day in 2017 was 235,939 (2016: 223,983). Trading on the various trading platforms can be broken down as follows: G 008 DISTRIBUTION OF TRADING ACTIVITY IN 2017 Scandinavia: 6% Block trades: 32% G 009 FREE FLOAT BY REGION T 002 OVERVIEW OF VOTING RIGHTS NOTIFICATIONS France: 15% Rest of World: 12% USA: 19% IN % Allianz Global Investors GmbH, Frankfurt/Main, Germany Ameriprise Financial Inc., Wilmington, DE, USA AXA S.A., Paris, France BNP Paribas Asset Management S.A., Paris, France Impax Asset Management Group Plc, London, UK The Capital Group Companies, Inc., Los Angeles, CA, USA 10.001 5.57 4.98 4.91 3.31 3.05 United Kingdom: 26% Germany: 22% As of December 31, 2017. Please refer to the PAGE 191 for further information on the voting rights notifications received. All voting rights notifications are published on the Company’s website APPENDIX TO THE NOTES ON HTTPS://INVESTORS.NORMAGROUP.COM. as of December 31, 2017 At the end of the reporting year, 95.7% of NORMA Group shares were held by institutional investors, 2.3% (2016: 2.3%) by management (including legacy management) and 2.0% (2016: 3.0%) by private investors. The number of private investors (excluding management) declined from 4,231 to 3,356 in the course of fiscal year 2017. VOTING RIGHTS NOTIFICATIONS IN 2017 Based on the voting rights notifications received by the end of 2017, shares of NORMA Group designated as free floating and amounting to over 3% are held by the following institutional investors: 2017 ANNUAL GENERAL MEETING The Ordinary Annual General Meeting of NORMA Group SE was held on the premises of the German National Library in Frankfurt/Main on May 23, 2017. 24,215,140 of the 31,862,400 shares with voting rights, i.e. 76.0% of the share capital was repre- sented. The participating shareholders resolved a div- idend of EUR 0.95 per share. This corresponded to a distribution rate of 32.0% based on NORMA Group‘s adjusted net profit for the fiscal year of EUR 94.6 mil- lion in 2016 and was therefore within the scope of the dividend strategy with an annual distribution rate of approximately 30% to 35% of adjusted consolidated net profit. All other items on the agenda were also approved by clear majorities. The voting results are HTTPS://INVESTORS.NORMA- available on the website GROUP.COM/HV. 027 028 The Management Board Letter from the Management Board 030 NORMA Group on the Capital Market 034 038 Supervisory Board Report Corporate Governance Report 31 Alternative trading platforms: 28% Official trading: 40% The percentage of shares traded on the official market increased from 33% to 40% compared to the previ- ous year. By contrast, the percentage of trading on alternative platforms decreased slightly from 30% to 28%. The percentage of shares traded via block trades fell to 32% compared to the previous year (2016: 37%). BROADLY DIVERSIFIED SHAREHOLDER STRUCTURE The NORMA Group share has gained greater interna- tional recognition in recent years due to active inves- tor relations work. As a result, foreign investors have become increasingly important. Today, NORMA Group now has a regionally highly diversified shareholder base with a high share of international investors mainly from the US, the UK, France, Germany and Scandinavia. NORMA Group SE – ANNUAL REPORT 2017ATO OUR SHAREHOLDERS DIRECTORS’ DEALINGS G 010 ANALYST RECOMMENDATIONS In fiscal year 2017, one transaction was reported as Directors’ Dealings. It can be found in the Corporate CORPORATE GOVERNANCE REPORT, P. 38 Governance Report. COVERAGE INITIATED BY SOCIÉTÉ GÉNÉRALE 18 analysts from various banks and research firms currently follow NORMA Group. As of December 31, 2017, four analysts recommended buying the share, 13 analysts advised to hold the share and one analyst recommended selling the share. The average price target was EUR 57.83 at the end of December 2017 (2016: EUR 45.72). T 003 ANALYSTS COVERING NORMA GROUP Baader Bank Bankhaus Lampe Bankhaus Metzler Peter Rothenaicher Christian Ludwig Jürgen Pieper Bank of America Merrill Lynch Kai Müller Berenberg Bank Philippe Lorrain Commerzbank AG Ingo-Martin Schachel Deutsche Bank AG Tim Rokossa DZ Bank AG equinet Bank Thorsten Reigber Tim Schuldt Hauck & Aufhäuser Christian Glowa HSBC Jeffries Jörg-André Finke Omid Vaziri Kepler Cheuvreux Dr. Hans-Joachim Heimbürger Sell: 1 Buy: 4 Hold: 13 as of December 31, 2017 SUSTAINABLE INVESTOR RELATIONS ACTIVITIES NORMA Group’s investor relations activities seek to further increase awareness of the Company on the capital market, strengthen long-term confidence in its share and achieve a realistic and fair valuation. There- fore, the management and those responsible for investor relations hold many discussions with institu- tional investors, financial analysts and private share- holders over the course of the year. The Management Board and the Investor Relations team of NORMA Group conducted 27 roadshows in the world’s most important financial centers in 2017. Furthermore, NORMA Group attended the following conferences: › Oddo Forum, Lyon › Commerzbank German Investment Seminar, Macquarie Christian Breitsprecher New York MainFirst Bank AG Tobias Fahrenholz › Kepler Cheuvreux German Corporate Conference, › db Access German, Swiss & Austrian Conference, Berlin › Commerzbank Sector Conference, Frankfurt/Main › UBS Best of Germany Conference, New York › Berenberg & Goldman Sachs German Corporate Conference, Munich › Baader Investment Conference, Munich › DZ Bank Equity Conference, Frankfurt/Main › Berenberg European Conference, Surrey SERVICE FOR SHAREHOLDERS Shareholders and those interested can register in the investor relations section of the Company website HTTPS://INVESTORS.NORMAGROUP.COM to receive the circular letter for investors from NORMA Group. They will be informed promptly by e-mail of any develop- ments within the Group and automatically receive the regular publications. information on Furthermore, comprehensive the NORMA Group share is published on the website. Besides financial reports and presentations that can be downloaded, all important financial market dates and details on how to reach the contact partners can be found there. The teleconferences on the quarterly and annual financial statements are recorded and offered in audio format. NORMA GROUP RECEIVES NUMEROUS AWARDS NORMA Group’s IR activities and the 2016 Annual Report excelled in several competitions and received the following awards: NordLB Société Générale Frank Schwope Sebastian Ubert Warburg Research GmbH Alexander Wahl Frankfurt/Main › Investors’ Darling: 1st place in the MDAX seg- › Banhkhaus Lampe Deutschlandkonferenz, ment, 6th place in the overall ranking Baden-Baden › Commerzbank Boston and New York Conference, Boston and New York › The Best Annual Report 2016: 3rd place in the MDAX segment, 5th place in the overall ranking 027 028 The Management Board Letter from the Management Board 030 NORMA Group on the Capital Market 034 038 Supervisory Board Report Corporate Governance Report 32 NORMA Group SE – ANNUAL REPORT 2017ATO OUR SHAREHOLDERS T 004 KEY FIGURES FOR THE NORMA GROUP SHARE SINCE THE IPO Closing price on Dec 31 (in EUR) Highest price (in EUR) Lowest price (in EUR) MDAX level on Dec 31 2017 55.97 63.79 39.95 2016 40.55 51.54 35.20 2015 51.15 53.30 38.82 2014 39.64 43.59 30.76 2013 36.09 39.95 21.00 2012 21.00 23.10 15.85 2011 Apr 8, 2011 1 16.00 21.58 11.41 21.00 2 n/a n/a 26,200.77 22,188.94 20,774.62 16,934.85 16,574.45 11,914.37 8,897.81 10,539.60 Number of unweighted shares as of Dec 31 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 Market capitalization (in EUR millions) 1,783 1,292 1,630 1,263 1,150 669 510 669 027 028 The Management Board Letter from the Management Board 030 NORMA Group on the Capital Market 034 038 Supervisory Board Report Corporate Governance Report Average daily Xetra volume Shares EUR millions Earnings per share (in EUR) Adjusted earnings per share (in EUR) Dividend per share (in EUR) Dividend yield (in %) Distribution rate (in %) Price-earnings ratio Selected indices 96,906 73,571 88,888 73,932 86,570 54,432 46,393 4.74 3.76 3.29 1.05 3 1.9 31.9 3 14.9 4 3.20 2.38 2.96 0.95 2.3 32.0 17.0 4.10 2.31 2.78 0.90 1.8 32.3 22.1 2.80 1.72 2.24 0.75 1.9 33.4 23.0 2.53 1.74 1.95 0.70 1.9 35.9 20.7 1.04 1.78 1.94 0.65 3.1 33.5 11.8 1.45 1.19 1.92 0.60 3.8 33.2 13.4 MDAX, CDAX, Classic All Share, Prime All Share, DAX International 100, DAXsector Industrial, DAXsubsector Products & Services, HDAX, MIDCAP MKT PR, STXE TM Automobiles & Parts Index, STXE TM Small Index, STXE Total Market Index 1_IPO and first trading day of the NORMA Group share. 2_Issuing price 3_In accordance with the Management Board’s proposal for the appropriation of net profit, subject to approval by the Annual General Meeting on May 17, 2018. 4_Related to the unadjusted earnings per share. The price-earnings ratio related to the adjusted earnings per share is 17.0. G 011 SHARE PRICE DEVELOPMENT OF THE NORMA GROUP SHARE SINCE THE IPO IN 2011 COMPARED TO THE MDAX NOEJ in EUR (RHS) MDAX in points (LHS) 30,000 25,000 20,000 15,000 10,000 5,000 0 2011 2012 2013 2014 2015 2016 2017 33 n/a n/a n/a n/a n/a n/a n/a n/a 60 50 40 30 20 10 0 NORMA Group SE – ANNUAL REPORT 2017ATO OUR SHAREHOLDERS SUPERVISORY BOARD REPORT COLLABORATION BETWEEN THE SUPERVISORY BOARD AND THE MANAGEMENT BOARD The Supervisory Board of NORMA Group SE has monitored and advised on the activities of the Manage- ment Board in fiscal year 2017 in accordance with the legal regulations, the German Corporate Governance Code and NORMA Group SE’s Articles of Association. The Management Board reports on a regular monthly basis to the Supervisory Board in written form on the business development of NORMA Group SE and the Group and provides a forecast for the current fiscal year. The development of sales and earnings, incom- ing orders and order backlog are described in detail compared to the previous year and as compared to planning. Besides monthly reporting and Supervisory Board meetings, the Chairman of the Management Board and the Chairman of the Supervisory Board engaged in regular exchanges on matters of signifi- cance in fiscal year 2017. The Management Board began each Supervisory Board meeting by reporting on the overall economic situation and sector-specific economic expectations, with particular attention paid to the vehicle industry and its framework conditions, such as the introduction of stricter emission standards. The Management Board then reported on the respective business per- formance of NORMA Group and explained the earn- ings situation based on key indicators and their devel- opment compared to the previous year, budget and guidance. The Management Board discussed sales and the order situation for both the regions and the distribution channels. Accidents at work and counter- measures that have been introduced to improve work safety as well as quality and delivery were also dis- cussed at each meeting. The Management Board reg- ularly reported on the most important commodity prices. The focus in fiscal year 2017 was on the development of alloy surcharges. The Supervisory Board and Management Board also discussed NORMA Group’s long-term strategic orientation and current M&A projects. The Management Board repeatedly informed the Supervisory Board on the strategies and initiatives of NORMA Group for the sup- ply of parts for electric and hybrid drive vehicles. Besides organic growth, the Management Board and Supervisory Board discussed the development of the companies acquired in the past twelve months, par- ticularly the integration of the Autoline business acquired from Parker Hannifin in late 2016, the Portu- guese clamp manufacturer Lifial – Indústria Metalúr- gica de Águeda, Lda. and the Chinese company Feng- fan. The Management Board regularly presented the planning and current state of implementation of the Microsoft AX software to both the Supervisory Board and the Audit Committee. The Supervisory Board also accompanied the preparations for CSR reporting. The Chairman of the Audit Committee reported to the other Supervisory Board members after Audit Com- mittee meetings. At each regular meeting of the Supervisory Board, the Management Board also presents a risk report in which the probability of occurrence and potential effects of all relevant risks, including any countermeasures, are assessed. This regular risk reporting provides the Supervisory Board with a clear picture of which possible risks could have a negative impact on the Company’s assets, financial and earnings position. Moreover, com- pliance topics are also discussed at every Supervisory Board meeting (including possible fraud). 027 028 The Management Board Letter from the Management Board 030 NORMA Group on the Capital Market 034 038 Supervisory Board Report Corporate Governance Report 34 Dr. Stefan Wolf, Chairman of the NORMA Group Supervisory Board The Supervisory Board convened internally before or after each meeting with the Management Board. For transactions requiring approval, the Management Board sought the decisions of the Supervisory Board well in advance and presented the Supervisory Board with sufficiently detailed information in written form. Besides the regularly recurring topics, the Supervisory Board also dealt with the following issues in fiscal year 2017: NORMA Group SE – ANNUAL REPORT 2017ATO OUR SHAREHOLDERS Supervisory Board meeting held on March 20, 2017, in Maintal The Management Board and the Supervisory Board discussed the 2016 annual financial statements of NORMA Group SE with the auditors and the Annual Report including the 2016 Consolidated Financial Statements of NORMA Group as well as the audit pro- cess. The Management Board once again explained the reasons that led to organic growth being lower in 2016 than expected at the beginning of the year. The Management Board and the Supervisory Board dis- cussed the guidance for 2017. Other topics of the meeting included the acquisition of the Chinese com- pany Fengfan, a labor law class action procedure in the US and the preparation of the 2017 Annual General Meeting. Supervisory Board meeting held on May 23, 2017, in Frankfurt/Main In addition to the regular agenda items, the Supervi- sory Board and the Management Board discussed the course of the Annual General Meeting, which had taken place on the same day, as well as contracts with a bank as the central banking partner in the US. The Supervisory Board also set new targets for the propor- tion of women on the Supervisory Board and Manage- ment Board of NORMA Group SE. Supervisory Board meeting held on September 15, 2017, in Maintal The Supervisory Board discussed with the Manage- ment Board the increased legal requirements for cor- porate responsibility reporting and the review of the Corporate Responsibility Report, agreeing that this report was prepared separately and not as part of the Annual Report and should be audited by an external auditor and published on the NORMA Group website. The Supervisory Board also approved adjustments to the financing agreements and factoring program as well as the relocation of the Australian regional head- quarters to a new building in Melbourne. The Manage- ment Board informed the Supervisory Board in detail about the procedure for new product developments, in particular for vehicles with electric drives and hybrid technology as bridge technology. After the meeting, members received the report following the EMIR audit of the treasury derivatives process by PwC, which found no deficiencies. Supervisory Board meeting held on November 30, 2017, in Maintal Besides the usual agenda items, the Supervisory Board also discussed the 2018 budget and medi- um-term planning. The Management Board explained the assumptions and basics of budget planning and the detailed planning that resulted. The Supervisory Board approved the budget on this basis. Financing issues and a possible M&A project were also discussed. The Supervisory Board also met for a closed meeting on October 10-11, 2017, in Wiesbaden. Besides the multi-year strategy presented by Mr. Kleinhens, the subjects of this meeting were the digitalization pro- cesses within the Holding, the IT structures at the Maintal site, a site analysis and Management Board matters. Telephone conferences were held with the Supervisory Board on July 25, 2017, and October 25, 2017. The topics discussed were Management Board matters, in particular finding a replacement for the position of Chairman of the Management Board and the division of functions. MAIN TOPICS OF THE AUDIT COMMITTEE IN 2017 The Audit Committee of NORMA Group convened three times in 2017. It also held four additional tele- phone conferences. CFO Dr. Michael Schneider took part in every meeting and telephone conference. Other participants included departmental managers of the second management level to advise on technical issues in their areas of responsibility, particularly Accounting & Reporting, Treasury, Compliance and Internal Auditing. The Audit Committee discussed the main focuses, procedure and results of the audit of the individual and consolidated financial statements of NORMA Group SE with the auditors and prepared recommen- dations for the Supervisory Board’s resolutions. One focus of the work of the Audit Committee in 2017 was also on NORMA Group Good Practice Controls. These rules are part of the internal control system that were bindingly introduced at all NORMA Group sites in 2015. The Audit Committee also discussed the quar- terly reporting with the CFO. At the beginning of each meeting, the Audit Commit- tee was informed in detail about the current business situation and financial position of NORMA Group. Other topics for the Audit Committee included the budget planning for 2018 and medium-term planning through 2022. The Audit Committee monitored the effectiveness of the internal control system, the risk management system, the internal auditing system and the compliance management system. The Audit Committee approved the audit plan for internal revi- sion for 2018. The Audit Committee also discussed treasury matters, timing and cost planning for the launch of Microsoft AX 2012 and the status of digita- lization at NORMA Group. Corporate responsibility reporting was also discussed in great detail for the first time. The Audit Committee also approved certain individual allowable non-audit services that may be provided by the PwC statutory auditors, such as e.g. standard evi- dence about the leverage, which has to be provided to the financing banks in accordance with the financing agreements of NORMA Group. Outside of the Audit Committee meetings, the Chair- man of the Audit Committee was in regular personal and telephone contact with the CFO and the auditors to discuss possible areas of emphasis for the audit of the 2017 annual financial statements as well as the focus of the work of the Audit Committee in the coming year 2018. 027 028 The Management Board Letter from the Management Board 030 NORMA Group on the Capital Market 034 038 Supervisory Board Report Corporate Governance Report 35 NORMA Group SE – ANNUAL REPORT 2017ATO OUR SHAREHOLDERS CHANGES IN MANAGEMENT BOARD, NEW DEPARTMENTAL ALLOCATION One focus of the activities of the Supervisory Board in 2017 was changes in the Management Board of NORMA Group SE. CEO Werner Deggim retired on January 1, 2018, because he had reached retirement age. Management Board member for Supply Chain and Operations, John Stephenson, decided to accept a position outside NORMA Group and to not renew his contract. On September 15, 2017, the Supervisory Board therefore declared that the terms of office of Management Board members Bernd Kleinhens and CFO Dr. Michael Schneider will be extended and Bernd Kleinhens is to be offered the position of Chair- man. The number of Management Board positions will be reduced to three. Mr. Kleinhens’ former position will not be filled. The position of departing Board member for Supply Chain and Operations John Stephenson, however, is to be filled. The Supervisory Board decided on November 30, 2017, that the term of office of Mr. Kleinhens, which was to end on July 4, 2018, will be extended through December 31, 2022, and that he would be appointed the Management Board effective Chairman of January 1, 2018, and that a new Management Board employment contract with Mr. Kleinhens is to be con- cluded with effect from January 1, 2018, after termi- nating his previous Management Board employment contract. Furthermore, the Supervisory Board decided that the term of office of the CFO Dr. Michael Schneider, which was to end on June 30, 2018, will be extended through June 30, 2023, and the existing Management Board employment contract of Dr. Michael Schneider will continue to run from July 1, 2018, but will be adjusted as of July 1, 2018. The Supervisory Board noted with approval that Mr. Werner Deggim resigned from his duties as a member and Chairman of the Management Board and his other offices at NORMA Group effective December 31, 2017, and was released from his duties as of January 1, 2018. Incidentally, the employment contract with Mr. Deggim remained unaffected. The Supervisory Board also noted with approval that Mr. Stephenson resigned from his position as a member of the Management Board and his other NORMA Group positions effective January 31, 2018, and approved the conclusion of a termination agreement with Mr. Stephenson. The new Management Board service contract with Mr. Kleinhens was signed on December 27/28, 2017. As a result of these changes in the Management Board, the business allocation plan has been revised. Mr. Kleinhens took on responsibility for Personnel, Group Development and Group Communications on January 1, 2018, in his new role as Chairman. The regional presidents also report directly to him. Busi- ness Development, including Sales, Marketing, Research & Development, Product Development, Price Development and Product Management, remain his responsibility. CFO Dr. Michael Schneider will assume additional responsibility for the areas of Legal and M&A, Risk Management, Compliance & Internal Audit- ing and Corporate Responsibility which were previ- ously in the area of responsibility of the CEO. Finance, Controlling, Treasury and Insurance, Investor Relations and IT remain his responsibility. Environmental, Social, Governance (ESG) has fallen under the responsibility of the Chairman of the Man- agement Board since Mr. Stephenson’s resignation. John Stephenson was responsible for Production, Purchasing, Supply Chain Management, the Global Excellence Program and Quality Assurance as the Management Board member for Supply Chain and Operations until he left the Management Board on January 31, 2018. Until the appointment of a new Management Board member for Supply Chain and Operations, Chairman Bernd Kleinhens has assumed responsibility for these areas as well. ATTENDANCE OF ALL MEETINGS, NO CONFLICT OF INTEREST All Supervisory Board members, Dr. Stefan Wolf (Chairman), Lars Berg (Vice-Chairman), Günter Haupt- mann, Dr. Knut Michelberger, Dr. Christoph Schug and Erika Schulte, participated in all Supervisory Board meetings, the closed meeting and the telephone con- ferences in 2017. All members of the Audit Committee, Dr. Knut Michel- berger (Chairman of the Audit Committee), Lars Berg and Erika Schulte, participated in all meetings and telephone conferences of the Audit Committee. The General and Nomination Committee did not con- vene in 2017. Personnel matters were prepared by the Chairman of the Supervisory Board and discussed with all of its members. There were no conflicts of interest between the mem- bers of the Supervisory Board and the Company in fiscal year 2017. INFORMATION ON THE AUDITOR The 2017 annual financial statements for NORMA Group SE presented by the Management Board were audited by the auditing firm PricewaterhouseCoo- pers GmbH Wirtschaftsprüfungsgesellschaft along with the Management Report and the corresponding Consolidated Financial Statements and Group Man- agement Report. The audit mandate was issued on October 9, 2017. The auditors Thomas Tilgner and Richard Gudd took part in the Supervisory Board meeting held to formally adopt the financial statements as well as in Audit Committee meetings on the respective agenda items and a conference call with the Audit Committee. 027 028 The Management Board Letter from the Management Board 030 NORMA Group on the Capital Market 034 038 Supervisory Board Report Corporate Governance Report 36 NORMA Group SE – ANNUAL REPORT 2017ATO OUR SHAREHOLDERS APPROVAL OF THE 2017 ANNUAL FINANCIAL STATEMENTS AND THE SEPARATE NON- FINANCIAL STATEMENT FOR THE GROUP The Consolidated Financial Statements of NORMA Group SE were prepared in accordance with section 315e of the German Commercial Code (Handels- gesetzbuch, HGB) on the basis of International Finan- cial Reporting Standards (IFRS) as adopted in the EU. The auditor issued an unqualified opinion for the 2017 Annual Financial Statements and Management Report of NORMA Group SE as well as for the Consolidated Financial Statements and Group Management Report. The documents pertaining to the financial statements, the Management Board’s proposal for the appropria- tion of net profit and both auditors’ reports were sub- mitted to the Supervisory Board. The Audit Committee and the Supervisory Board in its entirety thoroughly examined the reports and discussed and scrutinized them in detail together with the auditor. The Supervi- sory Board accepted the auditor’s findings and had no objections. The Supervisory Board then approved the Annual Financial Statements of NORMA Group SE and the 2017 Consolidated Financial Statements together with their respective Management Reports at its meeting on March 19, 2018. The Supervisory Board approved the proposal on the appropriation of profits by the Management Board. NORMA Group SE’s Annual Financial Statements are thereby adopted in accordance with section 172 AktG. The Audit Committee and Supervisory Board also dealt with the separate Non-Financial Group Report for NORMA Group prepared by the Management Board as of December 31, 2017. The auditing firm PricewaterhouseCoopers GmbH has conducted a lim- ited assurance test and issued an unqualified audit opinion. The Management Board explained the docu- ments in detail during the meetings, the representa- tives of the auditor reported on the main findings of their audit and answered further questions from the members of the Supervisory Board. The Supervisory Board had no objections after auditing these results. DECLARATION OF CONFORMITY WITH THE GERMAN CORPORATE GOVERNANCE CODE The Supervisory Board and Management Board dealt with the requirements of the German Corporate Gov- ernance Code and ratified the following Declaration on January 31, 2018: ‘NORMA Group SE has com- plied with the recommendations of the German Cor- porate Governance Code as amended on February 7, 2017 (published on April 24, 2017), by the Federal Ministry of Justice in the official section of the Fed- eral Gazette (‘Bundesanzeiger’) since its last Decla- ration was submitted and will continue to comply with the recommendations.’ The Corporate Governance Declarations made by NORMA Group SE are available on the Company’s website at HTTPS://INVESTORS. NORMAGROUP.COM. The Supervisory Board would like to thank all employees of NORMA Group all around the world along with the Management Board for their personal efforts and successful work once again in fiscal year 2017. The Supervisory Board is confident that NORMA Group will continue to grow successfully in fiscal year 2018. Dettingen/Erms, March 19, 2018 Dr. Stefan Wolf Chairman of the Supervisory Board 027 028 The Management Board Letter from the Management Board 030 NORMA Group on the Capital Market 034 038 Supervisory Board Report Corporate Governance Report 37 NORMA Group SE – ANNUAL REPORT 2017ATO OUR SHAREHOLDERS CORPORATE GOVERNANCE REPORT The following is the Management Board’s Declaration of Conformity in accordance with article 289f of the German Commercial Code (Handelsgesetzbuch, HGB) and section 3.10 of the German Corporate Gover- nance Code (GCGC). The management of NORMA Group is dedicated to achieving sustained economic success while comply- ing with the Company’s social responsibility. Trans- parency, responsibility and sustainability are the prin- ciples that determine its actions. DECLARATION OF CONFORMITY WITH THE GERMAN CORPORATE GOVERNANCE CODE The Supervisory Board and Management Board of NORMA Group SE have thoroughly examined which of the German Corporate Governance Code’s recom- mendations and suggestions NORMA Group SE should follow and explains deviations from the recom- mendations and the reasons for deviating from the Code. The current Declaration dated January 31, 2018, as well as all the other Declarations are pub- HTTPS:// lished on NORMA Group’s website. INVESTORS.NORMAGROUP.COM The Declaration dated January 31, 2018, is pre- sented below: With the following exceptions, NORMA Group SE has complied since its last declaration was submitted, and will continue to comply, with the recommendations of the German Corporate Governance Code as amended on February 7, 2017 (published on April 24, 2017), by the Federal Ministry of Justice in the official section of the Federal Gazette (‘Bundesanzeiger‘): 1. With respect to the compensation of the members of the Management Board, the Supervisory Board does not take into account the compensation of the upper management or the workforce as a whole (section 4.2.2 para. 2 GCGC). When determining the compensation of the Man- agement Board, the Supervisory Board, advised by an external remuneration expert, also took into account the compensation structure of the Com- pany as well as the entire NORMA Group. Due to NORMA Group’s dynamic development, the Super- visory Board has so far not explicitly defined the upper management or the workforce as a whole and, therefore, does not take these groups or their development over time into account. 2. Under service agreements with members of the Management Board, the remunera- tion of the Management Board is not capped, either in total or in terms of its variable compensation elements (section 4.2.3 para. 2 sentence 7 GCGC). The Supervisory Board may grant at its sole discre- tion a special bonus for extraordinary achievements which is not limited by a maximum amount. The Supervisory Board does not believe such a maxi- mum amount to be required because the Supervi- sory Board can ensure by specifically exercising its discretion that the requirement of adequacy under section 87 para. 1 of the German law on stock cor- porations is complied with. Apart from that, the agreement with Mr. Kleinhens that was entered into in late 2017 as well as the agreement with Dr. Schneider comply with the recom- mendations pursuant to section 4.2.3 para. 2 sen- tence 7 of the German Corporate Governance Code. In addition, the management service agreements that were entered into prior to 2015 depart from the recommendations pursuant to section 4.2.3 para. 2 of the German Corporate Governance Code as fol- lows: The maximum gross option profit from the Matching Stock Program for the Management Board is limited in total to a percentage of the aver- age annual EBITA during the vesting period; there- fore, a relative maximum limit that is dependent on the Company’s success is applied rather than a maximum monetary amount. The maximum amount of the long-term variable remuneration under the Long-Term Incentive Pro- gram is limited to 250% of the amount that results based on the three-year average value of the annual EBITA or the free cash flow that the Com- pany has budgeted multiplied by the respective bonus percentages set in the employment contract. 3. Two members of the Supervisory Board have already reached, or will before the end of their tenure reach, the regular age limit (section 5.4.1 para. 2 sentence 2 half sentence 4 GCGC). The tenure of a Supervisory Board member shall not be extended beyond his or her 70th birthday. Mr. Berg is already older than 70 years; Dr. Michelberger will also be older than 70 years before the end of his tenure. The Supervisory Board is of the opinion that there is currently no reason to prematurely end these terms of office prior to the end of the tenure. The membership of the Supervisory Board should mainly depend on abilities and actual capacities. 027 028 The Management Board Letter from the Management Board 030 NORMA Group on the Capital Market 034 Supervisory Board Report 038 Corporate Governance Report 38 NORMA Group SE – ANNUAL REPORT 2017ATO OUR SHAREHOLDERS 4. During the transformation of NORMA Group AG into an SE, the members of the Supervi- sory Board were not chosen in a separate election (section 5.4.3 GCGC). All members of the first Supervisory Board of NORMA Group SE were elected as part of the trans- formation pursuant to Article 40 para. 2 sentence 2 SE VO in accordance with the Articles of Association to ensure that the resolution on the election of the members of the Supervisory Board could not be challenged separately. Otherwise, the risk could not be ruled out that the Company would have no Supervisory Board or that the board would have an insufficient number of members after the transfor- mation was entered in the commercial register. Elections of future members shall be managed as separate elections. Board on a monthly basis, in particular with regard to the published guidance on the expected development of the Company. Based on the written documents that were submitted to the Supervisory Board in advance, the members of the Management Board report in great detail on business developments and provide an outlook on the expected future development of NORMA Group at the Supervisory Board meetings. Other recurring topics at all meetings include the monthly and quarterly figures, risk analysis and mea- sures aimed at minimizing any risks that had been detected, reports by the respective Committee Chair- men on the previous meetings held and strategic proj- ects. All Management Board members participate in the Supervisory Board meetings. The Supervisory Board convenes separately before or after meeting with the Management Board. STATEMENT ON CORPORATE GOVERNANCE Allocation of competences between the Management and the Supervisory Board NORMA Group SE uses a similar type of dual manage- ment system that German stock corporations use. Here, the Supervisory and Management Boards are separate bodies that have different functions and powers. The Management Board manages the Com- pany under its own responsibility. The Supervisory Board appoints, advises, monitors and dismisses members of the Management Board. The Management Board provides the Supervisory Board with regular updates about its business poli- cies, how the business is developing, the position of the Company and any transactions that could have a significant impact on profitability or liquidity. The Man- agement Board reports the key figures of the Group and the current course of business to the Supervisory The Chairman of the Supervisory Board and the Chair- man of the Management Board coordinate the collab- oration of the two Boards. They also stay in regular contact between Supervisory Board meetings and dis- cuss current corporate governance issues. In accordance with the legal requirements, the by-laws of the Management Board and NORMA Group’s Articles of Association, the Supervisory Board must approve certain important transactions before they can be executed by the Management Board and the Company’s employees. This applies not only for measures at NORMA Group SE, but also for measures at its subsidiaries. In order to ensure that the Manage- ment Board is promptly informed of corresponding matters involving subsidiaries so that it can request the approval of the Supervisory Board, a hierarchical system of approval requirements organized by func- tional areas, levels of responsibility and countries applies worldwide at NORMA Group. Management Board and Regional Management The Management Board of NORMA Group SE is cur- rently composed of two members: Bernd Kleinhens (Chairman) and Dr. Michael Schneider (CFO). The position of Chief Operating Officer is to be filled fol- lowing the departure of John Stephenson. The alloca- tion of responsibilities and internal order of the Man- agement Board are based on relevant legislation, NORMA Group SE’s Articles of Association and the Management Board by-laws enacted by the Supervi- sory Board as well as the internal guidelines, including the compliance documents and the business alloca- tion plan. T 005 RESPONSIBILITIES OF THE MANAGEMENT BOARD Bernd Kleinhens, Chairman of the Management Board (CEO) Dr. Michael Schneider, Chief Financial Officer (CFO) › Personnel › Group Development › Group Communications › Business Development including Sales, Marketing, Research & Development, Product Develop- ment, Price Development and Product Management › Production › Purchasing › Supply Chain Management › Operational Global Excellence › Quality Assurance › ESG (Environmental, Social, Governance) › Finances & Reporting › Controlling › Insurance › Treasury › › › Legal and M & A › Risk Management › Compliance & Internal Auditing › Corporate Responsibility Investor Relations ICT John Stephenson was the Management Board mem- ber Supply Chain and Operations responsible for Pro- 027 028 The Management Board Letter from the Management Board 030 NORMA Group on the Capital Market 034 Supervisory Board Report 038 Corporate Governance Report 39 NORMA Group SE – ANNUAL REPORT 2017ATO OUR SHAREHOLDERS duction, Purchasing, Supply Chain Management, Operational Global Excellence and Quality Assurance until he stepped down from the Management Board on January 31, 2018. Until the appointment of a new member of the Management Board for Supply Chain and Operations, Chairman Bernd Kleinhens will also assume responsibility for these areas. The CEO is responsible for the topics Environment, Social and Governance (ESG). The CFO takes care of the corporate responsibility activities of NORMA Group. In general, Management Board resolutions are passed by simple majority. The Chairman has the deciding vote if the vote is tied. However, the members of the Management Board are obliged to make an effort to reach unanimous decisions. If a member of the Man- agement Board cannot participate in a vote, his vote will be obtained at a later date. The entire Management Board is responsible with matters of particular impor- tance. In accordance with the Management Board by-laws, these include the following matters: produc- ing the Management Board reports for the purpose of informing the Supervisory Board and the quarterly and half-yearly reports, fundamental organizational mea- sures, including the acquisition or disposal of signifi- cant parts of companies and strategic and business planning issues, measures related to the implementa- tion and supervision of a monitoring system pursuant to section 91 (2) AktG, issuing the Declaration of Con- formity pursuant to section 161 (1) AktG, preparing the consolidated and annual financial statements and sim- ilar reports, convening the Annual General Meeting and inquiries and recommendations by the Management Board that are to be handled and resolved by the Annual General Meeting. In addition, every Manage- ment Board member may request that a specific issue be dealt with by the entire Management Board. The Management Board did not form any committees. Board meetings are usually held once a month. In addition, the Board meets regularly at least once a month along with other executives of the Group. Every Board member is obliged to inform the Supervisory Board immediately, but also the other members of the Management Board, of any conflicts of interest. No such conflicts of interest arose for a Board member in 2017. Supervisory Board: Members, election and independence The Supervisory Board of NORMA Group SE is com- prised of the following six members: The Supervisory Board must approve any transactions between NORMA Group companies on the one hand and a member of the Management Board, related par- ties or businesses on the other hand. No such trans- actions took place in 2017. The Supervisory Board must also approve any sec- ondary activities by a member of the Management Board. It had already agreed in 2015 and 2016 that CFO Dr. Schneider may continue to be a member of the Supervisory Boards of two German companies. It also agreed to Mr. Stephenson (Board member for Supply Chain and Operations), who retired at the end of January 2018, holding shares in a family-owned English company. Mr. Kleinhens does not have any secondary activities that are subject to approval. The rules of procedure of the Supervisory Board pro- vide that the term of office of a member of the Man- agement Board should not be extended beyond his or her 65th birthday. Former CEO Werner Deggim left the Management Board on December 31, 2017. This date was before his 65th birthday. Local Presidents in the three regions EMEA, Americas and APAC are responsible for carrying out business on a daily basis. These three Presidents report directly to the Chairman of the Management Board. The entire Management Board of NORMA Group SE meets at least once a year with the Presidents and their managers at the local headquarters – Singapore for the Asia-Pacific region, Auburn Hills, Michigan, for the Americas, and Maintal for the EMEA region. In addition, individual members of the Management Board meet regularly with the local teams. The managers at NORMA Group work in a matrix structure in which they have both a disciplinary as well as a technical supervisor. › Dr. Stefan Wolf (Chairman of the Supervisory Board) › Lars M. Berg (Vice-Chairman of the Supervisory Board) › Günter Hauptmann › Dr. Knut J. Michelberger › Dr. Christoph Schug › Erika Schulte They are all representatives of the shareholders, in other words elected by the Annual General Meeting. NORMA Group SE is not a codetermined Company; therefore, worker representatives are not represented on its Supervisory Board. In fiscal year 2017, Dr. Konrad Erzberger requested a court ruling by the Frankfurt/Main Regional Court concerning the composition of the Supervisory Board of NORMA Group SE (‘Status Procedure’). Dr. Erzberger was of the opinion that a codetermined Supervisory Board must be formed at NORMA Group SE in accordance with the provisions of the German Codetermination Act, meaning that employee repre- sentatives should also be elected to the Supervisory Board. He said that at the time of the conversion of NORMA Group AG into today’s NORMA Group SE in 2013, the employees of the foreign subsidiaries would have had to be included in the calculation of the thresholds of employee numbers on which code- termination depends. The Regional Court of Frank- furt/Main dismissed Dr. Erzberger’s claim on Decem- ber 21, 2017, as unfounded. It justified its decision with the fact that the Supervisory Board would have had to be composed in compliance with the last applied legal regulations following conversion into an SE. The process is determined by actual handling rather than abstract legal requirements. At NORMA Group AG, there was no codetermined Supervisory 027 028 The Management Board Letter from the Management Board 030 NORMA Group on the Capital Market 034 Supervisory Board Report 038 Corporate Governance Report 40 NORMA Group SE – ANNUAL REPORT 2017ATO OUR SHAREHOLDERS Board prior to conversion into NORMA Group SE. No status procedure was pending in 2013 either, there- fore the court ruling left open the question of includ- ing employees of foreign subsidiaries in calculating the thresholds of employee numbers on which code- termination depends. On February 22, 2018, the Frankfurt Regional Court decided not to remedy the complaint and to bring it to the Higher Regional Court Frankfurt for decision. All members of the Supervisory Board are independent as defined in section 5.4.2 of the German Corporate Governance Code. Furthermore, no Supervisory Board member has ever served as a member of the Manage- ment Board of NORMA Group SE or been a member of management of any of its predecessor companies. Five of the six members of the Supervisory Board of NORMA Group SE and NORMA Group AG , Dr. Wolf, Mr. Berg, Mr. Hauptmann, Dr. Michelberger and Dr. Schug, have been members of the Supervisory Board since 2011. Mrs. Schulte has been a member of the Supervisory Board since 2012. The term of all mem- bers of the Supervisory Board began in 2013 and lasts until the Annual General Meeting that resolves on discharging the Supervisory Board for the fourth fiscal year after commencement of the term (whereby the fiscal year 2013 in which the term began is not counted) at the very longest and no later than six years after officially taking office. This is expected to be until the next Ordinary Annual General Meeting on May 17, 2018, but no later than May 2019. The rules of procedure of the Supervisory Board pro- vide that the term of office of a member of the Super- visory Board should not be extended beyond his or her 70th birthday. Mr. Berg and Dr. Michelberger have already reached this age limit. There are no consultancy, other service or work con- tracts between NORMA Group companies and a member of the Supervisory Board. All members of the Supervisory Board are obligated to report any conflicts of interest. Significant and not merely temporary conflicts of interest for members of the Supervisory Board should lead to the termination of the mandate. No such conflicts of interest arose in 2017. the accounting documents and adopting the Supervi- sory Board’s resolution on the consolidated and sep- arate financial statements. Moreover, it is responsible for compliance and reviews the compliance with stat- utory provisions and the internal guidelines. All members of the Supervisory Board attended all meetings, the closed meeting and participated in all telephone conferences in 2017. Four ordinary meet- ings of the Supervisory Board were held in fiscal year 2017. All members of the Supervisory Board and the Management Board participated in these meetings. In October 2017, the Supervisory Board met for a closed meeting in which Mr. Kleinhens partly participated and that otherwise took place without the Management Board. All members of the Supervisory Board attended this closed meeting. Two telephone conferences were also held without the Management Board, in which all Supervisory Board members also participated. Dr. Michelberger is Chairman of the Audit Committee. The other members are Lars M. Berg and Erika Schulte. Dr. Michelberger is an independent financial expert within the meaning of section 100 (5) AktG. Due in large part to his many years as CFO and Man- aging Director, he has particular knowledge and expe- rience in the application of accounting principles and internal guidelines. The Audit Committee of NORMA Group convened three times in fiscal year 2017 and held four tele- phone conferences. All Audit Committee members as well as CFO Dr. Michael Schneider took part in each. The Chairman of the Supervisory Board represents the Supervisory Board externally. He organizes the work of the Supervisory Board and chairs its meet- ings. The Supervisory Board can pass resolutions by simple majority, whereby the Chairman has the decid- ing vote if a vote is tied. The Supervisory Board formed two committees: the Audit Committee and the General and Nomination Committee. The Audit Committee deals in particular with monitor- ing the accounting process and the effectiveness of the internal control and risk management systems as well as the audit of the annual financial statements, in particular through the independence of the auditor, the additional services rendered by the auditor, engag- ing the auditor, determining areas of audit emphasis and agreeing to the auditor’s fees. The Audit Commit- tee accompanies the collaboration between NORMA Group SE and the auditors and ensures that opportu- nities for improvement identified during the audit are promptly implemented. It is responsible for preparing for The General and Nomination Committee prepares personnel-related decisions the Supervisory Board. This committee has the following specific responsibilities: preparing Supervisory Board resolu- tions regarding the formation, amendment and termi- nation of employment contracts with members of the Management Board in accordance with the remuner- ation system approved by the Supervisory Board, pre- paring Supervisory Board resolutions regarding legal applications to reduce the remuneration of a Manage- ment Board member pursuant to section 87 (2) AktG, preparing Supervisory Board resolutions regarding the structure of the remuneration system for the Manage- ment Board, acting as representatives of the Com- pany to Management Board members who have left the Company pursuant to section 112 AktG, approving secondary employment and external activities for Management Board members pursuant to section 88 AktG, granting loans to the persons specified in sec- tion 89 AktG (loans to members of the Management Board) and section 115 AktG (loans to members of the Supervisory Board), approving contracts with mem- bers of the Supervisory Board pursuant to section 114 027 028 The Management Board Letter from the Management Board 030 NORMA Group on the Capital Market 034 Supervisory Board Report 038 Corporate Governance Report 41 NORMA Group SE – ANNUAL REPORT 2017ATO OUR SHAREHOLDERS AktG and proposing suitable candidates to the Annual General Meeting when there is a vote on Supervisory Board members. The General and Nomination Committee was chaired by Supervisory Board Chairman Dr. Stefan Wolf in 2017 and included Dr. Christoph Schug and Lars M. Berg as its other members. The General and Nomina- tion Committee did not convene in 2017. All person- nel-related matters were prepared by the Chairman of the Supervisory Board and discussed directly with the entire Supervisory Board. Other mandates of the Supervisory Board members Exercised professions and other mandates on Super- visory Boards or comparable Supervisory Bodies of the members of NORMA Group’s Supervisory Board in fiscal year 2017 are shown in TABLE 006. Targets for the Share of Women As early as 2015, the Supervisory Board of NORMA Group SE set targets for the Supervisory Board and Management Board of NORMA Group SE and the Management Board for the management level of NORMA Group SE below the Management Board as well as a time limit for implementing them. These tar- gets were adjusted as follows in 2017. The target for the share of women on the Supervisory Board was increased from one female member to two (out of a total of six members). The Management Board again set a target of zero. The top management of NORMA Group SE was still set at a target of 25%. The aforementioned new targets are expected to be valid until June 30, 2022. T 006 OTHER MANDATES OF THE SUPERVISORY BOARD MEMBERS Supervisory Board member, exercised office Other mandates on Supervisory Boards and comparable committees 027 028 The Management Board Letter from the Management Board 030 NORMA Group on the Capital Market 034 Supervisory Board Report 038 Corporate Governance Report Dr. Stefan Wolf (Chairman of the Supervisory Board), Chairman of the Management Board (CEO) of ElringKlinger AG Lars Berg (Vice-Chairman of the Supervisory Board), Consultant Günter Hauptmann, Consultant Dr. Knut J. Michelberger, Consultant › Member of the Supervisory Board of Allgaier Werke GmbH, Uhingen, Germany Chairman of the Supervisory Board of Greater Than AB, Stockholm, Sweden › › Chairman of the Supervisory Board of Net Insight AB, Sweden › Chairman of the Supervisory Board of BioElectric Solutions AB, Stockhom, Sweden (until May 12, 2017) › › Chairman of the Advisory Board of Atesteo GmbH (formerly GIF GmbH), Alsdorf, Germany (until February 14, 2018) Member of the Advisory Board of Moon TopCo GmbH (Schlemmer Group), Poing, Germany › Member of the Advisory Board of Rena Technologies GmbH, Gütenbach, Germany › Member of the Supervisory Board (raad van commissarissen) of Weener Plastics Group, Ede, Netherlands Managing Director of Formel D GmbH, Troisdorf, Germany, as well as associated companies; His membership in the Advisory Board of parent company Racing TopCo GmbH (Deputy Chairman) is suspended for the duration of his Managing Director mandate Member of the Advisory Board of Kaffee Partner Holding GmbH, Osnabrück, Germany Chairman of the Board of Baltic Coffee Holding, Riga, Latvia (until October 31, 2017) › › › Dr. Christoph Schug, Entrepreneur › Member of the Advisory Board of Bomedus GmbH, Bonn, Germany › Member of the Advisory Board of MoebelFirst GmbH, Cologne, Germany Erika Schulte, Managing Director of Hanau Wirtschaftsförderung GmbH › No seats on other boards or comparable committees 42 The Supervisory Board currently has one female member. The target value newly set in 2017 could not yet be achieved because no new election of a member of the Supervisory Board took place from 2013 to 2018. The Management Board is currently exclusively com- prised of men. It currently has only two members. In the future, after replacing the Supply Chain and Oper- ations position, the Management Board should have only three members. In accordance with the rules of procedure of the Supervisory Board, the Supervisory Board should consider diversity in the composition of the Management Board. The Supervisory Board does not consider it in the interest of the Company to set higher targets for the share of women on the Manage- ment Board. Therefore, the target for the share of women on the Management Board is still zero. This target was achieved without any changes in 2017. At NORMA Group SE, the first management level comprises everyone who reports directly to the Management Board, who in turn assumes manage- ment functions and bears responsibility for person- nel. In view of the share of women in first-tier lead- ership of 50% in decision-making in 2017 (as in 2015), the Management Board has again set the target for the share of women in the first manage- ment level under the Management Board to be ful- filled by June 30, 2022, to at least 25%, meaning at least one woman. Neither a reduction in the share of women is intended nor ruled out by the share of women increasing to over 50%. The Management Board has proven with the current appointment of management positions that it has succeeded in attracting qualified women to leadership positions at NORMA Group SE and will continue to succeed in the future. NORMA Group SE does not have a sec- ond management level for which the Management Board would also have to set targets. Among the four people who form the first management level below the Management Board, there are two women. The target of 25% has thus been exceeded. NORMA Group SE – ANNUAL REPORT 2017ATO OUR SHAREHOLDERS At NORMA Group, targets for the management, Supervisory Board and the top two levels of manage- ment were also set for another company, NORMA Germany GmbH. This company is not listed, but codetermined. Competence Profile, No Separate Diversity Concept The objectives for the composition of the Supervisory Board include that all members be independent, no member works for a competitor of NORMA Group, no member who is on the Management Board of a listed company has more than two Supervisory Board man- dates in listed companies, no member of the Supervi- sory Board has significant conflicts of interest and each member complies with the 15-year limit. These goals have all been met. Four of the members of the Supervisory Board are younger than 70 while two have exceeded this age limit. Besides five male mem- bers, the Supervisory Board has one female member, Mrs. Schulte. The Supervisory Board also intends to pay attention to international activities and diversity in proposals for the election of new members. The Supervisory Board has one Swedish member while the other members are German citizens. The current members satisfy the competence profile for the Supervisory Board as a whole. For example, some members have special knowledge of the industry and NORMA Group’s markets, in particular the automotive industry, and NORMA Group’s business model. They also have ample time to carry out their tasks. Several members have experience as executives or members of Supervisory Boards as well as international experi- ence. At least one member has expertise in account- ing, auditing and controlling. Other areas in which members of the Supervisory Board have special knowledge include risk management, internal control systems and compliance, capital market experience and knowledge of IT systems, including ERP systems. No separate diversity concept within the meaning of section 289f (2) No. 6 HGB has been prepared for the Supervisory and Management Boards of NORMA Group SE. The rules of procedure of the Supervisory Board already stipulate that certain aspects, which the law cites as an example of a concept of diversity, should be taken into consideration in the case of nom- inations for the elections to the Supervisory Board and the appointment of Management Board members. Diversity should be taken into account in the compo- sition of the Management Board as well as in election proposals for the election of Supervisory Board mem- bers. Further requirements for the Supervisory Board already arise from the goals and rules of the proce- dure described above. The Management Board also has an age limit of 65, which is met by its two mem- bers. The Supervisory Board focuses on the selection of candidates primarily according to their qualifica- tions. In view of the small number of positions to be filled, six on the Supervisory Board and three on the Management Board, a diversity concept that goes beyond the current requirements hardly seems to offer any advantages. Compliance NORMA Group’s compliance organization seeks to prevent violations of laws and other rules, in particular through preventive measures. Nevertheless, if there is evidence of violations, these matters will be investi- gated promptly and thoroughly and the necessary consequences will be taken. Findings will be used to take steps to reduce the risk of future violations. Group-wide compliance activities are managed by the Chief Compliance Officer of NORMA Group, who reported directly to the CEO until the end of 2017 and to the Chief Financial Officer since the beginning of 2018. Besides the existing Compliance department at Group level, there are Compliance Officers at the level of the regions and the individual companies. For instance, the three regional Compliance Officers of the EMEA, Americas and Asia-Pacific regions report to the Chief Compliance Officer. Furthermore, each operational Group company has its own local Compli- ance Officer who reports to the respective Regional Compliance Officer. The Supervisory Board monitors compliance with the compliance rules vis-à-vis the Management Board. The compliance organization performs risk analysis together with the relevant units, functions and spe- cialist departments in order to determine and monitor the risk profile of countries, subsidiaries and func- tions. On the basis of this, it identifies the respective need to take action and initiates corresponding mea- sures. Special training courses are held regularly on specific risk areas and important current topics or developments. In 2017, for example, as part of a ‘train-the-trainer’ approach, global classroom training on ‘anti-corruption’ was developed for employees with special risk exposure. Besides these training courses on specific focus topics, all employees world- wide (on-site in personal training or online training) are trained on the basic compliance rules and impor- tant contents of the compliance guidelines. Further- more, employees receive important, up-to-date com- pliance information on a regular basis on the intranet page, brochures, emails and posters. The compliance guidelines of NORMA Group are an important means of communicating to employees the compliance understanding of NORMA Group and of demonstrating their ethical and legal obligations. All compliance documents are reviewed regularly and, if necessary, adapted to new legal or social require- ments and thus always kept up to date. Suppliers have their own ‘Supplier Code of Conduct.’ It is intended to help ensure that laws and ethical rules are observed within the NORMA Group supply chain. A compliance manual also defines in detail the specific areas of responsibility and regulatory areas, describes basic compliance processes, and provides a summary of key compliance issues related to the corresponding compliance guidelines. The compliance manual, as well as the compliance guidelines, are reviewed regu- larly for changes and updated, if necessary. NORMA Group encourages its employees to report breaches of regulations and internal policies for all 027 028 The Management Board Letter from the Management Board 030 NORMA Group on the Capital Market 034 Supervisory Board Report 038 Corporate Governance Report 43 NORMA Group SE – ANNUAL REPORT 2017ATO OUR SHAREHOLDERS hierarchies. Besides directly approaching superiors, the personnel department or Compliance Officers, an Internet-based ‘whistleblower system’ is available for this purpose. With this whistleblower system, compa- ny-internal and external parties can report suspicious cases to the compliance organization of NORMA Group and, if necessary, preserve their anonymity. The members of the compliance organization always follow up on references to compliance violations. If violations of compliance rules are discovered or weak- nesses in the organization are identified, management takes the necessary action promptly in cooperation with the compliance organization. Depending on the actual case, these measures range from targeted additional training and changes in organizational pro- cesses to disciplinary means, including termination of employment. Shareholders and Annual General Meeting The shareholders of a Societas Europaea decide on the Company’s important and fundamental matters. The shareholders exercise their voting rights at the Annual General Meeting, which takes place at least once every year. The Annual General Meeting resolves among other topics on how earnings are to be distrib- uted, the formal approval of the Management Board and the Supervisory Board, the election of the auditor, but also on amendments to the Articles of Association. Shareholders are entitled to vote if they are registered in the shareholders’ register of NORMA Group SE and provide NORMA Group SE or another location speci- fied in the invitation with written notice, in German or English, at least six days before the Annual General Meeting that they will be attending. Each share enti- tles the bearer to one vote. NORMA Group SE publishes the invitation and all doc- uments that are to be made available at the Annual General Meeting promptly on its website. Information regarding the number of attendees and the voting results are published there following the Annual Gen- HTTPS://INVESTORS.NORMAGROUP.COM/HV eral Meeting. SHAREHOLDINGS OF THE MANAGEMENT AND SUPERVISORY BOARD On December 31, 2017, the Management Board and Supervisory Board jointly held 729,986 (2.3%) of the total of 31,862,400 shares of NORMA Group SE. This figure includes the shares held by former CEO Werner Deggim, who retired on December 31, 2017, and Board member John Stephenson, who left the Com- pany on January 31, 2018. Members of the Supervi- sory Board held 87,083 (0.3%), and members of the Management Board, including Mr. Deggim and Mr. Stephenson, 642,903 (2.0%). At the time of publication of this report, the Manage- ment Board (the two remaining Management Board members Bernd Kleinhens and Dr. Michael Schneider) and the Supervisory Board jointly held 285,853 shares in NORMA Group SE (0.9%). 198,770 (0.6%) of these were attributable to the members of the Man- agement Board and an unchanged 87,083 (0.3%) to the Supervisory Board. No member of the Supervisory Board or the Manage- ment Board held more than 1% of the shares in NORMA Group SE in fiscal year 2017 or at the time of publication of this report. DIRECTORS’ DEALINGS Members of the Management Board and the Supervi- sory Board and related parties are obliged to disclose Directors’ Dealings in NORMA Group SE shares if the value of these transactions reaches or exceeds EUR 5,000 within a calendar year. In 2017, the following transactions were reported as Directors’ Dealings: T 007 DIRECTORS’ DEALINGS Buyer / Seller Type of financial instrument Dr. Michael Schneider, Chief Financial Officer NORMA Group SE Share ISIN: DE000A1H8BV3 Type of transaction Date of transaction Purchase April 3, 2017 Place of transaction Quotrix, Düsseldorf Average price per share EUR 45.00 Total value EUR 50,760.00 027 028 The Management Board Letter from the Management Board 030 NORMA Group on the Capital Market 034 Supervisory Board Report 038 Corporate Governance Report 44 NORMA Group SE – ANNUAL REPORT 2017ATO OUR SHAREHOLDERS STOCK OPTION PLANS AND EQUITY-BASED INCENTIVE PROGRAMS INFORMATION ON THE AUDITOR AND INTERNAL ROTATION The principles of management remuneration are described in the remuneration report which is part of the management report. REMUNERATION REPORT, P. 97 A Long-Term Incentive Program (LTI) was introduced in fiscal year 2013 for the second management level that allows employees to participate in NORMA Group’s success over the medium term. PricewaterhouseCoopers GmbH Wirtschaftsprüfungs- gesellschaft (PwC), Frankfurt/Main, audited the finan- cial statements of NORMA Group SE and its pre- decessor companies as well as the Consolidated Financial Statements for the fiscal years 2010 to 2016. Furthermore, PwC retroactively audited the years 2009 and 2010 for the prospectus as part of the IPO in 2011. After an internal rotation at PwC, Mr. Thomas Tilgner exercised the position of the left undersigned auditor and Mr. Richard Gudd the right undersigned auditor for fiscal year 2016 for the first time. 027 028 The Management Board Letter from the Management Board 030 NORMA Group on the Capital Market 034 Supervisory Board Report 038 Corporate Governance Report 45 NORMA Group SE – ANNUAL REPORT 2017ATO OUR SHAREHOLDERS MANAGEMENT REPORT 2017B CONSOLIDATED 047 Principles of the Group COVER TO OUR SHAREHOLDERS 003 The Value Chain of NORMA Group 027 The Management Board 004 Two Strong Distribution Channels 028 Letter from the 058 Economic Report 005 Financial Figures 2017 006 Research and Development 010 Purchasing 014 Production 018 Logistics 022 Sales Management Board 030 NORMA Group on the Capital Market 034 Supervisory Board Report 038 Corporate Governance Report 080 Forecast Report 085 Risk and Opportunity Report 097 Remuneration Report 103 Other Legally Required Disclosures 106 Report on Transactions with Related Parties 46 FURTHER INFORMATION 200 Glossary 204 List of Graphics 205 List of Tables 207 Overview by Quarter 2017 208 Multi-Year Overview 210 Financial Calendar 2018, Contact and Imprint CONSOLIDATED FINANCIAL STATEMENTS 108 Consolidated Statement of Comprehensive Income 109 Consolidated Statement of Financial Position 110 Consolidated Statement of Cash Flows 111 Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 Appendix to the Notes to the Consolidated Financial Statements 193 Responsibility Statement 194 Independent Auditor’s Report NORMA Group SE – ANNUAL REPORT 2017 CONSOLIDATED MANAGEMENT REPORT 2017 Principles of the Group BUSINESS MODEL technology NORMA Group is an international market and technol- ogy leader in the area of advanced and standardized connecting (joining, mounting and fluid-handling technology). With its 27 production sites and numerous sales offices, the Group has a global network with which it supplies more than 10,000 customers in more than 100 countries. NORMA Group’s product portfolio includes more than 40,000 high-quality joining products and solutions in the three product categories clamps (CLAMP), joining elements (CONNECT) and fluid systems/connectors (FLUID). The products NORMA Group offers are used across industries in a wide range of applications, whereby the product specifications differ depending on the application and customer requirements. High customer satisfaction forms the foundation of NORMA Group’s continued success. The main factors here are the customized system solutions, the global availability of products in consistently high quality and delivery reliability. By opening new plants and competence centers and making strategic acquisitions, NORMA Group has succeeded in expanding its international presence quite significantly in recent years while optimizing its distribution channels and intensifying its cooperation with local customers. ORGANIZATIONAL STRUCTURE Corporate legal structure NORMA Group SE is the parent company of NORMA Group. It has its headquarters in Maintal near Frank- furt/Main, Germany. NORMA Group SE serves as the formal legal holding of the Group. It is responsible for the strategic management of business activities. In addition, it is also responsible for communicating with the Company’s most important target audiences as well as for Legal and M&A, Compliance, Risk Manage- ment and the Internal Revision. Group-wide central management responsibilities such as IT, Treasury, Group Accounting and Group Con- trolling, are all based at the 100% subsidiary NORMA Group Holding GmbH. Three regional management teams located in Auburn Hills (USA), Maintal (Ger- many) and Singapore steer the specific holding activ- ities for the three regions Americas (North, Central and South America), EMEA (Europa, Middle East and Africa) and Asia-Pacific (APAC). In the second quarter of 2017, NORMA Group acquired 80% of the shares of the newly founded company Fengfan Fastener (Shaoxing) Co., Ltd. (‘Fengfan‘) based in Shaoxing City, China via its holding company in Asia-Pacific (NORMA Group Asia Pacific Holding Pte.). The remaining 20% of the shares are held by Handan City Feixiang District Yuelang Enterprise Management Consulting Centre (Limited Partnership). Before this transaction was completed, Fengfan Fastener (Shaoxing) Co., Ltd. acquired the primary assets of Zhejiang Fengfan Electrical Fittings Co., Ltd. through an asset deal. Fengfan manufac- tures joining products made of stainless steel, nylon and special material. Its portfolio includes cable ties, fasteners and specially coated fireproof textiles. Feng- fan was included into the scope of consolidation from May 18, 2017, on. As of December 31, 2017, NORMA Group SE holds shares in 47 companies that belong to NORMA Group either directly or indirectly and are fully consolidated. NOTES, P. 132 Acquisitions and changes of legal structure In January 2017, NORMA Group acquired the clamp manufacturer Lifial – Indústria Metalúrgica de Águeda, Lda. (‘Lifial’). NORMA Group Holding GmbH holds a majority share, while NORMA Verwaltungs GmbH holds a minority. Lifial, based in Águeda, Portugal, produces metal clamps for use in industry and agri- culture. The company employs around 100 people and markets its trademarked products to customers in Europe and North Africa. Lifial was included in the scope of consolidation effective January 1, 2017. These corporate changes will have no impact on the operational business. Group management NORMA Group SE has a dual management system that consists of a Management Board and a Supervi- sory Board. The Management Board manages the Company under its own responsibility, while the Supervisory Board advises and monitors the Manage- ment Board. In 2018, the following changes have taken place in the composition of the Management Board: Former Chairman Werner Deggim left the Management Board at his own request as of December 31, 2017. Chief Operating Officer John Stephenson also resigned from the Management Board at the end of January 2018 on his own request. Bernd Kleinhens, who pre- viously held the position of Board member responsible for Business Development, took over as Chairman of the Management Board effective January 1, 2018. 47 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties The terms of office of Mr. Kleinhens and Dr. Michael Schneider, who will continue as Chief Financial Officer, were extended by five years each. As Mr. Kleinhens’ previous position will not be filled, the number of members of the Management Board has been reduced to three. The position of John Stephenson is to be filled soon. CORPORATE GOVERNANCE REPORT, P. 38 The Supervisory Board consists of six members who have been elected by the shareholders at the Annual General Meeting. Detailed information on the compo- sition of the Management Board and the Supervisory Board, as well as the distribution of responsibilities among themselves, can be found in the Corporate Governance Report, which forms part of the Annual Report. The Statement of Corporate Governance pur- suant to section 289f HGB, including the Declaration of Conformity pursuant to section 161 AktG, a descrip- tion of the procedures of the Management Board and the Supervisory Board, relevant information on corpo- rate governance practices and a declaration regarding the concept of diversity to be disclosed under the CSR Directive Implementation Act are also part of the Corporate Governance Report. CORPORATE GOVER- NANCE REPORT, P. 38 The curriculum vitae of the Supervi- sory and Management Board members are published HTTPS://INVESTORS. on NORMA Group’s website. NORMAGROUP.COM G 012 NORMA GROUP (SIMPLIFIED STRUCTURE)¹ NORMA Group SE NORMA Group Holding (Germany) NORMA Pennsylvania (USA) NORMA Group APAC Holding (Singapore) NORMA Germany NORMA Serbia Craig Assembly (USA) NORMA Michigan (USA) NORMA EJT (Wuxi) NORMA Thailand NORMA Distribution Germany NORMA Polska R. G. Ray (USA) NORMA Group Mexico NORMA Australia NORMA EJT (China) NORMA Group DS Polska Groen BV (The Netherlands) National Diversified Sales (USA) NORMA DS Mexico Fengfan (China) Guyco (Australia) NORMA Czech NORMA Italy NORMA Brazil NORMA Korea NORMA Products Malaysia NORMA Turkey NORMA France NORMA Japan NORMA India NORMA Distribution France NORMA Spain NORMA Sweden NORMA UK Connectors Verbindungstechnik AG (Switzerland) NORMA Russia NORMA China 2 NORMA Autoline France Lifial (Portugal) NORMA Netherlands 48 1_ The graph gives an overview of the operating companies of NORMA Group. The company names correspond to the internally used company names. A complete list of the Group companies and NORMA Group’s shareholdings as of December 31, 2017, can be found in the NOTES ON PAGE 132. 2_ NORMA China is organizationally assigned to the Asia-Pacific segment. In terms of company law, it belongs to NORMA Group Holding GmbH. NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties Operative segmentation by regions NORMA Group’s strategy is based, among other con- siderations, on regional growth targets. In order to achieve these, the operative business is managed by the three regional segments EMEA, the Americas and Asia-Pacific. All three regions have networked regional and cross-company organizations with different func- tions. The internal Group reporting and control system that Management uses is also therefore quite regional in nature. The distribution service is based on regional and local priorities. PRODUCTS AND END MARKETS Product portfolio The products that NORMA Group offers can for the most part be divided into the three product categories clamps (CLAMP), joining elements (CONNECT) and fluid systems/connectors (FLUID). The clamp products (CLAMP) are manufactured from unalloyed steels or stainless steel and are generally used to join or seal elastomer hoses. The connection products (CONNECT) include connec- tors made of unalloyed steels or stainless steel that are partly equipped with elastomer or metal seals and are used as the joining and sealing elements of metal and thermoplastic pipes. FLUID products are single or multiple layer thermo- plastic plug-in connectors and liquid systems that reduce installation times, ensure reliable flow of liquids or gases and occasionally replace conventional prod- ucts such as elastomer hoses. In addition, the FLUID division’s product range includes solutions for applica- tions in the sectors of storm water management and landscape irrigation, but also joining components for infrastructure solutions in the area of water. G 013 ORGANIZATIONAL STRUCTURE OF NORMA GROUP NORMA Group’s advanced engineered joining tech- nology is used in all applications in which pipelines, tubes and other systems need to be connected together. Because joining technology plays a role in nearly all industries, NORMA Group serves many different end markets. Besides the automotive, commercial vehicle, and aviation industry, NORMA Group is also active in the construction and mechanical engineering industry, the pharmaceutical and biotechnology fields, agricul- ture and the drinking water supply and irrigation indus- try. NORMA Group products are also used in consumer products such as home appliances. NORMA Group SE PARENT COMPANY UNDER COMPANY LAW EMEA Americas Asia-Pacific SEGMENTS Engineered Joining Technology (EJT) Distribution Services (DS) DISTRIBUTION CHANNELS 49 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties Two complementary distribution channels NORMA Group supplies its customers via two different sales channels, › Engineered Joining Technology – EJT and › Distribution Services – DS. The two distribution channels differ in terms of the degree of specification of the products, while having intersections in production and development that enable cost benefits and ensure highest quality stan- dards. The area of EJT includes sophisticated, individually customized joining technology and is particularly characterized by close development partnerships with OEMs (original equipment manufacturers). NORMA Group’s central development departments and resi- dent engineers work together with the customer on developing solutions for specific industrial challenges. Due to the constant proximity to customers in the area of EJT, NORMA Group’s engineers gain comprehen- sive knowledge and a deep understanding of the var- ious challenges their end markets and customers face. Such development partnerships result in high-technology products that are designed not only to meet the needs of customers with respect to effi- ciency and performance, but that also take aspects such as weight reduction and quick installation into consideration. As a result, they generate substantial added value for the customers and contribute to their economic success. Via its Distribution Services (DS), NORMA Group markets a broad range of high-quality, standardized brand products. In addition to its own global distribu- tion network, the Company also relies on multipliers such as sales representatives, retailers and importers. Its customers include, among others, distributors, specialized wholesalers, OEM customers in the after- market segment, do-it-yourself stores and applica- tions in smaller industries. The brands ABA®, Breeze®, Clamp-All®, CONNECTORS®, FISH®, Five Star®, Gemi®, NDS®, NORMA®, R.G.RAY®, Serflex® and TORCA® exemplify technological know-how, high quality and reliability and meet the technical stan- dards of the countries in which they are sold. NORMA Group combines its expertise in developing tailor-made solutions for industrial customers (EJT) with its global sales of high-quality standardized brand products (DS) to realize not only cross-selling effects, but also numerous synergies in production, logistics and sales. The Company also benefits from significant economies of scale and scope thanks to the diversity and high volumes of its product offerings, a clear distinction from its smaller, generally more specialized competitors. G 014 SALES BY DISTRIBUTION CHANNELS 2017 1 EJT: 63% (60%) DS: 37% (40%) 1_Previous year‘s values in brackets MARKET AND COMPETITIVE ENVIRONMENT With its products, NORMA Group provides solutions for numerous industrial applications. Its expertise covers metal-based connection solutions and products (CLAMP and CONNECT) as well as thermoplastic mate- rials (FLUID). Thanks to the unique combination of expertise in both metal and plastics processing and the broad diversification of its product portfolio, NORMA Group can offer its customers a wide range of solutions to different problems from a single source and thus dis- tinguishes itself from its competitors who mainly spe- cialize in individual product segments. In the area of Engineered Joining Technology, especially in the area of CLAMP and CONNECT, NORMA Group operates in a highly fragmented market, which is char- acterized by a very heterogeneous structure due to the abundance of specialized industrial companies. In this environment, NORMA Group sees itself as a provider of tailor-made, value-creating solutions that are geared to the specific needs of the customer and are developed in long-term partnerships. With its international busi- ness alignment and its cross-industry customer base, NORMA Group distinguishes itself from its mostly regional competitors. In the area of FLUID, NORMA Group finds itself facing mainly competitors that are globally active and mainly offer elastomer products. NORMA Group, however, has focused more on innovative plastic-based solutions that generate significantly higher value for its customers due to their lower weight and price, as well as the envi- ronmental compatibility of the materials used. In the much more standardized sales channel Distribu- tion Services, NORMA Group operates in mass markets and competes primarily with providers of similar standardized products. It differentiates itself from them particularly through its strong brands that are the result of a deliberate brand policy that focuses on the regional needs of its customers. In addition, customers appreci- ate the high quality of service. NORMA Group offers its trade customers a complete range of products that meets all of their end users’ needs. These products are available on short notice, therefore the dealer is always in a position to meet his delivery obligations even with uncommon applications or if demand fluctuates. GOALS AND STRATEGY NORMA Group’s strategic goal is the sustainable increase of the Company’s value. In each regional seg- 50 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties T 008 OVERVIEW OF END MARKETS AND BRANDS BY SEGMENT Segment Product categories Distribution channels End markets Brands EMEA Americas Asia-Pacific CLAMP CONNECT FLUID CLAMP CONNECT FLUID CLAMP CONNECT FLUID EJT DS EJT DS EJT DS ABA®, CONNECTORS®, Gemi®, NORMA®, Serflex® ABA®, Breeze®, Clamp-All®, CONNECTORS®, Five Star®, Gemi®, NDS®, NORMA®, R.G. RAY®, TORCA® ABA®, Breeze®, CONNECTORS®, FISH®, Gemi®, NORMA® Industrial suppliers Passenger vehicle OEMs Distributors Commercial vehicle OEMs Pharma / Biotechnology Water management Industrial suppliers Passenger vehicle OEMs Distributors Commercial vehicle OEMs Pharma / Biotechnology Water management Industrial suppliers Passenger vehicle OEMs Distributors Commercial vehicle OEMs Pharma / Biotechnology Water management ment and both distribution channels (EJT and DS) the focus lies on the continuous extension of business activities and the increase in market shares. In addition, NORMA Group also seeks to make targeted acquisi- tions that will contribute to the diversification of the business and strengthen growth. By focusing on inno- vations, sustainability and high service quality, NORMA Group creates added value for its customers and thus ensures its competitiveness and future viability. Robust business model through broad diversification Broad diversification with respect to the products, regions and end markets that the Company operates in represents the core of NORMA Group’s growth strategy. The Company is able to expand and strengthen its business activities and international presence by constantly adding application solutions for existing EJT customers, identifying and signing up new EJT customers, extending and deepening its customer base in the area of Distribution Services and entering new markets with attractive growth potential. NORMA Group sees immense growth potential espe- cially in the emerging markets where demand for advanced engineered joining technology is on the rise in all industries due to the ongoing industrialization and increasing quality requirements. To benefit from this growth trend, NORMA Group has positioned itself in the major Asian growth markets of India and China as well as in the emerging economies of South and Central America in recent years. In order to meet the increasing long-term demand in these regions, the sites in Asia and South America will be expanded even further in the mid-term. In identifying new end markets, NORMA Group places a strategic focus on niche markets with attractive margins, sophisticated products, fast-growing sales opportunities and a fragmented competition environ- ment. By engaging in strategic knowledge transfer to new, fast-growing industries, the Company seeks to achieve broad diversification with respect to the end markets. This also strengthens the sustainable earn- ings profile, independence from economic trends and contributes to the stability of the business. The large number of relevant growth trends in the end markets that NORMA Group serves offer the Company attrac- PRODUCTS AND END MARKETS, P. 49 tive growth potential. Furthermore, NORMA Group focuses on expanding in new application areas of existing customers in which no NORMA Group components are being used yet. The goal here is to achieve high market penetration within the various individual technical applications. Focus on high-quality joining technology and sustainable product solutions The technological requirements that end products for NORMA Group’s customers must meet constantly change. Increasing environmental consciousness, rising fuel costs and growing cost pressure also play key roles for virtually every industry. Other factors include binding targets by lawmakers that place spe- cial requirements on the materials used, particularly in the automotive and commercial vehicle industry, due to more stringent emission regulations or special requirements. INFLUENCING ASPECTS, P. 60 LEGAL AND REGULATORY This marks the starting point for the development of new products. NORMA Group therefore focuses on val- ue-added solutions that assist its customers in reduc- ing emissions, leakages, weight, space and assembly time. Innovations play an important role in meeting cus- tomer requirements, which increase with each new production cycle. Therefore, NORMA Group employs more than 300 engineers who constantly work on developing new solutions and optimizing existing sys- tems. NORMA Group plans around 5% of its EJT sales for investments in research and development activities to sustainably strengthen its power of innovation. RESEARCH AND DEVELOPMENT, P. 55 Highest quality standards and strong brands Although the joining products that NORMA Group sells make up a relatively small value proportion of the final product, they are often mission-critical. Sticking to the highest quality standards and a 51 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties stringent quality management therefore play a cru- QUALITY MANAGEMENT, P. 73 cial role for NORMA Group. The area Distribution Services which offers and sells more standardized brand products is based on a spe- cific, regionally-driven brand strategy that is based on the respective performance parameters of the well- known brands. MARKETING, P. 78 In this business unit, the focus is on ensuring high-quality service and the availability of products at all times. NORMA Group ensures this through its worldwide distribution network. Selective value-adding acquisitions to supplement organic growth By making select acquisitions, NORMA Group contributes to the diversification of its business and strengthens its growth. Acquisitions are therefore an integral part of the Company’s long-term growth strategy. NORMA Group observes the joining technol- ogy market very closely and contributes to its consol- idation through targeted acquisitions. NORMA Group has acquired twelve companies since the IPO in 2011 and integrated them into the Group. The main focus of M&A activities is always on compa- nies that help to realize the diversification objectives of NORMA Group, to strengthen its competitive posi- tion and/or to generate synergies. The preservation of growth and high profitability also play an important role. For example, NORMA Group expanded its activi- ties in the lucrative water business quite significantly by acquiring National Diversified Sales in 2014 and is thus driving its growth and increasing the diversifica- tion of its business. Through the acquisition of the Autoline business in November 2016, NORMA Group has strengthened its market position in the area of quick connectors for the automotive industry and thus contributed to market consolidation. The latest acqui- sitions, Lifial and Fengfan, strengthen DS growth, complement the product portfolio and allow access to new customer groups. Ongoing efficiency improvements In order to increase NORMA Group’s profitability, the focus is on continuously improving processes in all functional areas and regions. The Global Excellence Program serves as an important tool for achieving this. As part of this program, all internal operative pro- cesses are continuously optimized. Projects on increasing efficiency are systematically recorded and monitored using a web-based program. This makes it possible to quantify the monetary savings that result from a specific measure fairly accurately at the end of the 12-month project cycles. Senior management reviews the current status of all projects once a month and a steering committee does so once a quarter. The aim of the program is to be able to absorb and mini- mize both the unexpected negative cost develop- ments and inflationary cost increases. Sustainable and responsible action in all areas of the Company NORMA Group considers reconciling the effects of its business activities with the needs of society as part of its corporate responsibility. The management there- fore takes the principles of responsible management and sustainable conduct into consideration in making company decisions. Corporate Responsibility (CR), NORMA Group’s responsibility to society and the envi- ronment, is therefore an integral component of the corporate strategy. The CR steering committee is responsible for setting and formulating long-term goals for CR and coordinates the respective cross- divisional activities and the dialogue with the stake- holder representatives. NORMA Group pursues a comprehensive CR strategy and focuses its CR goals and measures on the following five areas of activity: › Responsible Management › Business Solutions › Employees › Environment › Community NORMA Group has published a biennial comprehen- sive Sustainability Report since 2013 detailing long- term goals and strategic measures for the fields of action mentioned above. From 2017 on, the Sustain- ability Report will be published annually based on the standards set by the Global Reporting Initiative (GRI). The Sustainability Report for fiscal year 2017 also includes the non-financial declaration that the CSR Directive now requires. The Sustainability Report will be published concurrently with the annual report from now on. CONTROL SYSTEM AND CONTROL PARAMETERS The consistent focus on the Group objectives men- tioned is also reflected in the internal control system at NORMA Group, which relies on both financial and non-financial control parameters. Important financial control parameters The most important financial control parameters for NORMA Group include the following value-oriented indicators that are directly related to value creation at NORMA Group: sales growth, profitability (adjusted EBITA margin) and net operating cash flow. As a growth-oriented Company, NORMA Group attaches particular importance to profitable growth in sales. The Group seeks to achieve short- and medium-term growth above the market average. Due to the heterogeneous market structure in the area of joining technology, the Management Board is guided by internal analyses as well as studies by leading eco- nomic research institutes on the development of the gross domestic product of the respective regions and on the production and sales figures of the relevant customer industries in developing the forecast on the expected development of sales. In addition, the management observes certain early indicators, such as customer order patterns in the retail business (Dis- tribution Services) and the order book in the area of Engineered Joining Technology (EJT). 52 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties The adjusted EBITA (EBITA before special influences) is the most important internal and external valuation figure for ongoing operations. In order to be able to make a long-term comparison and for a better under- standing of how the business is developing, NORMA Group adjusts the operating result by certain expenses, such as those that are related to acquisi- tions. ADJUSTMENTS P. 139 The adjusted EBITA margin (EBITA as a percentage of sales) as another key indicator for NORMA Group pro- vides information on the profitability of its business activities. In order to maintain the adjusted EBITA mar- gin and thus the Group’s profitability at its usual high level, NORMA Group continuously works on optimizing its purchasing and production processes with the aim of limiting the increase in expenses in relation to sales to a large extent. To determine the EBITA target mar- gin, both past performance and the planning of indi- vidual business units are taken into consideration. The target margin for the Group is determined as the weighted average of the divisions. The price develop- ment of the raw materials of greatest importance to NORMA Group serves as an early indicator of changes in major cost items, such as material costs. For this reason, the respective markets and raw material prices are constantly monitored and the prices of key materials are contractually fixed when necessary. In order to maintain the Group’s financial indepen- dence and solvency at all times, NORMA Group is guided by net operating cash flow in addition to the aforementioned key figures. The net operating cash flow includes the most important cash-effective items that can be influenced by the individual business units and provides information on whether NORMA Group can finance its operating business out of its cash flow. It is calculated on the basis of the adjusted EBITDA plus changes in working capital minus capital expen- ditures. The key approaches to improving net operat- ing cash flow are therefore to increase sales, engage in sustained value-enhancing investment activity and to improve the operating result adjusted for special effects (EBITDA). In addition, consistent management of working capital also has a positive effect on net operating cash flow. All financial control variables are planned and moni- tored on an ongoing basis at Group, regional and Group company levels. Deviations between forecasted and actually achieved targets are measured on a monthly basis in all local companies and aggregated at the level of regional segments within the monthly reporting for the Management Board. Detailed busi- ness plans are regularly projected on the basis of cur- rent monthly and quarterly results and may include various scenarios. Important non-financial control parameters The most important non-financial control parameters for NORMA Group include the extent of market pene- tration, the Group’s power of innovation, prob- lem-solving behavior and the sustainable overall development of NORMA Group as a whole. G 015 STRATEGIC GOALS OF NORMA GROUP NORMA Group strategic goals Increase company value Increase market share High level of customer satisfaction Diversification Innovation Quality Efficiency Acquisitions Sustainable action Strategic focus 53 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties NORMA Group always pursues the objective to sus- tainably expand its business and achieve sales growth and profitability that are higher than average by indus- try comparison. Particularly by offering innovative solutions, NORMA Group is able to create value cre- ation potential in various areas of application and numerous industries. The Group’s organic growth is thus a sign of NORMA Group’s market penetration. underlying the forecast are presented in the Forecast Report. FORECAST REPORT, P. 80 Goals regarding finance and liquidity management NORMA Group’s objectives with respect to central finance and liquidity management have not changed since the previous year and are as follows: The Group considers ensuring an environment of sus- tainable innovation a key driver of future growth. NORMA Group therefore measures and controls the number of annual invention applications. NORMA Group employees submit invention applications as part of an internal formalized process upstream of the external process of new patent applications. NORMA Group promotes its employees’ innovation by estab- lishing targeted internal incentive systems. I. Ensuring solvency at all times The main financial objectives are maintaining the necessary liquidity for the Group’s operating busi- ness at all times, maintaining sufficient strategic liquidity reserves and thus ensuring NORMA Group’s long-term solvency. This also includes maintaining sufficient liquid funds for short- to medium-term acquisitions. Group Treasury, forms the main strategic cornerstone of NORMA Group’s finance management. Financing flexibility is ensured by maintaining the appropriate credit lines. These are negotiated loan commitments, which can be utilized within a very short period of time and thus can compensate for liquidity peaks. NORMA Group has a so-called ‘Sunshine Line’ and a revolving credit line within its syndicated bank loan. These credit lines can be used in different currencies and terms. NORMA Group uses Asset Backed Securi- ties (ABS), factoring and reverse factoring programs to manage liquidity, optimize working capital and make its cash flows more predictable. The financing measures conducted in the fiscal year 2017, are described in detail in the notes on the financial position FINANCIAL MANAGEMENT, P. 68 NORMA Group stands for the highest possible reliabil- ity and quality of service. The reputation of its brands and reliability of its products are key factors in the Company’s success. In developing and manufacturing products, the Group therefore relies on the highest quality standards. In order to minimize production losses and maximize customer satisfaction, NORMA Group measures and manages the problem solving behavior of its employees by using two performance indicators: the average number of customer com- plaints per month and defective parts per million of manufactured parts (parts per million/PPM). The two metrics are collected and aggregated at Group level on a monthly basis. QUALITY MANAGEMENT, P. 73 Other non-financial performance indicators include employee and environmental indicators and indica- tors on occupational safety and healthcare within the Group. More information can be found in the CR Report 2017. CR REPORT 2017 Rolling, regular, currency-differentiated liquidity plan- ning for all major Group companies, which is ana- lyzed and aggregated by the centrally organized II. Limiting financial risks The Group Treasury division constantly identifies and assesses interest rate and currency risks and selects suitable hedging instruments to reduce these risks. T 009 FINANCIAL CONTROL PARAMETERS Group sales (in EUR millions) Adjusted EBITA margin (in %) Net operating cash flow (in EUR millions) 2017 1,017.1 17.2 132.9 2016 894.9 17.6 148.5 2015 889.6 17.6 134.7 2014 694.7 17.5 109.2 2013 635.5 17.7 103.9 2012 604.6 17.4 81.0 T 010 NON-FINANCIAL CONTROL PARAMETERS 2017 2016 2015 2014 2013 2012 Number of invention applications1 Defective parts per million (PMP) Quality-related customer complaints per month 33 16 9 n/a 32 8 n/a 21 8 n/a 17 8 n/a 24 9 n/a 34 10 The target figures for the financial and non-financial control parameters for 2018 and the assumptions 1_ The number of invention applications has served as a key control parameter for measuring the Group’s innovative ability since mid-2016, replacing the number of patent applica- tions, a figure that had lost significance in light of changes in the patent strategy. first time in fiscal year 2017, there are no comparative figures for 2016. 2016 ANNUAL REPORT, P. 55 As the number of invention applications was recorded for the 54 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties Here, not only derivatives, but also the appropriate for- eign currency financing, are used to reduce currency risks. The overall goal is to optimize the assets and liabilities side of the balance sheet with regard to cur- rency risks. In addition, operating currency risks are reduced by using derivative financial instruments in the Group companies as of a defined threshold. Here, Group-wide, currency-differentiated liquidity planning is crucial to identifying and managing such risks. To limit interest rate risks, NORMA Group’s objective is to devise a relatively high proportion of financing measures in such a way that they are subject to inter- est rates on a fixed-interest basis or use interest rate swaps. On December 31, 2017, only around 8% of all debt instruments had variable interest rates and were not hedged by interest rate swaps. In addition, existing risk positions are monitored regularly by Group Trea- sury and assessed for their risk-bearing capacity. Group Treasury initiates appropriate countermeasures if the defined risk parameters are exceeded. Key elements of the policy on limiting financial risks are the clear definition of process responsibilities, multi-stage approval processes and regular risk assessments. These have been fixed in a Treasury Directive and are also subject to auditing. Compli- ance with the European Market Infrastructure Regu- lation (EMIR), which was audited in 2017 for the year 2016 by PricewaterhouseCoopers with no objections raised, is equally important to the audit. NORMA Group thus meets all of the prerequisites for process mapping and control with regard to the handling of financial risks. III. Optimizing the Group’s internal liquidity NORMA Group Holding GmbH assumes central liquidity management and is responsible in particular for investing surplus liquidity as well as for intra- Group financing. The Group Treasury of NORMA Group constantly works on improving internal financ- ing opportunities and bundling the Group’s liquidity in order to make it available for a wide variety of funding purposes. This is achieved by optimizing the alloca- tion of cash and cash equivalents in NORMA Group Holding and at the same time ensuring that the respective individual companies are solvent at all times. This is done by using a professional treasury management system which provides a daily overview of the cash holdings of the most important subsidiar- ies. Regional cash pools have been installed to enable the technical implementation of liquidity centraliza- tion. Further cash concentrations are performed at regular intervals. Manually pooling funds makes it possible to guarantee an optimized cash balance for all Group companies, whereby in particular the local terms for international payments must be taken into account here. RESEARCH AND DEVELOPMENT Research and development activities at NORMA Group are aimed at further expanding the Group’s innovation power and detecting and addressing tech- nological trends as early as possible. The focus is on opening up new markets, for example the market for e-mobility or water management, tapping into new groups of customers and developing new products and system solutions. As part of the restructuring of the R&D department in 2015, its responsibilities were also redefined and have been systematically implemented since 2016. Since then, the focus has increasingly been on evalu- ating new technologies, in particular with respect to their ability to optimize existing processes, minimize the materials used, and improve the functionalities of the end products. The research focus is on solutions to the global industrial challenges of the respective end markets. By concentrating on the megatrends of importance to its customers, NORMA Group is able to initiate technology developments at an early stage and serve the market by offering the appropriate product solutions and services. 55 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties Focus on innovations A clear focus of NORMA Group’s R&D department is on strengthening the Company’s innovative capacity. In order to identify technological trends at an early stage and systematically plan and carry out product development, new methods and innovation manage- ment processes have been implemented in the past two years by introducing ‘Innovation Roadmapping’ and so-called ‘Innovation Scouts.’ As part of ‘Innovation Roadmapping’, long-term tech- nology development schedules are drawn up that take into account the industrial megatrends that have been identified as well as their impact on the relevant mar- kets and resulting requirements for potential new products. So-called ‘Innovation Councils’ are driving the implementation of the projects identified. For example, the Innovation Council ‘E-Mobility’ is respon- sible for coordinating all information and global activities on electromobility, as well as developing and implementing a strategy geared to all regions and business sectors. The Innovation Scouts also intensified their work in fiscal year 2017 and are now even more closely involved in the innovation process. These NORMA Group employees collect ideas on future trends throughout the Group and examine them in terms of their feasibility during their regular meetings. NORMA Group has been measuring the number of invention applications submitted by its employees since the 2017 reporting year in an effort to promote innovative thinking within the Group. An invention application takes place as part of a formalized internal process in which NORMA Group employees are given the opportunity to submit their ideas to the R&D department. The process of reporting an invention is upstream of the external process of applying for a new patent and is specifically supported by internal incen- tive systems such as the annual CEO Award. Thanks to these new measures, NORMA Group expects to not only be able to focus on innovations better in the years to come, but also to increase its efficiency in the areas of product and customer development. Development focuses in 2017 Besides e-mobility, the focus of R&D activities in 2017 continued to be on the introduction of Selective Cata- lytic Reduction (SCR) systems for large automotive customers. These customers have to continuously optimize their systems in order to achieve the interna- tional emission targets, which will make a further reduction of nitrogen oxide emissions for diesel vehicles mandatory by 2020. NORMA Group supports several OEMs in the conceptual development of these improved systems. Strategic collaboration with customers and research institutes NORMA Group’s EJT unit works closely with its end customers, but also with research and development institutes, suppliers and other external partners. The continued expansion of the customer network in the area of e-mobility was once again a focus in 2017. This allows for the global trends to be identified imme- diately and be seamlessly turned into new technolo- gies and ideas for products. This, in turn, allows for fast marketing of product innovations. For competitive reasons, however, the Company does not disclose the specific nature of these research partnerships. As the Distribution Services division is purely a com- mercial unit, the market does not demand the same level of technological research from it. Moreover, cus- tomers of NORMA Group in this business division expect a strong brand image and the most complete product range. Therefore, the focus in the DS area lies on making useful additions to the product range and targeted marketing activities. MARKETING, P. 78 Another focus during the reporting year was on improv- ing the Company’s profile clamps. The goal here was to further optimize the performance of its profile clamps by using appropriate simulations and calcula- tions in order to increase the durability and reliability of the connections, especially under high pressure. Assessment of plastic materials was yet another R&D focus. Here, special test methods have been devel- oped with which the materials used can be optimally evaluated for their technical and commercial usability for specific customer solutions. Know-how protected by patents The Company’s specific know-how in the area of join- ing technology represents a key success factor for NORMA Group. Therefore, the Group protects its inno- vations with patents. As of December 31, 2017, 913 patents and utility models (2016: 843) were held. In 2017, 51 new patent rights (2016: 52) were filed. 56 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties R&D expenses Research and development expenses in the area of EJT totaled EUR 29.4 million in 2017 (2016: EUR 28.8 million). This represents approximately 4.6% (2016: 5.4%) of sales in this area. The capitalization ratio, which is the proportion of own work capitalized in relation to R&D expenses, during the reporting year amounted to 13.3% (EUR 3.9 million). R&D employees As of December 31, 2017, 344 employees (2016: 305) worldwide worked for NORMA Group in the R&D department, which represents approximately 5.6% of all permanent employees of the Group (2016: 5.6%). Most of the employees who work in R&D are engi- neers, technicians and technical draftsmen. Innovative product launches and new business NORMA Group constantly develops new innovative products for a variety of applications. The Company records two different key figures as measures for its ability to innovate: the number of new product devel- opments per year and sales with new business. New product developments include all products devel- oped by NORMA Group itself and launched on the market for the first time in the year under review. These also include developments based on an exist- ing product, but with new functionalities that give cus- tomers a significant economic advantage. Eight new T 012 R&D KEY FIGURES1 Number of R&D employees R&D employee ratio in relation to permanent staff (in %) R&D expenses in the area of EJT (in EUR millions) R&D ratio in relation to EJT sales (in %) product developments were launched on the market in the year under review. These are listed in the TABLE 011. Besides new product developments, NORMA Group also records new product sales. This is the sum of sales revenue generated by the first sale of products to customers in the year under review (acquisitions are not taken into account within the first three years after the transaction has been closed). New product sales in 2017 amounted to around 10% to 15% of total sales. T 011 MAJOR PRODUCT DEVELOPMENTS IN 2017 Product Application V2-XC quick connector High-performance applications GEMI RSGU retaining clips Joining tubes and hoses NORMA Group Smart-Thaw system: effi- cient thawing system for SCR systems Integrated sealing function for AdBlue® pressure lines VPP clamp with a bridge and a pre-positioning clip Selective Catalytic Reduction (SCR systems) Selective Catalytic Reduction (SCR systems) Turbocharger catalyst connections VPP profile clamp for joining turbocharger housings Connection of turbine housings (particularly center/bearing and turbine housings); suited for applications in confined spaces V2PP for high-temperature applications Turbocharger catalyst connections AccuLock clamp for mounting SCR catalytic converters Selective Catalytic Reduction (SCR systems) Sector Vehicle industry Mechanical engineering Vehicle industry Commercial vehicle industry Vehicle industry Vehicle industry Vehicle industry Vehicle industry 2017 2016 2015 2014 2013 2012 2011 344 5.6 29.4 4.6 305 5.6 28.8 5.4 271 5.3 25.4 4.7 250 5.2 25.7 5.3 205 5.0 21.9 4.9 190 5.1 22.1 5.1 174 5.1 16.8 4.1 1_ The multi-period overview shows the development of the most important R&D indicators since NORMA Group’s IPO. No data was collected prior to the IPO. 57 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties Economic Report EXTERNAL FACTORS OF INFLUENCE Economic factors NORMA Group is active in many different industries and regions. Seasonal and economic fluctuations in individual countries or industries can have varying effects on customer demand and the order situation at NORMA Group. At the same time, NORMA Group is less vulnerable to temporary declines in demand in individual industries or countries thanks to its diversi- fied product portfolio and broad customer base. Tem- porary production peaks can be absorbed due to flexible production structures and the use of tempo- rary workers. Global economy with broad growth revival in 2017 The global economy accelerated on a broad basis in 2017. Almost all industrialized countries experienced a strong upswing and world trade gained momentum. At the same time, the economic situation improved in important emerging markets, partly due to higher commodity and oil prices. According to the Interna- tional Monetary Fund (IMF), the global economy grew by 3.7% in 2017 (2016: 3.2%). High uncertainties were superimposed on the economy such as the new government in the US and Brexit negotiations, as well as geopolitical crises such as in North Korea and Iran. The US Federal Reserve (Fed) continued its course of cautious rate hikes and the ECB’s monetary policy remained expansionary. Nevertheless, the euro strongly appreciated to the US dollar in particular. The Chinese economy expanded strongly in 2017 with growth of 6.9% according to official figures. The People’s Republic benefited from the global bustle of demand, and government measures bolstered the economy. Besides construction, stimulus came from industrial production, which rose by 6.6% year-on- year (2016: 6.0%). Double-digit growth was achieved by machine and vehicle manufacturers as well as makers of IT products. Southeast Asia’s emerging markets (ASEAN 5) expanded at an accelerated rate of 5.3% (2016: 4.9%) influenced by China, industrial- ized countries and high infrastructure investments. In India, economic expansion temporarily slowed to 6.7% through reforms (cash restrictions, VAT) (2016: 7.1%). Brazil (+ 1.1%) and Russia (+ 1.8%) overcame recessions. Emerging and developing countries grew by a total of 4.7% (2016: 4.4%). The US economy grew by 2.3% in 2017 according to initial official data. After a moderate start to the year, the recovery gained momentum, especially in the summer. While construction activity grew moderately and exports increased, stimulus came primarily from private consumption and investment. According to Fed data, industrial production accelerated, increas- ing by 1.8% (2016: –1.2%). Final-quarter growth was 3.5% (excluding energy sector: 2.4%). Computer and semiconductor manufacturers increased production while automobile manufacturers decreased theirs. US capacity utilization stood at 77.9% in December (Dec 2016: 76.0%), but was well below the long-term average of 79.9% (1972 – 2016). Japan’s economy grew strongly by 1.8% (2016: 0.9%), according to the IMF, and the UK’s momentum was below the global trend (2017: 1.7%). According to IMF figures, established economies grew at a more pronounced rate of 2.3% in 2017 than in the previous year (2016: 1.7%). T 013 GDP GROWTH RATES (REAL) 1 IN % World USA China 2 Euro zone 3 Germany 4 2017 + 3.7 + 2.3 + 6.9 + 2.5 + 2.2 2016 + 3.2 + 1.5 + 6.7 + 1.8 + 1.9 2015 + 3.2 + 2.9 + 6.9 + 2.1 + 1.7 Sources: 1_IMF; 2_National Bureau of Statistics; 3_Eurostat, 4_German Federal Statisti- cal Office (Destatis) Euro zone in a stronger upswing thanks to buoyant industrial activity The euro zone economy enjoyed a powerful upswing in 2017. Low interest rates and moderate inflation laid the foundation for this. Growth accelerated markedly to 2.5% (EU statistical office Eurostat). Political and Brexit-related uncertainties hardly affected the real economy in the euro zone. All member states recorded positive economic development. Although Greece, Italy and Belgium grew only moderately, Ireland and Spain were very buoyant. France recorded higher economic growth, but the annual rate was still lower than the euro zone average. The Netherlands, Austria 58 NORMA Group SE – ANNUAL REPORT 2017B047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related PartiesCONSOLIDATED MANAGEMENT REPORT and Finland grew by more than 3%. The EU’s and euro zone’s Eastern European members also recorded high growth rates. Besides sustained buoyant private consumption and construction activity, continued high investment and increased exports provided important stimulus for growth in Europe. Industrial production in the euro zone rose sharply in 2017, especially from the early summer. Year-on-year production was 3.0% above the previous year’s level. Capacity utilization of companies increased by 150 basis points within a year to 83.9% in the fourth quar- ter of 2017. The IfW estimates that investment in this field increased by 4.1% in real terms. Germany’s economy booming, giving tailwind to the industry The German economy experienced a strong, maturing economic boom in 2017. An increase of 2.2% (as much as 2.5% adjusted for the calendar) saw the eight-year upswing continue with strong domestic demand (Destatis). The positive development on the job market contributed to this. Nearly 44.3 million people were gainfully employed (+ 1.5%) on an annual average. Private consumption increased sig- nificantly by 2.0% (2016: 2.1%). Construction invest- ment also remained dynamic by posting an increase of 2.6% (2016: 2.7%). Foreign demand grew rapidly, with exports rising at an accelerated rate of 4.7%. Imports grew at a higher rate of 5.2% in the wake of high domestic demand. Services and transport were particularly buoyant according to Destatis figures. The manufacturing sector, which accounts for around a quarter of total value outside the construction indus- try, generated growth of 2.5%. Industrial production picked up noticeably again in 2017. According to Eurostat data, capacity utilization in German industry rose to a high of 87.3% in the fourth quarter (Q4 2016: 85.8%). Equipment investment increased sig- nificantly by 3.5% in this environment (2016: 2.2%). to NORMA Group’s Exchange rate fluctuations Due international activities, exchange rate fluctuations also influence its business. While fluctuations between non-euro currencies have only little impact on the operating result of NORMA Group as a result of regional production, exchange rate fluctuations against the euro as the reporting cur- rency may have a greater impact on its results. Due to the high US dollar exposure, fluctuations in the EUR/ USD exchange rate in particular affect earnings. RISK AND OPPORTUNITY REPORT, P. 85 In fiscal year 2017, NORMA Group generated more than 40% of its sales in US dollars. The development of the US dollar against the euro resulted in a slightly negative sales effect in fiscal year 2017. Furthermore changes in the exchange rates of the following currencies had a neg- ative effect on the development of sales: British pound, Swedish krona, Swiss franc, Turkish lira, Chi- nese renminbi, Japanese yen and Malaysian ringgit. Changes in personnel and material costs With respect to costs, the development of wages and salaries in particular has an effect on NORMA Group, as do changes in material costs. Because the majority of the companies that make up NORMA Group are not bound by a collective agree- ment, personnel costs are based mainly on the coun- try-specific development of the cost of living. For companies that have collective agreements, for exam- ple in Germany and Sweden, personnel costs are influenced by the cost levels in the collective agree- ments or by the outcomes of local collective pay negotiations. Changes in collective wage agreements can lead to an increase in personnel costs at the respective sites. NORMA Group is a manufacturing Company that requires a wide variety of different raw materials to manufacture its products and therefore depends on the price developments on the global commodity markets. Fiscal year 2017 was characterized by a very volatile environment on the international commodity markets overall. In fact, some of the key commodity groups for NORMA Group experi- enced massive price increases. This also led to an PURCHASING AND increased material cost ratio. SUPPLIER MANAGEMENT, P. 73 Industry-specific factors Engineering on a global upswing, German manufacturers with strong growth Global improvement in the industrial economy saw demand in engineering pick up noticeably in 2017, with pronounced regional differences. According to the industry association VDMA, global industry sales grew by 6% in real terms. The US increased by 3%. Asian markets expanded very strongly. Sales in China and Japan rose by 8% each, and by 9% in India. Double-digit growth was achieved in South Korea and Singapore. The picture was mixed for the ASEAN 5 countries, weak in the Gulf region and only moderate in Latin America (+ 1%). Europe saw a strong upswing thanks to buoyant investment activ- ity (+ 4%). Strong growth was also reported in Turkey (+ 8%). Furthermore, Russia (+ 4%), Switzerland (+ 2%) and the United Kingdom (+ 5%) developed positively, while Scandinavia was mixed. Sales increased by 4% in the euro zone and the EU, with the Netherlands and the EU’s Eastern members gen- erating double-digit growth. The German engineering sector in this internationally positive environment was on the upswing in 2017 after five weak years. According to the VDMA, the industry’s capacity utilization rose above the long- term average of around 86% (Jan 2018: 87.9%). Production and sales increased by 3% in real terms. Exports rose sharply by 6.4% in real terms in the first 59 NORMA Group SE – ANNUAL REPORT 2017B047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related PartiesCONSOLIDATED MANAGEMENT REPORT ten months (imports: + 4.0%). After Europe (share of about 50%), the US and China (each about 10%) were the largest markets. Exports to these two mar- kets, especially China, grew by double digits. The order situation markedly improved. New orders increased by 8% in real terms by the end of Decem- ber (domestic: + 5%). Boosts came from abroad (+ 10%), although demand from the euro zone also picked up strongly (+ 11%). Automotive industry on a moderate growth path – sharp regional differences Despite growing criticism of the established automo- tive industry and customer uncertainty in some regions, the industry still grew in 2017. According to LMC Automotive (LMCA), global sales of light vehicles (LV, up to 6 tons) only increased by 2.5% to EUR 95.4 million. Global production also increased by 2.5%. For the more narrowly defined global passenger car mar- ket, the industry association VDA announced an increase in sales of 2% to 84.6 million passenger cars. Global commercial vehicle sales rose sharply by 17.3% (LMCA), by 30.0% in Asia alone. Regional dif- ferences remained significant. Sales of LV (LMCA: + 3%) and passenger cars (VDA: + 2%) were only modestly higher in China. But the recovery of the local commercial vehicle market accelerated. Production and sales of commercial vehicles in China increased by 14% (CAAM, China Automobile Association). In the US, the record volume of the previous year could not be maintained. LV sales fell by 1.9% in the US, but sales of commercial vehicles rose by nearly 3%. Car sales in Japan (+ 5.8%) and India (+ 8.8%) grew strongly. Car sales in Russia and Brazil jumped signifi- cantly following recessions. The upturn in the European automotive industry continued in 2017. According to the industry associa- tion ACEA, car sales increased by 3.3% to 15.6 mil- lion units (EU28 + EFTA). Sales growth in Eastern Europe was once again in the double digits at 12.8%, with moderate growth of 2.5% in Western Europe. Car production in Europe increased by 3.4%, according to LMCA data. Demand was positive in all volume mar- kets with the exception of the UK (-5.7%). According to ACEA data, passenger car sales in Italy and Spain increased by almost 8% and by almost 5% in France. Sales in Germany increased by 2.7%. According to the VDA, domestic production of all manufacturers declined by 2% to just over 5.6 million cars and Ger- man production increased by 7% to 10.8 million. Development on the European commercial vehicle market was positive in 2017. According to ACEA data, overall sales of buses and trucks of all weight classes in Europe rose moderately by 3.2% to almost 2.5 mil- lion commercial vehicles (West: + 3.3%, East: + 2.6%). Growth in Spain (+ 13.5%) and France (+ 6.9%) was once again very strong. Commercial vehicle sales in Germany (+ 3.3%) posted average growth. Italy suffered losses (–2.3%) following the strong increase in the previous year, as did the UK (–4.4%) in light of Brexit uncertainties. The light truck segment up to 3.5 tons drove market growth (+ 3.9%). Other truck seg- ments leveled and bus sales dipped slightly. Strong upswing for the European construction industry, construction boom continues in Germany The European construction industry continued to accelerate in its upswing in 2017. According to analysis by the Euroconstruct industry network (including the Ifo Institute), construction output in the 19 core markets increased by 3.5% in real terms (2016: 2.5%). This equates to the highest growth since 2006. All countries without exception contributed to the positive trend in the industry. The most important boost came from housing construc- tion. Commercial construction and civil engineering also increased. The strong overall economic situa- tion, low interest rates, both internal and external migration, as well as the infrastructure investment backlog contributed to strong expansion. Construc- tion output in this sector rose by 3.3% in Western Europe (2016: 3.0%), and Eastern Europe also ben- efited from new EU subsidized projects by posting 8.6% growth (2016: – 7.1%). Construction spending in Germany in 2017 grew by 2.6% in real terms, after 2.7% the previous year (Des- tatis). Besides the high-flying housing construction segment, commercial construction also started to recover due to higher investments by companies, according to the IfW. By contrast, public-sector con- struction grew only marginally after the surge in the previous year. The German Institute for Economic Research (DIW) estimates that the total volume of housing construction grew by 7.4% to close to EUR 215 billion in nominal terms (2016: 6.0%), and by 12.9% in the new housing construction segment. Construction work on existing buildings (renovation/ remodeling, modernization, maintenance), which accounts for two-thirds of the total housing construc- tion volume, increased by 4.7% (2016: 3.7%). In other building construction (excluding housing), the construction volume rose by 3.1%, and in civil engi- neering by 8.7%. Legal and regulatory influencing aspects Due to the international focus of the business and against the background of its acquisition strategy, various legal and tax-related regulations are of rele- vance to NORMA Group. Among others, these include product safety and product liability laws, construction, environmental and employment-related regulations RISK AND as well as foreign trade and patent laws. OPPORTUNITY REPORT, P. 85 In addition, NORMA Group’s product strategy is influ- enced by the increasing density of regulations in envi- ronmental law and the current discussion on alterna- tive drive technologies in the automotive industry. In particular, new emission regulations and the coun- try-specific fleet regulations for passenger cars T 014: REGULATION OF AVERAGE EMISSIONS (CO²) OF VEHICLE FLEETS, P. 61 have positive effects on NORMA Group’s business. After all, the increasing complexity of sys- tems in vehicles also increases the number of poten- 60 NORMA Group SE – ANNUAL REPORT 2017B047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related PartiesCONSOLIDATED MANAGEMENT REPORT tial interfaces and thus the demand for reliable and innovative joining technology. The trend towards hybrid drive models that can currently be observed is also accompanied by an increase in complexity because additional systems are needed in addition to the combustion engine, in the area of thermal man- agement, for example. This also plays a decisive role in pure electric vehicles. Thermal management encompasses both the cooling and the heating of the battery used for the additional generation of energy in order to bring it into an optimal operating state. In this area too, NORMA Group sees additional potential for its product portfolio in the short to medium term. Due to the acquisition of National Diversified Sales (NDS) at the end of 2014, the various regulatory initia- tives in the area of water management are of greater relevance for NORMA Group. As a result of increasing water scarcity and water pollution, households and companies in various regions of the US, California, for example, are urged to limit their water consumption. Since existing infrastructure is often obsolete, in most cases technical conversion is inevitable. NDS offers a wide variety of solutions with its efficient products for water supply and infrastructure. NORMA Group there- fore assumes that stricter regulations regarding the consumption and use of water will have a positive effect on its business. SIGNIFICANT DEVELOPMENTS IN FISCAL YEAR 2017 Strategic company acquisitions NORMA Group SE made two acquisitions in fiscal year 2017. In January 2017, it acquired 100% of the shares in the Portuguese company Lifial, a manufacturer of metal clamps for use in industry and agriculture. In May 2017, NORMA Group completed the acquisi- tion of 80% of the shares in the Chinese company Fengfan. Fengfan manufactures joining products made of stainless steel, nylon and special material, including cable ties, fasteners and specially coated ACQUISITIONS AND CHANGES OF LEGAL fireproof fabrics. STRUCTURE, P. 47 These two acquisitions have expanded NORMA Group’s product range in its Distribution Services business and strengthened its market position in Europe, particularly on the Iberian Peninsula and the Chinese market. COMPARISON OF TARGET AND ACTUAL VALUES NORMA Group published a forecast in the 2016 Annual Report on the development of the Group’s most important financial figures for fiscal year 2017. Better than expected revenue development in the first half of the year alongside a positive forecast for the second half gave reason for the Management Board to raise the annual sales forecast for the segments and the Group in July 2017. The following report provides an overview of the fore- cast adjustments and a comparison of the predicted values with the Group’s actual results. Adjustments to the forecast during the year NORMA Group raised the sales forecast for both the Group and the individual segments in July 2017. Instead of organic Group sales growth of around 1% to 3%, the Management Board ever since expected Group sales growth of around 4% to 7% for the full year. In addition, the Management Board expected sales of around EUR 55 million from the acquisitions. Sales expectations for the full year were raised for all three regions and for both sales channels. Additional short-term orders in the EMEA region, a faster recov- ery of the US commercial vehicle and agricultural machinery market and faster localization effects, par- ticularly in China, were the main reasons for raising the forecast. T 014 REGULATION OF AVERAGE EMISSIONS (CO2) FOR VEHICLE FLEETS 1 Region EU USA China Japan India Target year 1 Target year 2 Duration in years under national laws converted into g/km 2 under national laws converted into g/km 2 Change in % CAGR in % Fleet goal year 1 Fleet goal year 2 2015 2016 2015 2015 2016 2021 2025 2020 2020 2021 6 9 5 5 5 130 g/km 37.8 mpg 6.9 l/100 km 16.8 km/l 130 g/km 130 139 161 139 130 95 g/km 56.2 mpg 5.0 l/100 km 20.3 km/l 113 g/km 95 88 117 115 113 – 27 – 37 – 27 – 17 – 13 – 5.1 – 5.0 – 6.2 – 3.7 – 2.8 1_Emission regulation schedule for cars adapted to the consumption of gasoline engines (source: European Union, ICCT, NORMA Group). 2_Fuel consumption data is normalized as g CO2 / km in accordance with the NEDC. 61 NORMA Group SE – ANNUAL REPORT 2017B047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related PartiesCONSOLIDATED MANAGEMENT REPORT T 015 ACTUAL BUSINESS DEVELOPMENT COMPARED TO THE FORECAST Group sales (in EUR millions) 894.9 n/a n/a n/a n/a n/a 1,017.1 Results in 20161 Mar 2017 May 2017 (Q1) Jul 13, 2017 Aug/Nov 2017 (Q2/Q3) Jan 22, 2018 Results 20171 Growth of Group sales 0.9% organic growth, additionally EUR 3.5 mil- lion from acquisitions moderate organic growth of around 1% to 3%, additionally EUR 45 million from acquisitions no adjustment Sales growth EMEA 4.3% organic moderate organic growth no adjustment Sales growth Americas – 3.8% organic moderate organic growth no adjustment 5.8% organic organic growth in the high single-digit range no adjustment – 0,9 % moderate growth no adjustment 3,0 % moderate growth no adjustment around 4% to 7% organic growth, additio- nally EUR 55 million from acquisitions organic growth in mid-single digit per cent organic growth in mid-single digit per cent organic growth in double digit per cent growth in mid-single digit percentage range growth in mid-single digit percentage range around 8,5% organic growth, additionally EUR 55 million from acqui- sitions 8.6% organic growth, additionally EUR 57.3 million from acquisitions no adjustment no adjustment no adjustment 6.2% organic no adjustment no adjustment 8.4% organic no adjustment no adjustment 22.7% organic no adjustment no adjustment no adjustment no adjustment Sales growth Asia-Pacific Sales growth EJT Sales growth DS Adjusted cost of materials ratio Adjusted personnel expense ratio Adjusted EBITA margin Financial result (in EUR millions) Adjusted tax ratio Earnings per share (in EUR) Investment rate (without acquisitions) Dividend (in EUR) Payout ratio (in %) Number of invention applications Number of defective parts per million (PMP) Average number of quality-related custo- mer complaints per month Net operating cash flow (in EUR millions) 148.5 around EUR 130 million Investments in R&D (related to EJT sales) 5.4% 5% of EJT sales 39.4% 27.3% 17.6% roughly at the same level as in previous years roughly at the same level as in previous years sustainable at the same level as in previous years of more than 17.0% – 14.6 up to EUR – 13.0 million 28.9% around 31% to 33% 2.96 (adjusted) 2.38 (unadjusted) moderate increase operational investments of around 5% of Group sales approx. 30% to 35% of adjusted annual Group earnings more than 20 per year less than 20 5.4% 0.95 32.0 n/a3 32 no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment slightly above 17.0% no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment no adjustment 19,1% 5,0% 41.2% 26.5% 17.2% –16.1 30.0% 3.29 (adjusted) 3.76 (reported) 132.9 4.6% 4.7% 1.05² 31.9 33 16 9 8 less than in previous year no adjustment no adjustment no adjustment no adjustment 1_The adjustments refer to one-off effects. 2_In accordance with the Management Board‘s proposal for the appropriation of net profit, subject to the approval by the Annual General Meeting on May 17, 2018. 3_ From reporting year 2017 onwards, the number of invention applications is used as a new indicator for measuring and managing the Company’s innovative strength and replaced the number of new patent applications which lost significance due to the transition of the patent NOTES, P. 139 strategy. 2016 ANNUAL REPORT, P. 55 As the number of patent applications was recorded for the full year for the first time in 2017, there are no comparable figures for 2016. 62 NORMA Group SE – ANNUAL REPORT 2017B047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related PartiesCONSOLIDATED MANAGEMENT REPORT In January 2018, NORMA Group’s Management Board once again raised its organic sales growth forecast to around 8.5% (previously: around 4% to 7%) due to higher than expected growth in all three regions, par- ticularly in the Americas region. Furthermore, the Man- agement Board specified the expected adjusted EBITA margin at slightly above 17% (previously: sustainable at the level of previous years of over 17%). The forecast for other target values in reporting year 2017 remained unchanged. TABLE 015 ON P. 62 pro- vides an overview of target and actual values as well as forecast adjustments during the year. Deviations from the target values NORMA Group achieved the organic growth in sales in fiscal year 2017 that was revised in January 2018 and even slightly exceeded it at 8.6%. In addition, there were acquisition-related revenues in the amount of EUR 57.3 million, which are within the scope of the forecast of approx. EUR 55 million that was adjusted in July 2017. With respect to costs, the development was divergent. While the adjusted personnel cost ratio was reduced to 26.5% (2016: 27.3%) despite the higher number of employees, the adjusted material cost ratio increased from 39.4% to 41.2% due to the difficult conditions on the world commodity markets and increased prices for important raw materials of NORMA Group. PURCHASING AND SUPPLIER MANAGEMENT, P. 73 This also resulted in a lower adjusted EBITA margin of 17.2% compared to the previous year (2016: 17.6%), which, however, remains at a high level and in the forecasted range of more than 17.0%. in financial result The fiscal year 2017 was EUR – 16.1 million, slightly higher than forecast (2016: EUR – 14.6 million). This was due to currency effects and expenses from the valuation of derivatives, which resulted from the hedging of US dollar borrowings and the development of the US dollar compared to the previous year. NOTES, P. 143 At 30.0%, the adjusted tax rate was slightly below the forecast range (2016: 28.9%). The unadjusted tax rate was significantly influenced by the reduction in the US tax rate. This one-time effect resulted in an unadjusted tax rate of 1.6% (2016: 28.0%). The other key financial figures were all within the scope of the forecast published in the 2016 Annual Report. GENERAL STATEMENT BY THE MANAGEMENT BOARD ON THE COURSE OF BUSINESS AND ECONOMIC SITUATION NORMA Group ended fiscal year 2017 by achieving organic growth of 8.6% – significantly higher than originally forecast. The considerably faster than expected recovery of the US market for commercial vehicles and agricultural machinery, a generally good economic environment and high demand for joining solutions in NORMA Group’s key end markets were the reasons for this growth. The newly acquired companies Autoline, Lifial and Fengfan also performed well during the fiscal year, contributing EUR 57.3 million to sales. The development of sales was very good in all seg- ments, however the significant increase in the costs of materials compared with the previous year had an impact on the development of margins. Consequently, the adjusted EBITA margin for fiscal year 2017 was 17.2% (2016: 17.6%). In fiscal year 2017, the Management Board continued to implement its acquisition strategy, acquiring two more companies that specialize in joining products, Lifial and Fengfan. They optimally complement the existing product portfolio and at the same time pro- vide access to new customers. With adjusted profit for the period of EUR 105.0 mil- lion – an increase of 11.0% over the previous year – and adjusted earnings per share of EUR 3.29, the Management Board is satisfied with how the business developed in 2017 and is optimistic for the current year 2018. An order backlog of EUR 329.1 million as of Decem- ber 31, 2017 (2016: EUR 302.4 million), a stable eco- nomic environment and high global demand for reliable joining solutions point to a good start to fiscal year 2018. The Management Board therefore assumes that NORMA Group’s growth will continue in the current fiscal year. EARNINGS, ASSETS AND FINANCIAL POSITION Adjustments NORMA Group adjusts certain expenses for opera- tional management purposes. Hence, the following results which are adjusted by these expenses, reflect the management perspective. In fiscal year 2017, net expenses amounting to EUR 3.5 million were adjusted within EBITDA (earnings before interest, taxes, depreciation on tangible assets and amortization of intangible assets) (2016: EUR 4.8 million). These relate to costs of materials (2017: EUR 1.1 million; 2016: EUR 0.6 million), which are a result of the remeasurement of acquired inventories within the purchase price allocation for the acquisition of the Autoline business as well as that of Lifial and Fengfan. Furthermore, expenses for the integration of the acquired Autoline business were included in other operating expenses (2017: EUR 2.2 million, 2016: EUR 0.2 million) and in employee benefit expenses (2017: EUR 0.7 million; 2016: EUR 0.2 million). In addition, an adjustment of income from a refund of transaction taxes paid in connection with the acquisi- tion of the Autoline business in the amount of EUR 0.5 million was recognized in other operating income and expenses (2016: expenses of EUR 1.7 million). 63 NORMA Group SE – ANNUAL REPORT 2017B047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related PartiesCONSOLIDATED MANAGEMENT REPORT are discussed separately for comparative purposes. The adjustments made in the comparative year 2016 are explained in the Notes to the Consolidated Finan- cial Statements. NOTES, P. 139 Growth in all three segments, high double-digit growth in Asia-Pacific NORMA Group posted significant year-on-year sales growth in all three regions. Moreover, acquisition-related expenses in the amount of EUR 2.1 million were adjusted within other operat- ing expenses in 2016. Besides the adjustments described above, deprecia- tion on property, plant and equipment amounting to EUR 4.2 million (2016: EUR 2.3 million) and intangible assets amounting to EUR 20.5 million (2016: EUR 20.6 million), in each case from purchase price allo- cations, are shown as adjusted figures. The theoretical taxes resulting from the adjustments are calculated using the respective tax rate of each Group entity and are considered within the adjusted earnings after taxes. Income tax expense also included a streamlining of non-cash deferred tax income of EUR 33.9 million in fiscal year 2017, which resulted from the one-time reduction in the US tax rate. Sales development Strong Group sales growth, additional revenue from acquisitions For the first time, NORMA Group’s sales surpassed EUR 1 billion in fiscal year 2017, amounting to EUR 1,017.1 million (2016: EUR 894.9 million). The rela- tive growth over the previous year was 13.7%. This includes organic sales growth of 8.6% (2016: 0.9%) and acquisition-related growth of 6.4% (2016: 0.4%). Changes in exchange rates, including those relating to the US dollar, the British pound, the Swedish krona, the Turkish lira, the Chinese renminbi, and the Malay- sian ringgit, had a negative effect of a total of – 1.4% (2016: – 0.7%). Sales and earnings performance The development described below describes the changes in the main items of the income statement in the year under review, adjusted for the above-men- tioned special effects. In some cases, the adjustments The increase in the Group’s sales was primarily the result of the increase in the global vehicle production of passenger cars and commercial vehicles and high demand for reliable joining products in all three regions and across numerous industries. In the EMEA region, sales increased by a total of 12.5% to EUR 485.9 million (2016: EUR 432.0 mil- lion) due to the good order situation in the European automotive industry as well as the acquisitions of Lifial and Autoline. In the Americas, sales rose to EUR 411.3 million in fiscal year 2017 as a result of the recovery of the US commercial vehicle and agricultural machinery market, slight growth in the DS segment and addi- tional revenue from the acquisition of the Mexican Autoline business. This corresponds to growth of 7.8% compared to the previous year (2016: EUR 381.6 million). The Asia-Pacific region reported the highest relative growth in sales of 47.6% by generating revenue of EUR 119.9 million (2016: EUR 81.3 million). This was positively impacted by strong demand for join- ing technology in the Asian automotive industry. Furthermore, the recent acquisition of the Chinese joining specialist Fengfan and the Chinese Autoline business contributed to this sales growth. T 016 ADJUSTMENTS1 IN EUR MILLIONS Group sales EBITDA EBITDA margin (in %) EBITA EBITA margin (in %) EBIT Financial income Profit for the period EPS (in EUR) 1_Deviations may occur due to commercial rounding. 64 2017 adjusted Adjustments 2017 reported 1,017.1 199.7 19.6 174.5 17.2 166.0 – 16.1 105.0 3.29 0 3.5 n/a 7.7 n/a 28.2 0 – 14.8 – 0.47 1,017.1 196.3 19.3 166.8 T 017 EFFECTS ON GROUP SALES in EUR millions Share in % 16.4 Sales 2016 137.8 – 16.1 119.8 Organic growth Acquisitions Currency effects 3.76 Sales 2017 894.9 77.0 57.3 – 12.1 1,071.1 8.6 6.4 – 1.4 13.7 NORMA Group SE – ANNUAL REPORT 2017B047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related PartiesCONSOLIDATED MANAGEMENT REPORT (EUR 3.9 million) and after deducting the cost of materials, adjusted gross profit for fiscal year 2017 amounted to EUR 601.3 million (2016 : EUR 545.6 million). This represents an increase of 10.2% over the previous year. However, the gross margin fell to 59.1% (2016: 61.0%) due to higher material prices. Higher adjusted operating income Adjusted personnel expenses amounted to EUR 269.6 million in fiscal year 2017, an increase of 10.5% compared to the previous year (2016: EUR 243.9 mil- lion). The increase is attributable to the acquisition- related and growth-related increase in the average number of employees to 5,791 full-time employees (2016: 5,266) in the fiscal year. EMPLOYEES, P. 75 The adjusted personnel cost ratio resulting from the ratio of adjusted personnel expenses and sales amounted to 26.5% in fiscal year 2017, an improvement over the previous year (2016: 27.3%). Adjusted other operating income and expenses increased by 7.9% to EUR 132.0 million in the report- ing year (2016: EUR 122.3 million) due to the increased business activity. However, in relation to sales, the balance of adjusted other operating income and expenses fell to 13.0% from the previous year OTHER OPERATING INCOME, P. 142 and (2016: 13.7%). OTHER OPERATING EXPENSES, P. 143 Strong EJT growth, DS grows solidly EJT sales in fiscal year 2017 amounted to EUR 638.2 million (2016: EUR 535.9 million), an increase of 19.1% over the previous year. The reason for this was the generally high demand for reliable joining solu- tions, which was positively influenced in particular by good production and sales figures of the vehicle industry in important end markets of NORMA Group. An important growth driver in the EJT business is also the ever stricter international emissions standards and the increasing demands on the complexity and resilience of the individual components in the vehicle. Furthermore, additional revenue from the Autoline business contributed to growth for EJT. Sales in the Distribution Services segment amounted to EUR 372.3 million in 2017, up 5.0% on the previ- ous year (2016: EUR 354.5 million). Growth in the DS segment mainly resulted from sales of the two newly acquired companies Fengfan and Lifial. In addition, all three regions grew moderately organically. The US water business was adversely affected by heavy rains in California at the beginning of the year and the dev- astating hurricanes in the middle and east of the US in fiscal year 2017, but improved again over the course of the year and showed slight organic growth over the year. Development of earnings Adjusted material cost ratio and gross margin negatively impacted by higher raw material prices A volatile environment on the global commodity mar- kets and price increases for NORMA Group’s import- ant raw materials, especially in the area of metals and engineering plastics PURCHASING AND SUPPLIER MANAGEMENT, P. 73) increased 18.6% year-on-year in fiscal year 2017 to EUR 418.6 million (2016: EUR 352.9 million). In relation to sales, this resulted in a higher adjusted material cost ratio of 41.2% in fiscal year 2017 (2016: 39.4%). ( After taking into account changes in inventories (EUR –1.1 million) and other own work capitalized G 016 DEVELOPMENT OF SALES 2017 IN EUR MILLIONS 2017 2016 H1: 519.0 H2: 498.1 1,017.1 H1: 462.8 H2: 432.1 894.9 0 250 500 750 1.000 1.250 T 018 DEVELOPMENT OF SALES CHANNELS Group sales (in EUR millions) Growth (in %) Share of sales (in %) EJT 2017 638.2 19.1 63 2016 535.9 – 0.8 60 DS 2017 372.3 5.0 37 2016 354.5 3.0 40 65 NORMA Group SE – ANNUAL REPORT 2017B047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related PartiesCONSOLIDATED MANAGEMENT REPORT In fiscal year 2017, NORMA Group generated adjusted operating earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) of EUR 199.7 mil- lion. This represents an increase over the previous year (2016: EUR 179.4 million) of 11.4% and a slightly lower adjusted EBITDA margin of 19.6% (2016: 20.0%). NORMA Group’s main control parameter, adjusted EBITA, amounted to EUR 174.5 million in 2017, an increase of 10.8% compared to the previous year (2016: EUR 157.5 million). The adjusted EBITA margin is below the previous year’s level (2016: 17.6%) at 17.2%. The reason for the slightly lower profitability in fiscal year 2017 was mainly the increase in material costs, which could not be offset by achieving improve- ments in other cost items. Financial result The financial result for 2017 was EUR – 16.1 million (2016: EUR – 14.6 million). This was mainly influenced by higher interest expenses in connection with the financing of the acquisition of the Autoline business in 2016 and a negative currency result from financing activities. In addition, the financial result included income from derivative valuation. NOTES, P. 143 Revised and adjusted income taxes Income taxes adjusted for the one-off effects of the reduction in the US tax rate amounted to EUR 44.9 million in fiscal year 2017 (2016: EUR 38.5 million). This results in a revised and adjusted tax rate of 30.0% (2016: 28.9%). Unadjusted income taxes amounted to EUR – 1.9 million (2016: EUR – 29.5 mil- lion) and resulted in an unadjusted tax rate of 1.6% (2016: 28.0%). Adjusted profit for the period increased Adjusted profit for the period after taxes amounted to EUR 105.0 million in fiscal year 2017 and thus increased by 11.0% compared to the previous year (2016: EUR 94.6 million). Based on an unchanged number of shares of 31,862,400 compared to the previous year, adjusted earnings per share after deduction of the profit for the period for non-con- trolling interests amounted to EUR 3.29 (2016: EUR 2.96). The unadjusted profit for the period amounted to EUR 119.8 million and is 57.9% above the previous year’s level (2016: EUR 75.9 million) due to non-cash one- time tax effects in connection with the reduction of the US tax rate. Unadjusted earnings per share for 2017 amounted to EUR 3.76 (2016: EUR 2.38). Overall, the after-tax adjustment effect amounted to EUR – 14.8 million (2016: EUR 18.7 million). T 016: ADJUSTMENTS, P. 64 G 017 COST OF MATERIALS AND COST OF MATERIALS RATIO (ADJUSTED) G 018 ADJUSTED EBITA AND ADJUSTED EBITA MARGIN 500 400 300 200 100 0 Cost of materials (in EUR mill, LHS) Material cost ratio (in %, RHS) 100 250 Adjusted EBITA (in EUR mill, LHS) Adjusted EBITA margin (in %, RHS) 100 352.9 39.4 2016 418.6 41.2 2017 80 60 40 20 0 200 150 100 50 0 157.5 17.6 2016 174.5 17.2 2017 80 60 40 20 0 66 NORMA Group SE – ANNUAL REPORT 2017B047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related PartiesCONSOLIDATED MANAGEMENT REPORT good business development in the fourth quarter of 2017. In addition, NORMA Group conducts active working capital management and participates in reverse factoring and an Asset Backed Securities (ABS) program. As a result and due to ongoing optimi- zation, the working capital ratio improved to 15.6% (Dec 31, 2016: 16.1%). Lower net debt Net debt (financial liabilities, including derivative hedging instruments in the amount of EUR 1.4 million, less cash and cash equivalents) amounted to EUR 344.9 million at the end of the reporting period and thus fell by 12.5% compared to the previous year (Dec 31, 2016: EUR 394.2 million). Increased equity ratio Consolidated equity amounted to EUR 534.3 million as of December 31, 2017, an increase of 10.5% compared to the previous year (Dec 31, 2016: EUR 483.6 million). The increase in equity was largely due to the result for the period of EUR 119.8 million. Neg- ative currency translation differences of EUR 35.8 mil- lion and the dividend payment of EUR 30.3 million in the second quarter of 2017 reduced equity. At the end of fiscal year 2017, total assets were nearly the same as in the previous year, while the equity ratio was higher at 40.7% (2016: 36.2%). Financial liabilities amounted to EUR 500.2 million as of the balance sheet date and thus fell by 10.7% compared to the previous year (Dec 31, 2016: EUR 559.8 million). The decline in loans is partly due to exchange rate effects on the US dollar tranches of syndicated loans and promissory note loans and scheduled repayments. The increase in other financial liabilities without leasing by EUR 8.3 million to EUR 10.4 million (2016: EUR 2.1 million) is mainly the result of recognition of a purchase price liability as well as the recognized liabilities for the option to acquire the remaining minority interests in connection with the acquisition of Fengfan. Asset position Total assets Total assets as of December 31, 2017, amounted to EUR 1,312.0 million and were therefore a slight 1.9% lower compared to the previous year (Dec 31, 2016: EUR 1,337.7 million). Assets impacted by acquisitions and currency effects NORMA Group’s non-current assets amounted to EUR 825.5 million as of December 31, 2017, down 5.7% on the previous year (Dec 31, 2016: EUR 875.0 million). Changes in non-current assets were impacted by the acquisitions of the two companies Lifial and Fengfan and currency effects, particularly in relation to the US dollar. NOTES, P. 148 Current assets amounted to EUR 486.6 million as of the balance sheet date, up 5.2% on the previous year (Dec 31, 2016: EUR 462.7 million). The increase is mainly attributable to the increase in inventories of EUR 11.3 million and a EUR 28.5 million increase in trade and other receivables. Cash and cash equivalents amounted to EUR 155.3 million as of December 31, 2017, down 6.2% on the previous year (Dec 31, 2016: EUR 165.6 million). G 019 ASSET AND CAPITAL STRUCTURE IN EUR MILLIONS Assets Non-current assets The share of non-current assets to total assets amounted to 62.9% as of the balance sheet date. Consequently, current assets accounted for a share of 37.1%. 2017 825 2016 875 Current assets Liquid assets 332 155 1,312 297 166 1,338 Working Capital (Trade) working capital (inventories plus receivables less liabilities, both primarily from trade payables and trade receivables) amounted to EUR 158.2 million as of December 31, 2017, which was 9.5% higher than in the previous year (Dec 31, 2016: EUR 144.5 mil- lion). This was mainly influenced by an increase in all three metrics, which resulted in particular from the 0 250 500 750 1,000 1,250 1,500 Liabilities Equity 534 2017 2016 484 Non-current liabilities Current liabilities 544 640 234 1,312 214 1,338 0 250 500 750 1,000 1,250 1,500 67 NORMA Group SE – ANNUAL REPORT 2017B047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related PartiesCONSOLIDATED MANAGEMENT REPORT Gearing (net debt in relation to equity) was 0.6 and thus below the level of the previous year (2016: 0.8) due to the effects described above. Leverage (net debt excluding hedging derivatives in relation to the adjusted EBITDA of the last 12 months) also declined to 1.7 at the end of the year (Dec 31, 2016: 2.1). Non-current and current liabilities Non-current liabilities decreased by 15.0% to EUR 544.0 million in the reporting period (Dec 31, 2016: EUR 640.3 million) and amounted to 41.5% of total assets as of the balance sheet date (Dec 31, 2016: 47.9%). This was mainly due to the partial reclassi- fication of the promissory note loan according to its maturity to the current loan liabilities as well as the previously described currency effects. In addition, deferred income tax liabilities declined by EUR 41.3 million or 40.6% to EUR 60.5 million (Dec 31, 2016: EUR 101.8 million), mainly due to the tax reform in the US. Due to the reclassification of loans described above, current liabilities increased by 9.3% to EUR 233.8 million compared to the end of the year (Dec 31, 2016: EUR 213.8 million). They accounted for 17.8% of total assets (2016: 16.0%). Unrecognized intangible assets NORMA Group’s rights to its brands and patents on the brands it owns, but also customer relationships, if acquired externally, are recognized in the balance sheet as intangible assets. However, the reputation of these brands and how well known they are among its customers also play important roles in the success of its business. Well-established customer relationships that are based on NORMA Group’s distribution net- work that has continually grown over the course of many years are equally important. The know-how and experience of NORMA Group employees also play important roles in the Company’s success. The many years of research and development expertise and project management know-how are also seen as competitive advantages for NORMA Group. These val- ues are not recognized in the balance sheet. In order to reduce interest rate risks that could result from the external financing components, USD interest rate hedges of nominal EUR 60.2 million were con- cluded in the fiscal year. NOTES, P. 158 Financial management Financial measures NORMA Group monitors risks from changes in exchange and interest rates on a regular basis and aims at limiting them by using derivative structures among others. Furthermore, NORMA Group generally strives to achieve a diversification of its financing instruments in order to reduce risks. These also include prolongation of repayment obligations and an even distribution of the maturity profile. Most of the supply and service relationships between individual currencies are simultaneously hedged over the course of the year. As of the reporting date December 31, 2017, the revolving line of credit in the amount of EUR 50 million in the syndicated loan had not been used. Further- more, a so-called accordion facility was also negoti- ated in the loan agreement, which had also not been used. This enables NORMA Group to take out loans from other banks up to a maximum volume of EUR 250 million and thus extend its overall credit line. As of December 31, 2017, the average interest rate on total gross debt was 2.36%. NORMA Group‘s maturity profile for all three promissory notes I (2013), II (2014) and III (2016) and the syndicated credit line (2015) on December 31, 2017, was as shown in the GRAPHICS 020 AND 021 ON P. 69. As of the balance sheet date in 2017, NORMA Group complied with all of the conditions contained in the loan contracts (financial covenants: debt in relation to consolidated EBITA). Future concrete financing steps will depend on the current changes in the financing markets and acquisi- tion potentials. Development of cash flow Net operating cash flow In 2017, NORMA Group generated net operating cash flow (adjusted EBITDA less changes in working capital and operating expenses) of EUR 132.9 million (2016: EUR 148.5 million). NORMA Group initiated further measures to optimize its financing structure in fiscal year 2017. It made use of the second extension option of the syndicated credit line and postponed the maturity date until 2022. The originally contracted reduction of the accordion facility was also cancelled by a contract amendment. The accordion facility therefore contin- ues to have a maximum volume of up to EUR 250 mil- lion, while the term of the syndicated credit facility will remain identical until 2022. This will provide the highest level of financing flexibility. Cash flow from operating activities Cash flow from operating activities, which is derived indirectly from the profit for the period, amounted to EUR 146.0 million in fiscal year 2017 (2016: EUR 149.2 million). This was mainly influenced by the increase of the working capital, which is attributable to the increased business activity. By contrast, the higher profit for the period had a positive effect. NORMA Group participates in a reverse factoring program, a factoring program and an ABS program. 68 NORMA Group SE – ANNUAL REPORT 2017B047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related PartiesCONSOLIDATED MANAGEMENT REPORT G 020 MATURITY PROFILE BY CURRENCY G 021 MATURITY PROFILE BY FINANCIAL INSTRUMENTS IN EUR MILLIONS IN EUR MILLIONS stackcol.faelligkeiten.typ-EN.pdf 1 19.03.18 19:42 79 4 27 4 29 30 51 50 11 51 51 14 Euro US dollar 63 103 45 42 26 29 33 5 5 5 5 Bank Borrowings Promissiory Note 1 Promissiory Note 2 Promissiory Note 3 65 41 21 45 42 2018 2019 2020 2021 2022 2023 2024 2025 2026 2018 2019 2020 2021 2022 2023 2024 2025 2026 The corresponding cash flows are presented under cash flow from operating activities as this reflects the economic substance of the transactions. The total amount of trade receivables sold within the fac- toring and ABS programs amounted to EUR 24.2 million in the fiscal year (2016: EUR 24.4 million). The payments for share-based payments amounting to EUR 4.0 million (2016: EUR 2.5 million) reported in cash flow from operating activities result from the cash remuneration of the 2013 tranche of the Management Board’s Matching Stock Program and the Long-Term Incentive Program (LTI) for employees. NOTES, P. 160 and P. 161 Cash flow from operating activities is corrected by non-cash income from the valuation of hedging deriv- atives in the amount of EUR – 4.6 million (2016: expenses of EUR 2.4 million) relating to the change in the fair value of foreign currency derivatives and financing activities and interest expense from the application of the effective interest method in the amount of EUR 0.4 million (2016: EUR 0.4 million). In addition, other cash expenses and income include expenses of EUR 5.9 million (2016: income of EUR – 1.6 million) from the currency translation of external financing liabilities as well as intercompany monetary items. Cash flow from investing activities In fiscal year 2017, cash outflow from investing activities amounted to EUR 70.8 million (2016: EUR 133.8 million). This includes net payments for acquisitions amounting to EUR 23.7 million (2016: EUR 87.6 million). These relate to payments for the acquisition of Feng- fan (EUR 12.2 million), the acquisition of Lifial (EUR 11.9 million) and payments related to the acquired Autoline business (EUR 1.1 million). In addition, cash flow from investing activities was influenced in particular by the cash outflow for the acquisition of non-current assets in the amount of EUR 47.9 million (2016: EUR 47.0 million). This figure includes the change in liabilities for the acquisition of intangible assets and tangible assets in the amount of EUR 0.2 million (2016: EUR – 0.6 million). The investments made for property, plant and equip- ment and intangible assets in the fiscal year in the amount of EUR 47.7 million (2016: EUR 47.6 million) include expenditures for expansion (EUR 28.5 million) as well as expenses for the extension and improve- ment of operating capacities (EUR 19.1 million). NORMA Group’s investing activities in fiscal year 2017 (tangible and intangible assets) in the amount of EUR 47.7 million (2016: EUR 47.9 million) represents an investment ratio of 4.7% (2016: 5.4%) of sales. NORMA Group is investing the funds from operating cash flow in further growth. The investments made in the 2017 reporting year related to production facilities and capacity expansion, mainly in the US, Mexico, Poland, Serbia, Germany, the United Kingdom and China. PRODUCTION AND LOGISTICS, P. 71 69 NORMA Group SE – ANNUAL REPORT 2017B047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related PartiesCONSOLIDATED MANAGEMENT REPORT includes net repayments of Cash flow from financing activities Cash flow from financing activities amounted to EUR – 77.7 million in 2017 (2016: EUR 49.6 million). This mainly loans (EUR – 42.3 million), payments for dividends to the shareholders of NORMA Group SE (EUR – 30.3 mil- lion), interest payments (EUR – 13.7 million) as well as payments from derivatives (EUR 4.9 million). As part of the acquisition of Fengfan, contributions from the existing shareholders from outstanding capital contri- butions to a newly acquired subsidiary in the amount of EUR 3.9 million were also shown under cash flow from financing activities. G 022 BREAKDOWN OF SALES BY SEGMENT 1 Asia-Pacific: 12% (9%) Americas: 40% (43%) EMEA: 48% (48%) 1_Previous year‘s values in brackets. Segment reporting As a result of acquisitions and developing new mar- kets in line with NORMA Group’s continuing strategy of internationalization, the share of sales realized internationally increased from 78.8% to 80.3%. Due to the fact that financing as a whole is controlled centrally and financing is exclusively available through approved external credit facilities by the central func- tions of NORMA Group, the Company forgoes publish- ing a separate list of financing by segments. In every segment, the aim is to achieve an investment ratio and cash generation that is in line with the Group average in the medium-term. GOALS REGARDING FINANCE AND LIQUIDITY MANAGEMENT, P. 54 EMEA External sales in the EMEA region amounted to EUR 485.9 million in 2017, up 12.5% on the previous year (2016: EUR 432.0 million). Organic growth was 6.2%, mainly due to the good development of the EJT busi- ness and the high demand of the European automo- tive industry for joining products. The Portuguese company Lifial that was acquired in January 2017 and the French Autoline business, acquired at the end of 2016, contributed EUR 29.3 million to the growth in sales. In addition, there were slightly negative cur- rency effects of – 0.5%. T 019 DEVELOPMENT OF SEGMENTS IN EUR MILLIONS Total segment sales External sales Contribution to consolidated sales (in %) Adjusted EBITDA 1 Adjusted EBITDA margin (in %) 2 Adjusted EBITA 1 Adjusted EBITA margin (in %) 2 1_The adjustments are described in the Notes. 2_In relation to segment sales. NOTES, P. 139 70 EMEA Americas Asia-Pacific 2017 527.9 485.9 48 105.5 20.0 93.9 17.8 2016 Δ in % 459.0 432.0 48 93.7 20.4 83.5 18.2 15.0 12.5 n/a 12.6 n/a 12.5 n/a 2017 423.1 411.3 40 84.5 20.0 75.6 17.9 2016 Δ in % 390.3 381.6 43 83.1 21.3 75.2 19.3 8.4 7.8 n/a 1.8 n/a 0.6 n/a 2017 124.2 119.9 12 19.1 15.4 15.7 12.6 2016 Δ in % 84.1 81.3 9 11.7 13.9 9.0 10.7 47.7 47.6 n/a 63.6 n/a 74.1 n/a NORMA Group SE – ANNUAL REPORT 2017B047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related PartiesCONSOLIDATED MANAGEMENT REPORT The EMEA region’s share of total sales in fiscal year 2017 remained constant at 48% compared to the previous year. was 17.9% (2016: 19.3%). Here, too, higher material costs for metal and engineering plastics were the rea- sons for the decline in margins. Adjusted EBITDA in the EMEA region improved by 12.6% to EUR 105.5 million (2016: EUR 93.7 million). The adjusted EBITDA margin of 20.0% was slightly lower than in the previous year (2016: 20.4%). Adjusted EBITA amounted to EUR 93.9 million (2016: EUR 83.5 million), an increase of 12.5%. At 17.8%, the adjusted EBITA margin was slightly below the pre- vious year’s level (2016: 18.2%). The main reason for PURCHASING AND this was the higher cost of materials. SUPPLIER MANAGEMENT, P. 73 Assets rose by 8.0% to EUR 601.3 million compared to the previous year (2016: EUR 556.9 million), partly due to the acquisition of Lifial. Investments amounted to EUR 22.9 million (2016: EUR 20.0 million) and mainly related to investments in new machinery and production facilities in Germany, Serbia, Poland and the United Kingdom. Americas External sales in the Americas segment increased by 7.8% to EUR 411.3 million in fiscal year 2017 (2016: EUR 381.6 million). The significant recovery of the US commercial vehicle and agricultural machinery busi- ness and the good performance of the passenger car business contributed to organic growth of 8.4% in the Americas. In addition, the Mexican Autoline busi- ness contributed 1.5% to sales growth. Currency effects related to the US dollar had a negative impact of 2.1%. Adjusted EBITDA for the Americas region was EUR 84.5 million in 2017, up 1.8% on the previous year (2016: EUR 83.1 million). The adjusted EBITDA mar- gin amounted to 20.0% (2016: 21.3%). Adjusted EBITA increased by 0.6% to EUR 75.6 million (2016: EUR 75.2 million), while the adjusted EBITA margin Assets decreased by 10.9% year-on-year to EUR 599.9 million (2016: EUR 673.2 million) mainly as a result of currency effects. At EUR 16.3 million, investments were slightly below the level of the previous year (2016: EUR 16.9 million). Investment focuses included the plants in the US and Mexico. PRODUCTION AND LOGISTICS, P. 71 Asia-Pacific External sales in the Asia-Pacific region amounted to EUR 119.9 million in 2017, up 47.6% on the previous year (2016: EUR 81.3 million). Organic growth was 22.7%, mainly driven by strong EJT sales growth fueled by stringent emission standards and strong demand for joining technology in the Asian automotive industry. In addition, the recent acquisition of Fengfan and the Chinese Autoline business contributed 27.5% to sales growth. Currency effects had a negative impact on growth at 2.6%. Adjusted EBITDA in the Asia-Pacific region rose by 63.6% to EUR 19.1 million (2016: EUR 11.7 million). The adjusted EBITDA margin improved again and stood at 15.4% (2016: 13.9%). Adjusted EBITA increased to EUR 15.7 million (2016: EUR 9.0 million), which resulted in a higher adjusted EBITA margin of 12.6% (2016: 10.7%). Assets increased by 33.3% to EUR 159.1 million in the year under review (2016: EUR 119.3 million). This is attributable in particular to the continued growth of the operating business and the acquisition of Fengfan. Investments, which amounted to EUR 7.0 million in 2017 (2016: EUR 5.5 million), were mainly used to PRODUCTION AND expand the sites in China. LOGISTICS, P. 71 PRODUCTION AND LOGISTICS NORMA Group manufactures and markets more than 40,000 different products and has 27 produc- tion sites all over the world. Furthermore, the Com- pany has a network consisting of numerous distri- bution, sales and competence centers that supply to its customers in the respective regions. In the reporting year 2017, NORMA Group acquired the business of the Portuguese clamp manufacturer Lifial and the Chinese company Fengfan that spe- cializes in joining products. Production and capacity utilization The capacity utilization of NORMA Group’s manufac- turing and storage facilities varies from site to site. In markets such as the emerging countries of Asia and South America (excluding China), where NORMA Group’s business is still being developed, the area- related utilization of production plants is currently rel- atively low. This can be attributed to the fact that investment decisions are planned in advance to ensure that sufficient production space is available to be able to expand production capacity in a flexible manner. In industrial nations and the markets in which NORMA Group already has a long-term market posi- tion and the plants are largely working to capacity, an attempt is made to avoid investing in additional man- ufacturing space whenever possible. Instead, the goal is to optimize the current manufacturing processes by improving efficiency in order to be able to use the existing space to create additional capacity. This was also the focus in the reporting year 2017. The capacity utilization of manufacturing plants can be ramped up flexibly to suit customer demand and the order situation. Within each product category, a wide variety of different products with different spec- ifications can be manufactured at the existing plants by performing only minor conversion measures. Thus, production can be optimally adapted to suit customer demand. 71 NORMA Group SE – ANNUAL REPORT 2017B047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related PartiesCONSOLIDATED MANAGEMENT REPORT Investment in capacity expansion NORMA Group has again invested in expanding its capacity during the reporting year. The main invest- ments are shown in the TABLE 020. Continuous optimization of the entire value chain At NORMA Group, all internal processing steps in the value chain are constantly analyzed for optimization potential. The Global Operational Excellence Manage- ment System represents an essential tool here that helps to analyze existing processes, identify potential for improvements, introduce the appropriate mea- sures for implementation and realize cost saving pro- jects. As a result, many processes have already been automated and standardized in recent years, so that significant economies of scale have been achieved. NORMA Group introduced the NORMA Group Produc- tion System (NPS) in 2014, which has been rolled out throughout the Group. The objective of the NPS is to increase productivity and enable further cost savings. NORMA Group also uses lean methods of process optimization. These include, for example, the 5S methodology for optimizing workplaces, the introduc- tion of standardized work, the visualization of various KPIs and the daily Gemba walk. Furthermore, meth- ods for optimizing the material flow (KANBAN) and set-up time (SMED) are used. PRODUCTION, P. 14 Software-based support for important business trans- actions is provided by a uniform ERP system. The use of a standardized system enables NORMA Group to harmonize and integrate all processes, which is of particular importance in the context of rapid Group growth and the many acquisitions in recent years. Customer focus and secure supply chain In order to optimize its logistics costs, NORMA Group always strives to keep the geographical distances in the value chain as short as possible and avoid non value-adding intermediate steps via other NORMA T 020 INVESTMENT HIGHLIGHTS IN 2017 Region Country City Investments EMEA Germany Maintal Investment in new assembly line for quick connectors to support large customer order starting in 2017 › › Overhauling of cold forming presses to improve productivity and reduce scrap Gerbershausen Serbia Subotica › › Investment in three new assembly machines to enable insourcing activity and reduce external and transport costs Installation of injection molding machines to enable localized production and improve productivity and transport costs › Establishment of corrugated extrusion capacity to support new customer projects Poland Pilica › Establishment of test laboratory for fluid systems including pressure, vibration and temperature › test equipment Installation of injection molding machines to enable localized production, improving productivity and lowering transport costs UK Newbury › › Investment in new 200-ton press to increase capacity Investment in automatic VPP line to increase productivity Americas USA Auburn Hills, Michigan › Final installation of Super Seal equipment › Tooling upgrades to expand capacity and improve quality › Investment in corrosion chamber for test laboratory St. Clair, Michigan Lake Orion, Michigan Investment in new assembly machines to support growth › › Investment in new molding tools to support new customer projects › Upgrade of assembly machine to improve productivity and quality › Investment in packaging equipment for new customer acquisitions Mexico Monterrey › › › Investment in additional molding machine to support new projects ‘Aging’ test cell to improve test capabilities Investment in additional SCR assembly lines for new customer projects Juárez Investment in automation of profile clamp production › › Transfer of quick latch production into Juárez Asia-Pacific China Qingdao › Investment in extrusion line to produce heating wires for SCR systems in order to support EURO 6 implementation in China › Investment in additional conveyor oven to support new customer projects › Expansion of testing capabilities by installing additional burst test equipment Changzhou › Investment in automatization of production of worm drive hose clips Group sites. The goal is therefore to always manufac- ture in the regions that its customers are based in. This not only optimizes working capital and lowers logistics costs, but also minimizes delivery risks and reduces negative impacts on the environment. Despite these efforts, cross-border deliveries are still indispensable for NORMA Group in many places, therefore optimized and secure customs processes are extremely important in order to flexibly react to customer requirements. For this reason, NORMA Group participates in various customs and trade part- nership programs, e.g. in the US, China and the EU. By participating in an export control program that is part of the global compliance program, NORMA Group ensures that its supply chain meets all of the legal requirements. By reviewing all of its business partners on a regular basis, NORMA Group is able to rule out 72 NORMA Group SE – ANNUAL REPORT 2017B047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related PartiesCONSOLIDATED MANAGEMENT REPORT deliveries to legally sanctioned third parties. In addi- tion, compliance with the relevant legal regulations on export control is ensured through internal organiza- tional procedures and regular checks. QUALITY MANAGEMENT Many of the products supplied by NORMA Group are used in ‘mission-critical’ applications and therefore any quality defects or functional failures have the potential to significantly impact customers or end users. It is a clear business imperative that NORMA Group consistently delivers products that meet and surpass all customers’ quality needs and expectations. To support this objective and ensure a global and standardized approach to quality, all NORMA Group manufacturing locations1 are accredited in accor- dance with either ISO 9001 or TS 16949. In addition, two manufacturing sites that supply the aerospace industry are accredited in accordance with EN 9100. Compliance with these industry-recognized standards ensures that NORMA Group continuously strives for improvement in every aspect of business and puts customers at the center of all activities. NORMA Group has a global operating footprint, which brings with it the challenge of recognizing and under- standing customer diversity, along with the many spe- cific standards and market requirements that vary by region. This challenge is met via localized manufac- turing solutions in conjunction with standardized NORMA Group tools, such as the Quality Management software, which forms an integral part of the new Mi c- rosoft ERP system currently being rolled out across the entire Group. NORMA Group uses a number of metrics to measure customer quality, satisfaction and delivery perfor- mance. The most important key performance indica- tors are the number of defective parts shipped, expressed in parts per million (PPM), and the aver- age number of quality-related complaints reported by the customer. The number of defective parts per million (PPM) recorded in 2017 was 16. This is a significant improvement from the 32 (PPM) reported in 2016, but more importantly there is a consistently improving trend over the last several years. While the actual number of customers increased sig- nificantly due to the acquisitions of Autoline, Lifial and Fengfan, the average number of quality-related cus- tomer complaints for 2017 increased only marginally to 9 from the 8 reported in 2016. PURCHASING AND SUPPLIER MANAGEMENT Material costs represent the highest cost position for NORMA Group. As they significantly affect the Group’s profits, purchasing and supplier management both play a decisive role in the success of the Group. The most important goals are to reduce price risks and leverage economies of scale within the Group through proactive management of the direct and indirect costs of materials and services purchased. Global Group structure and regional expertise Purchasing and supplier management at NORMA Group are organized primarily on the basis of the fol- lowing three higher level commodity groups: › Steel and metal components (various grades/materials) › Resins, plastic and rubber products › Capital goods, non-production materials and services The commodity organization is integrated into NORMA Group plants worldwide in the form of a matrix struc- ture. Purchasing at NORMA Group is controlled cen- trally for all domestic and foreign Group companies, while regional or local teams contribute their specific knowledge of local market conditions and typical regional cost drivers. Due to the high degree of pro- fessionalism and the combination of global, regional and local purchasing management, materials and services can be purchased much more competitively; costs can therefore be reduced quite significantly. Using e-procurement solutions allows for more effi- cient purchasing management. Development of material prices in fiscal year 2017 Costs of materials amounted to EUR 418.6 million in fiscal year 2017 (2016: EUR 352.9 million) or 41.2% (2016: 39.4%) of sales. This means that the material cost ratio rose from the previous year due to the price increase of raw materials. The purchasing turnover, the KPI used for internal control, which is adjusted for currency effects, was around EUR 433 million (2016: 1_ Acquisitions have a nominal 12-month target for accreditation. NDS is the only manufacturing site not yet accredited, however ISO 9001 is planned for the fourth quarter of 2018. 73 NORMA Group SE – ANNUAL REPORT 2017B047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related PartiesCONSOLIDATED MANAGEMENT REPORT G 023 PRICE DEVELOPMENT TECHNICAL POLYMER (PA66) IN EUROPE IN EUR/T 3,500 PA66 Polymer (EUR/t) 3,000 2,500 2,000 Jan 2016 Mar 2016 Jun 2016 Sep 2016 Dec 2016 Mar 2017 Jun 2017 Sep 2017 Dec 2017 G 024 DEVELOPMENT OF NICKEL PRICES AND THE ALLOY SURCHARGE 1.4301 Alloy surcharges of flat products 1.4301 X5CrNi18-10 Europe (Outokumpu) in EUR (from EUR, RHS) Nickel LME in EUR (from USD, LHS) 13,000 12,000 11,000 10,000 9,000 8,000 1,800 1,600 1,400 1,200 1,000 800 7,000 Jan 2016 Mar 2016 Jun 2016 Sep 2016 Dec 2016 Mar 2017 Jun 2017 Sep 2017 600 Dec 2017 74 EUR 353 million). Of this amount, EUR 296.0 million (68%) is attributable to production material sales. For the stainless steel product group, which is the most important for NORMA Group, the alloying metal nickel in particular showed a high degree of fluctua- tion in fiscal year 2017. G 024: DEVELOPMENT OF NICKEL PRICES AND ALLOY SURCHARGES The comparison price (market price) for ferro-chrome used to calculate the monthly restated alloy surcharges, reported a signifi- cant price increase in the first quarter of 2017. This led to a rise in alloy surcharges for ferritic materials to the highest in 10 years. In addition, the pricing of alloy surcharges for almost all austenitic materials was supported by higher ferrochrome prices. Base prices (purchase price for stainless steel without alloy sur- charges) were fixed in 2017 with almost no change from the previous year. In the surface-refined non-stainless steel product group, rising demand and import restrictions from the European Union led to a shortage of supply and sig- nificantly higher prices on the spot markets, which reached a 5-year high early in the second quarter of 2017. This resulted in long replenishment times and limited availability in some product segments. How- ever, due to concluded half-year contracts and planned forecasted quantities sent to suppliers, NORMA Group was able to procure sufficient material. In the second half of the year, the raw material price increases slowdown, helped to stabilize procurement conditions. The product group of technical resins was also con- fronted with price increases in the past year. G 023: PRICE DEVELOPMENT TECHNICAL POLYMER Prices for import- ant intermediates, particularly butadiene and cyclo- hexane, increased significantly. One reason was the price explosion in China, which was a consequence of the high level of smog pollution and government decommissioning of many industrial companies – especially in the aromatic petrochemical industry – which affected global prices. This unanticipated NORMA Group SE – ANNUAL REPORT 2017B047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related PartiesCONSOLIDATED MANAGEMENT REPORT development in the plastics industry led producers to add extra costs to their selling prices and some sup- pliers to adjustments to their current annual contracts with NORMA Group during the year. In the second half of the year, industrial demand for high-performance polyamides (PA 12, PA 6.6) increased noticeably. The impact of the hurricane season on the US Gulf Coast in late summer exacer- bated this, reflected not only in hefty price mark-ups and delivery bottlenecks, but also in falling global pro- duction of engineered plastics. However, NORMA Group could avoid successfully impending bottleneck situations due to its longstanding and trusting cooper- ation with important suppliers. Due to continuing high demand for technical resins in relation to production capacity, purchase prices are expected to continue to increase and delivery lead time to extend in the near future. This makes even more accurate and longer-term planning of the purchase materials all the more essential. Commodity price volatility and market consolidation have also been price drivers of other commodity prod- uct groups, especially in the area of granules, which are used in water management product manufactur- ing, among other areas. Overall conditions on the global commodity markets were generally difficult in fiscal year 2017. However, even in this challenging environment, NORMA Group was able to secure competitive prices as well as the constant supply and allocation of production material. Supplier management Constantly optimizing the selection of suppliers is yet another key task of purchasing. This is done not only on the basis of traditional criteria such as quality, price, delivery times and loyalty, but also takes impor- tant aspects of risk management and sustainable development into consideration. A centrally defined, detailed supplier evaluation system is used by all of the production plants each year. This evaluation sys- tem was revised in the previous fiscal year and expanded to include an assessment of suppliers G 025 PURCHASING TURNOVER 2017 BY MATERIAL GROUPS Indirect material (MRO): 32% Metal components: 15% Steel, wire: 14% Alloy surcharges: 6% Electronic components: 2% Others: 3% Rubber moulded parts: 6% Granules: 12% Plastic parts: 10% 75 based on sustainability criteria. The new assessment criteria was applied for the first time in fiscal year 2017. CR REPORT 2017 Supplier structure NORMA Group is taking advantage of the complexity and transaction cost-reduction opportunities result- ing from the Company’s growth and acquisitions, and has been strongly pursuing its goal of consoli- dating its supplier base since fiscal year 2017. Nev- ertheless, NORMA Group pays close attention to a balanced supplier structure and avoids dependen- cies on individual suppliers. The share of the top 10 suppliers accounted for around 32% in the fiscal year. The top 50 suppliers accounted for around 63% of the total purchasing volume of production material, amounting to EUR 296.0 million. EMPLOYEES Decentralized organization, common corporate culture The employees of NORMA Group make an important contribution to its success. Human resources man- agement and development therefore play a very important role. HR management at NORMA Group is organized in a decentralized manner to take the international nature of the business and the rapid growth of NORMA Group into account. Decentralized personnel management allows the individual sites to adapt flexibly to the local conditions and to contribute their regional expertise in personnel development and recruiting. In order to promote a uniform corporate culture, NORMA Group has formulated key guiding principles that reflect the fundamental convictions of the Com- pany. These guiding principles are taught and lived at all sites. CR REPORT 2017 NORMA Group SE – ANNUAL REPORT 2017B047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related PartiesCONSOLIDATED MANAGEMENT REPORT Development of personnel figures NORMA Group employed a staff (core workforce including temporary staff) of 7,667 in total at the end of December 2017 and thus 15% more people than in the previous year (2016: 6,664). There were 1,552 temporary workers on this date (2016: 1,214). This equates to around 20% of the total workforce. NORMA Group recorded the highest increase in employees in the Asia-Pacific region in 2017. The permanent workforce here grew by 20% to 995 employees due to the acquisition of Fengfan. In the Americas and EMEA regions, the number of employ- ees rose by 11% year-on-year. This can be attributed to the acquisition of Lifial in Portugal, organic growth and the hiring of temporary workers as permanent donut.mitarbeiter-EN.pdf 1 27.02.18 11:32 employees at NDS. G 026 BREAKDOWN OF EMPLOYEES BY GROUP Salaried Employees: 26% Indirect Employees: 19% Direct Employees: 55% Stable share of employee groups The total number of employees (permanent staff) in the reporting year consisted of 4,243 direct employ- ees (2016: 3,453), 1,414 indirect employees (2016: 1,352) and 2,009 salaried employees (2016: 1,859). The proportion of indirect and salaried employees declined slightly, while the proportion of direct employees rose accordingly compared to the previous year. While direct employees are individuals who are involved in the manufacturing process, indirect employees are employees who work in production-re- lated areas such as the quality department, for exam- ple. The group of salaried employees refers mainly to employees who hold administrative positions. Qualified workforce The employees of NORMA Group are well trained and obtain their qualifications by earning school and uni- versity degrees and by participating in professional and supplementary training. In order to maintain the high degree of innovative capacity and ensure the successful development of the Group in the future, NORMA Group invests in the training and further edu- cation of its employees. The goal is to recruit as many specialized employees as possible from one‘s own junior staff, thereby becoming more independent of the external labor market. NORMA Group also cooper- ates closely with universities. Uniform global talent promotion The ‘Learning & Development’ competence center was set up with the aim of identifying, retaining and developing talents within the Group. The competence center acts as an internal consultant to the local HR departments, executives and employees. The focus of the initiative is on the conception and supply of development processes and programs that can be used worldwide, which are aligned with NORMA Group’s Company values and growth targets. In order to promote learning at the workplace and the individ- ual development of its employees, direct supervisors as well as internal mentors and coaches are made available. As part of the project, various local and regional human resources development methods have been integrated into a global portfolio. This ensures uniform global talent promotion for all NORMA Group employees. Numerous training opportunities for career entrants Besides accompanying courses of studies in the areas of business engineering, mechanical engineering, mechatronics and business administration, NORMA Group also offers internships for students in all depart- ments and regions. Furthermore, young people are trained in various technical and commercial areas. Exchanges of personnel: More communication, better understanding NORMA Group will continue to grow internationally in the future, both organically and through acquisitions. In order to be able to integrate new parts of the Group, the individual sites need to work together efficiently. Thus communication that functions well is essential. To encourage this, NORMA Group offers several exchange programs for its employees, from one to three-month so-called to ‘Long-Term-Assignments.’ Expert personnel and managers who participate in this initiative bring spe- cial skills and experience to the new sites and, at the same time, benefit from the know-how of their local colleagues. Through these projects, NORMA Group promotes the internal transfer of knowledge, intercul- tural awareness, the establishment of networks and the individual development of the participants. ‘Bubble-Assignments’ 76 NORMA Group SE – ANNUAL REPORT 2017B047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related PartiesCONSOLIDATED MANAGEMENT REPORT Rewarding performance NORMA Group strives to attract and retain qualified and committed employees. By holding regular bench- marks, NORMA Group ensures that its employees are paid market-oriented salaries and wages based on their responsibilities. The remuneration system also contains variable remuneration elements to encour- age employees to take an interest in the further devel- opment of the Company and share in its economic success. For tariff and non-tariff employees in Ger- many, this is based on important financial perfor- mance indicators, for example. Moreover, the per- sonal achievements of employees also play a role in remuneration. T 021 CORE WORKFORCE BY SEGMENT EMEA Americas Asia-Pacific Total Feedback culture – employees express their opinions In the interest of a continuous analysis and improve- ment process, NORMA Group has been conducting regular employee surveys since 2008. The focus of this central feedback tool is on the Company’s strengths and weaknesses from an employee per- spective, employee satisfaction, as well as the quality of leadership and cooperation. Further information can be found in the CR Report. CR REPORT 2017 Healthy team – healthy company A productive company like NORMA Group depends on having healthy and satisfied employees. For this rea- son, NORMA Group supports its employees’ health by conducting various activities. For example, the Maintal site offers measures such as skin screening, blood fat measurements, inoculation advice, tests on lung func- tion, cardiovascular disease prevention, back training and flu vaccinations. Occupational health and safety is of the highest priority NORMA Group is fully committed to ensuring the health, safety and wellbeing of all of its employees and puts great focus and emphasis on this topic in all of its activities. 2017 3,545 1,575 995 6,115 in % 58 26 16 2016 3,202 1,418 830 5,450 in % 59 26 15 The Company complies with all existing legislative and regulatory requirements relating to health and safety, but also goes further with a number of actions and initiatives to proactively manage and minimize poten- tial risks. NORMA Group fully endorses the indus- try-recognized standard OHSAS 18001 (Occupational Health and Safety Assessment Series). stackcol.mitabeiterentwicklung-EN.pdf 1 06.03.18 10:48 G 027 PERSONNELL DEVELOPMENT AT NORMA GROUP Core workforce Temporary staff 4,252 837 4,485 726 3,415 3,759 4,947 813 4,134 5,975 1,147 6,306 1,185 6,664 1,214 7,667 1,552 4,828 5,121 5,450 6,115 2011 2012 2013 2014 2015 2016 2017 There are now 20 out of 27 production sites accred- ited in accordance with OHSAS 18001 with plans to ensure that all manufacturing locations will be accred- ited in the medium-term. In 2017, NORMA Group has been continuing with its innovative ‘Value-Based Safety’ program which audits and assesses associated behaviors to proactively identify improvement opportunities. This is also in conjunction with regular scheduled plant and equip- ment audits with results and action plans being devel- oped and monitored locally and at Group level. 77 NORMA Group SE – ANNUAL REPORT 2017B047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related PartiesCONSOLIDATED MANAGEMENT REPORT MARKETING In order to further increase awareness of NORMA Group’s products all over the world, boost product sales, strengthen its customer relationships and thus contribute to the Group’s growth, NORMA Group’s long-term marketing strategy is based on the follow- ing objectives: › Building a strong NORMA Group image › Decentralizing marketing activities › Optimizing the brand portfolio › Optimizing marketing tools › Gaining a better understanding of market needs In order to be able to focus on its end markets and customers as much as possible, NORMA Group aligns all of its marketing activities to address local market conditions and consumer habits in its respective regions and markets. The regional marketing units are responsible for executing the various activities and synchronizing them with NORMA Group’s operative objectives. NORMA Group’s goal is to increase the efficiency of its production processes, lower its energy consump- tion over the long term, and reduce waste. The long- term cost savings associated with this contribute to the economic efficiency of the Group. The core ele- ments of NORMA Group’s environmental strategy and measures pertaining to their implementation are pub- HTTPS://WWW.NOR- lished in the 2020 CR Roadmap. MAGROUP.COM/CR Group-Wide Environmental Management System In 2017, NORMA Group continued with the implemen- tation of the Group-wide Environmental Management System that the Company had first introduced in 2013. At the end of the reporting period, most of the production sites had been certified according to ISO 14001. The certifications of NDS and the newly acquired company Lifial and Fengfan are planned with an agreed timeframe. col.unfall-DE.pdf 1 21.02.18 15:54 G 028 INCIDENT RATE REPORTABLE INCIDENTS PER 1,000 EMPLOYEES Incident rate at a sustainable low level NORMA Group constantly monitors and analyzes its accident statistics. The number of work-related acci- dents, ranging from near miss incidents to report- able accidents, are recorded and monitored on a Group-wide basis each month and reviews take place at the local, regional and Group levels. All reportable accidents are communicated at Board level with lessons learned systematically shared across the whole Company. The incident rate, which is the number of reportable accidents per 1,000 employees, represents the most important indicator. This figure was 6 for the 2017 reporting year, which is a significant reduction from 8 reported in 2016. G 028: INCIDENT RATE The recent acquisitions (Autoline, Lifial and Fengfan) led to an increase in Group headcount with no adverse effect on the overall positive trend of the incident rate. NORMA Group has a clear long-term commitment to deliver and sustain an accident-free working environment. ENVIRONMENTAL PROTECTION AND ECOLOGICAL MANAGEMENT As a manufacturing Company, NORMA Group is well aware of its environmental, economic, and social responsibility. Environmentally compatible and sustainable economic activity is therefore a central element of its corporate strategy. For this reason, the Company considers it important to sys- tematically include environmental aspects in its business decisions. 22 14 10 11 10 10 5 8 6 2009 2010 2011 2012 2013 2014 2015 2016 2017 78 NORMA Group SE – ANNUAL REPORT 2017B047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related PartiesCONSOLIDATED MANAGEMENT REPORT Marketing expenditures Marketing expenditures amounted to a total of EUR 4.24 million in 2017 and thus were slightly lower than in the previous year (2016: EUR 4.7 million). G 029 MARKETING EXPENDITURES 2017 BY SEGMENT 1 Group: 29% Asia- Pacific: 3% EMEA: 14% Americas: 54% 1_Excluding personnel expenses. Marketing focus in 2017 Key marketing activities in 2017 included the following: › Increasing digital presence regionally and locally to support NORMA Group’s image building › Defining a digital roadmap until 2021 › Renewing marketing competences in all three regions › Market surveys supporting Key Sales Initiatives In order to increase NORMA Group’s Internet pres- ence, several new micro websites highlighting either a specific brand or a specific business unit were launched in different languages in 2017. Further- more, a strategic digital roadmap, which will be rolled out in 2018, has also been developed in order to secure NORMA Group’s future digital online presence. Besides these digital and online efforts, another focus was on traditional marketing activities such as orga- nizing Tech Days at customer sites and participating in fairs and exhibitions in order to promote NORMA Group’s product solutions to their targeted markets. In 2017, NORMA Group organized five Tech Days and participated in 62 trade fairs. To ensure a deep understanding of customer expecta- tions and needs, marketing strongly increased its efforts in market research with a focus on key sales initiatives. Significant effort has also been given to investigating the potential of the e-mobility market. 79 NORMA Group SE – ANNUAL REPORT 2017B047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related PartiesCONSOLIDATED MANAGEMENT REPORT Forecast Report GENERAL ECONOMIC AND INDUSTRY-SPECIFIC CONDITIONS will see a strong overall upswing in 2018 (4.9%) and 2019 (5.0%). Global economy to continue strong recovery unless risks escalate The International Monetary Fund (IMF) reaffirmed its latest forecast with its outlook in January 2018. It projects that the strong revival of the global economy will continue. The IMF now expects global growth of 3.9% for 2018 and 2019 (previously: 3.7% each). Growth in industrialized countries should remain strong during this period. The US will be a significant growth driver. Much of the momentum, however, will come from emerging markets, where expansion is picking up speed. The prerequisite for this positive global development is that the risks remain manage- able and not overshadow the economy as they have most recently. Primary risk factors include protection- ism, the ongoing conflicts in North Africa, the Middle East and Korea and the uncertain outcome of the Brexit process. Turbulence on the currency and capital markets (equities, cryptocurrencies) cannot be ruled out either. The long-term upswing of these markets will continue to be susceptible despite very strong economic data. The Chinese government will advance its national economy’s transformation in favor of the domestic economy and advanced technologies. The country’s high levels of public and private debt lead the IMF to expect its expansion rate to flatten to 6.6% (2018) and 6.4% (2019). The ASEAN 5 countries are expected to show consistently high growth rates of 5.3% in 2018 and 2019. Drivers remain infrastructure invest- ments and growing exports. India’s recovery is likely to overcome the temporary pressure for reform and, according to the IMF, to show growing momentum, with growth rates well above 7%. Brazil and Russia will continue to recover in 2018 and 2019, but at a more moderate pace compared to other emerging markets. Emerging markets and developing countries Buoyant forces will continue to strengthen in industri- alized countries. Besides private consumption and lively construction activity in some areas, a strong economy will also be supportive. Industrial production and investment activity will provide stimulus. The IMF expects continued high overall growth of 2.3% in 2018 for these countries and a similarly high expan- sion rate of 2.2% in 2019. The massive tax cuts in the US should already have a positive impact on the economy in the industrialized countries in the short term. The IMF expects the US economy to continue to grow at a rate of 2.7% in 2018. The US economy should grow strongly by 2.5% the following year as well, supported by high government spending. The upswing in the Japanese economy should remain very moderate and is likely to lose steam after government incentives expire. For the UK, the IMF is forecasting subdued growth rates of 1.5% each in 2018 and 2019 due to Brexit pressure. The euro zone will benefit from the strong global economy, but will continue to face major political challenges. These include the unclear Brexit process, efforts to reorganize the EU, political disagreement between Central and Eastern Europe and structural deficits in Southern Europe. The conflict in Catalonia could put even more pressure on Spain. Although ECB bond purchases are gradually phasing out, key inter- est rates are likely to remain low for the near future. Economic conditions for continued strengthening in the euro zone will therefore remain intact. Economists continue to expect strong growth for the monetary union, but with slight deceleration. According to 2018 forecasts by the IMF, the euro zone is expected to grow by 2.2% (Kiel Institute for the World Economy (IfW): 2.3%) and by 2.0% in 2019. Eastern Europe, the Netherlands, Spain, Austria and Ireland are expected to drive growth. The IMF expects a moderate upswing in Italy and Portugal. Besides buoyant exports, the primary stimulus should come from investment in fixed assets, which is expected to pick up significantly in 2018 (IfW: 4.8%). The upswing in Germany is supported by a broad base and will con- tinue dynamically. The IfW forecasts an expansion rate of 2.5% for 2018 and 2.2% for 2019, provided risks remain limited. Besides high construction invest- ment, the primary engines of growth will be company investments in equipment (2018: 6.4%; 2019: 4.3%) and other assets (2018: 4.6%; 2019: 4.5%). T 022 FORECASTS FOR GDP GROWTH (REAL) 1 IN % World USA China Euro zone Germany 5 2017 + 3.7 + 2.3 + 6.9 2 + 2.5 3 + 2.2 4 2018e 2019e + 3.9 + 2.7 + 6.6 + 2.2 + 2.5 + 3.9 + 2.5 + 6.4 + 2.0 + 2.2 Sources: 1_IMF, 2_National Bureau of Statistics (NBS), 3_Eurostat; 4_Federal Statistical Office (Destatis); 5_Institute for the World Economy (IfW) Predominantly positive framework conditions for NORMA Group’s key customer industries The climate and prospects for NORMA Group’s key customer industries will also improve with the expected moderate revival of the international econ- omy in 2018 and 2019. 80 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties Engineering industry The global economy and industrial production are improving the investment climate in nearly every country. Other significant drivers of engineering include backlog, automation and accelerating digitali- zation. Investments in environmental protection are also being stepped up in many countries. The VDMA industry association is forecasting the upswing in worldwide machine turnover to continue in 2018 with a 4% increase, but to lose some of the momentum of last year’s boost. The two largest markets by volume, China (+ 6%) and the US (+ 2%), will also slow some- what. Robust growth is expected for Japan (+ 3%), South Korea (+ 2%), India (+ 4%), the ASEAN 5 and the Gulf States (excluding Iraq). Growth rates of 3% are forecast for the euro zone as well as Europe as a whole. The VDMA is again forecasting a strong increase in real turnover of 3% for the German market in 2018. Despite the more moderate growth of demand in China and the US alongside Brexit pres- sures, the VDMA is forecasting a further 3% increase in production for the German engineering industry in 2018. The investment backlog in Germany is expected to gradually dissipate, reviving the last subdued domestic demand. Automotive industry The automotive industry is currently undergoing a major upheaval, but should continue to grow moder- ately in the future. The industry’s future trends include autonomous driving, increased car sharing and, above all, electromobility (including hybrid drives). The development of fuel-efficient and low-consumption combustion engines will also advance in the effort to reduce emissions. LMC Automotive (LMCA) expects the global market for light vehicles (LV, up to 6 tons) to grow by 2.0% to 97.1 million in 2018, with sales up 2.2%. IHS Markit anticipates an increase in sales of 1.5%. For the narrowly defined passenger car market, the German association VDA expects a global sales gain of 1% to approximately 86 million units. In the three most dominant markets, the VDA projects growth only for China (+ 2%). It expects sales to level in Europe (EU + EFTA) and even decline by 2% in the US market due to rising interest rates and fuel prices in 2018. According to LMCA estimates, global sales of commercial vehicles (CV) will fall by 1.8% in 2018 after a double-digit sales surge in the previous year. The trend reversal in Asia lies behind this. LMCA pre- dicts growth in commercial vehicle sales in North America (+ 14%) and Western Europe (+ 3.0%). T 023 ENGINEERING: REAL CHANGE IN INDUSTRY SALES 2016 2017 2018e T 024 AUTOMOTIVE INDUSTRY: GLOBAL PRODUCTION AND DEVELOPMENT OF SALES (LIGHT AND COMMERCIAL VEHICLES) 3 – 2 0 0 8 3 4 6 IN % Production LV Sales LV Sales CV 6 2 3 4 Source: LMC Automotive 2016 2017e 2018e 2019e 4.7 4.4 7.8 2.5 2.5 2.0 2.2 17.3 –1.8 2.7 2.8 –3.8 Construction industry The Euroconstruct industry network (including the Ifo Institute) is projecting a continuation of the growth course for Europe’s construction industry until 2020 in a new analysis of the 19 most important individual IN % China USA Euro zone World Source: VDMA 81 markets. The pace should gradually level off, however, especially in new construction. On the other hand, it forecasts a growing significance of construction projects on existing buildings (including renovation, refurbishment). The civil engineering sector is increas- ingly becoming the industry driver. According to Euro- construct, Europe’s construction industry should increase its construction output by 2.6% in 2018 (civil engineering: 4.0%). Over the same period, the indus- try is set to grow at a rapid rate of 2.3% in Western Europe and even faster in Eastern Europe (9.3%). The construction boom in Germany is also expected to continue dynamically. The IfW expects growth of 3.5% (2018) and 4.4% (2019) in real construction invest- ment. The highest growth rates (5.0% and 5.7% respectively) are expected for housing construction. Commercial construction is expected to grow moder- ately in 2018, but will pick up again in 2019. The IfW forecasts that investment dynamics in public-sector construction will continue to rise through 2019. In terms of construction volume, the DIW (German Insti- tute for Economic Research) expects housing con- struction to grow nominally by 6.7% to EUR 229 bil- lion in 2018. The new building volume is expected to increase by 8.0% and construction projects involving existing buildings by 6.0%. The construction volume for other building construction (excluding housing) is expected to rise by 3.3% in 2018, with 2.2% for civil engineering. T 025 CONSTRUCTION INDUSTRY: DEVELOPMENT OF EUROPEAN CONSTRUCTION OUTPUT IN % Western Europe Eastern Europe Europe 2016 3.0 – 7.1 2.5 2017 2018e 2019e 3.3 8.6 3.5 2.3 9.3 2.6 1.7 8.7 2.1 Source: Euroconstruct / Ifo Institute (19 core markets in total) This macroeconomic perspective is the basis for NORMA Group’s forecast and outlook for 2018. NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties FUTURE DEVELOPMENT OF NORMA GROUP GENERAL STATEMENT BY THE MANAGEMENT BOARD ON THE PROBABLE DEVELOPMENT NORMA Group will continue with its successful inter- national growth strategy, continuing to pursue its long-term defined goals. The diversification of the business with regard to end markets, regions and customers will continue to be a priority in the future. Business activities are also being further expanded through additional acquisitions. The focus of M&A activities will continue to be on companies that either contribute to market consolidation or enable entry into new high margin markets. In addition, internationalization and in particular the expansion of activities in the Asia-Pacific region will continue to be the focus. This is to exploit the opportu- nities in this important growth market and to transfer the added value to the respective region or country. In the area of research and development, the long- term preservation of the Company’s ability to innovate continues to play an important role. The focus of development activities therefore remains on the strengthening of its innovative power and the develop- ment of innovative products that help to solve its cus- tomers’ industrial challenges. A particular focus is also on the development of solutions for the electro- mobility market. In addition, with the publication of the CR Roadmap 2020, NORMA Group has laid a further important foundation for the Company’s future focus on sustainability. CR REPORT 2017 Sales growth in 2018 Based on the assessments made by the relevant eco- nomic research institutes and industry associations, the generally positive economic conditions and the current good order situation, the NORMA Group Management Board expects further Group sales growth and an increase in adjusted net income for fiscal year 2018 as well. The Management Board sees the Group in a good position thanks to its global business activities and broad diversification in order to continue to benefit from the relevant growth trends in the various end markets and regions. The Management Board believes that risks that could have a negative impact on the sales and earnings situation of NORMA Group are mainly due to the uncertain outcome of the Brexit, possible turbu- lence on the capital and commodity markets and geo- political crises. Driven by technological advances and future trends, as well as political pressure and stricter legal requirements for reducing emissions, the automo- bile industry, a key end user for NORMA Group, is currently undergoing a major upheaval. Neverthe- less, the Management Board expects global growth in the industry to continue in 2018, albeit less dynamically than last year and with significant regional differences. For the EMEA region, the Management Board expects solid organic growth in 2018 due to the sound eco- nomic environment, the still low key interest rates and the positive growth forecasts for the end markets relevant to NORMA Group. This should also be sup- ported by a modest increase in European automobile production as well as positive effects from product launches as a result of the European fleet regulation for passenger cars. For the Americas, the Management Board expects solid organic growth in sales in 2018 over the previ- ous year. With regard to the Group’s important end market for commercial vehicles and agricultural machinery in the US, the Management Board expects the positive trend of the second half of 2017 to con- tinue and a significant increase in production and sales figures in the current year. For the US passen- ger car market, industry experts expect only moder- ate production growth in the current year. Due to the good order situation, however, NORMA Group’s Management Board expects good growth in this end market as well. In the area of water management, the Management Board expects solid growth, which will be supported by positive catch-up effects as a result of the weather-related weak previous year. The tax cuts in the US should have a positive impact on the economy in the short term and further boost growth in the region. The dynamic development of NORMA Group’s busi- ness in the Asia-Pacific region will continue this year despite the slightly lower growth prospects for China, therefore the Management Board is again expecting double-digit organic growth for the region. The Man- agement Board sees growth in business activities, stricter emissions regulations for passenger cars and trucks, as well as further localization measures in the region to be the growth drivers. Overall, NORMA Group expects solid growth both for the DS and the EJT business in 2018. Against the backdrop of the described assumptions and the strong upturn in the global economy, NORMA Group expects the Group’s solid organic sales growth to be at around 3% to 5% for fiscal year 2018 com- pared to 2017. In addition, the acquisition Fengfan is expected to generate approximately EUR 5 million in total sales. Currency effects can also have a positive or negative impact on growth, depending on the exchange rates to the euro. 82 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties Development of key cost items The Management Board of NORMA Group assumes that the main relative cost items (material and per- sonnel expenses) will remain stable compared to pre- vious years. Due to the volatile environment on the global com- modity markets, higher raw material prices in fiscal year 2017 and a persistently high price level at the beginning of the year, the Management Board expects commodity prices to continue to rise in 2018 as a whole. However, the continuous increase in the degree of professionalization in purchasing, the conclusion of long-term contracts, the possibility to forward price fluctiations to the customer and the achievement of economies of scale should be able to counteract fur- ther cost increases and thus keep the adjusted cost of materials ratio at the level of previous years. As a result of the Group’s continuous growth and the strengthening of activities in the Asia-Pacific region, the Management Board expects a constant increase in adjusted personnel costs in 2018 and therefore expects a stable adjusted personnel cost ratio at the level of previous years. Investment in research and development To sustain its innovation and competitiveness in the long term, NORMA Group aims to achieve an annual investment rate of 5% of EJT sales in R&D. These activities will continue to focus on strengthening the Company’s innovative strength and developing inno- vative products to solve the industrial challenges faced by customers with a focus on developing appli- cations for hybrid and electromobility. Adjusted EBITA margin An important focus of NORMA Group is on maintain- ing its high profitability. Therefore, all business activi- ties are strategically aligned. The acquisition of new companies also plays a key role in maintaining mar- gins. Due to numerous internal Group measures and ongoing optimization processes in all areas, NORMA Group’s Management Board sees NORMA Group in a position to maintain its high margin level again in 2018 and therefore aims to achieve a sustained adjusted EBITA margin at the level of previous years of more than 17.0%. Financial result of up to EUR – 15 million expected The Management Board expects a financial result of up to EUR – 15 million in total for 2018. This includes interest charges on the Group’s gross debt with an average interest rate of approx. 2.0% to 2.5% as well as other expenses for currency hedges and transac- tion costs. Investment rate of around 5% the target For fiscal year 2018, NORMA Group’s Management Board expects investments in the operating business of around 5% of Group sales. This covers both main- tenance investments and investments in expanding the business. A particular focus will be on the expan- sion of activities for future growth, projects for the integration of processes and functions (insourcing) as well as the expansion of capacities for the localization of production. Net operating cash flow The Management Board expects the usual high net operating cash flow as a result of increasing sales with a sustained margin as well as strict working capital management and a constant investment rate. Net operating cash flow is expected to be around EUR 140 million in fiscal year 2018. Significantly improved tax rate of between 26% and 28% Due to the massive tax cuts in the US, the Manage- ment Board expects a tax rate of between 26% and 28% for fiscal year 2018. Sustainable dividend policy If the future economic situation permits, NORMA Group will pursue a sustainable dividend policy, which is based on a dividend ratio of approx. 30% to a max- imum of 35% of the adjusted Group annual earnings. Strong increase in adjusted earnings per share NORMA Group’s Management Board expects to see a strong increase in adjusted earnings per share in fis- cal year 2018. Besides growth in sales and a sustain- able margin, this will be due to the tax reform in the US in particular. Adjustments to the result In fiscal year 2018, NORMA Group’s Management Board expects adjustments in the allocation of the pur- chase prices to depreciable tangible and intangible assets from the acquisitions of the past years in the amount of around EUR 25 million. Market penetration and innovation capability The degree of market penetration is reflected in medium-term organic growth. Ensuring the ability to innovate is essential for the future competitiveness of NORMA Group. From the reporting year 2017 onwards, NORMA Group reports the number of invention disclosures, a new indicator for measuring and managing the Com- pany’s innovative strength. CONTROL SYSTEM AND CONTROL INDICATORS, P. 52 More than 20 new invention disclosures are targeted each year for the Group. 83 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties Employee problem-solving behavior NORMA Group measures and manages problem-solv- ing behavior, among other topics, based on the num- ber of customer complaints, through the following two performance indicators: defective parts (parts per mil- lion, PPM) rejected by the customer and the number of quality-related complaints. For the PPM indicator, a value of less than 20 is the target each year depend- ing on the product group. Customer complaints are also to be further reduced to fewer than 8 per month on an annual average. Sustainable company development (Corporate Responsibility) NORMA Group has already published its CR Roadmap 2020. The objective of the Group is to continue to achieve the goals and measures stated therein in a consistent manner and lay even more important mile- stones for managing the Company more sustainably in the current year 2018. T 026 FORECAST FOR FISCAL YEAR 2018 Consolidated sales solid organic growth of around 3% to 5%, additionally around EUR 5 million from acquisitions EMEA: Americas: APAC: DS: EJT: solid organic growth solid organic growth organic growth in the double-digit range solid growth solid growth Adjusted cost of materials ratio roughly at the same level as in previous years Adjusted personnel cost ratio roughly at the same level as in previous years Investments in R&D (in relation to EJT sales) around 5% of EJT sales Adjusted EBITA margin sustainable at the same level as in previous years of more than 17.0% Financial result Tax rate up to EUR – 15 million around 26% to 28% Adjusted earnings per share strong increase Investment rate (excluding acquisitions) operative investments of around 5% of Group sales Net operating cash flow Dividend / dividend ratio around EUR 140 million approx. 30% to 35% of adjusted net profit of the Group Number of invention applications per year more than 20 Number of defective parts (PPM) Number of quality-related complaints per month less than 20 less than 8 84 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties Risk and Opportunity Report NORMA Group is exposed to a wide variety of risks and opportunities, which can have a positive or nega- tive short-term or long-term impact on its financial position and its performance. For this reason, oppor- tunity and risk management represents an integral component of corporate management for NORMA Group SE, at both the Group management level and at the level of the individual companies and individual functional areas. Due to the fact that all corporate activities are associated with risks and opportunities, NORMA Group considers identifying, assessing, and managing opportunities and risks to be a fundamental component of executing its strategy, securing the short and long-term success of the Company and sustainably increasing shareholder value. In order to achieve this over the long-term, NORMA Group encourages its employees in all areas of the Company to remain conscious of risks and opportunities. Board is responsible for monitoring the effectiveness of the Group’s risk management system. Compliance with the Group’s risk management policy in the indi- vidual companies and functional areas is subject to the internal audit department’s periodic reviews. Risk management process The risk management process at NORMA Group includes the core elements of risk identification, risk assessment and risk treatment and monitoring. The risk management process has been fully integrated into an integrated software solution. The respective units record the risks that they identify and assess these. Subsequently, the regional risk officers and, depending on the risk category, the functional man- agers at Group level, check and approve the respec- tive risks with the help of a special software. The process of identifying, evaluating and controlling risks is accompanied by continuous monitoring and communication of the reported risks by the risk managers. Risk identification is carried out bottom-up by the indi- vidual companies as well as top-down by the individuals responsible for functions at the regional and Group level. Various methods that correspond to the structure of the organization are used to identify risks. Such methods include interdisciplinary work- shops, interviews and checklists, but also market and competition analyses. In certain cases, analyses of the process workflows as well as results from internal and external audit reports are used. NORMA Group’s risk managers are responsible for verifying on a regular basis whether all material risks have been reported. RISK AND OPPORTUNITY MANAGEMENT SYSTEM G 030 RISK MANAGEMENT SYSTEM OF NORMA GROUP NORMA Group defines risks and opportunities as pos- sible future developments, changes, or events that could have a positive or negative impact on the Group’s ability to meet its targets and achieve its busi- ness objectives. Analogous to the medium-term plan- ning, the management’s focus with respect to possi- ble deviations in specific risks and opportunities covers a period of five years. Opportunities and risks that affect the Company’s success beyond this period of time are recorded and managed at the Group man- agement level and taken into consideration in the Company’s strategy. Analogous to the medium-term planning, the focus with respect to the valuation of specific risks and opportunities covers a period of five years, provided that no other period is specified in the individual categories. The Management Board of NORMA Group SE is responsible for maintaining an effective risk and opportunity management system. The Supervisory Monitoring Identification Risk management Risk identification Risk reporting Risk culture Risk strategy Methods Technologies Risk assessment Supervisory Board and Management Board Risk analysis Risk aggregation Countermeasures 85 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties NORMA Group uses a systematic assessment proce- dure to evaluate the risks that were identified, both in terms of their financial impact and probability of occurrence. All risks that can be adequately assessed and specified are reported regardless of their expected financial impact. The measurement of the gross expectation value of the risk, i.e. the expected value of the risk before considering countermeasures, must be based on the assumption of the most unfavorable out- come of the financial impact for the Company. As part of the risk treatment strategy, the appropriate risk mitigating measures are developed, implemented and their implementation is monitored. These include, in particular, strategies to terminate, treat or transfer risks, i.e. measures that minimize the financial impact of the risks as well as their probability of occurrence. Risks are managed in accordance with the principles of the risk management system as described in the Group risk management policy. Risk reporting Group-wide recording and assessment of risks as well as their reporting to the functional managers and indi- vidual companies by functional areas, the manage- ment of the segments, the Management Board and the Supervisory Board takes place on a quarterly basis. In addition, risks that are identified within a quarter and whose expected value have a significant impact on the results of subgroups of the Group are reported ad hoc to the Management Board and, if necessary, to the Supervisory Board. In order to analyze NORMA Group’s overall risk situa- tion and initiate suitable countermeasures, individual risks of local business units, segments and Group- wide risks are aggregated in a risk portfolio. All enti- ties, which are included in NORMA Group’s Consoli- dated Financial Statements, are part of the Company’s risk reporting and risk management process. In addi- tion, NORMA Group categorizes risks according to type and the functional area they affect. This makes it possible to aggregate individual risks into risk groups in a structured manner. This aggregation enables NORMA Group to identify and manage not only indi- vidual risks, but also trends and Company-specific types of risks and thus sustainably influence and reduce the risk factors with certain types of risks. If not indicated otherwise, the risk assessment applies for all regional segments. Opportunity management process Operational opportunities are identified during monthly meetings held at the local and regional level, but also by the Management Board, and then documented and analyzed. Measures aimed at cap- italizing on strategic and operational opportunities through local and regional projects are approved during these meetings. Regular forecasts are devel- oped as part of periodic reporting to record how suc- cessfully potential opportunities are taken advantage of. Strategic opportunities are recorded and evalu- ated as part of annual planning. NORMA Group uses a systematic assessment procedure to evaluate the opportunities and risks that were identified, both in terms of their financial impact, i.e. gross and net impact on planned financial indicators, and their probability of occurrence. INTERNAL CONTROL AND RISK MANAGEMENT SYSTEM WITH REGARD TO THE GROUP ACCOUNTING PROCESS NORMA Group’s internal control and risk manage- ment system with regard to the Group accounting pro- cess can be described using the following main char- acteristics: The purpose of this system is to identify, analyze, evaluate and manage risks as well as monitor these activities. The Management Board is responsi- ble for ensuring that this system meets the Compa- ny’s specific requirements. Based on the allocation of responsibilities within the Company, the CFO is responsible for the Finance and Accounting divisions. These functional areas define and review the Group- wide accounting standards within the Group and com- pile the information used to produce the Consolidated Financial Statements. The need to provide accurate and complete information within predefined time- frames represents a significant risk for the accounting process. Because of this, requirements must be clearly communicated and the affected units must be put in a position to meet these requirements. Risks that may affect the accounting process arise, for example, from the late or incorrect recording of business transactions or non-compliance with accounting rules. The failure to enter business trans- actions also represents a potential risk. In order to avoid errors, the accounting process is based on the segregation of duties and functions and plausibility checks for reporting. The preparation of the financial statements of those entities to be included in the Consolidated Financial Statements as well as the consolidation measures based on this consolidated group are characterized by consistent observance of the ‘four eyes-principle.’ Comprehensive and detailed checklists must be completed before the respective reporting deadlines. The accounting process is fully integrated into NORMA Group’s risk management system. This ensures that accounting risks are iden- tified at an early stage, allowing the Company to 86 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties implement measures for risk prevention and risk mit- igation without delay. The internal control system ensures the accuracy of NORMA Group’s financial reporting with respect to its accounting processes. The internal audit department reviews the accounting processes on a regular basis to ensure that the internal control and risk manage- ment system is effective. External specialists also support these efforts. Furthermore, the financial statement auditor conducts audit procedures during the audit of the annual financial statements based on the risk-based audit approach, whereby material errors and violations are to be uncovered with reason- able assurance. The IFRS accounting standards as they are to be applied in the European Union are summarized in an accounting manual that includes an account assign- ment guideline. All companies in the Group must base their accounting processes on the standards described in the accounting manual. Important accounting and valuation standards, such as the rec- ognition and measurement of fixed assets, invento- ries and receivables, as well as provisions and liabili- ties, are defined as binding. The Group also has system-supported reporting mechanisms to ensure that identical situations are handled in a standardized way across the Group. The Consolidated Financial Statements and Group Management Report are prepared according to a uni- form time schedule for all companies. Each company in the Group prepares its separate financial state- ments in accordance with the applicable local accounting guidelines and IFRS. Intra-Group deliveries and services are recorded in separately designated accounts by the Group companies. The net balances of Intra-Group offsetting accounts are reconciled on the basis of defined guidelines and schedules by means of balance confirmations. The companies in the Group use the COGNOS reporting system for financial reporting. In accordance with NORMA Group’s regional segmentation, technical responsibil- ity for the financial area is shared by both the financial officers in the Group companies as well as by the regional CFO for the respective segment. They are responsible for the quality assurance of the financial statements of the respective Group companies. The comprehensive quality assurance of the financial statements of the Group companies included in the Consolidated Financial Statements is carried out by Group Accounting, Finance & Reporting, which is responsible for preparing the Consolidated Financial Statements. In addition, the data and disclosures of the Group companies as well as the consolidation measures necessary for the preparation of the Con- solidated Financial Statements are verified through audit procedures conducted by external auditors under consideration of the associated risks. The various IT systems that individual NORMA Group companies use to perform financial accounting are gradually standardized. Tiered user access rights are defined for all systems. The type and design of these access authorizations and authorization policies are decided on by local management in coordination with NORMA Group’s central IT department. RISK AND OPPORTUNITY PROFILE OF NORMA GROUP As part of the preparation and monitoring of its risk and opportunities profile, NORMA Group assesses risks and opportunities based on their financial impact and their probability of occurrence. The financial impact of risks and opportunities are assessed based on their relation to EBITA. The following five categories are used here: › Insignificant: up to 1% of current EBITA › Minor: more than 1% and up to 5% of current EBITA › Moderate: more than 5% and up to 10% of current EBITA › Significant: more than 10% and up to 25% of current EBITA › High: more than 25% of current EBITA The interval of the risk’s or the opportunity’s impact generally relates to the EBITA of the Group. Provided that an individual assessment relates solely to a spe- cific segment, the EBITA of the respective segment is used instead. The assessment of opportunities and risks whose financial impact has an effect on line items in the Statement of Comprehensive Income below EBITA is also performed in relation to EBITA. The presented impact always reflects the effects of countermeasures initiated. The probability of individual risks and opportunities occurring is quantified based on the following five categories: 87 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties › Very unlikely: up to 3% probability of occurrence › Unlikely: more than 3% and up to 10% probability of occurrence › Possible: more than 10% and up to 40% probability of occurrence › Likely: more than 40% and up to 80% probability of occurrence › Very likely: more than 80% probability of occurrence Financial opportunities and risks NORMA Group is exposed to several financial risks, including default, liquidity and market risks. The Group’s financial risk management strategy concen- trates on the identification, evaluation and mitigation of risks, focusing on minimizing the potential negative impact on the Company’s financial performance. Derivative financial instruments are used to hedge particular risk items. The financial risk management strategy is implemented by Group Treasury. Group management defines the areas of responsibility and necessary controls related to the risk management strategy. Group Treasury is responsible for defining, evaluating and hedging financial risks in close consul- tation with the Group’s operating units. In this context, various processes and organizational structures work together to measure and evaluate opportunities and risks on a regular basis, and to initiate appropriate measures if necessary. Group Treasury regularly con- ducts analyses of default risks, interest rate risks, cur- rency risks and liquidity risks. The results are then dis- cussed internally and actions are defined. Group Treasury also advises the management of relevant departments in monthly committee meetings and dis- cusses how to handle these risks and the potential impact on NORMA Group. NOTES, P. 134 to maintain the financial covenant total net debt cover (debt divided by adjusted consolidated EBITDA). This key figure and its maintenance, but also net debt and the maturity structure of financial debt, are continually monitored. Changes in the value of the amounts included in this financial indicator are limited by employing long-term hedging strategies. Default risks Default risks are risks of contractual partners not meeting their obligations arising from business and financial transactions. Due to the nature of the respec- tive assets and business relationships, as well as the soundness of its current banking partners, default risks with respect to deposits and other transactions con- cluded with credit and financial institutions currently do not represent a major risk category for NORMA Group. Nevertheless, the creditworthiness of contract partners is continuously monitored and discussed at regular senior management meetings. Relevant default risks can arise, however, with respect to business relationships with customers and relate to outstanding receivables and committed transactions. NORMA Group reviews the creditworthiness of new customers to minimize the risk of default on trade receivables. Customers whose credit ratings are below Group standards or who have defaulted on payment, are only supplied if they pay in advance. A diversified customer portfolio reduces the financial repercussions of default risks. Default risks are considered to be unlikely due to the measures referred to above (previ- ous year: possible). The potential financial effects of default risks are judged to be insignificant considering the relevant factors, such as bad debt losses experi- enced in the past, and due to the countermeasures taken. Capital risk management NORMA Group’s objective when it comes to managing its capital is primarily the long-term servicing of its debts and remaining financially stable. In connection with its financing agreements, the Company is obliged Liquidity opportunities and risks Prudent liquidity risk management requires NORMA Group to hold sufficient cash funds and marketable securities, have sufficient financing from committed lines of credit and be able to close out market posi- tions. Due to the dynamic nature of the underlying business, Group Treasury aims to maintain flexibility in financing by keeping committed credit lines available. Therefore, NORMA Group’s primary objective is to ensure the uninterrupted solvency of all Group com- panies. Group Treasury is responsible for liquidity management and therefore for minimizing liquidity risks. As of December 31, 2017, NORMA Group’s liq- uid assets (cash and cash equivalents) amounted to EUR 155.3 million (2016: EUR 165.6 million). Further- more, NORMA Group has a high level of financial flex- ibility thanks to a total of EUR 50 million in committed revolving credit lines with national and international credit institutions. These lines were not drawn down at all as of December 31, 2017. In addition, NORMA Group has a so-called accordion facility in the amount of up to EUR 250 million that offers additional financial flexibility as well as a non-promised but negotiated credit line of EUR 15 million, which offer additional financial scope. Financial Financial opportunities are seen, among other areas, in NORMA Group’s high creditworthiness as well as its solid financial position, financial perfor- mance and cash flows, which enable the Company to gradually reduce its capital costs. Against this back- drop, NORMA Group repaid part of the promissory note issued in 2014 in the past fiscal year on sched- ule without raising new or additional funds for this purpose. The liquidity-related opportunities are con- sidered likely, in particular due to the positive assess- ment by the banking partners and the resulting repu- tation on the capital market (previous year: possible). In light of the refinancing measures carried out in the recent past, by which the borrowing costs have already been reduced quite considerably, the potential financial effects of liquidity-related opportunities on NORMA Group’s earnings are considered to be only minor. FINANCIAL MANAGEMENT, P. 68 Most of the Group’s financing agreements contain typical terms for credit lines (financial covenants). If NORMA Group does not adhere to these terms, the 88 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties banks would be entitled to re-evaluate the agree- ments and demand early repayment. Failure to com- ply with these loan covenants would have high poten- tial financial repercussions. For this reason, NORMA Group continuously monitors its compliance with the financial covenants in order to implement suitable measures in advance and prevent the terms from being violated. In order to hedge balance positions in foreign currencies whose valuation leads to fluctua- tions in the profit and loss account, NORMA Group partly uses rolling hedging transactions. Group Trea- sury ensures that sufficient liquidity or granted credit lines are available at all times to cover possible cash outflows related to these hedging measures. This is continuously monitored by means of risk simulation and discussed in senior management meetings. The probability of liquidity risks having a negative impact on NORMA Group’s activities is very unlikely given the high level of financial flexibility provided by committed and unused bank credit lines. The risk of non-compli- ance with financial covenants is still considered very unlikely due to high profitability and a strong operating cash flow. In the event of (short-term) increased liquidity requirements that exceed currently negoti- ated lines, the possibilities of raising funds at market conditions are considered to be very good. Foreign currency trends As an internationally operating Company, NORMA Group is active in more than 100 countries and is thus exposed to foreign currency risks. The US dollar, Brit- ish pound, Swiss franc, Chinese renminbi, Polish złoty, Swedish krona, Czech koruna, Singapore dollar, Indian rupee and Serbian dinar are regarded to be the main risky currency positions. Foreign currency risks that cannot be offset against each other are hedged using futures and options whenever reasonable. The high volatility of many major currencies and the particular influence of the US dollar on the Group’s financial position and perfor- mance represent a considerable risk that can only be partially hedged for a short-term period. In the medium term, NORMA Group will reduce foreign cur- rency risks by taking an increasingly regional approach to production. PRODUCTION AND LOGISTICS, P. 71 Because the Group’s subsidiaries operate in the most important countries with currencies other than the euro, it has sufficient cash-in and cash-out capabilities to absorb short-term exchange rate fluc- tuations via targeted income and expenditure man- agement. The optimization of the bank loans renego- tiated in 2015, which now also offers the possibility of utilizing credit lines in US dollars, but also the promissory note tranches issued in US dollars in 2016, results in more congruent payment profiles in US dollars. In addition, currency risk is monitored in the Group and transferred to the euro over time on a rolling basis by means of derivative hedging instru- ments if the risk becomes too excessive. Translation risks are continuously monitored by Group Treasury. Translation effects from items in the Statement of Financial Position and income statement of subsid- iaries in foreign currency areas on the Consolidated Statement of Financial Position prepared in euros are unavoidable, however. The potential financial effects of opportunities and risks related to exchange rate changes are consid- ered to be moderate based on the sensitivity analy- ses that have been performed. The probability of the incidence of these risks and opportunities is assessed to be possible in light of recent exchange rate fluctu- ations and the uncertainties with regard to the further development of relevant exchange rates. Changes in interest rates Changes in global market interest rates affect future interest payments for variable interest liabilities and can therefore have an adverse effect on the Group’s financial position, financial performance and cash flows. NORMA Group’s interest change risk arises in particular from long-term loans. Many of the current loans have fixed interest rates and are therefore not subject to interest rate risk. GOALS REGARDING FINANCE AND LIQUIDITY MANAGEMENT, P. 54 Loans that initially had variable interest rates were synthetically converted into fixed interest rate positions with derivative instruments. NORMA Group currently has an interest rate risk for the amount of EUR 18.0 million from the bank loan renegotiated in 2015 in the amount of EUR 100 million and for the revolving credit facility (EUR 50 million) that has not yet been drawn on. The same applies for the promis- sory note issued in 2014 (EUR 9 million not hedged) and the promissory note issued in 2016 (EUR 12.5 million not hedged). NORMA Group will seek to hedge approximately 80% of the interest change risk arising from future medium-term utilization of the committed revolving credit facility. Due to the fact that there are currently no signs of a more restrictive monetary policy in the euro region, NORMA Group regards the risk of interest rate hikes in the short term to be rather unlikely; however, the risk of higher interest rates is considered to be possible in the medium term. This would only have a minor financial impact due to NORMA Group’s financing structure, however. Due to the currently low interest rate level, the potential for opportunities that can arise from a fall- ing interest rate level is considered to be unlikely. In light of the measures already implemented on optimiz- ing financing, the financial effects associated with these opportunities are considered to be insignificant. 89 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties Economic and cyclical opportunities and risks The success of NORMA Group depends significantly on macroeconomic trends on its sales markets and its customers’ sales markets. Therefore, indicators for economic development worldwide are taken into account both in planning as well as in risk and oppor- tunities management. In order to gauge the macro- economic trend, NORMA Group mainly uses the fore- casts of widely regarded institutions such as the IMF, the Bundesbank and reputable economic research institutes. Accordingly, global growth of 3.9% can be expected in 2018. In the previous year, relevant risk factors regarding the economic development in addition to the subdued economic expectations in China and the ongoing recession in Brazil in particular, the increase in inter- est rates in the US, the uncertain impact of the with- drawal of Britain from the European Union, and increasingly protectionist tendencies were identified for NORMA Group. The continued uncertainty of the outcome of the Brexit process, the consequences of increasing protectionism and rising bond yields also represent relevant risk factors in 2018. With respect to the Chinese market, there is a risk that the rate of expansion could flatten out, due in particular to the increasing public and private debt. In addition, turbu- lence on the currency and capital markets could adversely affect the generally positive development of the global economy, whereby the long-term recovery continues to be susceptible to failure despite good economic key data. In light of the possible overall economic impact of these developments, NORMA Group is of the opinion that a negative development of the global economy compared to the planning assumptions is currently classified as possible taking these risks into account. Should these factors lead to a deterioration in global demand, the financial deviations from planning are considered to be moderate. A positive development of the global economy that goes beyond the planning assumptions represents an opportunity for NORMA Group. Thanks to its flexible production structures, NORMA Group is able to expand capacities in the short term and thus respond to a generally increased demand. The Company believes it is possible that the global economic situation and thus NORMA Group’s earnings will improve beyond the planning assump- tions. In the overall view of the current macroeco- nomic climate and the prospects based thereon, the potential financial impact of these opportunities are considered minor as in the previous year. Industry-specific and technological opportunities and risks Industry-specific and technological opportunities and risks for NORMA Group are closely linked to the con- ditions and developments in the respective customer PRODUCTS AND END MARKETS, P. 49 It should industries. be borne in mind that the customer industries in the regions relevant to NORMA Group, EMEA, the Ameri- cas and Asia-Pacific, have partly specific characteris- tics and challenges. Business activities with OEMs for passenger cars and commercial vehicles as well as customers in the aftermarket segment still represent the most import- ant end markets for NORMA Group. In this area, the ever-stricter emission standards as well as the increasing use of more environmentally friendly drive technologies represent a development that is associ- ated with various opportunities and risks for NORMA Group. NORMA Group’s current product portfolio includes a variety of solutions that help reduce emis- sions in passenger cars and commercial vehicles equipped with an internal combustion engine, includ- ing hybrid vehicles, and thus help customers meet ever-stricter emission requirements. The Company’s current solutions are constantly being developed fur- ther and supplemented by sustainable innovations as required. NORMA Group is also in a good position to meet the challenges of ever more relevant electromo- bility through its future-proof product portfolio. For example, solutions from NORMA Group’s current product portfolio are already being used in purely bat- tery-powered electric vehicles. Regulatory measures such as stricter exhaust gas standards and the result- ing increased demand for environmentally friendly technologies and products are thus an opportunity for NORMA Group. Should the proportion of purely bat- tery-powered electric vehicles increase further in the future, it will be important for NORMA Group to be able to continue offering suitable, innovative product solutions in this dynamic environment. Accordingly, the ongoing discussion about compliance with emis- sion standards in vehicles with an internal combustion engine may also pose risks for NORMA Group. NORMA Group counteracts these risks with its ongoing initia- tives to secure and expand its technology and innova- tion leadership, as well as by focusing on customers and markets. RESEARCH AND DEVELOPMENT, P. 55 The water management segment, which has been consistently strengthened by the acquisitions carried out in past years, represents another strategically important customer industry for NORMA Group. The increasing scarcity of water and the responsible han- dling of this important resource in this context are leading to entrepreneurial opportunities. NORMA Group’s strong diversification in terms of customers in different industries is another element of the Company’s risk and opportunity management. NORMA Group counters long-term, industry-specific risks and opportunities through a consistent innova- tion policy and regular market analyses. In summary, the industry-specific and technological opportunities and risks are assessed to be possible with a moderate financial impact. 90 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties Risks and opportunities associated with corporate strategy The strategic goal of NORMA Group is to achieve a sustained increase in the Company’s value. In view of this goal, NORMA Group is pursuing the strategy of profitably expanding its business activities through organic growth as well as selective value-enhancing acquisitions and achieving broad diversification with respect to its products, regions and end markets, thus becoming less dependent on individual prod- ucts, regions and end markets. NORMA Group’s aim is to grow with innovations, superior product quality and strong brands in existing end markets, to open up new end markets and to continuously improve the efficiency of its business processes in all func- tional areas and regions. GOALS AND STRATEGY, P. 50 Besides the Company’s strategic activities aimed at continuing to develop the business organically, NORMA Group sees considerable opportunities to increase the Group’s financial result beyond planning, particularly in its strategy of profitably expanding its business activi- ties through selective, value-adding acquisitions. NORMA Group has been able to demonstrate the suc- cess of this strategy several times in the past by com- pleting its acquisitions. If, however, in individual cases, the development of the acquired companies falls behind the expectations at the time of acquisition or if integration progresses more difficultly than assumed, risks could also arise from acquisitions for NORMA Group. However, NORMA Group believes that the Com- pany’s goals for the profitability of potential acquisi- tions, careful due diligence measures in the run-up to the acquisition, and agreed integration plans form the basis for mitigating these risks accordingly. In addition, opportunities to achieve its financial targets arise for NORMA Group from the broad diversification with respect to its products, regions and end markets. Should the demand in individual regions and end mar- kets or the demand for individual products temporarily lag behind planning, NORMA Group will have the chance to compensate for this via other regions, end markets or products. Nevertheless, the broad diversifi- cation with respect to products, regions and end mar- kets also implies a certain complexity, which can be associated with risks for NORMA Group. Because NORMA Group’s diversification efforts are being car- ried out step by step with regard to the regions and end markets as well as its products, these risks can be adequately limited by means of an appropriate adapta- tion of the organization to the changed circumstances. With respect to the efficiency of its business pro- cesses, NORMA Group is able to settle production pro- cesses that require a higher degree of manual assem- bly effort in countries with lower labor costs, thus securing and further increasing its profitability. How- ever, there are inevitably risks associated with the appropriate location decisions and related investments if significant assumptions made in the investment decision are not fulfilled. NORMA Group addresses these risks by conducting careful analyses in the run-up to investment decisions and uses graded approval procedures. When the corporate strategy initiatives of NORMA Group are combined, the financial impact of the oppor- tunities associated with NORMA Group’s Company strategy is assessed as moderate and a positive devi- ation from planning as possible. Based on the mea- sures taken to limit the risks associated with NORMA Group’s corporate strategy, the probability of the occurrence of strategic risks is considered unlikely, while the potential financial impact of corporate strat- egy risks is considered moderate. The Company strategy is adapted to the individual market conditions in the individual segments. For instance, acquisitions are made particularly in those countries and regions that offer attractive growth opportunities for NORMA Group. Nevertheless, the general assessment of corporate strategy opportuni- ties and risks in the regions is identical. Operational opportunities and risks Commodity prices The materials that NORMA Group uses, in particular the raw materials steel and plastics, are subject to the risk of price fluctuations. The price trend is also influenced indirectly by the further development of the world eco- nomic situation as well as by institutional investors. NORMA Group limits the risk of rising purchase prices through systematic material and supplier risk manage- ment. Thanks to a powerful global Group purchasing structure, economies of scale are being used to pur- chase the most important product materials steel, metal components, polyamides and rubber as compet- itively as possible. This Group purchasing structure also enables NORMA Group to balance out the risks of indi- vidual segments with each other. NORMA Group also constantly strives to secure permanently competitive procurement prices by continuously optimizing its selection of suppliers and applying the best-landed- cost-approach. The Company also tries to reduce dependency on individual materials through constant technological advances and tests of alternative materi- als. Protection against commodity price volatility is done by forming procurement contracts with a term of up to 24 months, whereby material supply risks are mini- mized and price fluctuations can be better calculated. In particular, due to the currently rising prices of steel, including the alloy surcharges applicable to stainless steel, NORMA Group estimates the probability of ris- ing prices compared to the previous year as likely. In the area of engineering plastics, NORMA Group was faced with rising procurement prices in the past fiscal year. Due to the expected continued high demand for this product group, the Company considers the prob- ability of rising prices to be very likely. Overall, the rise in commodity prices is considered to be likely. Never- theless, this is likely to have only a minor financial impact due to the countermeasures that have already been initiated. A share of material price increases can be passed on to the customer by designing the con- tracts accordingly. 91 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties Similarly, the opportunities arising from reduced com- modity prices are also considered low in terms of their financial impact. As a result of the currently rising prices for steel, metal components and polyamides / engineering plastics, the falling development of global commodity prices compared to the plan is considered unlikely, as in the previous year. Suppliers and dependencies on key suppliers The loss of suppliers and dependencies on single suppliers can lead to material shortages and thus to negative impacts on the Group’s activities. In order to minimize this risk, NORMA Group only works with reli- able and innovative suppliers who meet its high qual- ity requirements. The ten most important suppliers are responsible for approximately 32% of the purchasing PURCHASING AND SUPPLIER MANAGEMENT, P. 73 volume. These and other key suppliers are regularly observed and assessed as part of quality management. If the loss of a supplier appears imminent, NORMA Group evaluates alternatives immediately. As a result, the loss of suppliers is considered possible, but the poten- tial financial impact is regarded as minor. However, NORMA Group also sees opportunities in this area as a result of its proactive approach both in terms of existing supplier relationships as well as identification of new suppliers and raw materials. But since an opti- mization in the area of purchasing is anticipated in the medium term, NORMA Group estimates the potential of the implemented measures for a positive deviation from planning to be possible with a minor impact. Quality and processes NORMA Group’s products are often mission-critical with respect to the quality, performance and reliability of the final product. Quality defects can lead to legal disputes, liability for damages or the loss of a customer. Therefore, the reliable guarantee of product quality is a key factor to ensuring NORMA Group’s long-term suc- cess, so that its products provide crucial added value for its customers. QUALITY MANAGEMENT, P. 73 Maintain- ing the right balance between cost leadership and quality assurance is a constant challenge. To reduce this risk, far-reaching quality assurance measures and Group-wide quality standards are used. Further- more, NORMA Group focuses on innovative and value added joining solutions tailored to meet customer requirements. For this reason, the Company believes that it is possible for quality risks to occur, while the potential financial repercussions would be minor due to the existing insurance coverage. NORMA Group takes every opportunity to realize cost advantages to improve its competitive position. Thus the Company develops and implements initiatives focused on cost discipline, the continuous improve- ment of processes in all functions and regions and optimization of supply chain management and pro- duction processes. These initiatives are expected to have a positive impact on NORMA Group’s business. PRODUCTION AND LOGISTICS, P. 71 Since NORMA Group pursues a continuous process of improvement, there are opportunities over and above planning for positive deviations in the area of these processes. This applies for all regions in which NORMA Group is active. The Company estimates the likelihood of cost savings to be possible. Since planning already allows for contin- uous optimization of production processes and NORMA Group’s processes are already extremely effi- cient, the short-term financial impact of a deviation from the plan as a result of improved production pro- cesses is minor. customer accounted for more than 5% of sales in 2016. Therefore, it is possible that customer risks could have a negative impact on NORMA Group’s business, but the financial effects would be minor due to the diversified customer structure. Based on NORMA Group’s strategy and the goal of further expanding its markets, the Company man- aged to expand its customer portfolio compared to the previous year. As a result of its innovative solu- tions, new customers in all regions could be con- vinced of its products. Therefore, NORMA Group esti- mates the opportunities for positive deviations from planning to be possible with a minor impact on earn- ings based on a growing number of customers. Opportunities and risks of personnel management NORMA Group’s success is largely dependent on its employees’ enthusiasm, commitment to innovation, integrity. The Group’s personnel expertise and management serves to retain and expand this core expertise. The resignation of employees with crucial skills as well as a shortage of suitable workers can have a negative impact on operations. The competition for the most talented employees as a result of demo- graphic developments and the shortage of skilled labor in Western industrial nations is becoming more and more intense. Customers Customer risks result from a company being depen- dent on important buyers for a significant proportion of its sales. They could take advantage of their bar- gaining power, which can lead to increased pressure on the Company’s margins. Decreases in demand from these customers or the loss of these customers can have a negative impact on the Company’s earn- ings. For this reason, NORMA Group continuously monitors incoming orders and customer behavior so as to identify customer risks early. Due to its diversi- fied customer portfolio, financial repercussions of customer risks are reduced. Accordingly, no single programs. NORMA Group NORMA Group counters these risks with far-reaching basic and advanced training as well as employee development also encourages its employees to focus on the Company’s success through variable remuneration systems. In return, the employees contribute to the continuous fur- ther development of the Company in connection with employee surveys and improvement initiatives. Com- prehensive representation rules and a division of responsibilities that promote mutual exchange secure the Group from risks that can arise due to the depar- ture of employees. When identifying potential new employees who can make a crucial contribution to 92 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties performance, NORMA Group seeks the advice of exter- nal human relations advisors. functions of the systems or attacks by hackers, could seriously disrupt the Company’s operations. Legal opportunities and risks Thus, the Company regards the probability of person- nel risks occurring as possible, whereas the potential financial impact is insignificant due to the sustainable personnel policy. In addition, there are opportunities from the consistent further development of employees. NORMA Group fos- ters its employees and offers them incentives to further develop their personal expertise through educational and training opportunities as well as the targeted search for talent within the Group. Furthermore, NORMA Group offers its employees flexible and family-friendly working time models. Through the above-mentioned measures, NORMA Group actively supports the preservation and collection of knowledge within the Company, which will thus offer opportunities for the future development of NORMA Group. The occurrence of these opportunities is considered likely, whereby the associated financial success is consid- ered to be minor. IT-related opportunities and risks The use of functional and high-performance IT sys- tems is of central importance for an innovative and global Company such as NORMA Group with regard to the efficiency of its business processes. In this con- text, it is critical for the Company’s success to support the business processes of NORMA Group, which are partly organized across corporate and national bound- aries along the value chain with stable and powerful IT systems that provide the management at all levels with the necessary information in a timely manner and allow for efficient organization of workflows. For the exchange of information with customers and suppliers of NORMA Group, tailor-made IT solutions connected to the respective ERP systems are of great impor- tance. With regard to this business-critical IT infra- structure, there is a risk that an extensive computer system failure, e.g. due to technical-related mal- In addition, NORMA Group sees the risk that external users could gain unauthorized access to sensitive Company information and misuse it. In this context, unauthorized access to information about production processes, financial, customer and employee data could have a negative impact on the Company. Therefore, NORMA Group has implemented appropri- ate measures to avoid and reduce this type of risk. These measures are collectively embedded in the IT risk management process and are adjusted in this context to changing conditions. For example, NORMA Group manages the IT risks it identifies by arranging for redundant provision of business-critical applica- tions and databases via physically separated data center areas, using decentralized data storage and outsourced data archiving to a certified external pro- vider, and by using up-to-date firewalls and e-mail fil- ters, including permanent network monitoring. The access of employees to sensitive information is ensured by means of authorization systems custom- ized for the respective positions, taking into account the principle of segregation of duties. Finally, employ- ees are trained to be more aware of data security aspects. NORMA Group estimates the probability of IT-related risks occurring in all regions despite the implemented countermeasures to be possible and the potential financial impact to be minor. Opportunities in the area of IT arise in particular from the potential of process standardization and optimiza- tion across all companies of NORMA Group. For example, the gradual transition from old ERP systems to new and uniform systems for the entire Group con- tinued in 2017. The opportunities that arise from this streamlining measure are considered to be likely. The related financial effects are expected to be minor. Risks related to standards and contracts Future changes to legislation and requirements, espe- cially commercial law, liability law, environmental law, tax law, customs law and labor law, as well as changes in related standards, could have a negative impact on NORMA Group’s development. Violations of laws and regulations, but also of contractual agreements, can lead to penalties, regulatory requirements or claims from injured parties. Conversely, NORMA Group can be adversely affected by legal or contractual breaches by third parties. Likewise, the results of tax audits can lead to tax payments, including penalties and interest. In 2017, litigations against NORMA Group (passive) mainly involved labor disputes such as dismissal pro- tection suits and product deficiencies claimed by cus- tomers or their insurances. In California, NDS was sued as part of a class action case for alleged errors in measuring employee working time at NDS. This case is expected to be concluded by reaching a settle- ment. In Malaysia, the local subsidiary of NORMA Group is party to a lawsuit relating to a new plant and a demand for a down payment on the purchase price. Active proceedings mainly pertained to claims against suppliers. In addition, NORMA Group identified possi- ble violations of its own IP rights or IP rights of third parties. Most of the proceedings were conducted in Germany and the US. NORMA Group uses its current compliance and risk management systems to ensure that it complies with constantly changing laws and regulations and meets its contractual obligations. NORMA Group counters the risk of product defects through its Group-wide quality assurance program. In addition, NORMA Group is also insured against claims arising from certain defective products. 93 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties Due to the current significant changes in international tax law (e.g. the OECD BEPS Initiative), in particular, that can lead to unanswered legal questions, as well as due to the increased auditing intensity of tax audits that can be seen in many countries, the likelihood of risks related to standards and contracts is considered possible. However, due to the existing risk manage- ment measures, the potential financial impact of risks in connection with standards and contracts is still considered to be moderate. All legal risks that NORMA Group is aware of are taken into account through provisions recognized in the Consolidated Financial Statements. Social and environmental standards Violating social and environmental standards could damage the reputation of NORMA Group and result in restrictions, claims for damages or disposal obliga- tions. NORMA Group has therefore implemented Cor- porate Responsibility as an integral part of the Group strategy. In this context, a systematic Environmental Management System was introduced at NORMA Group so that corporate decisions can always be evaluated also considering the goal of avoiding emis- sions and conserving resources. The Company also invests in the area of occupational health and safety EMPLOYEES, P. 75 for its continuous improvement. Consequently, NORMA Group believes that the prob- abilities of occurrence of negative developments remain unlikely as a result of social and environmen- tal risks and that the potential financial effects would be moderate. However, the investments in the area of Corporate Responsibility serve not only to ward off risks. The measures and initiatives are also seen as having the potential to positively impact both the business envi- ronment as well as NORMA Group and its stakehold- ers. Therefore, NORMA Group estimates the opportu- nities in this area to be possible and assumes that the measures and initiatives will have a minor impact on its planning. Intellectual property NORMA Group’s position as a technology and innova- tion leader means that violations of its intellectual property rights could lead to lost sales and reputation. For this reason, the Company ensures that its technol- ogies and innovations are legally protected. NORMA Group also minimizes the potential impact by develop- ing customer-specific solutions and through its speed of innovation. At the same time, it is also possible for NORMA Group to violate the intellectual property of third parties. For this reason, developments for potential patent vio- lations are reviewed at an early stage. Therefore, it is considered possible for the intellectual property to be violated. Due to the measures that NORMA Group has implemented, the potential impact of an intellectual property violation is regarded to be minor. In addition, NORMA Group also sees opportunities as possible that can lead to a minor deviation from the medium term plan as a result of the consistent defense of the intellectual property and the expansion of legal unique selling points. 94 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties ASSESSMENT OF THE OVERALL PROFILE OF RISKS AND OPPORTUNITIES BY THE MANAGEMENT BOARD The Group’s overall situation results from the aggre- gation of individual risks and opportunities from all categories of the business units and functions. After assessing the likelihood of risks occurring and their potential financial impact as well as in light of the current business outlook, NORMA Group’s Manage- ment Board does not believe that there is any individ- ual risk or group of risks with the potential to jeopar- dize the continued existence of the Group or individual Group companies as a going concern. Taking the aggregated opportunities into account, NORMA Group is in a very good position with respect to both the medium and long terms to further expand its market position and grow globally. This assessment is reinforced by the good opportunities to cover the financing requirements. Therefore, NORMA Group has not made any effort to obtain an official rating from a leading rating agency. General economic risks remain for NORMA Group in all areas, which is why setbacks on the way towards long-term realization of the growth and profitability targets cannot be ruled out. In contrast, there are clear opportunities that NORMA Group is taking advantage of through its strategy and consistent opportunity management, so that it is possible to even exceed the profitability targets. The changes in the individual opportunities and risks shown in the overview have no significant impact on NORMA Group’s overall risk profile. NORMA Group has therefore concluded that the Group’s overall pro- file has not changed significantly compared to the previous year. 95 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties T 027 RISK AND OPPORTUNITY PORTFOLIO OF NORMA GROUP 1 very unlikely • Financial risk and opportunities Default risk Liquidity Currency Change in interest rates Risks Opportunities Risks Opportunities Risks Opportunities Economic and cyclical risks and opportunities Risks Opportunities Industry-specific and technological risks and opportunities Risks Opportunities Risks and opportunities associated with corporate strategy Risks Opportunities Operational risks and opportunities Commodity pricing Risks Suppliers Quality and processes Customers Opportunities Risks Opportunities Risks Opportunities Risks Opportunities Risks and opportunities of personnel management IT-related risks and opportunities Legal risks and opportunities Risks related to standards and contracts Social and environmental standards Property rights Risks Opportunities Risks Opportunities Risks Risks Opportunities Risks Opportunities 1_If not indicated differently, the risk assessment applies for all regional segments. Probability of occurence Financial impact unlikely possible likely very likely change to 2016 insigni- ficant minor moderate significant high change to 2016 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 96 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT047Principles of the Group058Economic Report080Forecast Report085Risk and Opportunity Report097Remuneration Report103Other Legally Required Disclosures106Report on Transactions with Related Parties Remuneration Report REMUNERATION OF THE MANAGEMENT BOARD Basic principles of the remuneration system The purpose of NORMA Group’s remuneration system is to provide the members of the Management Board with adequate remuneration for their activities and areas of responsibility as well as their personal perfor- mance in accordance with applicable legislation and to provide them with a long-term incentive to commit themselves to the success of the Company. In addi- tion to the criteria of the Company’s performance and future prospects, the decision as to what level of remuneration is appropriate is also based on the gen- eral levels of remuneration paid by comparable com- panies and NORMA Group’s remuneration structure. In accordance with the recommendations of the German Corporate Governance Code in the version dated February 7, 2017, the remuneration comprises a fixed element and variable elements. The basic remuneration is a fixed cash payment for the entire year based on the respective Management Board member’s area of responsibility. This basic remuneration is paid in the form of a monthly salary. The variable compensation is designed differently depending on when a Board member took office. With the Board members who took office before 2015, it consists of the following components: 1. The annual bonus is a variable cash payment cal- culated on the basis of the quantifiable perfor- mance of the Company in the previous fiscal year. The parameters taken into consideration are whether or not the Company reaches its target for an earnings component (adjusted EBITA) and a liquidity component (operating free cash flow before external use). Each of the two indicators is calcu- lated for a fiscal year based on figures taken from the Company’s Consolidated Financial Statements and compared to the target set in advance by the Supervisory Board. The annual salary of the Man- agement Board member is multiplied by a percent- age between 0% and 200%, depending on the extent to which the targets for the components were met. The range limits the annual bonus to 50% of the member’s annual salary. In case of negative performance, it can be reduced to EUR 0. 2. The Company’s Long-Term Incentive (LTI) Plan is a component of a variable remuneration element designed to maximize the Company’s long-term per- formance. The LTI plan also comprises an EBITA com- ponent and an operating free cash flow before exter- nal use (FCF) component, each of which are observed over a period of three years (performance period). A new three-year performance period begins for every year. Both components are calculated by mul- tiplying the average annual (adjusted) EBITA and FCF values actually achieved in the performance period by the (adjusted) EBITA and FCF bonus per- centages specified in the employment contract. In a second step, the actual value of a component is compared to the medium-term plan approved by the Supervisory Board to evaluate the Company’s performance and adjustments are made to the LTI plan. The LTI plan is limited to two and a half times the amount that would be arrived at on the basis of the figures in the Company’s medium-term plan. If the actual value is lower than the planned value, the LTI plan is reduced on a straight-line basis down to a minimum of EUR 0 if the three-year targets are missed by a significant amount. 3. The Matching Stock Program (MSP) provides a share price-based long-term incentive to commit to the success of the Company. The MSP is a stock option program. To this end, the Supervisory Board specifies a num- ber of stock options to be allotted each fiscal year with the proviso that the Management Board mem- ber makes a corresponding personal investment in the Company. The MSP is split into different tranches. The first tranche was allotted on the day of the initial public offering (April 8, 2011). The other tranches were allotted on March 31 each following year. The stock options relate to those shares allotted or acquired and qualified under the MSP as specified in the Management Board contract. The number of stock options is calculated by multiplying the qualified shares (for 2014: 108,452 shares per year, for 2015, 2016 and 2017: 85,952 shares) held at the allotment date by the option factor specified by the Supervisory Board. The option factor is re-deter- mined for each tranche and amounts to 1.5 for each of the tranches in 2014, 2015, 2016 and 2017. Therefore, 162,679 share options are to be considered in fiscal year 2014 and 128,928 in fis- cal years 2015, 2016 and 2017. Every tranche will be recalculated taking changes in the influencing factors into consideration and balanced pro rata temporis over the vesting period. The vesting period is four years and ends on March 31 in 2018, 2019, 2020 and 2021 respec- tively for the 2014, 2015, 2016 and 2017 tranches. The options in a tranche can only be exercised within a period of two years after the vesting period expires. As a precondition for exercising the options, the share price must exceed the exercise threshold when the options are exercised (basis: weighted average of the last ten exchange trading days before exercising the option). The exercise thresh- old is set by the Supervisory Board when the respective tranche is allocated and equals at least 120% of the strike price. The exercise threshold was set at 120% of the strike price for the 2014, 047 Principles of the Group 058 Economic Report 080 Forecast Report 085 Risk and Opportunity Report 097 Remuneration Report 103 Other Legally Required Disclosures 106 Report on Transactions with Related Parties 97 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT 2015, 2016 and 2017 tranches. In determining the exercise price of the tranches, the weighted aver- age of the closing prices of the Company’s share on the last 60 trading days that immediately preceded allocation of each tranche is to be applied. Dividend payments by the Company during the vesting period are to be deducted from the exercise price of each tranche. The value of the stock options is calculated by an external assessor based on generally accepted business valuation models. The Company is generally free to decide at the time of exercise whether compensation for the option is to be offered in the form of shares or a cash settle- ment. Due to the history of NORMA Group, a settle- ment in form of a cash payment is expected for the future. For further information, please refer to the Notes. NOTES, P. 165 T 028 OVERVIEW OF THE MATCHING STOCK PRO- GRAM (MSP) AT THE TIME OF ALLOTMENT Tranches Option factor Number of options Exercise price in EUR End of ves- ting period 2017 2016 2015 2014 1.5 1.5 1.5 1.5 128,928 128,928 128,928 162,679 41.60 46.62 44.09 40.16 2021 2020 2019 2018 Upon entering into service in fiscal year 2015, the variable compensation consisted of the following components: 1. The annual bonus is a variable compensation com- ponent, which refers to the average Group EBT (earnings before income taxes) of the last three fis- cal years. The Management Board receives a per- centage of the amount of the three-year average. The annual bonus is capped at twice the fixed annual salary. The annual bonus for the previous fiscal year is to be paid after approval of the Consol- idated Financial Statements by the Supervisory Board the following year. If the Management Board member has not worked for the Company for a full twelve months in a fiscal year, the annual bonus will be reduced accordingly. 2. The Long-Term Incentive Plan is designed as a so-called NORMA Value Added Bonus and rep- resents a part of the variable remuneration of the Management Board aligned toward sustained posi- tive business development. This LTI provides a long-term incentive for the Management Board to work hard to make the Company successful. The LTI is an appreciation bonus that is based on the Group’s performance. The Board member receives a percentage of the calculated increase in value. The NORMA Value Added Bonus corresponds to the percentage of the average increase in value from the current and the two previous fiscal years. The annual increase in value is calculated using the fol- lowing formula: NORMA Value Added = (EBIT × (1 − t)) − (WACC × invested capital) The calculation of the first component is based on the consolidated earnings before interest and taxes (Group EBIT) for the fiscal year and the average cor- porate tax rate. The second component is calcu- lated from the Group WACC multiplied by the capi- tal invested. The NORMA Value Added Bonus is limited to a fixed annual salary. 75% of the amount attributable to the LTI is paid to each Management Board member the following year. The Company then uses the remaining 25% attributable to the LTI to purchase shares of NORMA Group SE in the name and on behalf of the individual Board mem- bers. Alternatively, the Company may pay out this balance to the Board member. In this case, the Management Board member obligates himself to purchase shares of NORMA Group SE with the bal- ance of this amount within 120 days after the annual financial statements are approved at the Supervisory Board meeting. The Management Board member may not dispose of the shares for four years. Dividends and subscription rights are to be made freely available to the Management Board member. If a Board member takes office in the cur- rent fiscal year or does not work for the Company for a full twelve months in a fiscal year, the LTI is to be reduced proportionally (pro rata). Upon termina- tion of the employment contract, a Management Board member may dispose of his shares only after 12 months of leaving the Company. Upon termina- tion of his appointment to a body at the request of the Management Board or for another important reason, no future rights to variable components of the LTI shall be granted. Furthermore, when taking office in 2015, a Manage- ment Board member is entitled to a pension, which is measured as a percentage of the pensionable income. The pension entitlement arises when the contract has expired, but not before reaching the age of 65, or if that individual is unable to work. The percentage depends on the number of years of service as a Man- agement Board member. The percentage amounts to 4% of the last yearly fixed salary prior to leaving for each completed year of service. The percentage can increase to a maximum of 55%. Furthermore, a survi- vor’s pension is to be provided as well. In the event of premature termination of the employ- ment contract without an important reason, any pay- ments to the Management Board are not to exceed the value of two annual remunerations and corre- spond at most to the value of the remuneration for the remaining term of the employment contract (see sec- tion 4.2.3 of the GCGC). If a special right of termina- tion is exercised in the event of a change of control, the Management Board receives compensation of three years’ remuneration, but no more than the value of the remuneration for the remaining term of the employment contract (see section 4.2.3 of the GCGC). 047 Principles of the Group 058 Economic Report 080 Forecast Report 085 Risk and Opportunity Report 097 Remuneration Report 103 Other Legally Required Disclosures 106 Report on Transactions with Related Parties 98 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT The annual remuneration includes the current annual fixed salary as well as short- and long-term variable remuneration components from the past fiscal year. The members of the Management Board are addition- ally compensated with a company car, which they can also use for personal purposes. Furthermore, Management Board members are reimbursed for any expenses and travel costs incurred while performing their duties for the Company in accordance with the Company’s respectively applicable guidelines. Inven- tor’s bonuses are also granted. The members of the Management Board arrange private insurance or are personally responsible for the statutory deductible of 10% of the loss for the D&O insurance policy carried for the Managing Directors of NORMA Group. Remuneration of the Management Board in fiscal year 2017 The Management Board’s remuneration for fiscal year 2017 is reported in accordance with the applicable accounting principles (DRS 17) and the recommenda- tions of the German Corporate Governance Code. Management Board remuneration in 2017 according to the accounting standard DRS 17 The total remuneration of the Management Board pursuant to section 315e in connection with section 315a (2) and section 314 (1) no. 6 of the German Commercial Code (HGB) is distributed among the indi- vidual members of the Management Board as shown in TABLE 029. The performance-related components include only the short-term annual bonuses. All other bonuses, includ- ing the MSP are listed under long-term incentives. A provision was recognized for the variable compen- sation elements. The stock options associated with the MSP are assessed on an ongoing basis and included in other provisions in the income statement. Remuneration of the Management Board in 2017 in accordance with the German Corporate Governance Code In accordance with the German Corporate Governance Code in its version dated February 7, 2017, which draws a distinction between remuneration that is being granted for the year under review and inflow in or for the year under review, the remuneration of the Management Board is shown in TABLE 030 ON P. 100 (models recom- mended in the Code are being used): T 029 MANAGEMENT BOARD REMUNERATION IN 2017 Werner Deggim Dr. Michael Schneider Bernd Kleinhens John Stephenson Total IN EUR THOUSANDS Fixed components Performance-related components Long-term incentive effect Total remuneration 2017 471 135 1,462 2,068 2016 2017 2016 471 158 556 341 0 861 327 0 817 1,185 1,202 1,144 2017 320 90 1,256 1,666 2016 2017 2016 306 105 369 780 294 84 629 1,007 294 98 347 739 2017 1,426 309 4,208 5,943 2016 1,398 361 2,089 3,848 047 Principles of the Group 058 Economic Report 080 Forecast Report 085 Risk and Opportunity Report 097 Remuneration Report 103 Other Legally Required Disclosures 106 Report on Transactions with Related Parties 99 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT T 030 REMUNERATION GRANTED TO THE MANAGEMENT BOARD Werner Deggim Dr. Michael Schneider Bernd Kleinhens John Stephenson Total IN EUR THOUSANDS 2017 2017 (Min) 2017 (Max) 2016 2017 2017 (Min) 2017 (Max) 2016 2017 2017 (Min) 2017 (Max) 2016 2017 2017 (Min) 2017 (Max) 2016 2017 2017 (Min) 2017 (Max) 2016 Fixed remuneration Benefits Total One-year variable remuneration Multi-year variable remuneration – LTI tranche 2017 – 2019 – LTI tranche 2016 – 2018 – MSP 450 21 471 113 0 0 2017 – 2021 242 – MSP 2016 – 2018 – Other perennial remuneration Sum Pension expenses Total remuneration 0 0 355 0 450 21 471 450 21 471 450 21 471 314 27 341 314 27 341 314 27 341 300 27 327 300 20 320 300 20 320 300 20 320 300 6 306 280 14 294 280 14 294 280 14 294 280 1,334 1,344 1,344 1,330 14 82 82 82 68 294 1,426 1,426 1,426 1,398 0 225 113 547 0 628 517 75 0 150 75 70 0 140 70 805 0 1,143 775 0 0 0 0 0 0 0 0 0 0 481 1,846 0 0 0 232 0 2,071 826 0 0 0 0 0 0 314 861 197 0 0 0 0 0 0 197 0 0 0 0 0 0 0 0 314 942 197 300 817 135 267 0 464 0 0 806 0 0 0 0 0 0 0 0 658 0 0 318 1,227 0 0 0 154 0 2,035 547 0 0 0 0 0 0 0 70 0 0 0 0 0 0 0 0 0 0 0 267 300 0 1,145 0 706 0 0 144 0 0 314 1,285 514 2,092 0 0 0 0 0 0 658 0 0 1,099 4,218 0 0 530 314 300 6,333 2,704 0 0 197 197 197 135 826 471 2,542 1,297 1,399 538 1,480 1,279 1,126 320 2,355 853 364 294 1,579 808 3,715 1,623 7,956 4,237 047 Principles of the Group 058 Economic Report 080 Forecast Report 085 Risk and Opportunity Report 097 Remuneration Report 103 Other Legally Required Disclosures 106 Report on Transactions with Related Parties 100 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT T 031 INFLOW FROM MANAGEMENT BOARD MEMBER REMUNERATION Werner Deggim Dr. Michael Schneider Bernd Kleinhens John Stephenson Total IN EUR THOUSANDS 2017 2016 2017 2016 2017 2016 2017 2016 Fixed remuneration Benefits Total One-year variable remuneration Multi-year variable remuneration – LTI tranche 2014 – 2016 – LTI tranche 2013 – 2015 – MSP 2013 – 2017 – MSP 2012 – 2016 – Other perennial remuneration Sum Pension expenses Total remuneration 450 21 471 135 281 0 1,116 0 0 1,532 0 2,003 450 21 471 158 0 299 0 879 0 1,336 0 1,807 314 27 341 547 0 0 0 0 300 847 197 300 27 327 517 0 0 0 0 150 667 135 1,385 1,129 300 20 320 90 186 0 741 0 0 1,017 0 1,337 300 6 306 105 0 198 0 584 0 887 0 1,193 280 14 294 84 175 0 692 0 0 951 0 1,245 280 14 294 98 0 186 0 545 0 829 0 1,123 2017 1,334 82 1,426 856 642 0 2,549 0 300 4,347 197 5,970 2016 1,330 68 1,398 878 0 683 0 2,008 150 3,719 135 5,252 Expenses in the amount of EUR 667 thousand for the MSP 2013 – 2017 are recognized for former mem- bers of the Management Board in the fiscal year. 047 Principles of the Group 058 Economic Report 080 Forecast Report 085 Risk and Opportunity Report 097 Remuneration Report 103 Other Legally Required Disclosures 106 Report on Transactions with Related Parties 101 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT REMUNERATION OF THE SUPERVISORY BOARD T 032 REMUNERATION OF THE SUPERVISORY BOARD 2017 The remuneration for the Chairman and the Deputy Chairman of the Supervisory Board was calculated separately in accordance with the recommendations of the German Corporate Governance Code in the ver- sion dated February 7, 2017. The Chairman is paid double the remuneration of the other members of the Supervisory Board, and the Deputy Chairman is paid one and a half times this amount. In addition, the Chairman and members of the Supervisory Board’s committees are remunerated separately. The Supervisory Board members will be remunerated for their activities on the day after the 2018 Annual General Meeting as follows: Supervisory Board member Membership / Chairman of a committee Dr. Stefan Wolf Chairman of the Supervisory Board Remunera- tion in EUR 110,000.00 Chairman of the General and Nomination Committee Lars M. Berg Vice-Chairman of the Supervisory Board 95,000.00 Member of the Audit Committee Member of the General and Nomination Committee Günter Hauptmann Not a member of a Committee 50,000.00 Dr. Knut J. Michelberger Chairman of the Audit Committee Dr. Christoph Schug Member of the General and Nomination Committee 85,000.00 60,000.00 Erika Schulte Member of the Audit Committee 60,000.00 Total 460,000.00 No remuneration was paid to Supervisory Board mem- bers in fiscal year 2017 for services personally ren- dered (in particular advisory and brokerage services). Furthermore, the Supervisory Board members are reimbursed for any expenses and travel costs incurred while performing their duties for the Company in accordance with the Company’s respectively applica- ble guidelines. The members of the Supervisory Board arrange private insurance or are personally responsi- ble for the statutory deductible of 10% of the loss for the D&O insurance policy carried for the Management Board and the Supervisory Board of NORMA Group. 047 Principles of the Group 058 Economic Report 080 Forecast Report 085 Risk and Opportunity Report 097 Remuneration Report 103 Other Legally Required Disclosures 106 Report on Transactions with Related Parties 102 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT Other Legally Required Disclosures An overview of the information required under section 315a paragraph 1 of the German Commercial Code (Handelsgesetzbuch, HGB) is presented below: share capital Section 315a (1) no. 1 HGB NORMA Group SE’s totalled EUR 31,862,400.00 on December 31, 2017. This is divided into 31,862,400 registered shares with no par value. Each share entitles the bearer to one vote. There are no other classes of shares. NORMA Group SE holds no treasury shares. Section 315a (1) No. 2 HGB The Management Board of NORMA Group SE is not aware of any restrictions affecting voting rights or the transfer of shares or any agreements between share- holders which could result in such restrictions. Section 315a (1) no. 3 HGB There are no direct or indirect capital holdings exceed- ing one tenth of the voting rights other than those vot- ing rights listed in the Notes to the Consolidated Financial Statements. Section 315a (1) no. 4 HGB There are no shares in NORMA Group SE that confer special control rights to the holder. Section 315a (1) no. 5 HGB There are no employee share schemes through which employees can acquire shares of NORMA Group SE. Employees with shareholdings in NORMA Group SE exercise control rights in the same way as other shareholders in accordance with applicable legislation and the Articles of Association. 047 Principles of the Group 058 Economic Report 080 Forecast Report 085 097 Risk and Opportunity Report Remuneration Report 103 Other Legally Required Disclosures 106 Report on Transactions with Related Parties 103 Section 315a (1) no. 6 HGB Management Board members are appointed and dis- missed in accordance with section 84 et seq. of the German Stock Corporation Act (Aktiengesetz, AktG). The Articles of Association of NORMA Group SE do not contain any provisions related to this issue that con- tradict the applicable legislation. The Supervisory Board is responsible for determining the actual num- ber of members on the Management Board. It can nominate a Chairman and Vice-Chairman of the Man- agement Board or a Management Board spokesper- son and a deputy spokesperson. Changes to the Articles of Association are made by the Annual General Meeting in accordance with sec- tion 179 (1) AktG. In accordance with section 179 (1) sentence 2 AktG, the Annual General Meeting can authorize the Supervisory Board to make changes which affect only the wording of the Articles of Asso- ciation. The Annual General Meeting of NORMA Group SE has chosen to do so: According to Article 14 (2) of the Articles of Association, the Supervisory Board is authorized to make changes to the Articles of Associ- ation which only affect their wording. In accordance with article 20 sentence 3 of the Articles of Associa- tion, a simple majority of votes submitted is sufficient for a resolution on changing the Articles of Association if at least half of the share capital is represented when the resolution is adopted and a different majority is not required under the law. The Supervisory Board is authorized to amend the wording of article 6 of the Articles of Association to reflect the issue of the new shares from the Condi- tional Capital 2015. The same will apply insofar as the authorization to issue convertible bonds, bonds with warrants, and / or participation rights with or without conversion or option rights or conversion or option obligations in accordance with the Annual General Meeting’s resolution of May 20, 2015, is not exer- cised during the term of the authorization or the cor- responding option or conversion rights or option or conversion obligations have lapsed because the exer- cise periods have expired or for another reason. The Supervisory Board is authorized to amend the wording of article 5 of the Articles of Association in accordance with the issuance of new shares from the Authorized Capital 2015 and, provided that the Autho- rized Capital 2015 has not been utilized or not been fully utilized by May 19, 2020, adjust the authorization after that deadline has expired. The Management Board may determine that the share capital is to remain unchanged in the event that shares are to be withdrawn and, instead, be increased by withdrawing a percentage of the remaining shares in the share capital pursuant to section 8 (3) German Stock Corporation Act. In this case, the Management Board is authorized to adjust the number of shares in the Articles of Association. Section 315a (1) no. 7 HGB Authorized Capital In accordance with the resolution passed at the Annual General Meeting on May 20, 2015, the Management Board is authorized, with the Supervisory Board’s con- sent, to increase the Company’s share capital once or repeatedly by up to a total of EUR 12,744,960 on or before May 19, 2020, by issuing up to 12,744,960 new registered shares against cash and / or non-cash contributions (Authorized Capital 2015). The Management Board is authorized, with the Super- visory Board’s consent, to exclude the shareholders’ subscription rights wholly or in part, once or repeat- edly, in accordance with the following provisions: › to exclude the shareholders’ subscription rights for fractional amounts; NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT › if and to the extent that it is necessary to grant the bearers or creditors of conversion or option rights and / or the bearers or creditors of financing instru- ments carrying conversion or option obligations which were or are issued by the NORMA Group SE, or by a domestic or foreign Company in which NORMA Group SE holds directly or indirectly the majority of the votes and capital; › in the case of a capital increase against cash contri- butions pursuant or according to section 186 (3), sentence 4 German Stock Corporation Act, if the par value of the new shares is not substantially lower than the stock exchange price of the already listed shares in the Company and if the new shares which were issued under exclusion of the subscription right do not exceed a proportional amount of 10% of the share capital in total; › in case of capital increases against non-cash con- tributions, in particular for the purpose of acquiring enterprises, parts of enterprises or interests in enterprises. The Authorized Capital 2011/II which was resolved by the Annual General Meeting on April 6, 2011, has thus been cancelled by resolution of the Annual General Meeting on May 20, 2015. Article 5 of the Articles of Association of NORMA Group SE has been changed accordingly. Conditional Capital The Management Board is authorized to issue, with the Supervisory Board’s consent, once or repeatedly on or before May 19, 2020, bearer or registered convertible bonds and / or bonds with warrants and / or participa- tion rights carrying a conversion or option right and / or conversion or option obligation (or a combination of these instruments) in a total nominal amount of up to EUR 200,000,000 with or without a limited maturity term (hereinafter referred to collectively as ‘bonds’) and to grant the creditors of bonds conversion / option rights and / or lay down for the creditors of bonds con- version / option obligations to subscribe to a total of up to 3,186,240 new registered shares of the Company with a pro rata amount of the share capital of a total of up to EUR 3,186,240 in accordance with the terms and conditions of the bonds. The share capital of the Company is conditionally increased by up to EUR 3,186,240 through an issu- ance of up to 3,186,240 new registered shares (Con- ditional Capital 2015). The authorization of the Management Board to issue warrants and convertible bonds and participation rights with warrants and convertible rights and the Conditional Capital 2011 resolved by the Annual Gen- eral Meeting on April 6, 2011, were cancelled by shareholder resolution on May 20, 2015. Article 6 of the Articles of Association of NORMA Group SE has been amended accordingly. The purpose of the Conditional Capital is to issue shares to the creditors of convertible bonds and / or bonds with warrants and / or participation rights car- rying an option / conversion right and / or a conver- sion / option obligation (or a combination of such instruments), which will be issued based on the authorizations granted by the Annual General Meet- ing of NORMA Group SE on May 20, 2015, or domestic or foreign companies in which NORMA Group SE directly or indirectly holds the majority of the votes and the capital. New shares are issued at the conversion or option price to be determined in each case in accordance with the respective authorization. The conditional increase in capital will be performed only insofar as the bearers of conversion or option rights based on the aforementioned bonds or participation rights exer- cise their conversion or option rights or conversion or option obligations that are based on such bonds are fulfilled, and insofar as the conversion or option rights and / or conversion or option obligations are not satis- fied through own shares, shares from authorized cap- ital or other consideration. The new shares will participate in the profit as of the beginning of the fiscal year in which they are issued; notwithstanding the above, the Management Board may, if permitted by law, resolve with the consent of the Supervisory Board that the new shares be able to participate in the profit as of the beginning of an ear- lier fiscal year for which, at the time of their issue, the Annual General Meeting has not yet resolved on the appropriation of the net retained profit. Authorization to acquire own shares Pursuant to the resolution of the Annual General Meeting on May 20, 2015, NORMA Group SE is authorized to acquire up to a total of 10% of its own share capital at the time at which the resolution was adopted or – in the event that this value is lower – at the time that the authorization is exercised via the stock exchange or via a public purchase offer on or before May 19, 2020, for any permissible purpose. This authorization may be exercised by NORMA Group SE in whole or in partial amounts, once or repeatedly, in pursuit of one or more purposes, but also be carried out by companies that are dependent on NORMA Group SE or in which NORMA Group SE holds a major- ity of the shares, or on its or their account. If the shares are acquired on the stock exchange, the equiv- alent value per share that is paid (without ancillary acquisition costs) may not exceed the price of the share in NORMA Group SE in the Xetra trading system (or a comparable successor system), as determined on the trading day in Frankfurt / Main by the opening auction, by more than 10% and not fall below it by more than 20%. If the acquisition is effected by way of a public purchase offer, the purchase price offered or the threshold values of the purchase price margin (excluding ancillary acquisition costs) may not exceed the closing price of the NORMA Group SE share in the Xetra trading system (or a comparable successor sys- tem) on the third trading day in Frankfurt / Main prior to the day of the public announcement of the offer by more than 10% and not fall below it by more than 20%. Should the relevant price vary by a not inconsid- erable extent following the publication of the public 047 Principles of the Group 058 Economic Report 080 Forecast Report 085 097 Risk and Opportunity Report Remuneration Report 103 Other Legally Required Disclosures 106 Report on Transactions with Related Parties 104 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT purchase offer, the offer may be adjusted. In this case, the closing price on the third trading day in Frank- furt / Main prior to the public announcement will be based on any adjustment that has been made. The Management Board is authorized to use shares of the Company for any legal purpose, once or repeat- edly, in whole or in part, and also through dependent or majority-owned NORMA Group SE related compa- nies or through third parties acting on their behalf or on behalf of NORMA Group SE. In particular, the shares acquired may be redeemed without such redemption or its implementation requiring a share- holder resolution. The cancellation leads in principle to a capital reduction. The Management Board may alternatively determine that the share capital is to remain unchanged upon redemption. In addition, the Management Board is expressly authorized to use the shares acquired under this authorization on one or more occasions, in whole or in part, individually or jointly, and also by dependent or majority-owned NORMA Group SE related companies or, on their account or third parties acting on the account of NORMA Group SE as follows: › for sale against cash, provided that the price is not significantly below the stock market price of shares of the Company at the time of sale (simplified exclusion of subscription rights in accordance with sections 186 para. 3 sentence 4, 71 para. 1 no. 8 sentence 5 half-sentence 2, German Stock Corpo- ration Act, is limited to a maximum of 10% of the share capital), › for sale against payment in kind, particularly for the acquisition of companies, parts of companies or par- ticipations in companies, › to meet obligations under conversion or option rights or obligations to act or option, › to issue in connection with share-based payments and employee share participation programs. The purchase right of shareholders to these own shares is excluded in the event of an appropriate use. NORMA Group SE is authorized to acquire its own shares within the framework of the aforementioned, related to the share capital limits, and by using deriv- atives such as put options, call options, forward pur- chases or a combination of these instruments and to take out derivative transactions. The acquisition of shares by using derivatives is limited to a number of shares that does not exceed a proportionate amount of 5% of the existing share capital at the time. Section 315a (1) No. 8 HGB NORMA Group’s financing agreements including the contracts for the promissory notes include the typical Change of Control Clause. In the event of a takeover by a third party, the possibility that NORMA Group would not be able to finance itself at similarly favor- able terms and conditions cannot be ruled out. Section 315a (1) No. 9 HGB NORMA Group SE has no agreements in place that provide compensation for members of the Manage- ment Board or employees in the event of a takeover bid. Please see the Remuneration Report for further details. REMUNERATION REPORT, P. 97 047 Principles of the Group 058 Economic Report 080 Forecast Report 085 097 Risk and Opportunity Report Remuneration Report 103 Other Legally Required Disclosures 106 Report on Transactions with Related Parties 105 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT Report on Transactions with Related Parties In fiscal year 2017, there were no significant transac- tions with related companies or persons besides the minority activities of members of the Management Board described in the Corporate Governance Report. 047 Principles of the Group 058 Economic Report 080 Forecast Report 085 097 Risk and Opportunity Report Remuneration Report 103 Other Legally Required Disclosures 106 Report on Transactions with Related Parties 106 NORMA Group SE – ANNUAL REPORT 2017BCONSOLIDATED MANAGEMENT REPORT C CONSOLIDATED FINANCIAL STATEMENTS 108 Consolidated Statement of Comprehensive Income 109 Consolidated Statement of Financial Position 110 Consolidated Statement of Cash Flows 111 Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 Appendix to the Notes to the Consolidated Financial Statements 193 Responsibility Statement 194 Independent Auditor’s Report FURTHER INFORMATION 200 Glossary 204 List of Graphics 205 List of Tables 207 Overview by Quarter 2017 208 Multi-Year Overview 210 Financial Calendar 2018, Contact and Imprint COVER TO OUR SHAREHOLDERS CONSOLIDATED MANAGEMENT REPORT 2017 003 The Value Chain of NORMA Group 027 The Management Board 047 Principles of the Group 004 Two Strong Distribution Channels 028 Letter from the 058 Economic Report 005 Financial Figures 2017 006 Research and Development 010 Purchasing 014 Production 018 Logistics 022 Sales Management Board 030 NORMA Group on the Capital Market 034 Supervisory Board Report 038 Corporate Governance Report 080 Forecast Report 085 Risk and Opportunity Report 097 Remuneration Report 103 Other Legally Required Disclosures 106 Report on Transactions with Related Parties 107 NORMA Group SE – ANNUAL REPORT 2017 Consolidated Statement of Comprehensive Income T 033 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME IN EUR THOUSANDS Revenue Changes in inventories of finished goods and work in progress Other own work capitalized Raw materials and consumables used Gross profit Other operating income Other operating expenses Employee benefits expense Depreciation and amortization Operating profit Financial income Financial costs Financial costs – net Profit before income tax Income taxes Profit for the period Other comprehensive income for the period, net of tax Other comprehensive income that can be reclassified to profit or loss, net of tax Exchange differences on translation of foreign operations Cash flow hedges Other comprehensive income that cannot be reclassified to profit or loss, net of tax Remeasurements of post-employment benefit obligations, net of tax Other comprehensive income for the period, net of tax Total comprehensive income for the period Profit attributable to Shareholders of the parent Non-controlling interests Total comprehensive income attributable to Shareholders of the parent Non-controlling interests Note (8) (9) (10) (11) (12) (19, 20) (13) (16) (27) (22, 27) (27, 29) (Un)diluted earnings per share (in EUR) (15) 2017 2016 1,017,084 – 1,072 3,911 – 419,748 600,175 19,475 – 153,159 – 270,237 – 58,467 137,787 924 – 16,979 – 16,055 121,732 – 1,916 119,816 – 35,423 – 35,812 389 – 321 – 321 – 35,744 84,072 119,664 152 119,816 83,902 170 84,072 3.76 894,887 244 3,318 – 353,527 544,922 15,210 – 141,446 – 244,061 – 54,624 120,001 227 – 14,872 – 14,645 105,356 – 29,490 75,866 5,955 3,926 2,029 833 833 6,788 82,654 75,747 119 75,866 82,529 125 82,654 2.38 108 Consolidated Statement of Comprehensive Income 109 110 111 Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 193 194 Appendix to the Notes to the Consolidated Financial Statements Responsibility Statement Independent Auditor’s Report 108 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Financial Position T 034 CONSOLIDATED STATEMENT OF FINANCIAL POSITION Note Dec 31, 2017 Dec 31, 2016 IN EUR THOUSANDS Note Dec 31, 2017 Dec 31, 2016 Liabilities Assets IN EUR THOUSANDS Non-current assets Goodwill Other intangible assets Property, plant and equipment Other non-financial assets Derivative financial assets Income tax assets Deferred income tax assets Current assets Inventories Other non-financial assets Other financial assets Derivative financial assets Income tax assets Trade and other receivables Cash and cash equivalents (19) (19) (20) (25) (22) (17) (18) (24) (25) (26) (22) (17) (23) (36) 356,717 255,729 205,153 1,048 1,885 76 4,845 368,859 295,427 201,177 261 1,576 106 7,563 825,453 874,969 Equity attributable to equity holders of the parent Subscribed capital Capital reserve Other reserves Retained earnings Equity attributable to shareholders Non-controlling interests Total equity Liabilities 151,229 15,754 1,001 640 9,884 152,746 155,323 486,577 139,885 15,701 5,685 1,157 10,479 Non-current liabilities Retirement benefit obligations Provisions Borrowings Other non-financial liabilities Other financial liabilities 124,208 Derivative financial liabilities 165,596 Deferred income tax liabilities 462,711 Total assets 1,312,030 1,337,680 Current liabilities Provisions Borrowings Other non-financial liabilities Other financial liabilities Derivative financial liabilities Income tax liabilities Trade and other payables Total liabilities 31,862 210,323 – 8,364 298,077 531,898 2,423 534,321 12,127 10,239 455,111 489 4,224 1,226 60,543 543,959 8,545 33,136 31,860 6,307 193 7,960 145,749 233,750 777,709 (27) (29) (30) (31) (32) (33) (22) (18) (30) (31) (32) (33) (22) (17) (34) 31,862 210,323 27,077 213,504 482,766 819 483,585 11,786 9,668 513,105 610 1,240 2,014 101,845 640,268 9,489 42,176 31,212 1,119 167 10,087 119,577 213,827 854,095 Total equity and liabilities 1,312,030 1,337,680 108 Consolidated Statement of Comprehensive Income 109 Consolidated Statement of Financial Position 110 111 Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 193 194 Appendix to the Notes to the Consolidated Financial Statements Responsibility Statement Independent Auditor’s Report 109 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Cash Flows T 035 CONSOLIDATED STATEMENT OF CASH FLOWS IN EUR THOUSANDS Operating activities Profit for the period Depreciation and amortization Gain (–) / loss (+) on disposal of property, plant and equipment Change in provisions Change in deferred taxes Change in inventories, trade account receivables and other receivables, which are not attributable to investing or financing activities Change in trade and other payables, which are not attributable to investing or financing activities Change in reverse factoring liabilities Payments for share-based payments Interest expenses in the period Income (–) / expenses (+) due to measurement of derivatives Other payments classified as investing activities Other non-cash expenses (+) / income (–) Cash flow from operating activities thereof interest received thereof income taxes Investing activities Payments for acquisitions of subsidiaries, net Investments in property, plant and equipment and intangible assets Proceeds from the sale of property, plant and equipment Cash flow from investing activities Financing activities Proceeds from outstanding capital contributions to a newly acquired subsidiary by former owner Interest paid Dividends paid to shareholders Dividends paid to non-controlling interests Proceeds from borrowings Repayment of borrowings Proceeds from / repayment of derivatives Repayment of lease liabilities Cash flow from financing activities Net change in cash and cash equivalents Cash and cash equivalents at the beginning of the year Effect of foreign exchange rates on cash and cash equivalents Cash and cash equivalents at the end of the period 108 109 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position 110 Consolidated Statement of Cash Flows 111 Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 193 194 Appendix to the Notes to the Consolidated Financial Statements Responsibility Statement Independent Auditor’s Report 110 Note 2017 2016 (19, 20) (30) (18) (23, 24, 25, 26) (32, 33, 34) (36) (36, 40) (19, 20) (27) (31) (31) 119,816 58,467 113 3,744 – 32,400 – 47,336 30,048 2,010 – 3,981 13,609 – 4,552 0 6,458 145,996 396 – 37,012 – 23,746 – 47,870 854 – 70,762 3,924 – 13,672 – 30,269 – 159 498 – 42,753 4,941 – 201 (36) – 77,691 – 2,457 165,596 – 7,816 155,323 75,866 54,624 80 870 – 5,202 – 11,348 18,580 2,279 – 2,534 12,652 2,435 1,650 – 754 149,198 221 – 40,079 – 87,623 – 46,974 748 – 133,849 0 – 12,026 – 28,676 – 204 188,434 – 94,163 – 3,485 – 294 49,586 64,935 99,951 710 165,596 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Changes in Equity T 036 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY IN EUR THOUSANDS Balance as of December 31, 2015 Changes in equity for the period Result for the period Exchange differences on translation of foreign operations Cash flow hedges, net of tax Remeasurements of post-employment benefit obligations, net of tax Total comprehensive income for the period Dividends paid Dividends paid to non-controlling interests Total transactions with owners for the period Balance as of December 31, 2016 Changes in equity for the period Result for the period Exchange differences on translation of foreign operations Cash flow hedges, net of tax Remeasurements of post-employment benefit obligations, net of tax Total comprehensive income for the period Dividends paid Dividends paid to non-controlling interests Acquisition of non-controlling interests Total transactions with owners for the period Attributable to equity holders of the parent Note Subscribed capital Capital reserve Other reserves Retained earnings Total Non-controlling interests 31,862 210,323 21,128 165,600 428,913 (22) (27, 29) (27) (22) (27, 29) (27) (40) 3,920 2,029 5,949 75,747 75,747 3,920 2,029 833 82,529 – 28,676 833 76,580 – 28,676 0 – 204 0 – 28,676 – 28,676 0 0 0 0 31,862 210,323 27,077 213,504 482,766 – 35,830 389 – 35,441 119,664 119,664 – 35,830 389 – 321 83,902 – 30,269 0 – 4,501 – 321 119,343 – 30,269 – 4,501 0 – 34,770 – 34,770 0 0 0 0 Total equity 429,811 75,866 3,926 2,029 833 82,654 – 28,676 – 204 – 28,880 483,585 119,816 – 35,812 389 – 321 84,072 – 30,269 – 159 – 2,908 – 33,336 534,321 898 119 6 125 – 204 819 152 18 170 – 159 1,593 1,434 2,423 Balance as of December 31, 2017 31,862 210,323 – 8,364 298,077 531,898 108 109 110 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows 111 Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 193 194 Appendix to the Notes to the Consolidated Financial Statements Responsibility Statement Independent Auditor’s Report 111 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements General Information 1. GROUP INFORMATION NORMA Group SE is the ultimate parent Company of NORMA Group. Its headquarters are located at 63477 Maintal, Edisonstrasse 4 in the vicinity of Frankfurt, Germany, and the Company is registered in the com- mercial register of Hanau under the number HRB 94473. NORMA Group SE and its affiliated Group sub- sidiaries operate in the market as ‘NORMA Group.’ NORMA Group has been listed in the Prime Standard of Frankfurt Stock Exchange’s Regulated Market since April 8, 2011. For a detailed overview of NORMA APPENDIX Group’s shareholdings, please refer to the TO THE NOTES: ‘VOTING RIGHTS.’ NORMA Group SE was established in 2006 as a result of the merger of Rasmussen GmbH and the ABA Group. Rasmussen was founded in 1949 as Rasmus- sen GmbH in Germany. It manufactured connecting and retaining elements as well as fluid conveying con- duits such as monolayer and multilayer tubes and cor- rugated tubes. All products were marketed globally under the NORMA brand. ABA Group was founded in 1896 in Sweden. The Group has since developed into a leading multi-national company specializing in the design and production of hose and pipe clamps, as well as connectors for many world-wide applications. In past decades, NORMA Group has, driven by its suc- cessful acquisitions and continuous technological innovation with products and operations, developed into a group of companies of global importance. In fiscal year 2017, NORMA Group acquired Lifial – Indústria Metalúrgica de Águeda, Lda. (‘Lifial’), based in Águeda, Portugal, and 80 percent of the shares in Fengfan Fastener (Shaoxing) Co., Ltd. (‘Fengfan’), based in Shaoxing City, China. NORMA Group markets its products to its customers via two different market channels: Engineered Joining Technology (EJT) and Distribution Services (DS). For Engineered Joining Technology (EJT) customers, NORMA Group offers tailor-made solutions and spe- cial engineered joining systems. To effectively fulfill special requirements, NORMA Group builds on exten- sive industry and application knowledge, a successful track record of innovation and long-standing relation- ships with all its key customers. As a result, many joining systems and fluid conveying conduits have been developed in close cooperation with global OEMs and NORMA Group. For Distribution Services (DS) customers, NORMA Group offers a wide range of standard fastening and fixing products. Furthermore, NORMA Group offers a broad technological and innovative product portfolio which includes brands like ABA®, Breeze®, Clamp- All®, CONNECTORS®, FISH®, Five Star®, Gemi®, NDS®, NORMA®, R.G.RAY®, Serflex® and TORCA®. 2. BASIS OF PREPARATION The principal accounting policies applied in the prepa- ration of these Consolidated Financial Statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The Consolidated Financial Statements of NORMA Group have been prepared in accordance with Inter- national Financial Reporting Standards and the rele- vant interpretations as adopted by the EU (IFRS) as well as with the regulations under commercial law as set forth in section 315e of the German Commercial Code (HGB) for the year ended December 31, 2017. The Consolidated Statement of Comprehensive Income has been prepared in accordance with the total cost method. The Consolidated Financial Statements of NORMA Group SE were prepared by the Management Board on March 9, 2018, and are scheduled to be released for publication after they were approved by the Super- visory Board on March 19, 2018. The Consolidated Financial Statements of NORMA Group are being filed with and published in the Ger- man Federal Gazette (Bundesanzeiger). 112 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report The preparation of financial statements in conformity with IFRS requires the use of certain accounting esti- mates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity or areas where assumptions and estimates are significant to the Con- NOTE solidated Financial Statements are disclosed in 6 ‘CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS.‘ New and amended standards adopted by the Group for the first time in 2017 The following new standards or amendments to stan- dards which were applied for the first time for the fis- cal year beginning January 1, 2017, had no material impact on NORMA Group’s financial position, cash flows or financial performance. Amendments to IAS 7: Disclosure Initiative On January 29, 2016, the IASB published amend- ments to IAS 7, Cash Flow Statement, which are intended to improve information on financing and liquidity of companies. In particular, the financial statements should enable users of financial state- ments to evaluate changes in liabilities arising from financing activities. To achieve this objective, the IASB requires that the following changes in liabilities arising from financing activities be disclosed (to the extent necessary): changes from financing cash flows, changes arising from obtaining or losing control of subsidiaries or other businesses; the effect of changes in foreign exchange rates, changes in fair values; and other changes. Amendments to IAS 12: Recognition of Deferred Tax Assets on Unrealized Losses On January 19, 2016, the IASB published amend- ments to IAS 12, Income Taxes, which contain clarifi- cations on the approach of deferred tax assets on temporary differences from unrealized losses. The amendment to IAS 12 makes it clear once again that the determination of a temporary difference within the meaning of IAS 12 is based on the fact that the book value is realized at the time of the determination of the economic benefit that flows to the company in future periods. The existence of a temporary difference could be determined solely by comparing the IFRS carrying value at the respective balance sheet date with the tax base at that time. Future foreseeable changes in the book value are not to be considered. In addition, the amendment clarifies that the IFRS book value is only relevant for the determination of temporary differences, but not for the estimation of the future taxable profit. When determining the tax- able profit, the realization of a value greater than the current IFRS carrying value is also conceivable, pro- vided this is probable. In this context, it is also clarified that, insofar as the tax deduction limits the use of deductible temporary differences to a certain type of result, when assessing whether and to what extent deferred tax assets are to be applied, only these types of deferred taxes can be applied to these differences. In addition, the IASB makes clear that the reversal of any deductible differences is not to be taken into account when determining the future taxable profit, which is used to determine the recoverability of deferred tax assets. Standards, amendments and interpretations of existing standards that are not yet effective and have not been adopted early by the Group The following standards and amendments to existing standards have been published and application is mandatory for all accounting periods beginning on or after January 1, 2018. The Group has decided against an early adoption. 1) Standards, amendments and interpretations to existing standards that have already been endorsed by the EU (with reference to each respective EU effective date): IFRS 9: Financial instruments (EU endorsement date Nov 22, 2016) In July 2014, the IASB finalized the reform of financial instruments accounting and issued IFRS 9, which will supersede IAS 39 Financial Instruments: Recognition and Measurement. The completed IFRS 9 contains the requirements for the classification and measurement of financial assets and liabilities, the impairment methodology, and the general hedge accounting. The key requirements of IFRS 9 are as follows: › Compared with the previous standard IAS 39, Finan- cial Instruments: Recognition and Measurement, the requirements of IFRS 9 regarding the scope, recog- nition and derecognition are quite similar. › The regulations of IFRS 9 provide for a new classifi- cation model for financial assets compared to IAS 39, however. – In the future, the subsequent measurement of financial assets will be based on three catego- ries with different value scales and different recognition of changes in value. The categori- zation results depend on both the contractual cash flows of the instrument and the entity’s business model for managing that financial instrument. Depending on the severity of these conditions, measurement is performed – at amortized cost using the effective interest method (AC category), or – at fair value, with changes recognized directly in other comprehensive income (FVTOCI category), or – at fair value, with changes recognized in profit or loss (FVTPL category). These are essentially mandatory categories. However, there are also occasional selection rights available to companies. 113 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report › For financial liabilities, the existing rules have been largely adopted in IFRS 9. The only major change concerns financial liabilities using the fair value option. This mandates that fair value fluctuations due to changes in own credit risk are to be recog- nized in other comprehensive income. › The new impairment model in IFRS 9 provides for three levels that will determine the amount of losses to be recognized and interest received. This means that losses from the 12-month expected credit loss are to be recognized on inception (Level 1). If there is a significant increase in the risk of default, loan loss provisions must be increased up to the lifetime expected credit losses (Level 2). If there is an objec- tive indication of impairment, interest must be col- lected on the basis of the carrying amount (book value less risk provisions) (Level 3). › For trade receivables and other assets from transac- tions within the scope of IFRS 15, as well as for lease receivables, a simplified impairment proce- dure can be applied. Changes in credit risk are not tracked; instead, loss allowances are recognized at the time of initial recognition and at each subse- quent reporting date to the amount of the expected loss of the remaining term. › The revised rules for hedge accounting continue to include the three types of hedge accounting that are also available in IAS 39. However, the requirements of IFRS 9 provide more opportunities for the applica- tion of hedge accounting and allow the reporting entity to better reflect its risk management activities in the financial statements. The main changes con- cern the extended scope of underlying and hedging transactions, as well as new rules on the effective- ness of hedging relationships, particularly the elimi- nation of the previous 80 – 125% corridor. › Besides extensive transitional provisions, IFRS 9 also involves extensive disclosure requirements for both transition and ongoing application. Changes com- pared to IFRS 7, Financial Instruments: Disclosures, mainly result from the provisions on impairment. The new standard is effective for annual periods beginning on or after January 1, 2018; early applica- tion is permitted. The Group will apply IFRS 9 for the first time for the fiscal year beginning on January 1, 2018; the adjustment of prior-year figures is waived in accor- dance with the transitional provisions of IFRS 9 for first-time adoption. Based on an analysis of the Group’s financial assets and financial liabilities as of December 31, 2017, as well as the facts and circumstances existing at the time, management has made the following assess- ment of the impact of IFRS 9 on the Consolidated Financial Statements, summarized below: Classification and valuation In the area of trade receivables, receivables that have already been tendered but not yet sold as of the bal- ance sheet date and are allocated to the Loans and Receivables (LaR) category (valuation category AC) in accordance with IAS 39 are reclassified to IFRS 9 cat- egory FVTOCI. The Group allocates this portion of trade receivables under IFRS 9 to the business model “Hold & Sell.” All other financial assets and liabilities will continue to be accounted for in the future, as is currently the case under IAS 39. Impairment The Group will apply the simplified impairment model of IFRS 9 for trade receivables, other financial assets and any contractual assets in accordance with IFRS 15, providing for a risk reserve equal to the expected residual loss over the remaining term, irrespective of their credit quality to be recorded for all instruments. Further findings in the course of the implementation of IFRS 9 confirmed that there will be no significant impact on the consolidated financial statements of the Group in terms of impairments or their amounts. Retained earnings as of January 1, 2018, will increase by EUR 500 thousand to EUR 700 thousand as a result of the adjustment of valuation allowances on trade receivables. 114 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report Hedge accounting The new rules on hedge accounting better reflect the general risk management of the Group and, compared to the current regulations under IAS 39, expand the scope of possible hedged items and hedging transac- tions. Therefore, based on an assessment of existing hedging relationships, the Group assumes that all existing hedge accounting relationships also meet the requirements for hedge accounting under IFRS 9. In accordance with the currently applied accounting guidelines, it is intended to continue considering rele- vant forward components of foreign currency and interest rate forward transactions in the designation of hedging relationships. The Group will apply the provisions of IFRS 9 on hedge accounting prospectively from January 1, 2018. IFRS 15: Revenue from Contracts with Customers (EU endorsement date Sep 22, 2016) In May 2014, IFRS 15 was issued which established a single comprehensive model for entities to use in accounting for revenue arising from contracts with cus- tomers. IFRS 15 will supersede the current revenue recognition guidance. The core principle of IFRS 15 is that an entity should recognize revenue to depict the transfer of promised goods or services to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to revenue recognition: 1. Identify the contract(s) with a customer; 2. Identify the perfor- mance obligations in the contract; 3. Determine the transaction price; 4. Allocate the transaction price to the performance obligations in the contract; 5. Recognize revenue when (or as) the entity satisfies a performance obligation. Under IFRS 15, an entity recognizes revenue when (or as) a performance obligation is satisfied, i.e. when control of the goods or services underlying the particular performance obligation is transferred to the customer. In April 2016, the IASB published some clar- ifications to IFRS 15 that address the following issues: cumulative impact is recognized at the date of initial application within the retained earnings. › Identifying performance obligations (clarification when the promises in a contract are distinct in the context of the contract), › principal-versus-agent considerations (clarification of the assessment of control of a good or service before it is transferred to a customer), › licensing (clarification of the assessment of the nature if the licence and of revenue- and usage-de- pendent licence fees) and › transition relief for modified contracts and comple- ted contracts. Key changes to current practice are: › Any bundled goods or services that are distinct must be recognized separately, and any discounts, reba- tes or prepayments on the transaction price must generally be allocated to the separate elements. › Revenue may be recognized earlier on an estimated basis than under current standards if the consider- ation varies for any reasons (such as for incentives, rebates, refunds, performance bonuses and royalties). › The point at which revenue is able to be recognized may shift: some revenue which is currently recog- nized at a point in time at the end of a contract may have to be recognized over the contract term (over time) and vice versa. › There are new specific rules e.g. on licenses, war- ranties, rights of return, non-refundable upfront fees and consignment arrangements. Furthermore, extensive disclosures are required by IFRS 15. In September 2015, the IASB issued amend- ments to this standard, which move the effective date to accounting periods beginning on or after January 1, 2018. Early adoption is permitted. The Group will adopt the standard for the fiscal year beginning as of January 1, 2018, modified retrospectively, i.e. the Further assessments resulting from the implementa- tion of IFRS 15 have confirmed that there will be no significant impacts on the financial statements. Within the Consolidated Statement of Comprehensive Income, there will be effects from the reclassification between revenue and other operating expenses and income from the final assessment of recognized liabil- ities from bonus agreements for previous years (according to IFRS 15: refund liabilities), whereby the gross profit will change. Due to the fact that there are only reclassification effects within the Consolidated Statement of Comprehensive Income, no amounts from the first-time adoption as of January 1, 2018, will be recognized in retained earnings. Changes in the total amount of revenue recognized for a customer contract in the case of early application of IFRS 15 in the 2017 fiscal year would only arise from the described reclassification effects. Besides, there will be changes to the Consolidated Statement of Financial Position, e. g. separate line items for contract assets and contract liabilities will be required, and quantitative and qualitative disclosures will need to be added. IFRS 16: Leases (EU endorsement date Oct 31, 2017) On January 13, 2016, the IASB published IFRS 16, Leases. In contrast to IAS 17, the lessee must present all leases in the balance sheet in the future, with only a few exceptions. There are exceptions for leases with an economic minimum term of less than 12 months, for which no extension option has been agreed, and for low-value assets that are recognized analogously to previous operating leases. The provisions of IAS 17 for lessors have essentially been adopted. 115 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report The amendments provide requirements on accounting for the following areas: the Consideration of conditions of performance (terms of service, market conditions and other performance conditions) within the framework of the valuation of cash settled share-based payments Under the new regulations, market conditions and non-exercisable conditions must be into account when estimating the fair value. Service con- ditions and other performance conditions must be considered when estimating the number of awards expected to vest. taken Classification of share-based payment transactions with a net settlement feature for withholding tax obligations If a company reduces the number of equity instru- ments to be delivered otherwise because it is obliged to withhold the number of equity instruments equal to the monetary value of the employee’s tax obligation, and if this net compensation is provided for in the contract, the remuneration is – in spite of this partial payment – classified in its entirety as an equity-set- tled share-based payment transaction. The lease liability is to be accrued in the subsequent valuation. The right of use asset is to be written off on a straight-line basis. For lessors, on the other hand, the previous provisions of IAS 17 will be continued. In other words, they still have to differentiate between finance leases and operating leases. The new standard is to be applied for annual periods beginning on or after January 1, 2019. Earlier appli- cation is permitted provided that IFRS 15 is also applied. NORMA Group will apply IFRS 16 for the first time in the fiscal year beginning on January 1, 2019, and plans the first application according to the modi- fied retrospective method, i.e. the cumulative adjust- ment effects at the time of initial application are expected to be accounted for in equity against retained earnings at the beginning of fiscal year 2019. The Group also plans to use the option of non-capital- ization granted under IFRS 16 for short-term and low- value leases, so that the lease payments resulting from these leases will also remain under operating expenses under IFRS 16. With the exception of short-term and low-value leases, the first-time application of IFRS 16 will lead to the capitalization of leasing usage rights (right-of-use asset) and recognition of corresponding lease liabili- ties. Besides the resulting balance sheet extension, the leasing installments previously recognized as operating expenses have been reclassified under IFRS 16 to depreciation and interest expenses and thus to an increase in EBITDA (including the full reclassifica- tion effect), EBITA and EBIT (the reclassification effect attributable to interest). Within the cash flow state- ment, there is a change in the presentation of cash flows from operating cash flow attributable to the repayment portion of the lease liability to the cash flow from financing activities. indicate The impact of the standard is being examined in a Group-wide IFRS 16 implementation project and can- not currently be reliably estimated. According to cur- rent information, the obligations under operating leases in accordance with IAS 17 in the Notes to the Consolidated Financial Statements the amount of the rights of use and corresponding lease liabilities to be recognized in accordance with IFRS 16 (with the exception of the short-term and low-value leases contained). As of December 31, 2017, future minimum lease payments under non-cancellable operating leases amounted to EUR 21,008 thousand. NOTE 39 ‘COMMITMENTS’ In the real estate leasing divi- sion, however, there will likely be a tendency to account for higher lease liabilities, as lease extension options under IFRS 16 are to be assessed and possi- bly taken into account when recognizing leases. Lease liabilities to be recognized in the future are also to be discounted, whereby the interest rates to be used have not yet been determined. The sum of the rights of use to be capitalized is expected to be lower than the liabilities recognized as leasing liabilities at the time of initial application, which leads the Group to assume from its current perspective that there will be a reduction in retained earnings at the time of initial application. 2) Standards, amendments and interpretations to existing standards that have not been endorsed by the EU: Amendments to IFRS 2: Clarification on: Valuation, Classification and Modification On June 20, 2016, the IASB issued amendments to IFRS 2, Share-based Payment, clarifying how to account for certain types of share-based payment transactions. 116 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report Accounting for a modification in the terms and conditions of a share-based payment that changes the transaction from cash-settled to equity-settled. The equity-settled share-based payment is recog- nized at the modification date fair value of the equity instrument granted to the extent that services have been rendered up to the modification date. The cash-settled award is remeasured, with any differ- ence recognized in the income statement before the remeasured liability is reclassified into equity. In December 2016, the IASB conducted the cycle as part of the Annual Improvement Project 2014–2016, which provides various amendments to existing stan- dards. The cycle: 2014–2016 contains clarifications for three standards, IFRS 1, IFRS 12 and IAS 28. The amendments to IFRS 1 and IAS 28 are effective for annual periods beginning on or after January 1, 2018, the amendment to IFRS 12 for annual periods begin- ning on or after January 1, 2017. However, first-time adoption within the EU prior to endorsement is not permitted. Entities are required to apply the amendments for annual periods beginning on or after January 1, 2018. Early application is permitted. The Group is currently examining the effects of apply- ing IFRS 2 to its Consolidated Financial Statements. IFRIC 23: Uncertainty over Income Tax Treatments In June 2017, the IASB issued IFRIC 23, Uncertainty over Income Tax Treatments. The interpretation clari- fies the recognition and measurement requirements when there is uncertainty over income tax treatments. In assessing the uncertainty, an entity shall consider whether it is probable that a taxation authority will accept the uncertain tax treatment. IFRIC 23 is effec- tive for annual reporting periods beginning on or after January 1, 2019, while earlier application is permit- ted. The Company is currently assessing the impacts of adopting the interpretation on the Company’s Con- solidated Financial Statements. In December 2017, the IASB conducted the cycle as part of the Annual Improvement Project 2015–2017, which provides various amendments to existing stan- dards. The cycle: 2015–2017 contains clarifications for three standards, IFRS 3 and IFRS 11, IAS 12 and IAS 23. The amendments and IAS are effective for annual periods beginning on or after January 1, 2019. The amendments are intended for clarification pur- poses and not for any fundamental changes in accounting practice. As a result, the Group does not expect any material effects on its Consolidated Finan- cial Statements. The IASB has published a number of other pro- nouncements. These recently translated accounting pronouncements as well as the pronouncements which have not yet been implemented have no mate- rial effect on the Consolidated Financial Statements of NORMA Group. 117 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report 3. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES Consolidation (a) Subsidiaries Subsidiaries are all entities (including structured enti- ties) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Consolida- tion of an investee begins from the date the Group obtains control of the investee and ceases when the Group loses control of the investee. The Group uses the acquisition method of accounting to account for business combinations. The initial value for the acquisition of a subsidiary is recognized at fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The initial value recognized includes the fair value of any asset or liability resulting from a contingent con- sideration arrangement. On the acquisition date, the fair value of the contingent consideration is recog- nized as part of the consideration transferred in exchange for the acquiree. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value on the acquisition date. According to IFRS 3, for each business combination the acquirer shall measure any non-controlling interest in the acquiree either at fair value (full goodwill method) or at the non-controlling interest’s proportionate share of the acquiree’s net assets. The Group measures the non-controlling interest in the acquiree at the non-controlling interest’s proportionate share of the acquiree’s net assets. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the identifiable net assets acquired, is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the dif- ference is recognized immediately in the Consoli- dated Statement of Comprehensive Income. In a business combination achieved in stages, the Group remeasures its previously held equity interest in the acquiree at its acquisition date fair value and recognizes the resulting gain or loss, if any, in profit or loss. Intercompany transactions, balances and unrealized gains or losses on transactions between Group com- panies are eliminated. Accounting policies of subsid- iaries have been changed where necessary to ensure consistency with the policies adopted by the Group. (b) Non-controlling interests Non-controlling interests have a share in the earnings of the reporting period. Their interests in the share- holders’ equity of subsidiaries are reported separately from the equity of the Group. The Group treats transactions with non-controlling interests that do not result in a loss of control as trans- actions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. (c) Disposal of subsidiaries When the Group ceases to have control, any retained interest in the subsidiary is remeasured at its fair value, with the change in the carrying amount recog- nized in profit or loss. The initial carrying amount is the fair value for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss. Valuation methods The following table shows the most important valua- tion methods: 118 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report T 037 VALUATION METHODS Position Assets Goodwill Valuation method Acquisition costs less potential impairment Other intangible assets (except goodwill) – finite useful lives Amortized costs Other intangible assets (except goodwill) – indefinite useful lives Acquisition costs less potential impairment Amortized costs At fair value in other comprehensive income Level 2: Property, plant and equipment Derivative financial assets: Classified as cash flow hedge Classified as fair value hedge Without hedge accounting Inventories Other non-financial assets Other financial assets Trade and other receivables Cash and cash equivalents Liabilities Pensions Other provisions Borrowings Other non-financial liabilities Other financial liabilities (categories IAS 39): At fair value through profit or loss At fair value through profit or loss Lower of cost or net realizable value Amortized costs Amortized costs Amortized costs Nominal amount Projected unit credit method Present value of future settlement amount Amortized costs Amortized costs Fair value estimation The amendment to IFRS 7 for financial instruments that are measured in the Statement of Financial Posi- tion at fair value in accordance with IFRS 13 requires disclosure of fair value measurements by level using the following fair value measurement hierarchy: Level 1: Quoted prices (unadjusted) in active mar- kets for identical assets or liabilities, Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is as prices) or indirectly (that is derived from prices), and Level 3: Inputs for the asset or liability that are not based on observable market data (that is unobservable inputs). The level in the fair value hierarchy within which the fair value measurement is categorized in total is determined on the basis of the lowest level input that is significant to the fair value measurement in total. The different hierarchy levels demand different amounts of disclosure. On December 31, 2017, and 2016, the Group’s deriv- ative financial instruments carried in the Statement of Financial Position at fair value (e. g. derivatives used for hedging) are categorized in total within Level 2 of the fair value hierarchy. The fair value of interest rate swaps is calculated as the present value of the esti- mated future cash flows. The fair value of forward for- eign exchange contracts is determined using a pres- ent value model based on forward exchange rates. Financial liabilities at cost (FLAC) Amortized costs Derivative financial liabilities: Classified as cash flow hedge Classified as fair value hedge Without hedge accounting Contingent consideration Trade and other payables At fair value in other comprehensive income At fair value through profit or loss At fair value through profit or loss At fair value through profit or loss Amortized costs 119 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report Foreign currency translation (a) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The Consol- idated Financial Statements are prepared in ‘euros’ (EUR), which is NORMA Group SE’s functional and the Group’s presentation currency. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the actual exchange rates on the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transac- tions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in profit or loss. Foreign exchange gains and losses that relate to bor- rowings and cash and cash equivalents are presented in profit or loss within ‘financial income / costs.’ All other foreign exchange gains and losses are pre- sented in profit or loss within ‘other operating income / expenses.’ (c) Group companies The results and financial position of all the Group enti- ties (none of which has the currency of a hyper-infla- tionary economy) that have a functional currency dif- ferent from the presentation currency are translated into the presentation currency as follows: › Assets and liabilities for each Consolidated State- ment of Financial Position presented are translated at the closing rate on the date of that Consolidated Statement of Financial Position; › income and expenses are translated at average exchange rates (unless this average is not a reason- able approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the actual rate on the dates of the transactions); and all resulting exchange differences are recognized as a separate component of equity. Goodwill and fair value adjustments arising through the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. The exchange rates of the currencies affecting foreign currency translation are as follows: T 038 EXCHANGE RATES PER EUR Australian dollar Brazilian real Chinese renminbi yuan Swiss franc Czech koruna British pound sterling Indian rupee Japanese yen South Korean won Malaysian ringgit Mexican peso Polish złoty Serbian dinar Russian ruble Swedish krona Singapore dollar Thai baht Turkish lira US dollar Spot rate Average rate Dec 31, 2017 Dec 31, 2016 1.5346 3.9729 7.8044 1.1702 25.5350 0.8872 76.6055 1.4596 3.4305 7.3202 1.0739 27.0210 0.8562 71.5935 2017 1.4734 3.6079 7.6286 1.1119 26.3239 0.8765 73.5079 2016 1.4885 3.8611 7.3501 1.0900 27.0344 0.8189 74.3474 135.0100 123.4000 126.7032 120.3107 1,279.6100 1,269.3600 1,276.3595 1,284.3540 4.8536 23.6612 4.1770 118.3430 69.3920 9.8438 1.6024 39.1210 4.5464 1.1993 4.7287 21.7719 4.4103 123.3860 64.3000 9.5525 1.5234 37.7260 3.7072 1.0541 4.8514 21.3372 4.2563 121.3254 65.9190 9.6378 1.5586 38.2903 4.1226 1.1297 4.5843 20.6641 4.3628 123.0988 74.1911 9.4676 1.5275 39.0434 3.3426 1.1067 120 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report Intangible assets (a) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary on the date of acquisition. Goodwill on acquisitions of subsidiaries is included in ‘intangible assets.’ Good- will is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-gen- erating units that are expected to benefit from the business combination in which the goodwill arose. (b) Development costs Costs of research activities undertaken with the pros- pect of gaining new scientific or technical knowledge and understanding are expensed as incurred. Costs for development activities, whereby research findings are applied to a plan or design for the produc- tion of new or substantially improved products and processes, are capitalized if development costs can be measured reliably, the product or process is tech- nically and commercially feasible and future eco- nomic benefits are probable. Furthermore, NORMA Group intends, and has suffi- cient resources, to complete development and use or sell the asset. The costs capitalized include the cost of materials, direct labor and other directly attributable expenditure that serves to prepare the asset for use. Such capitalized costs are included in profit or loss in line ‘own work capitalized.’ Capitalized development costs are stated at cost less accumulated amortiza- tion and impairment losses with an amortization period of generally three to five years. Development costs which did not meet the requirements are expensed as incurred. (c) Other intangible assets Separately acquired other intangible assets are shown at historical cost less accumulated amortization. Intangible assets acquired in a business combination are recognized at fair value on the acquisition date. Other intangible assets which have a finite useful life will be amortized over their estimated useful life. Amortization is calculated using the straight-line method to allocate their cost. Other intangible assets which are determined to have indefinite useful lives as well as intangible assets not yet available for use are not amortized, but instead tested for impairment at least annually. Furthermore, other intangible assets which are determined to have indefinite useful lives and therefore are not amortized, will be reviewed each period to determine whether events and circum- stances continue to support an indefinite useful life assessment for these assets. In general, the Group’s other intangibles are not qual- ifying assets in accordance with IAS 23 and borrowing costs eligible for capitalization therefore do not exist. The useful lives of other intangible assets acquired in a business combination are estimates based on the economics of each specific asset which were deter- mined in the process of the purchase price allocation. The major part of these assets are brand names and customer lists. The estimated useful lives for other intangible assets are as follows: › Patents: 5 to 10 years › Customer lists: 4 to 20 years › Technology: 10 to 20 years › Licenses, rights: 3 to 5 years › Trademarks: indefinite or 20 years › Software: 3 to 5 years › Development costs: 3 to 5 years Other intangible assets with indefinite useful lives are essentially brand names, for which the end of usability is not foreseeable and therefore indeterminable. These brand names result from acquisitions. For these brand names, an indefinite useful life is assumed. Based on a market perspective, there are no clear indications for a definite useful life of these brand names as they have been well-established in the market for many years. 121 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report Property, plant and equipment All property, plant and equipment are stated at histor- ical cost less depreciation and impairment loss, if substantial. Historical cost includes expenditure that is directly attributable to the acquisition of the items and, if any, the present value of estimated costs for dis- mantling and removing the assets, restoring the site on which it is allocated. Borrowing costs eligible for capitalization in the sense of IAS 23 were not avail- able. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appro- priate, only when it is foreseeable that future eco- nomic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance expenses are charged to profit or loss during the financial period in which they are incurred. Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, on each bal- ance sheet date. An asset’s carrying amount is written down to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by com- paring the proceeds with the carrying amount and are recognized within ‘other operating income / expenses.’ The estimated useful lives for property, plant and equipment are as follows: › Buildings: 8 to 40 years › Machinery and technical equipment: 3 to 18 years › Tools: 3 to 10 years › Other equipment: 2 to 20 years › Land is not depreciated. Impairment of non-financial assets (a) Assets with a finite useful life For assets with a finite useful life, an impairment test is needed if there are indications that those assets may be impaired. If such indications exist, the amortized carrying value of the asset is compared to the recover- able amount, which is the higher of an asset’s fair value less costs to sell and its value in use. The value in use is the discounted present value of future cash flows expected to arise from the continuing use of the asset. In the case of an impairment, the difference between the amortized carrying amount and the lower recoverable amount is recognized as an expense in profit or loss. If evidence exists that the reasons for the impairment no longer exist, the impairment loss is reversed. The reversal cannot result in an amount exceeding amortized cost. (b) Goodwill and other assets with an indefinite useful life Moreover, other intangible assets with an indefinite useful life, other intangible assets not yet ready for use or advance payments on such assets as well as goodwill must be tested for impairment annually. A test is also performed whenever there is any indica- tion that an asset might be impaired. Where the rea- sons for an impairment no longer exist, the impair- ment loss is reversed, except in the case of goodwill. The recoverable amount is determined for each indi- vidual asset, unless an asset generates cash inflows that are not largely independent of those from other assets or other groups of assets or cash-generating units. In these cases, the impairment test is performed at the relevant level of cash-generating units to which the asset is attributable. Goodwill acquired in a business combination is allo- cated at the acquisition date to the cash-generating unit or group of cash-generating units that are expected to profit from the synergies deriving from the business combination. This also represents the lowest level at which goodwill is monitored for internal management purposes. These are the operating and reportable seg- ments EMEA, Americas and Asia-Pacific. There is currently no goodwill in the Group that can be directly allocated to an individual entity because this reflects the enterprise value of the acquired entity regardless of the transaction. 122 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report The Company normally determines the recoverable amount using measurement methods based on dis- counted cash flows. Financial instruments (a) Financial assets Brand names with indefinite useful lives acquired in business combinations are tested for impairment at the level at which a recoverable amount, which is based on the fair-value-less-costs-to-sell, can be determined. For cash-generating units, NORMA Group first deter- mines the relevant recoverable amount as fair-value- less-costs-to-sell, which it compares with the respec- tive carrying amounts, including allocated goodwill in the case of impairment tests on goodwill. For further details regarding the determination of the fair-value- less-costs-to-sell and the underlying assumptions, we NOTE 19 ‘GOODWILL AND OTHER INTANGIBLE ASSETS.’ refer to Inventories Inventories are stated at the lower of cost or net real- izable value. Net realizable value is the estimated sell- ing price in the ordinary course of business, less the estimated costs of completion and the estimated vari- able selling costs. Cost is determined using the weighted average method. The cost of finished goods and work in progress comprises design costs, raw materials, direct labor, other direct costs and related production overheads (based on normal operating capacity). Inventories of the Group are not qualifying assets in accordance with IAS 23, so that the acquisi- tion or production costs do not include capitalized bor- rowing costs. Classification The Group classifies its financial assets in the follow- ing categories: at fair value through profit or loss, loans and receivables, available-for-sale and held to maturity. The classification depends on the purpose for which the financial assets were acquired. Manage- ment determines the classification of its financial assets at initial recognition. In the current and in the previous fiscal year, all finan- cial assets, except for derivative financial instruments, are classified to the category loans and receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are clas- sified as non-current assets. The Group’s loans and receivables comprise ‘trade and other receivables’ and ‘cash and cash equivalents’ in the Statement of Financial Position. Recognition and measurement Regular purchases and sales of financial assets are recognized on the trade date – the date on which the Group commits to purchase or sell the asset. Financial assets are initially recognized at fair value plus trans- action costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognized when the rights to receive cash flows have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Loans and receivables are carried at amortized cost using the effective interest method. Impairment of financial assets carried at amortized cost The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impair- ment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has (have) an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The criteria that the Group uses to determine if there is objective evidence of an impairment loss include: › Financial difficulty of the issuer or obligor; › A breach of contract, such as a default or delin- quency in interest or principal payments; › The Group, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider; › It becomes probable that the borrower will enter bankruptcy or other financial reorganization; › Observable data indicating that there is a measur- able decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including i. Adverse changes in the payment status of borrowers in the portfolio; and ii. National or local economic conditions that correlate with defaults on the assets in the portfolio. The Group first assesses whether objective evidence of impairment exists. 123 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report The amount of the loss is measured as the differ- ence between the asset’s carrying amount and the present value of estimated future cash flows (exclud- ing future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The asset’s carrying amount is reduced and the amount of the loss is recognized in profit or loss. If a loan has a variable interest rate, the dis- count rate for measuring any impairment loss is the current effective interest rate determined under the contract. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improve- ment in the debtor’s credit rating), the reversal of the previously recognized impairment loss is recognized in profit or loss. (b) Financial liabilities Financial liabilities primarily include trade payables, liabilities to banks, derivative financial liabilities and other liabilities. Financial liabilities that are measured at amortized cost After initial recognition, financial liabilities are carried at amortized cost using the effective interest method. Trade payables, liabilities to banks and other financial liabilities, in particular, are classified to this category. Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include derivative financial instruments unless they are designated as hedges and contingent purchase price liabilities. Gains or losses on financial liabilities that are measured at fair value through profit or loss are included in profit or loss. Offsetting financial instruments Financial assets and liabilities are offset and the net amount is reported in the Consolidated Statement of Financial Position when there is a legally enforceable right to offset the recognized amounts and an inten- tion to settle on a net basis, or realize the asset and settle the liability simultaneously. At NORMA Group, arrangements exist which do not meet the criteria for netting in the Consolidated Statement of Finan- cial Position according to IAS 32.42, as they allow netting only in the case of future events such as default or insolvency on the part of the Group or the counterparty. The following tables present the recognized financial instruments that are offset, or subject to enforceable master netting arrangements and other similar agree- ments but not offset, as of December 31, 2017 and 2016: 124 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report T 039 OFFSETTING OF FINANCIAL INSTRUMENTS Dec 31, 2017 IN EUR THOUSANDS Financial assets Derivative financial instruments (b) Trade and other receivables (a) Other financial assets Cash and cash equivalents Total Financial liabilities Borrowings Derivative financial instruments (b) Trade and other payables (a) Other financial liabilities Total Dec 31, 2016 IN EUR THOUSANDS Financial assets Derivative financial instruments (b) Trade and other receivables (a) Other financial assets Cash and cash equivalents Total Financial liabilities Borrowings Derivative financial instruments (b) Trade and other payables (a) Other financial liabilities Total Gross amounts of financial assets / financial liabilities Gross amounts of financial assets / financial liabilities offset in the statement of financial position Net amounts recognized in the statement of financial position Amounts that are not offset in the statement of financial position Financial instruments Net amount 2,525 153,237 1,001 155,323 312,086 488,247 1,419 146,240 10,531 646,437 0 491 0 0 491 0 0 491 0 491 2,525 152,746 1,001 155,323 311,595 488,247 1,419 145,749 10,531 645,946 811 0 0 0 811 0 811 0 0 811 1,714 152,746 1,001 155,323 310,784 488,247 608 145,749 10,531 645,135 Gross amounts of financial assets / financial liabilities Gross amounts of financial assets / financial liabilities offset in the statement of financial position Net amounts recognized in the statement of financial position Amounts that are not offset in the statement of financial position Financial instruments Net amount 2,733 124,565 5,685 165,596 298,579 555,281 2,181 119,934 2,359 679,755 0 357 0 0 357 0 0 357 0 357 2,733 124,208 5,685 165,596 298,222 555,281 2,181 119,577 2,359 679,398 635 0 0 0 635 0 635 0 0 635 2,098 124,208 5,685 165,596 297,587 555,281 1,546 119,577 2,359 678,763 125 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report (a) Offsetting arrangements NORMA Group gives volume-based rebates to selected customers. Under the terms of the supply agreements, the amounts payable by NORMA Group are offset against receivables from the customers and only the net amounts are settled. The relevant amounts have therefore been presented net in the balance sheet. (b) Master netting arrangements – not currently enforceable Agreements with derivative counterparties are based on an ISDA Master Agreement and other correspond- ing national master agreements, such as the corre- sponding German Framework Agreement. These arrangements do not meet the offsetting criteria because they allow netting only in the case of future events such as default or insolvency on the part of the Group or the counterparty. The table above shows the impact on the Group’s balance sheet if all set-off rights were exercised. Derivative financial instruments and hedging activities Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. (a) Derivative financial instruments not designated as hedges Gains and losses from derivatives that are not desig- nated as hedges (trading derivatives) are recognized in profit or loss. Trading derivatives are classified as non-current assets or liabilities in accordance with IAS 1.68 and 1.71 if they are due after more than one year; otherwise they are classified as current. (b) Derivative financial instruments designated as hedges Derivatives included in hedge accounting are gener- ally designated as either: › Hedges of the fair value of recognized assets or liabilities or firm commitments (fair value hedge); › Hedges of a particular risk associated with a rec- ognized asset or liability or a highly probable fore- cast transaction (cash flow hedge); or › Hedges of a net investment in a foreign operation (net investment hedge). The entities of NORMA Group use derivative financial instruments for the hedging of future cash flows and for intragroup monetary items, which are between two Group entities that have different functional curren- cies. Derivatives such as swaps and forwards are used as hedging instruments. The accounting treat- ment of a change in the fair value of hedging instru- ments depends on the nature of the hedging relation- ship. In the case of hedges of future cash flows (cash flow hedges), the hedging instruments are measured at fair value. Gains and losses from remeasurement of the effective portion of the derivatives are initially rec- ognized in the other reserves within equity, and are only recognized in the income statement when the hedged item is recognized in profit or loss; the inef- fective portion of a cash flow hedge is recognized immediately in profit or loss. Amounts accumulated in other comprehensive income are reclassified to profit or loss in the periods when the hedged item affects profit or loss. In the case of a hedge against foreign exchange rate gains and losses on intragroup monetary items, which are not fully eliminated on consolidation (fair value hedges), gains and losses from the remeasurement of the hedging instruments as well as foreign exchange rate gains and losses of the hedged item are recog- nized in profit or loss. At the inception of the transaction, the relationship between the hedging instrument and hedged item is documented, as well as the risk management objec- tives and strategy for undertaking the hedging trans- action. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the cash flows of hedged items. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. The fair values of derivative financial instruments used for hedging purposes and of those held for trad- ing are disclosed in NOTE 22 ‘DERIVATIVE FINANCIAL INSTRUMENTS.’ Movements on the hedging reserve in NOTE 22 and equity are shown in NOTE 27 ‘EQUITY.’ Trade receivables Trade receivables are amounts due from customers for merchandise sold or services performed in the ordi- nary course of business. If collection is expected within one year or less, they are classified as current assets. If not, they are presented as non-current assets. Trade receivables are classified as loans and receivables in accordance with IAS 39 and recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. An allowance for doubtful accounts of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, the probability that the debtor will enter bank- ruptcy or financial reorganization, and default or delin- quency in payments are considered indicators that the 126 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report trade receivable is impaired. The amount of the allow- ance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. In addition to the required individual bad debt allow- ances, the Group will determine a portfolio-based bad debt allowance considering the aging structure for trade receivables to cover general credit risk if this is applicable. Cash and cash equivalents Cash and cash equivalents are measured at their nominal value and include cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less and which are subject only to insignificant risk of change in value. Bank overdrafts are shown within borrowings in current liabilities in the Consolidated Statement of Financial Position. Trade and other payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. The Group participates in a reverse factoring program as well as in an ABS program. The payments to the factor and from the ABS program are included in trade and other payables, as this represents the economic substance of the transactions. Borrowings Borrowings are recognized initially at fair value, net of directly attributable transaction costs incurred. Bor- rowings are subsequently stated at amortized cost; any difference between the proceeds (net of transac- tion costs) and the redemption value is recognized in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent that there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a pre-payment for liquidity services and amortized over the period of the facility to which it relates. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settle- ment of the liability for at least 12 months after the balance sheet date. Current and deferred income tax The tax expenses for the period are comprised of current and deferred tax. Tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recog- nized in other comprehensive income or directly in equity, respectively. The current income tax charge is calculated on the basis of the tax laws enacted on the balance sheet date in the countries where the Group’s subsidiaries operate. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is recognized using the liability method on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Consolidated Financial Statements and on tax losses carried forward and not yet used tax credits. Deferred income tax is determined using tax rates (and laws) that have been enacted or substan- tially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. 127 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset cur- rent tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. A surplus of deferred income tax assets is recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. For taxable temporary differences arising on invest- ments in subsidiaries and associates, deferred tax lia- bilities are recognized, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary differ- ence will not reverse in the foreseeable future. Employee benefits (a) Pension obligations Group companies operate different pension schemes. NORMA Group has both defined benefit and defined contribution plans. A defined contribution plan is a pension plan under which the Group pays fixed contri- butions to a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan that is not a defined contribution plan. The major defined benefit plan is the German benefit plan which defines the amount of pension benefit that an employee will receive on retirement to depend on years of service and compensation. The liability recognized in the Consolidated Statement of Financial Position with respect to defined benefit pension plans is the present value of the defined ben- efit obligation on the balance sheet date less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by dis- counting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension liability. Remeasurement gains and losses arising from expe- rience adjustments and changes in actuarial assump- tions, as well as returns on plan assets, which are not included within the net interest on the defined benefit liability, are recognized within retained earnings in other comprehensive income (OCI). Past service costs are recognized fully in the period of the related plan amendment. For defined contribution plans, the Group pays contri- butions to publicly or privately administered pension insurance plans on a mandatory, contractual or volun- tary basis. The Group has no further payment obliga- tions once the contributions have been paid. The con- tributions are recognized as employee benefits expense when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available. (b) Termination benefits Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognizes termination benefits as a liability and expense on the earlier date of: (a) when the entity can no longer withdraw the offer of those benefits; or (b) when the entity recognizes costs for a restructuring that is within the scope of IAS 37 and involves the payment of termination benefits. Benefits falling due more than 12 months after the balance sheet date are discounted to their present value. (c) Short-term employee benefits Employee benefits with short-term payment dates include wages and salaries, social security contribu- tions, vacation pay and sickness benefits and are rec- ognized as liabilities at the repayment amount as soon as the associated job has been performed. (d) Provisions for other long-term employee benefits Provisions for obligations similar to pensions (such as anniversary allowances and death benefits) are com- prised of the present value of future payment obliga- tions to the employee less any associated assets measured at fair value. The amount of provisions is determined on the basis of actuarial opinions in line with IAS 19. Gains and losses from the remeasure- ment are recognized in profit or loss in the period in which they are incurred. 128 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognized as interest expense. In addition to the expected amount of cash outflows, uncertainties also exist regarding the time of outflows. If it is expected that the outflows will take place within one year, the relevant amounts are reported in the short-term provisions. with ownership of the goods sold have been trans- ferred to the buyer. The above criteria are regularly fulfilled if the beneficial ownership has been trans- ferred to the customer in accordance with the agreed Incoterms. The amount of revenue is not considered to be reliably measurable until all contingencies relat- ing to the sale have been resolved. The Group bases its estimates on historical results, taking into consid- eration the type of customers, the type of transaction and the specifics of each arrangement. When the Group expects a refund for a provision, this refund is recognized in accordance with IAS 37.53 as a separate asset. If the refund is in a close economic relationship with the expenses from the provision are netted with the income from the corresponding refund in profit or loss. recognized provision, the Income from the release of non-utilized provisions from prior years is recorded within other operating income. Revenue recognition Revenue comprises the fair value of the consider- ation received or receivable for the sale of goods and services in the ordinary course of the Group’s activi- ties. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group. (a) Sale of goods The Group recognizes revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when the significant risks and rewards associated (b) Development contracts Revenues from customer-specific fixed price develop- ment contracts are recognized with the percentage of completion method (PoC method) in accordance with IAS 11 if the outcome can be reliably measured. The stage of completion is calculated on the basis of the proportion of contract costs incurred to the estimated total contract costs. An expected loss on a construc- tion contract is expensed immediately. The percentage of completion method places consid- erable importance on accurate estimates of the extent of progress towards completion and may involve esti- mates on the scope of deliveries and services required for fulfilling the contractually defined obligations. These estimates include total contract costs, total contract revenues, contract risks, including technical risks and other judgments. Under the percentage of completion method, changes in estimates may lead to an increase or decrease in revenue. The creditworthi- ness of our customers is taken into account in esti- mating the probability that economic benefits associ- ated with a contract will flow to the Company. Share-based payment Share-based payment plans issued at NORMA Group are accounted for in accordance with IFRS 2 ‘Share-based Payment.’ In accordance with IFRS 2, NORMA Group in principle distinguishes between equity-settled and cash-settled plans. The financial interest from equity-settled plans granted on grant date is generally allocated over the expected vesting period against equity until the exit event occurs. Expenses from cash-settled plans are generally also allocated over the expected vesting period until the exit event occurs, but against accruals. A description of the plans existing within NORMA Group can be NOTE 28 ‘SHARE-BASED PAYMENTS.’ found in Provisions Provisions are recognized when the Group has a pres- ent legal or constructive obligation to third parties as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Where there are a number of similar obligations, the likelihood that an outflow will be required in settle- ment is determined by considering the class of obli- gations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation taking into account all identifiable risks. Provisions are discounted using a pre-tax rate that 129 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight- line basis over the period of the lease. Leases where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the lease’s commencement at the lesser of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant peri- odic rate of interest on the finance balance outstand- ing. The corresponding rental obligations, net of finance charges, are included in other financial liabili- ties. The interest element of the finance cost is charged to profit or loss over the lease period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset and the lease term. The Group’s leases include both operating leases and finance leases, which relate mainly to property and equipment. Government grants Government grants are not recognized until there is reasonable assurance that the conditions attached to them are complied with and that the grants will be received. Government grants for the compensation of expenses incurred are recognized in profit or loss as part of the other operating income on a systematic basis over the periods in which the related costs are expensed that the grants are intended to compensate for. Grants related to non-depreciable assets are recog- nized in profit or loss as part of the other operating income over the periods that bear the cost of meeting the obligations. Grants related to depreciable assets are recognized in profit or loss over the periods that bear the expense related to the depreciation of the underlying assets and are recognized as deferred income in the State- ment of Financial Position. The deferred income is recognized in profit or loss on a straight-line basis over the expected useful life of the underlying asset and reported as part of other operating income. 130 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report 4. SCOPE OF CONSOLIDATION With NORMA Group SE, the Consolidated Financial Statements contain all domestic and foreign companies which NORMA Group SE controls directly or indirectly. The Consolidated Financial Statements of 2017 include 7 domestic (Dec 31, 2016: 7) and 41 foreign (Dec 31, 2016: 40) companies. The composition of the Group changed as follows: T 040 CHANGE IN SCOPE OF CONSOLIDATION As of January 1, Additions of which newly founded of which acquired Disposals of which mergers As of December 31, 2017 2016 Total Domestic Foreign Total Domestic Foreign 47 2 0 2 1 1 48 7 0 0 0 0 0 7 40 2 0 2 1 1 41 45 2 2 0 0 0 47 7 0 0 0 0 0 7 38 2 2 0 0 0 40 In the first quarter of 2017, NORMA Group acquired Lifial – Indústria Metalúrgica de Águeda, Lda. (‘Lifial’), based in Portugal, and NORMA Pacific Asia Pte. Ltd. was merged into NORMA Group Asia Pacific Holding Pte. Ltd., both companies are based in Singapore. In the second quarter of 2017, NORMA Group acquired 80% of the shares in Fengfan Fastener (Shaoxing) Co., Ltd. (‘Fengfan’), based in China. For further details, please refer to NOTE 40 ‘BUSINESS COMBINATIONS.’ For a detailed overview of NORMA Group’s share- holdings, please refer to the following chart: 131 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report T 041 LIST OF GROUP COMPANIES OF NORMA GROUP AS OF DECEMBER 31, 2017 No. Company Central functions 01 02 03 NORMA Group SE NORMA Group APAC Holding GmbH NORMA Group Holding GmbH Segment EMEA Registered address Maintal, Germany Maintal, Germany Maintal, Germany 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 NORMA Distribution Center GmbH Marsberg, Germany DNL GmbH & Co KG NORMA Germany GmbH NORMA Verwaltungs GmbH (previously NORMA Türkei Verwaltungs GmbH) DNL France SAS NORMA Autoline France SAS Maintal, Germany Maintal, Germany Maintal, Germany Briey, France Guichen, France NORMA Distribution France SAS Croissy Beaubourg, France NORMA France SAS DNL UK Ltd. NORMA UK Ltd. NORMA Italia SpA Briey, France Newbury, Great Britain Newbury, Great Britain Gavardo, Italy Groen Bevestigingsmaterialen B.V. Purmerend, Netherlands NORMA Netherlands B.V. NORMA Polska Sp. z o.o. Purmerend, Netherlands Slawniów, Poland NORMA Group Distribution Polska Sp. z.o.o. Slawniów, Poland Lifial – Indústria Metalúrgica de Águeda, Lda. Águeda, Portugal NORMA Group CIS LLC Togliatti, Russian Federation DNL Sweden AB NORMA Sweden AB Stockholm, Sweden Stockholm, Sweden Connectors Verbindungstechnik AG Tagelswangen, Switzerland NORMA Grupa Jugoistocna Evropa d.o.o. Subotica, Serbia Fijaciones NORMA S.A.U. L’Hospitalet de Llobregat, Spain NORMA Czech, s.r.o. Hustopece, Czech Republic NORMA Turkey Bağlantı ve Birleştirme Teknolojileri Sanayi ve Ticaret Limited Şirketi Kartal-Istanbul, Turkey Share in % held by Direct parent company of NORMA Group SE Currency Equity 1 Result 1 01 01 03 03 03 03 03 08 08 08 03 12 03 03 21 03 17 03 03 03 21 03 03 03 03 07 100.00 100.00 94.80 100.00 94.90 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 60.00 100.00 100.00 100.00 99.99 99.96 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 90.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kEUR kGBP kGBP kEUR kEUR kEUR kPLN kPLN kEUR kRUB kSEK kSEK kCHF kRSD kEUR kCZK kTRL 35 106,814 2,175 6,393 56,306 20 38,599 25,678 3,291 3,046 2,504 30,813 6,068 1,407 1,395 127,193 7,643 6,515 147,004 78,756 217,016 7,480 –3 02 02 –149 02 02 –8,853 505 775 1,141 10,560 9,081 2,067 1,383 309 26,519 1,898 1,067 15,634 49,228 57,387 –53 4,141,784 417,179 4,980 361,247 749 35,673 7,477 4,341 continued on page 133 132 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report T 041 LIST OF GROUP COMPANIES OF NORMA GROUP AS OF DECEMBER 31, 2017 (CONTINUED) No. Company Segment Americas Registered address held by Direct parent company of NORMA Group SE Currency Equity 1 Result 1 Share in % 28 29 30 31 32 33 34 35 36 NORMA do Brasil Sistemas De Conexão Ltda. Atibaia, Brazil NORMA Group México S. de R.L. de C.V. Monterrey, Mexico NORMA Distribution and Services S. de R.L. de C.V. Juarez, Mexico Craig Assembly Inc. Auburn Hills, MI, USA National Diversified Sales, Inc. Woodland Hills, CA, USA NORMA Michigan Inc. NORMA Pennsylvania Inc. NORMA US Holding LLC R.G. RAY Corporation Auburn Hills, MI, USA Auburn Hills, MI, USA Auburn Hills, MI, USA Auburn Hills, MI, USA Segment Asia-Pacific 37 38 39 40 41 42 43 44 45 46 47 48 Guyco Pty. Ltd3 Adelaide South Croydon, Vic., Australia NORMA Pacific Pty. Ltd. Adelaide South Croydon, Vic., Australia Fengfan Fastener (Shaoxing) Co., Ltd. Shaoxing City, China NORMA China Co., Ltd. Qingdao, China NORMA EJT (Changzhou) Co., Ltd. Changzhou, China NORMA EJT (Wuxi) Co., Ltd. NORMA Group Products India Pvt. Ltd. NORMA Japan Inc. NORMA Products Malaysia Sdn. Bhd. (previously Chien Jin Plastic Sdn. Bhd.) Wuxi, China Pune, India Tokyo, Japan Ipoh, Malysia NORMA Korea Inc. Seoul, Republic of Korea NORMA Group Asia Pacific Holding Pte. Ltd. Singapore, Singapore NORMA Pacific (Thailand) Ltd. Chonburi, Thailand 34 33 33 34 34 34 01 34 34 38 47 47 03 47 47 47 47 47 47 01 47 98.20 99.40 99.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 80.00 100.00 100.00 100.00 99.99 60.00 100.00 100.00 100.00 99.99 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 80.00 100.00 100.00 100.00 100.00 60.00 100.00 100.00 100.00 100.00 kBRL kUSD kMXN kUSD kUSD kUSD kUSD kUSD kUSD kAUD kAUD kCNY kCNY kCNY kCNY kINR kJPY kMYR kKRW kSGD kTHB 22,660 8,800 –3,441 49,931 253,199 86,234 114,546 23,720 109,420 0 23,007 29,261 188,494 47,613 185,266 419,772 135,311 37,143 627,029 127,229 114,919 –9,204 –13 –4,578 9,606 26,205 9,642 1,927 346 10,756 –8,085 9,825 3,236 30,821 7,321 5,646 61,160 12,715 5,534 163,748 435 8,359 1_ Reported values according to IFRS as of December 31, 2017; except for NORMA Group Holding GmbH, NORMA Germany GmbH and NORMA Distribution Center GmbH; these values are prepared according to German GAAP as of December 31, 2017, but not yet finally audited. The values are translated with the exchange rates according to Note 3. 2_A profit-pooling-contract exists. 3_In liquidation. 133 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report 5. FINANCIAL RISK MANAGEMENT T 042 FOREIGN EXCHANGE RISK Financial risk factors The Group’s activities expose it to a variety of finan- cial risks, including market risk, credit risk and liquidity risk. The Group’s financial risk management focuses on the unpredictability of financial markets and seeks to minimize its potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge cer- tain risk exposures. Financial risk management is carried out by a central treasury department (Group Treasury). The necessary responsibilities and controls associated with risk man- agement are determined by Group management. Group Treasury identifies, evaluates and hedges financial risks in close cooperation with the Group’s operating units. Dec 31, 2017 Dec 31, 2016 IN EUR THOUSANDS + 10% – 10% + 10% – 10% Currency relation EUR / USD Profit before tax –781 955 –481 588 EUR / GBP Profit before tax 511 –624 1,504 –1,838 EUR / CNY Profit before tax –814 995 –532 650 EUR / INR Profit before tax –226 277 –99 121 EUR / PLN Profit before tax 768 –939 244 –299 EUR / SEK Profit before tax 619 –756 285 –348 (a) Market risk EUR / CHF Foreign exchange risk NORMA Group operates internationally in around 100 different countries and is exposed to foreign exchange risk arising from the exposure to various currencies – primarily with respect to the US dollar, the British pound sterling, the Chinese renminbi yuan, the Indian rupee, the Polish złoty, the Swedish krona, the Swiss franc, the Serbian dinar, Czech crown and the Singa- pore dollar. The effects of changes in foreign exchange rates are analyzed below for financial assets and liabilities denominated in foreign currencies. Profit before tax 212 –260 43 –52 EUR / CZK Profit before tax 263 –321 285 –349 EUR / RSD Profit before tax 479 –585 729 –891 EUR / SGD Profit before tax –370 452 –303 371 The Group Treasury’s risk management policy is to hedge about 50% – 90% or more of anticipated opera- tional cash of the significant foreign currency exposures. NORMA Group has certain investments in foreign operations whose net assets are exposed to foreign currency translation risks. This translation risk is pri- marily managed through borrowings in the relevant foreign currency. Interest rate risk NORMA Group’s interest rate risk arises from long- term borrowings with variable interest rates. Borrow- ings issued at variable interest rates expose the Group to cash flow interest rate risk which is partially offset by hedges (interest rate swaps). The Group’s policy is to maintain approximately 75% of its medium-term borrowings in fixed rate instruments. NORMA Group uses the flexibility of floating instruments for extraor- dinary repayments without any additional cost. Below, the effects of changes in interest rates are analyzed for bank borrowings which bear variable interest rates, and for interest rate swaps included in hedge accounting. Borrowings that bear fixed interest rates are excluded from this analysis. Due to the current low level of interest rates in those markets that are relevant for NORMA Group’s funding, the likelihood of rising interest rates is higher than that of declining interest rates – this has been addressed in the sensitivity analysis. In fiscal year 2017, if interest rates on euro and US dollar denominated borrowings had been 100 basis points (BPS) (2016: 100 BPS) higher with all other vari- ables held constant, profit before tax for the year would have been EUR 436 thousand lower (2016: EUR 746 thousand lower) and other comprehensive income would have been EUR 4,030 thousand higher (2016: EUR 5,375 thousand higher with 100 BPS shift). In fiscal year 2017, if interest rates on euro and US dollar denominated borrowings had been 50 basis points (2016: 50 BPS) lower with all other variables held constant, profit before tax for the year would have been EUR 105 thousand higher (2016: EUR 245 thousand lower). Other comprehensive income would have been EUR 2,181 thousand lower (2016: EUR 2,786 thousand lower). 134 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report Other price risks As NORMA Group is not exposed to any other mate- rial economic price risks, such as stock exchange prices or commodity prices, an increase or decrease in the relevant market prices within reasonable margins would not have an impact on the Group’s profit or equity. Hence, the Group’s exposure to RISK other price risks is regarded as not material. AND OPPORTUNITY REPORT, P. 85 (c) Liquidity risk Prudent liquidity risk management implies maintain- ing sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, Group Treasury maintains flex- ibility in funding by maintaining availability under committed credit lines. (b) Credit risk The credit risk incurred by the Group is the risk that counterparties fail to meet their obligations arising from operating activities and from financial transac- tions. Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposures to customers, including out- standing receivables and committed transactions. Credit risk is monitored on a Group basis. To mini- mize credit risk from operating activities and finan- cial transactions, each counterparty is assigned a credit limit, the use of which is monitored regularly. Default risks are continuously monitored in the operating business. The aggregate carrying amounts of financial assets represent the maximum default risk. For an overview of past-due receivables, please refer to NOTE 23 ‘TRADE AND OTHER RECEIVABLES.’ Given the Group’s heterogeneous customer structure, there is no risk concentration. With NORMA Group’s IPO in April 2011, all bank bor- rowings were refinanced with syndicated bank facili- ties in the amount of EUR 250 million, of which EUR 178 million had been repaid before December 31, 2014. In September 2014, the existing syndicated bank facilities were renegotiated with the result of an updated loan amount of EUR 100 million. In Decem- ber 2015, another renegotiation of the syndicated bank facilities to in total EUR 100 million in euros and US dollars led to a further improved interest profile and now better reflects the currency of NORMA Group’s cash flows (mainly in the US dollar and the euro). After scheduled repayment in 2016 and 2017, the credit volume as of December 31, 2017, is EUR 18.0 million and USD 79.1 million (Dec 31, 2017: EUR 66.0 million). On top of this, the term loan includes an option of an additional accordion facility in the amount of EUR 250 million and a maturity until 2022. In addition, a borrowing facility in the amount of EUR 50 million is available for future operating activi- ties and to settle capital commitments, which was not yet drawn on December 31, 2017. Furthermore, in July 2013, NORMA Group issued a promissory note valued at EUR 125 million with 5, 7 and 10-year terms. The variable tranches with 5 and 7-year terms of the promissory note dated 2013 valued at EUR 49 million were repaid in advance in July 2016. For this purpose, NORMA Group made use of the borrowing facility as part of the syndicated loan facility in the amount of EUR 40 million on a short-term basis. For refinancing of the borrowing line and for M&A purposes, an addi- tional promissory note was issued in August 2016 with enhanced conditions. It includes euro tranches in the amount of EUR 102 million with 5, 7 and 10-year terms and US dollar tranches in the amount of USD 52.5 million with 5 and 7-year terms. In the fourth quarter of 2014, an additional promissory note was issued with euro tranches in the amount of EUR 106 million with 3, 5, 7 and 10-year terms and US dollar tranches in the amount of USD 128.5 million with 3, 5 and 7-year terms. After scheduled repay- ment in 2017, the credit volume of the 2014 promis- sory note as of December 31, 2017, is EUR 91.5 mil- lion and USD 107.5 million (Dec 31, 2017: EUR 89.6 million). Liquidity is monitored on an ongoing basis with regard to the Group’s business performance, planned invest- ment and redemption of capital. The amounts disclosed in the table below are the con- tractual, undiscounted cash flows. Financial liabilities denominated in foreign currencies are translated at the closing rate on the balance sheet date. Interest payments on financial instruments with variable inter- est rates are calculated on the basis of the interest rates applicable as of the reporting date. 135 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report T 043 MATURITY STRUCTURE OF NON-DERIVATIVE FINANCIAL LIABILITIES Dec 31, 2017 IN EUR THOUSANDS Borrowings Trade and other payables Finance lease liabilities Other financial liabilities Dec 31, 2016 IN EUR THOUSANDS Borrowings Trade and other payables Finance lease liabilities Other financial liabilities up to 1 year > 1 year up to 2 years > 2 years up to 5 years > 5 years 44,636 117,961 218,144 155,745 145,749 123 6,183 32 245 2 3,946 196,691 118,238 222,092 155,745 up to 1 year > 1 year up to 2 years > 2 years up to 5 years > 5 years 51,475 119,577 139 981 42,404 357,303 160,656 138 862 245 172,172 43,404 357,548 160,656 136 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report The maturity structure of the derivative financial instruments based on cash flows is as follows: T 044 MATURITY STRUCTURE OF DERIVATIVE FINANCIAL INSTRUMENTS As of Dec 31, 2017 IN EUR THOUSANDS Derivative receivables – gross settlement Cash outflows Cash inflows Derivative liabilities – gross settlement Cash outflows Cash inflows Derivative receivables – net settlement up to 1 year > 1 year up to 2 years > 2 years up to 5 years > 5 years –46,208 46,848 –11,352 11,159 Cash inflows 654 431 800 Capital risk management The Group’s objectives when managing capital are to ensure that it will continue to be able to repay its debt and remain financially sound. The Group is subject to the financial covenant total net debt cover (net debt in relation to adjusted Group EBITDA), which is monitored on an ongoing basis. This financial covenant is based on the Group’s Consoli- dated Financial Statements as well as on special defi- nitions of the bank facility agreements. There were no covenant breaches in 2017 and 2016. In the case of a covenant breach, the facility agree- ment includes several ways to remedy a potential breach by rules of exemption or shareholder actions. If a covenant breach occurs and is not remedied, the syndicated loans may be, but are not required to be, withdrawn. Derivative liabilities – net settlement Cash outflows As of Dec 31, 2016 IN EUR THOUSANDS Derivative receivables – gross settlement Cash outflows Cash inflows Derivative liabilities – gross settlement Cash outflows Cash inflows Derivative receivables – net settlement –418 683 –384 47 –424 376 0 6. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS up to 1 year > 1 year up to 2 years > 2 years up to 5 years > 5 years –73,840 74,997 –16,914 16,747 Estimates and judgments are continually evaluated and are based on historical experience, and expecta- tions regarding future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the respective actual results. The estimates and assumptions that have a signifi- cant risk of causing a material adjustment to the car- rying amounts of assets and liabilities within the next fiscal year are addressed below. Cash inflows 282 41 1,253 Derivative liabilities – net settlement Cash outflows –530 742 –983 –942 –501 752 0 137 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report Pension benefits The present value of the pension obligations depends on a number of factors determined on an actuarial basis using a number of assumptions. The assump- tions used in determining the net cost (income) for pensions include the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations. The present value of the defined benefit obligation is calculated by discounting the estimated future cash outflows using the interest rates of high-quality corpo- rate bonds. Useful lives of property, plant and equipment and intangible assets The Group’s management determines the estimated useful lives and related depreciation / amortization charges for its property, plant and equipment and intangible assets. This estimate is based on projected lifecycles. These could change as a result of technical innovations or competitor actions in response to severe industry cycles. Management will increase the depreciation charge where useful lives are less than previously estimated lives, or it will write-off or write- down technically obsolete or non-strategic assets that have been abandoned or sold. The Group determines the appropriate discount rate on the balance sheet date. In determining the appro- priate discount rate, the Group considers the interest rates of high-quality corporate bonds that are denom- inated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability. Other key assumptions for pension obligations are based in part on current market conditions. Additional NOTE 3 ‘SUMMARY OF information is disclosed in SIGNIFICANT ACCOUNTING PRINCIPLES – EMPLOYEE BENEFITS.’ Pension liabilities amounted to EUR 12,127 thousand on December 31, 2017 (Dec 31, 2016: EUR 11,786 thousand). Estimated impairment of goodwill NORMA Group tests annually whether goodwill has suffered any impairment in accordance with the NOTE 3 ‘SUMMARY OF accounting policy stated in SIGNIFICANT ACCOUNTING PRINCIPLES – IMPAIRMENT OF NON- FINANCIAL ASSETS.’ The recoverable amounts of cash-generating units have been determined based on fair-value-less-costs-to-sell calculations. These calculations are based on discounted cash flow mod- NOTE 19 els, which require the use of estimates. ‘GOODWILL AND OTHER INTANGIBLE ASSETS’ In 2017 and 2016, no impairment of goodwill, which amounted to EUR 356,717 thousand on December 31, 2017 (Dec 31, 2016: EUR 368,859 thousand), was necessary. Even if the discount rate would increase by +2% and the terminal value growth rate would be 0%, the change of these key assumptions would not cause the carrying amount to exceed its recoverable amount in any CGU. Income taxes The Group is subject to income taxes in numerous jurisdictions. Significant judgments are required in determining the worldwide provision for income taxes. There are transactions and calculations for which the ultimate tax determination is uncertain. The Group rec- ognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters differs from the amounts that were initially recorded, such dif- ferences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. On December 31, 2017, income tax liabilities were EUR 7,960 thousand (Dec 31, 2016: EUR 10,087 thousand) and deferred tax lia- bilities were EUR 60,543 thousand (Dec 31, 2016: EUR 101,845 thousand). 138 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report Besides the adjustments described, depreciation in the amount of EUR 4,191 thousand (2016: EUR 2,317 thousand) and amortization the amount of EUR 20,482 thousand (2016: EUR 16,685 thousand) from purchase price allocations were adjusted as in previous years. in Additionally, in 2016 an impairment of capitalized cus- tomer lists in the amount of EUR 3,921 thousand was adjusted within the amortization of intangible assets. The theoretical taxes resulting from the adjustments are calculated using the respective tax rate of each Group entity and are considered within the adjusted earnings after taxes. Additionally, in fiscal year 2017, an adjustment of a one-time non-cash deferred income of EUR 3,909 thousand, due to the reduction in the US corporate income tax rate, was made within the NOTE 16 ‘INCOME TAXES’ income taxes. tax The following table shows profit or loss net of these expenses: 7. ADJUSTMENTS Certain expenses are adjusted for operational man- agement purposes. Hence, the following results which are adjusted by these expenses, reflect the manage- ment perspective. In fiscal year 2017, net expenses totaling EUR 3,494 thousand (2016: EUR 4,752 thousand) were adjusted within EBITDA (earnings before interest, taxes, depre- ciation and amortization). The adjustments within EBITDA are related in the amount of EUR 1,131 thou- sand to expenses for raw materials and consumables used resulting from the valuation of acquired invento- ries within the purchase price allocation for the acqui- sition of the Autoline business, Lifial and Fengfan. In addition, expenses for the integration of the Autoline business in the amount of EUR 2,232 thousand were adjusted in other operating expenses and in the amount of EUR 662 thousand within employee benefits expense. Income in the amount of EUR 531 thousand resulting from the refund of a transaction tax paid in connection with the acquisition of the Autoline busi- ness was adjusted within other operating income. In fiscal year 2016, adjustments within EBITDA are related in the amount of EUR 635 thousand to expenses for raw materials and consumables used, which are a result of the remeasurement of acquired inventories within the purchase price allocation for the acquisition of the Autoline business. Furthermore, acquisition-related expenses the amount of EUR 2,076 thousand and a transaction tax amounting to EUR 1,650 thousand related to the acquisition were adjusted within other operating expenses. Expenses associated with the integration of the acquired Auto- line business in the amount of EUR 223 thousand were adjusted within other operating expenses and in the amount of EUR 168 thousand within employee benefits expense. in 139 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report T 045 PROFIT AND LOSS NET OF ADJUSTMENTS IN EUR THOUSANDS Revenue Changes in inventories of finished goods and work in progress Other own work capitalized Raw materials and consumables used Gross profit Other operating income and expenses Employee benefits expense EBITDA Depreciation EBITA Amortization Operating profit (EBIT) Financial costs – net Profit before income tax Income taxes Profit for the period Non-controlling interests Profit attributable to shareholders of the parent Earnings per share (in EUR) Notes 2017 unadjusted Refund transaction tax One-time effect US tax reform Integration costs Step-up effects from purchase price allocations Total adjustments 2017 adjusted (8) 1,017,084 (9) (10, 11) (12) (13) –1,072 3,911 –419,748 600,175 –133,684 –270,237 196,254 –29,421 166,833 –29,046 137,787 –16,055 121,732 -1,916 119,816 152 119,664 3.76 0 –531 –531 –531 –531 –531 177 –354 0 0 0 0 0 –33,909 –33,909 0 2,232 662 2,894 2,894 2,894 2,894 –940 1,954 1,131 1,131 1,131 4,191 5,322 20,482 25,804 25,804 –8,318 17,486 0 0 0 1,131 1,131 1,701 662 3,494 4,191 7,685 20,482 28,167 0 28,167 –42,990 –14,823 0 –354 –33,909 1,954 17,486 –14,823 1,017,084 –1,072 3,911 –418,617 601,306 –131,983 –269,575 199,748 –25,230 174,518 –8,564 165,954 –16,055 149,899 –44,906 104,993 152 104,841 3.29 continued on page 141 140 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report T 045 PROFIT AND LOSS NET OF ADJUSTMENTS (CONTINUED) IN EUR THOUSANDS Revenue Changes in inventories of finished goods and work in progress Other own work capitalized Raw materials and consumables used Gross profit Other operating income and expenses Employee benefits expense EBITDA Depreciation EBITA Amortization Operating profit (EBIT) Financial costs – net Profit before income tax Income taxes Profit for the period Non-controlling interests Profit attributable to shareholders of the parent Earnings per share (in EUR) Notes 2016 unadjusted (8) 894,887 (9) (10, 11) (12) (13) 244 3,318 –353,527 544,922 –126,236 –244,061 174,625 –24,209 150,416 –30,415 120,001 –14,645 105,356 –29,490 75,866 119 75,747 2.38 Transfer taxes paid M&A related costs Integration costs Step-up effects from purchase price allocations Total adjustments 2016 adjusted 0 1,650 0 2,076 1,650 2,076 1,650 2,076 1,650 2,076 1,650 –535 1,115 2,076 –672 1,404 0 223 168 391 391 391 391 –127 264 635 635 635 2,317 2,952 20,606 23,558 23,558 –7,631 15,927 0 0 0 635 635 3,949 168 4,752 2,317 7,069 20,606 27,675 0 27,675 –8,965 18,710 0 1,115 1,404 264 15,927 18,710 894,887 244 3,318 –352,892 545,557 –122,287 –243,893 179,377 –21,892 157,485 –9,809 147,676 –14,645 133,031 –38,455 94,576 119 94,457 2.96 141 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report Notes to the Consolidated Statement of Comprehensive Income 8. REVENUE 9. RAW MATERIALS AND CONSUMABLES USED 10. OTHER OPERATING INCOME Revenue recognized during the period related to the following: Raw materials and consumables used comprised the following: Other operating income comprised the following: T 046 REVENUE BY CATEGORY T 047 RAW MATERIALS AND CONSUMABLES USED IN EUR THOUSANDS T 048 OTHER OPERATING INCOME Currency gains operational Reversal of provisions Reversal of accruals Grants related to employee benefits expense Reimbursement of vehicle costs Other income from disposal of fixed assets Foreign exchange derivatives Government grants Refund other taxes Others 2017 5,623 1,064 7,200 46 890 120 1,354 409 997 1,772 19,475 2016 6,703 1,245 3,801 85 802 82 386 450 389 1,267 15,210 Income from the reversal of liabilities and unused pro- visions is related to accrued customer price adjust- ments and employee bonuses. IN EUR THOUSANDS 2017 2016 IN EUR THOUSANDS 2017 2016 Engineered Joining Technology (EJT) 638,165 535,857 Distribution Services (DS) 372,348 354,542 Other revenue 6,571 4,488 1,017,084 894,887 Cost of raw materials, consumables and supplies – 389,981 – 326,133 Cost of purchased services – 29,767 – 27,394 – 419,748 – 353,527 The raw materials and consumables used lead to a ratio of 41.3% (2016: 39.5%). Also in relation to the total value, raw materials and consumables used are, with a ratio of 41.2%, above last year’s level (2016: 39.3%). The entities acquired in 2017, Lifial and Fengfan, con- tributed EUR 9,655 thousand to raw materials and consumables used. Revenue for 2017 (EUR 1,017,084 thousand) was 13.7% above revenue for 2016 (EUR 894,887 thou- sand). The increase in revenue results from organic growth and from the inclusion of Lifial, Fengfan and the Autoline business. Negative currency effects have an opposite effect. Lifial, which was acquired in the first quarter of 2017, contributed EUR 7,491 thousand to revenue. Fengfan, acquired in the second quarter of 2017, contributed EUR 7,174 thousand to revenue. Revenues from both companies are fully allocated to Distribution Services. In 2017, EUR 142 thousand in revenues from con- struction contracts are included (2016: EUR 599 thousand). For the analysis of sales by region, please refer to NOTE 37 ‘SEGMENT REPORTING.’ 142 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report 11. OTHER OPERATING EXPENSES 12. EMPLOYEE BENEFITS EXPENSE 13. FINANCIAL INCOME AND COSTS Other operating expenses comprised the following: Employee benefits expense comprised the following: Financial income and costs comprised the following: T 049 OTHER OPERATING EXPENSES T 050 EMPLOYEE BENEFITS EXPENSE T 051 FINANCIAL INCOME AND COSTS IN EUR THOUSANDS 2017 2016 IN EUR THOUSANDS 2017 2016 IN EUR THOUSANDS 2017 2016 Consulting and marketing – 17,908 – 19,004 Expenses for temporary workforce and other personnel-related costs – 31,181 – 25,917 Social security costs – 37,734 – 31,139 Wages and salaries and other termination benefits – 220,854 – 200,304 Financial costs Interest expenses Freights – 24,358 – 22,288 IT and telecommunication – 15,280 – 12,228 Rentals and other building costs – 11,654 – 10,851 Pension costs – defined contribution plans Pension costs – defined benefit plans – 10,902 – 11,873 – 747 – 745 – 270,237 – 244,061 Travel and entertaining – 10,263 Currency losses operational Research & development Vehicle costs Maintenance Commission payable Non-income-related taxes Insurances Office supplies and services Other administrative expenses Others – 7,823 – 3,310 – 4,447 – 3,533 – 5,560 – 2,844 – 2,497 – 2,954 – 4,663 – 4,884 – 9,841 – 6,648 – 4,883 – 4,054 – 2,903 – 6,111 – 4,043 – 2,589 – 2,265 – 4,626 – 3,195 In 2017, employee benefits expense amounted to EUR 270,237 thousand compared to EUR 244,061 thousand in 2016. The increase of 10.7% is mainly due to an increase in the average headcount in 2017 compared to 2016. Currency effects had a positive effect on employee benefits expense. In relation to the total value, employee benefits expense increased disproportionately lower with a ratio of 26.5% (2016: 27.2%). – 153,159 – 141,446 Average headcount was 5,791 in 2017 (2016: 5,266). The entities acquired in 2017, Lifial and Fengfan, con- tributed EUR 2,820 thousand to employee benefits expense. Other operating expenses for 2017 (EUR 153,159 thousand) were 8.3% higher than other operating expenses for 2016 (EUR 141,446 thousand). In rela- tion to the total value, other operating expenses increased disproportionately lower with a ratio of 15.0% (2016: 15.7%). The entities acquired in 2017, Lifial and Fengfan, con- tributed expenses in the amount of EUR 1,510 thou- sand to other operating expenses. 143 Bank borrowings incl. hedging instruments Finance lease Expenses for interest accrued on provisions Expenses for interest accrued on pensions Foreign exchange result on financing activities Result on valuation of derivatives Other financial cost Financial income Interest income on short-term bank deposits Other financial income – 13,708 – 12,831 – 10 – 55 – 21 – 59 – 124 – 162 – 5,911 4,552 – 1,723 1,617 – 2,436 – 980 – 16,979 – 14,872 396 528 924 221 6 227 Net financial cost – 16,055 – 14,645 The interest expenses from bank borrowings, includ- ing hedging instruments, include in 2017 EUR 12,437 thousand from borrowings (2016: EUR 11,203 thou- sand) and EUR 1,271 thousand are related to interest expenses from hedging derivatives (2016: EUR 1,628 thousand). NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report 14. NET FOREIGN EXCHANGE GAINS / LOSSES 15. EARNINGS PER SHARE The exchange differences recognized in profit or loss are as follows: T 052 NET FOREIGN EXCHANGE GAINS / LOSSES IN EUR THOUSANDS Note 2017 2016 Earnings per share are calculated by dividing net income for the period attributable to NORMA Group’s shareholders by the weighted average number of shares issued during the period under review. NORMA Group has only issued common shares. In 2017, as in the previous year, the average weighted number of shares was 31,862,400. Currency gains operational Currency losses operational Foreign exchange result on financing activities Result from foreign exchange rate derivatives (10) (11) 5,623 6,703 – 7,823 – 6,648 As of December 31, 2017, and 2016, there were no dilutive effects on earnings per share. Earnings per share in 2017 and 2016 were as follows: (13) – 5,911 1,617 (13, 22) 5,669 – 2,301 – 2,442 – 629 T 053 EARNINGS PER SHARE 2017 2016 Profit attributable to shareholders of the parent (in EUR thousands) 119,664 75,747 Number of weighted shares 31,862,400 31,862,400 Earnings per share (un)diluted (in EUR) 3.76 2.38 Due to the weaker US dollar spot rate compared to the prior year, the foreign exchange result on financ- ing activities shows in fiscal year 2017 expenses in the amount of EUR 5,911 thousand compared to income in the amount of EUR 1,617 thousand in fiscal year 2016. In fiscal year 2017, net gains from the valuation of derivatives amount to EUR 4,552 thousand compared to net losses in the amount of EUR 2,436 thousand in fiscal year 2016. The development of losses on valuation of derivatives as well as of foreign exchange result on financing activities results from the hedging of the US dollar financial liabilities and from the development of the US dollar compared to the prior year. The hedging rela- tionship is classified as a fair value hedge, hence the valuation effects of the derivatives and of the financial liabilities are both reflected in the financial result. The NOTE 14 ‘NET FOREIGN net effect is disclosed in EXCHANGE GAINS / LOSSES.’ Transaction costs in connection with financing are netted with the bank borrowings in accordance with IAS 39.43. They are amortized over the financing period of the respective debt using the effective inter- est method. As of December 31, 2017, the value of transaction costs recognized in the balance sheet and amortized over the maturities of the bank borrowings amounted to EUR 1,114 thousand (2016: EUR 1,467 thousand). 144 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report 16. INCOME TAXES T 055 TAX RECONCILIATION The breakdown of income taxes is as follows: T 054 INCOME TAXES IN EUR THOUSANDS Current tax expenses Deferred tax income Total income taxes 2017 2016 Tax effects of: – 34,594 –34,635 32,678 – 1,916 5,145 -29,490 IN EUR THOUSANDS Profit before tax Group tax rate 2017 2016 121,732 105,356 30.1% 30.1% Expected income taxes – 36,641 – 31,712 Tax losses and tax credits from the actual year for which no deferred income tax is recognized Effects from deviation of Group tax rate resulting mainly from different foreign tax rates Non-deductible expenses for tax purposes Other tax-free income Tax effect of changes in tax rates regarding deferred taxes Income taxes related to prior years Other Income taxes – 1,371 – 758 1,298 1,110 – 1,145 896 33,896 1,679 – 528 – 799 149 503 1,430 587 – 1,916 – 29,490 The positive effect in 2017 within the position ‘Tax effect of changes in tax rates regarding deferred taxes’ results from the one-time effect in deferred tax income amounting to EUR 33,909 thousand due to the reduc- tion of the corporate income tax rate in the US. The item ‘Income taxes related to prior years’ con- sists regarding 2016 of provisions for tax risks with respect of future tax audits. The income tax expenses regarding the capitalization of these provisions were overcompensated for by tax credits concerning the Americas region. In 2017, income from the adjust- ment of tax loss carry forwards reported in prior years were recognized in this item. The item ‘Other’ consists in 2017 mainly of other income-based taxes (e. g., withholding tax). In 2016, the position includes besides other income-based taxes also the income-relevant tax-related recogni- tion of valuation units due to a new tax assessment of the facts at that time. The income tax charged / credited directly to other comprehensive income during the year is as follows: INCOME TAX CHARGED / CREDITED TO OTHER COMPREHENSIVE INCOME T 056 2017 IN EUR THOUSANDS Cash flow hedges gains/losses Remeasurements of post-employment benefit obligations Other comprehen- sive income 2016 IN EUR THOUSANDS Cash flow hedges gains/losses Remeasurements of post-employment benefit obligations Other comprehen- sive income Before tax amount Tax charge/ credit Net-of-tax amount 664 – 275 389 – 458 137 – 321 206 – 138 68 Before tax amount Tax charge/ credit Net-of-tax amount 2,759 – 730 2,029 1,119 – 286 833 3,878 – 1,016 2,862 The combined income tax rate for the German com- panies for 2017 amounted to 30.1% (2016: 30.1%), comprising corporate income tax at a rate of 15%, the solidarity surcharge of 5.5% on corporate income tax, and trade income tax at an average rate of 14.3%. The taxation of the foreign subsidiaries is cal- culated on the basis of the tax rate applicable in the respective country of domicile. Deferred taxes, calcu- lated using the tax rates which apply respectively, are expected to apply in the various countries at the time of realization. The income tax expense of the Group actually reported differs from the theoretical income tax expense based on the German combined income tax rate of 30.1% for 2017 as follows: 145 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report Notes to the Consolidated Statement of Financial Position The movement in deferred income tax assets and lia- bilities during the year is as follows: The analysis of deferred income tax assets and deferred income tax liabilities without taking into con- sideration the offsetting of balances within the same tax jurisdiction is as follows: T 058 MOVEMENT IN DEFERRED TAX ASSETS AND LIABILITIES IN EUR THOUSANDS 2017 2016 T 059 DEFERRED INCOME TAX ASSETS Deferred tax liabilities (net) – as of January 1 Deferred tax income Tax charged to other comprehensive income Foreign exchange rate differences Acquisition of subsidiaries Deferred tax liabilities (net) – as of December 31 94,282 – 32,678 138 – 9,211 3,167 96,275 – 5,145 1,016 2,686 – 550 IN EUR THOUSANDS Intangible assets Property, plant and equipment Other assets Inventories Trade receivables 55,698 94,282 Retirement benefit obligations/ pension liabilities Provisions Borrowings Other liabilities, incl. derivatives Trade and other payables Tax loss carry forward and tax credits Deferred tax assets (before valuation allowances) Valuation allowance Deferred tax assets (before offsetting) Offsetting effects Deferred tax assets Dec 31, 2017 Dec 31, 2016 2,750 4,577 269 621 1,620 560 1,283 622 177 2,009 536 1,758 12,205 – 31 12,174 – 7,329 4,845 214 293 2,590 909 1,474 1,059 5,481 3,131 508 3,361 23,597 – 157 23,440 – 15,877 7,563 17. INCOME TAX ASSETS AND LIABILITIES Due to changes in German corporate tax laws (‘SE-Steuergesetz’ or ‘SEStEG,’ which came into effect on December 31, 2006) an imputation credit asset (‘Körperschaftsteuerguthaben gem. § 37 KStG’) has been set up. As a result, an unconditional claim for payment of the credit in ten annual installments from 2008 through 2017 has been established. The last payment was made in 2017. In this regard, a receivable from corporate income tax was not to cap- italize within the income tax assets as of December 31, 2017 (Dec 31, 2016: EUR 459 thousand). 18. DEFERRED INCOME TAX The analysis of deferred tax assets and deferred tax liabilities due to maturity is as follows: T 057 DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIES IN EUR THOUSANDS Dec 31, 2017 Dec 31, 2016 Deferred tax assets Deferred tax assets to be recovered after more than 12 months Deferred tax assets to be recovered within 12 months Deferred tax assets Deferred tax liabilities Deferred tax liabilities to be recovered after more than 12 months Deferred tax liabilities to be recovered within 12 months Deferred tax liabilities Deferred tax liabilities (net) 1,185 1,663 3,660 4,845 5,900 7,563 59,982 101,709 561 60,543 55,698 136 101,845 94,282 146 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report T 060 DEFERRED INCOME TAX LIABILITIES IN EUR THOUSANDS Intangible assets Property, plant and equipment Other assets Inventories Trade receivables Borrowings Provisions Other liabilities, incl. derivatives Trade and other payables Untaxed reserves Deferred tax liabilities (before offsetting) Offsetting effects Deferred tax liabilities Deferred tax liabilities (net) Dec 31, 2017 Dec 31, 2016 49,757 12,205 1,944 231 298 899 1,773 298 467 0 67,872 – 7,329 60,543 55,698 92,293 15,919 6,717 110 207 70 67 387 446 1,506 117,722 – 15,877 101,845 94,282 Changes in deferred income tax liabilities in connec- tion with intangible assets mainly result from effects due to the reduction of the corporate income tax rate in the US from 2018 on. Deferred income tax assets are recognized for all deductible temporary differences to the extent that it is probable that future taxable profits will be available against which the deductible temporary difference can be utilized. As of December 31, 2017, and also in the previous year, deferred tax assets were recog- nized for all deductible temporary differences because sufficient taxable income will most likely be available to utilize these deductible temporary differences. In 2017 and prior years, the Group had tax losses at several subsidiaries in several countries. Deferred income tax assets are recognized for tax loss carry forwards as far as it is expected that the deferred tax assets will be utilized in the foreseeable future. Deferred income tax assets for unused tax losses and unused tax credits developed as follows: T 061 EXPIRY OF RECOGNIZED TAX LOSSES IN EUR THOUSANDS Dec 31, 2017 Dec 31, 2016 up to 1 year > 1 year up to 5 years > 5 years Unlimited carry forward Total 19 2,132 1,327 6,668 10,146 140 33 3,177 3,537 6,887 The Group did not recognize deferred income tax assets in respect of tax loss carry forwards amounting to EUR 9,029 thousand on December 31, 2017 (Dec 31, 2016: EUR 12,503 thousand). The expiration of tax loss carry forwards not recog- nized for tax purposes is as follows: T 062 EXPIRY OF NOT RECOGNIZED TAX LOSSES IN EUR THOUSANDS Dec 31, 2017 Dec 31, 2016 up to 1 year > 1 year up to 5 years > 5 years Unlimited carry forward Total 0 2,605 0 6,424 9,029 0 2,013 1,001 9,489 12,503 Regarding taxable temporary differences amounting to EUR 298,636 thousand on December 31, 2017 (Dec 31, 2016: EUR 265,156 thousand), associated with investments in subsidiaries, no deferred tax lia- bilities are recognized since the respective parent is able to control the timing of the reversal of the tempo- rary difference and it is probable that the temporary difference will not reverse in the foreseeable future. 147 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report 19. GOODWILL AND OTHER INTANGIBLE ASSETS The acquisition costs as well as accumulated amorti- zation and impairment of intangible assets consist of the following: T 063 DEVELOPMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS IN EUR THOUSANDS Acquisition costs Goodwill Customer lists Licenses, rights Software acquired externally Trademarks Patents and technology Internally generated intangible assets Intangible assets, other Total Amortization and impairment Goodwill Customer lists Licenses, rights Software acquired externally Trademarks Patents and technology Internally generated intangible assets Intangible assets, other Total As of Jan 1, 2017 Additions Deductions Transfers Changes in consolidation Currency effects As of Dec 31, 2017 405,496 261,752 1,908 37,548 58,013 52,896 12,242 10,373 840,228 36,637 57,394 1,462 26,351 10,837 30,512 5,273 7,476 0 0 16 1,734 0 609 4,642 1,155 8,156 0 16,270 290 4,904 1,416 3,457 2,592 117 0 0 – 8 – 48 0 0 0 0 – 56 0 0 – 8 – 35 0 0 0 0 175,942 29,046 – 43 0 0 23 2,803 0 0 663 – 3,489 0 0 0 0 358 0 0 0 – 358 0 11,709 9,741 0 0 419 547 0 0 – 27,243 – 28,046 – 39 – 981 – 6,765 – 4,511 – 599 – 251 389,962 243,447 1,900 41,056 51,667 49,541 16,948 7,788 22,416 – 68,435 802,309 0 0 0 0 0 0 0 0 0 – 3,392 – 5,911 – 33 – 714 – 1,312 – 3,254 – 240 – 226 33,245 67,753 1,711 30,864 10,941 30,715 7,625 7,009 – 15,082 189,863 continue on page 149 148 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report T 063 DEVELOPMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED) IN EUR THOUSANDS Acquisition costs Goodwill Customer lists Licenses, rights Software acquired externally Trademarks Patents and technology Internally generated intangible assets Intangible assets, other Total Amortization and impairment Goodwill Customer lists Licenses, rights Software acquired externally Trademarks Patents and technology Internally generated intangible assets Intangible assets, other Total As of Jan 1, 2016 Additions Deductions Transfers Changes in consolidation Currency effects As of Dec 31, 2016 379,576 228,921 2,091 31,148 54,837 40,404 9,925 10,882 757,784 35,747 38,172 1,374 20,764 9,251 27,201 3,666 6,771 0 0 15 2,513 0 550 2,899 3,350 9,327 0 17,995 286 5,372 1,245 2,431 2,199 887 142,946 30,415 0 0 – 202 – 73 0 0 – 658 – 156 – 1,089 0 0 – 202 – 73 0 0 – 630 0 – 905 0 0 0 3,585 0 0 0 – 3,585 0 0 0 0 64 0 0 0 – 64 0 18,922 26,901 0 0 1,410 10,606 0 0 6,998 5,930 4 375 1,766 1,336 76 – 118 405,496 261,752 1,908 37,548 58,013 52,896 12,242 10,373 57,839 16,367 840,228 0 0 0 0 0 0 0 0 0 890 1,227 4 224 341 880 38 – 118 3,486 36,637 57,394 1,462 26,351 10,837 30,512 5,273 7,476 175,942 149 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report T 064 GOODWILL AND OTHER INTANGIBLE ASSETS – CARRYING AMOUNTS The change in goodwill is summarized as follows: T 065 CHANGE IN GOODWILL IN EUR THOUSANDS IN EUR THOUSANDS Goodwill Customer lists Licenses, rights Software acquired externally Trademarks Patents and technology Internally generated intangible assets Intangible assets, other Total Carrying amounts Dec 31, 2017 Dec 31, 2016 356,717 368,859 175,694 204,358 189 10,192 40,726 18,826 9,323 779 446 11,197 47,176 22,384 6,969 2,897 Lifial Fengfan Autoline France Autoline China Autoline Mexico 612,446 664,286 Currency effect Balance as of December 31, 2017 Impairment tests for goodwill Goodwill is allocated to the Group’s cash-generating units (CGUs) identified according to geographical areas. A summary of the goodwill allocation is pre- sented below: IN EUR THOUSANDS CGU EMEA CGU Americas CGU Asia-Pacific 2,113 8,800 573 237 – 14 – 23,851 356,717 Dec 31, 2017 Dec 31, 2016 174,297 172,087 167,648 190,756 14,772 6,016 356,717 368,859 Balance as of December 31, 2016 368.859 Changes in consolidation 11,709 T 066 GOODWILL ALLOCATION PER SEGMENT The item ‘patents and technology’ on December 31, 2017, consists of patents worth EUR 11,246 thou- sand (Dec 31, 2016: EUR 12,245 thousand) and tech- nology worth EUR 7,580 thousand (Dec 31, 2016: EUR 10,139 thousand). Internally generated intangible assets mainly include development costs for technologies in the amount of EUR 7,150 thousand (Dec 31, 2016: EUR 6,686 thou- sand) as well as internally generated software in the amount of EUR 2,173 thousand (Dec 31, 2016: EUR 283 thousand). The item ‘Intangible assets, other’ consists mainly of prepayments. The change in goodwill and customer lists mainly results from negative foreign exchange differ- ences, mainly from the US dollar area and from the NOTE 40 ‘BUSINESS acquisition of Lifial and Fengfan COMBINATIONS.’ Besides the goodwill, there are intangible assets within trademarks with an indefinite useful life in the amount of EUR 26,599 thousand (2016: EUR 30,263 thousand) resulting from the acquisition of NDS in 2014. From a market perspective, NORMA Group assumed an indefinite useful life for these acquired trademarks, which mainly include the corporate brand NDS®, because these brands have been established in the market for a number of years and there is no foreseeable end to their useful life, therefore useful lives are indefinite. Trademarks with indefinite useful lives are fully allocated to the cash-generating unit (CGU) Americas. Trademarks with an unknown term of use are sub- jected to an annual impairment test pursuant to IAS 36 on the basis of the recoverable amount pursu- NOTE 3 ‘SUMMARY OF ant to the procedure described in SIGNIFICANT ACCOUNTING POLICIES – IMPAIRMENT OF NON- FINANCIAL ASSETS.’ On December 31, 2017, and 2016, the intangible assets were unsecured. Goodwill for the CGU EMEA increased in 2017 due to the acquisition of Lifial in Portugal amounting to EUR 2,113 thousand and in the amount of EUR 573 thousand due to the adjustment of the initial purchase price allocation of the Autoline business in France. Currency effects had an opposite effect. Goodwill for the CGU Americas decreased in 2017 mainly due to currency effects. Goodwill for the CGU Asia-Pacific was increased by the acquisition of Fengfan in China amounting to EUR 8,800 thousand and in the amount of EUR 237 thousand due to the adjustment of the ini- tial purchase price allocation of the Autoline business in China. Currency effects had an opposite effect. 150 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report The recoverable amount of a CGU is determined based on fair-value-less-costs-to-sell, which is calcu- lated by discounting projected cash flows. Based on the inputs used for this valuation technique, fair val- NOTE 3 ues are classified as level 3 fair values. ‘SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – FAIR VALUE ESTIMATION’ These calculations use cash flow projec- tions based on financial budgets approved by the management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below. The growth rate does not exceed our expectations for the long-term average growth rate for the geographical area of the respective CGU. The discount rates used are after-tax-rates and reflect the specific risk of each CGU. The respective before-tax-rates are 11.45% (2016: 9.86%) for the CGU EMEA 9.58% (2016: 10.30%) for the CGU Americas and 10.91% (2016: 10.01%) for the CGU Asia-Pacific. The key assumptions used for fair-value-less-costs- to-sell calculations are as follows: The assumptions are based on management’s expectations regarding future developments. The Group has performed a sensitivity analysis in which the EBITA was decreased by 10%. This change would not cause the carrying amount to exceed its recoverable amount in any CGU. Even if the discount rate would increase by +2% and the terminal value growth rate would be 0%, the change of these key assumptions would not cause the carrying amount to exceed its recoverable amount in any CGU. No material impairments for intangible assets or write ups were recognized in 2017. T 067 GOODWILL PER SEGMENT – KEY ASSUMPTIONS December 31, 2017 CGU EMEA CGU Americas CGU Asia-Pacific Terminal value growth rate Discount rate Costs to sell 1.50% 8.96% 1.00% 1.50% 7.72% 1.00% 1.50% 8.63% 1.00% December 31, 2016 CGU EMEA CGU Americas CGU Asia-Pacific Terminal value growth rate Discount rate Costs to sell 1.50% 7.80% 1.00% 1.50% 6.92% 1.00% 1.50% 7.90% 1.00% 151 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report 20. PROPERTY, PLANT AND EQUIPMENT The acquisition and manufacturing costs as well as accumulated depreciation of property, plant and equipment consist of the following: T 068 DEVELOPMENT OF PROPERTY, PLANT AND EQUIPMENT IN EUR THOUSANDS Acquisition costs Land and buildings Machinery and tools Other equipment Assets under construction Total Depreciation and impairment Land and buildings Machinery and tools Other equipment Assets under construction Total IN EUR THOUSANDS Acquisition costs Land and buildings Machinery and tools Other equipment Assets under construction Total Depreciation and impairment Land and buildings Machinery and tools Other equipment Assets under construction Total 152 As of Jan 1, 2017 Additions Deductions Transfers Changes in consolidation Currency effects As of Dec 31, 2017 109,553 278,937 60,774 30,257 479,521 48,654 184,694 44,967 29 278,344 1,867 15,314 4,876 17,520 39,577 3,042 21,181 5,198 0 29,421 – 273 – 4,538 – 933 – 538 – 6,282 – 223 – 4,302 – 797 0 – 5,322 891 20,578 1,596 – 23,065 0 0 0 0 0 0 1,309 3,210 220 – 432 4,307 0 0 0 0 0 – 1,787 – 11,481 – 968 – 1,721 – 15,957 – 292 – 5,411 – 727 0 – 6,430 111,560 302,020 65,565 22,021 501,166 51,181 196,162 48,641 29 296,013 As of Jan 1, 2016 Additions Deductions Transfers Changes in consolidation Currency effects As of Dec 31, 2016 105,133 245,297 54,900 22,057 427,387 45,875 169,979 41,580 14 257,448 1,392 11,490 5,346 20,332 38,560 2,877 16,738 4,579 15 24,209 – 31 – 2,757 – 1,455 – 50 – 4,293 – 2 – 2,517 – 1,229 0 – 3,748 1,122 12,094 1,747 – 14,963 0 – 6 37 – 31 0 0 1,963 11,484 136 2,332 15,915 0 0 0 0 0 – 26 1,329 100 549 1,952 – 90 457 68 0 435 109,553 278,937 60,774 30,257 479,521 48,654 184,694 44,967 29 278,344 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report T 069 PROPERTY, PLANT AND EQUIPMENT – CARRYING AMOUNTS Land and buildings includes the following amounts where the Group is a lessee under a finance lease: Other equipment includes the following amounts where the Group is a lessee under a finance lease: IN EUR THOUSANDS Dec 31, 2017 Dec 31, 2016 Carrying amounts Land and buildings Machinery and tools Other equipment Assets under construction 60,379 105,858 16,924 21,992 60,899 94,243 15,807 30,228 Total 205,153 201,177 T 070 FINANCE LEASES – LAND AND BUILDINGS T 072 FINANCE LEASES – OTHER EQUIPMENT IN EUR THOUSANDS Dec 31, 2017 Dec 31, 2016 IN EUR THOUSANDS Dec 31, 2017 Dec 31, 2016 Cost – capitalized finance leases Accumulated depreciation Net carrying amount 863 – 74 789 885 – 49 836 Cost – capitalized finance leases Accumulated depreciation Net carrying amount 203 – 119 84 74 – 53 21 On December 31, 2017, the item ‘Machinery and tools’ included tools valued at EUR 25,254 thousand (Dec 31, 2016: EUR 26,222 thousand). No material impairment and no material write-ups were recognized on property, plant and equipment in 2017 and 2016. On December 31, 2017, and 2016, property, plant and equipment, except for finance lease assets, were unsecured. Machinery includes the following amounts where the Group is a lessee under a finance lease: T 071 FINANCE LEASES – MACHINERY IN EUR THOUSANDS Dec 31, 2017 Dec 31, 2016 Cost – capitalized finance leases Accumulated depreciation Net carrying amount 128 – 73 55 46 – 29 17 The Group leases various property, machinery, techni- cal and IT equipment under non-cancellable finance lease agreements. The lease terms for machinery and other equipment are between three and ten years, the lease terms for land and building are up to 50 years. 153 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report 21. FINANCIAL INSTRUMENTS Financial instruments according to classes and categories were as follows: T 073 FINANCIAL INSTRUMENTS – CLASSES AND CATEGORIES IN EUR THOUSANDS Financial assets Derivative financial instruments – hedge accounting Interest rate swaps – cash flow hedges Foreign exchange derivatives – cash flow hedges Foreign exchange derivatives – fair value hedges Trade and other receivables Other financial assets Cash and cash equivalents Financial liabilities Borrowings Derivative financial instruments – hedge accounting Interest rate swaps – cash flow hedges Foreign exchange derivatives – cash flow hedges Foreign exchange derivatives – fair value hedges Trade and other payables Other financial liabilities Other liabilities Finance lease liabilities Totals per category Loans and receivables (LaR) Financial liabilities at amortized cost (FLAC) Category IAS 39 Carrying amount Dec 31, 2017 Amortized cost Derivatives used for hedging Measurement basis IAS 17 Fair value Dec 31, 2017 Measurement basis IAS 39 1,885 458 182 1,226 43 150 n/a n/a n/a LaR LaR LaR 1,885 458 182 152,746 1,001 155,323 152,746 1,001 155,323 FLAC 488,247 488,247 n/a n/a n/a 1,226 43 150 FLAC 145,749 145,749 FLAC n/a 10,375 156 309,070 644,371 10,375 309,070 644,371 1,885 458 182 152,746 1,001 155,323 504,621 1,226 43 150 145,749 10,375 156 309,070 660,745 156 continue on page 155 154 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report T 073 FINANCIAL INSTRUMENTS – CLASSES AND CATEGORIES (CONTINUED) IN EUR THOUSANDS Financial assets Derivative financial instruments – hedge accounting Interest rate swaps – cash flow hedges Foreign exchange derivatives – cash flow hedges Foreign exchange derivatives – fair value hedges Trade and other receivables Other financial assets Cash and cash equivalents Financial liabilities Borrowings Derivative financial instruments – hedge accounting Interest rate swaps – cash flow hedges Foreign exchange derivatives – cash flow hedges Foreign exchange derivatives – fair value hedges Trade and other payables Other financial liabilities Other liabilities Finance lease liabilities Totals per category Loans and receivables (LaR) Financial liabilities at amortized cost (FLAC) Category IAS 39 Carrying amount Dec 31, 2016 Amortized cost Derivatives used for hedging Measurement basis IAS 17 Fair value Dec 31, 2016 Measurement basis IAS 39 1,576 685 472 2,014 115 52 n/a n/a n/a LaR LaR LaR 1,576 685 472 124,208 5,685 165,596 124,208 5,685 165,596 FLAC 555,281 555,281 n/a n/a n/a 2,014 115 52 FLAC 119,577 119,577 FLAC n/a 2,088 271 295,489 676,946 2,088 295,489 676,946 1,576 685 472 124,208 5,685 165,596 567,028 2,014 115 52 119,577 2,088 266 295,489 688,693 271 Financial instruments, which are recognized in the balance sheet at amortized cost and for which the fair value is stated in the notes, are also allocated within a three-step fair value hierarchy. The fair value calculation of the fixed-interest prom- issory note, which is recognized at amortized cost and for which the fair value is stated in the notes, was based on the market yield curve according to the zero coupon method considering credit spreads (level 2). Interest accrued on the reporting date is included. Trade and other payables and other financial liabili- ties have short times to maturity; therefore the carry- ing amounts reported approximate the fair values. Trade and other receivables and cash and cash equivalents have short-term maturities. Their carry- ing amounts on the reporting date equal their fair val- ues, as the impact of discounting is not significant. As of December 31, 2017, other financial liabilities include acquisition liabilities for outstanding purchase price payments in the amount of EUR 2,981 thousand as well as liabilities from the option to acquire the out- 155 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report standing non-controlling interests in the amount of EUR 3,946 thousand from the acquisition of Fengfan Fastener (Shaoxing) Co., Ltd. in the second quarter of 2017. NOTE 40 ‘BUSINESS COMBINATIONS’ The fair values of finance lease liabilities are calculated as the present values of the payments associated with the debts based on the applicable yield curve and NORMA Group’s credit spread curve (level 2). Derivative financial instruments used for hedging are carried at their respective fair values. They have been categorized entirely within level 2 in the fair value hierarchy. None of the financial assets that are fully performing were renegotiated last year. The tables below provide an overview of the classifica- tion of financial assets and liabilities measured at fair value in the fair value hierarchy under IFRS 13 as of December 31, 2017, as well as December 31, 2016: T 074 FINANCIAL INSTRUMENTS - FAIR VALUE HIERARCHY IN EUR THOUSANDS Level 1 1 Level 2 2 Level 3 3 Total as of Dec 31, 2017 Recurring fair value measurements Assets Interest rate swaps – cash flow hedges Foreign exchange derivatives – cash flow hedges Foreign exchange derivatives – fair value hedges Total Liabilities Interest rate swaps – cash flow hedges Foreign exchange derivatives – cash flow hedges Foreign exchange derivatives – fair value hedges Total 1,885 458 182 2,525 1,226 43 150 1,419 0 0 1,885 458 182 2,525 1,226 43 150 1,419 0 0 IN EUR THOUSANDS Level 11 Level 22 Level 33 Total as of Dec 31, 2016 Recurring fair value measurements Assets Interest rate swaps – cash flow hedges Foreign exchange derivatives – cash flow hedges Foreign exchange derivatives – fair value hedges Total Liabilities Interest rate swaps – cash flow hedges Foreign exchange derivatives – cash flow hedges Foreign exchange derivatives – fair value hedges Total 1,576 685 472 2,733 2,014 115 52 2,181 0 0 1,576 685 472 2,733 2,014 115 52 2,181 0 0 1_Fair value measurement based on quoted prices (unadjusted) in active markets for these or identical assets or liabilities. 2_Fair value measurement for the asset or liability based on inputs that are observable on active markets either directly (i.e. as priced) or indirectly (i.e. derived from prices). 3_Fair value measurement for the asset or liability based on inputs that are not observable market data. 156 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report No transfers between the different levels occurred in 2017 and 2016. 22. DERIVATIVE FINANCIAL INSTRUMENTS The derivative financial instruments were as follows: The fair value of interest swaps is calculated as the present value of estimated future cash flows. The fair value of forward foreign exchange contracts is deter- mined using a present value model based on forward exchange rates. T 076 DERIVATIVE FINANCIAL INSTRUMENTS IN EUR THOUSANDS Assets Liabilities Assets Liabilities Dec 31, 2017 Dec 31, 2016 1,885 458 182 2,525 1,885 1,885 640 1,226 43 150 1,419 1,226 1,226 193 1,576 685 472 2,733 1,576 1,576 1,157 2,014 115 52 2,181 2,014 2,014 167 In accordance with IFRS 7.20 (a), net gains and losses from financial instruments by measurement category are as follows: Interest rate swaps – cash flow hedges Foreign exchange derivatives – cash flow hedges Foreign exchange derivatives – fair value hedges T 075 FINANCIAL INSTRUMENTS – NET GAINS AND LOSSES IN EUR THOUSANDS Loans and receivables (LaR) Financial instruments held for trading (FAHfT and FLHfT) 2017 – 160 2016 – 345 0 – 1,538 Financial liabilities at cost (FLAC) – 13,834 – 11,454 – 13,994 – 13,337 Net gains and losses of loans and receivables com- prise impairment of trade receivables and interest income on short-term bank deposits. Net gains and losses of financial liabilities at cost comprise interest expenses and fees from borrowings. Net gains and losses of financial instruments held for trading result from the dynamic protection concept NOTE 22 ‘DERIVATIVE FINANCIAL INSTRUMENTS.’ described in Currency effects from the translation of financial assets and liabilities according to IAS 21 are shown within NOTE 14 ‘NET FOREIGN EXCHANGE GAINS / LOSSES.’ Total Less non-current portion Interest rate swaps – cash flow hedges Non-current portion Current portion Foreign exchange derivatives On December 31, 2017, foreign exchange deriva- tives with a positive market value of EUR 458 thou- sand (Dec 31, 2016: EUR 685 thousand) and with a negative market value of EUR 43 thousand (Dec 31, 2016: EUR 115 thousand) were classified as cash flow hedges. The notional principal amounts were EUR 21,135 thousand (Dec 31, 2016: EUR 21,584 thousand) and EUR 5,700 thousand (Dec 31, 2016: EUR 15,534 foreign exchange derivatives with a positive market value of EUR 182 thousand (Dec 31, 2016: EUR 472 thou- sand) and a negative value of EUR 150 thousand (Dec 31, 2016: EUR 52 thousand) and a notional principal amount of EUR 25,072 thousand (Dec 31, 2016: EUR 52,257 thousand) and EUR 5,459 thou- sand (Dec 31, 2016: EUR 1,212 thousand) were classified as fair value hedges. thousand). Furthermore, 157 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report On December 31, 2017, the hedged fixed interest rate was between 1.175% and 2.01%; the variable interest rate was the 3-month LIBOR and the 6-month EURIBOR. The maximum exposure to credit risk on the report- ing date is the fair value of the derivative assets in the Consolidated Statement of Financial Position. In 2017 and 2016, no ineffective portion of cash flow hedges relating to foreign exchange deriva- tives and interest rate swaps was recognized in profit or loss. The effective part recognized in other comprehen- sive income excluding taxes developed as follows: T 077 CHANGE IN HEDGING RESERVE BEFORE TAX IN EUR THOUSANDS Balance as of January 1, 2016 Foreign currency translation effects Reclassification to profit or loss Net fair value changes Balance as of December 31, 2016 Foreign currency translation effects Reclassification to profit or loss Net fair value changes Balance as of December 31, 2017 Foreign exchange derivatives classified as cash flow hedges are used to hedge foreign currency risk within the operative business. The foreign exchange derivatives classified as fair value hedges are used to hedge foreign currency risk of external debt and intragroup monetary items. As part of its financial risk management, NORMA Group not only employs traditional approaches, such as using so-called natural hedges to reduce US dol- lar exposure and rolling hedging with foreign cur- rency derivatives, but has also delegated certain parts of its exposure to banking partners. The pur- pose of this instrument is to protect NORMA Group against any unfavorable exchange rate develop- ments while at the same time letting the Company take advantage of positive developments in foreign exchange markets. A dynamic protection concept with variable rate hedging that analyzes market trends on the basis of quantitative models and implements these findings in a technical security model is used here. All activities must always follow the strict requirements of internal risk management. Foreign exchange derivatives resulting from the described dynamic protection concept are classified as held for trading. No such foreign exchange deriv- atives were held on December 31, 2017. Interest rate swaps In order to avoid interest rate fluctuations, NORMA Group has hedged parts of the loans against changes in interest rates. On December 31, 2017, interest rate swaps with a positive market value of EUR 1,885 thousand and a negative market value of EUR 1,226 thousand were recognized. The notional principal amount of the interest rate swaps amounts to EUR 124,346 thou- sand (Dec 31, 2016: EUR 95,210 thousand) and EUR 90,663 thousand (Dec 31, 2016: EUR 99,754 thousand). Foreign exchange derivatives Interest rate swaps 24 – 21 – 45 754 712 – 16 – 727 310 279 -2,508 0 1,628 443 – 437 0 1,271 – 174 660 Total -2,484 – 21 1,583 1,197 275 – 16 544 136 939 158 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report Amounts due to interest rate swaps recognized in the hedging reserve in equity will be released in profit or loss before the repayment of the loans. Amounts due to foreign exchange derivatives recog- nized in the hedging reserve in equity are current and will therefore be released in profit or loss within one year. An overview of the gains and losses arising from the hedging of fair value changes that were recognized in the financial result is shown below: T 078 GAINS AND LOSSES FAIR-VALUE HEDGES IN EUR THOUSANDS 2017 Losses (–) / Gains (+) on hedged items – 5,155 Losses (–) / Gains (+) on hedging instruments 4,552 – 603 2016 – 69 – 892 – 961 T 081 TRADE RECEIVABLES – MATURITY ANALYSIS As of December 31, 2017 IN EUR THOUSANDS Trade receivables Other receivables As of December 31, 2016 IN EUR THOUSANDS Trade receivables Other receivables 23. TRADE AND OTHER RECEIVABLES Trade and other receivables were as follows: On the balance sheet date, trade receivables were as follows: T 079 TRADE AND OTHER RECEIVABLES IN EUR THOUSANDS Dec 31, 2017 Dec 31, 2016 T 080 TRADE RECEIVABLES IN EUR THOUSANDS Dec 31, 2017 Dec 31, 2016 Trade receivables 150,424 127,011 Trade receivables 147,872 123,901 Less: allowances for doubtful accounts – 2,552 – 3,110 thereof receivables from POC Other receivables 0 4,874 1,525 307 152,746 124,208 As of December 31, 2017, other receivables mainly include banker’s acceptance bills for trade receiv- ables for customers in China. 147,872 123,901 All trade receivables are due within one year. The fol- lowing table shows the maturity analysis for overdue trade receivables and other current receivables that are not impaired: Not past due < 30 days 30 – 90 days 91 – 180 days 181 days – 1 year > 1 year Total 122,789 4,287 127,076 16,408 535 16,943 4,372 52 4,424 2,063 0 2,063 2,023 0 2,023 149 0 149 147,804 4,874 152,678 Not past due < 30 days 30 – 90 days 91 – 180 days 181 days – 1 year > 1 year Total 102,902 307 103,209 12,210 0 12,210 3,854 0 3,854 1,680 0 1,680 1,128 0 1,128 275 0 275 122,049 307 122,356 159 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report On December 31, 2017, and 2016, there was no indi- cation that trade receivables that were not impaired could be irrecoverable. The amount of receivables that were impaired was as follows: All trade receivables were impaired by specific valua- tion allowances. There have been no general allow- ances. Movements on the Group provision for impair- ment of trade receivables are as follows: T 084 TRADE RECEIVABLES – DEVELOPMENT IMPAIRMENTS T 082 TRADE RECEIVABLES – IMPAIRMENTS IN EUR THOUSANDS Dec 31, 2017 Dec 31, 2016 Trade receivables impaired and provided for Allowances for doubtful accounts 2,620 – 2,552 4,962 – 3,110 The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies: T 083 TRADE AND OTHER RECEIVABLES – CARRYING AMOUNT PER CURRENCY IN EUR THOUSANDS Dec 31, 2017 Dec 31, 2016 Euro US dollar Chinese renminbi British pound Australian dollar Swedish krona Swiss franc Indien rupee Malaysian ringgit Thai baht Russian ruble Other currencies 46,957 63,114 28,126 3,225 2,972 1,035 480 2,289 1,025 625 348 32,280 63,049 15,947 2,712 2,949 773 622 1,374 1,124 793 307 2,550 2,278 152,746 124,208 IN EUR THOUSANDS As of January 1 Additions Amounts used Reversals Currency effects As of December 31 2017 3,110 1,244 – 839 – 780 – 183 2,552 2016 3,319 518 – 610 – 126 9 3,110 The creation and release of allowances for doubtful accounts have been included in ‘other operating income / expenses’ in the Consolidated Statement of Comprehensive Income. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash. The other classes within trade and other receivables do not contain impaired assets. The maximum exposure to credit risk on the reporting date is the carrying amount of each class of receiv- ables mentioned above. The Group does not hold any collateral as security. On December 31, 2017, and 2016, the trade and other receivables were unsecured. Factoring transactions In fiscal year 2017, the prior year factoring program was cancelled and a new program with changed con- ditions was concluded. Previous year’s figures stated below relate to the terminated factoring agreement. In the factoring agreement concluded in 2017, that has a maximum volume of receivables of EUR 18 mil- lion, NORMA Group subsidiaries in Germany and Poland sell trade receivables directly to external pur- chasers.As part of this factoring program, receivables of EUR 9.0 million were sold as of December 31, 2017, (Dec 31, 2016: EUR 10.9 million), of which EUR 0.0 million (Dec 31, 2016: EUR 1.09 million) were retained as a reserve and recognized as other financial assets. The requirements for a receivables transfer were met in accordance with IAS 39.15 since the receivables were transferred in accordance with IAS 39.18 a). Verification in accordance with IAS 39.20 shows that nearly all opportunities and risks were neither trans- ferred nor retained. It follows in accordance with IAS 39.30 that NORMA Group recognizes remaining con- tinuing involvement. NORMA Group is continuing to perform receivables management (servicing) for the receivables sold. Although NORMA Group is only entitled to act as a servicer, NORMA Group retains the right to dispose of the sold receivables, as purchasers do not have the right to resell the receivables acquired. NORMA Group is continuing to recognize the sold trade receivable to the extent of its continuing involvement, i. e., at the maximum amount to which it continues to be liable for the late payment risk inherent in the receivables sold. Hence, NORMA Group is recognizing a corresponding financial liability. 160 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report The remaining continuing involvement in the amount of EUR 82 thousand (Dec 31, 2016: EUR 74 thousand) was recognized as a financial liability and considers the maximum potential loss for NORMA Group result- ing from the late payment risk of receivables sold as of the reporting date. The fair value of the guaran- tee / interest payments to be assumed has been esti- mated at EUR 7 thousand, taken through profit or loss and recognized under other liabilities. ABS program In 2014, NORMA Group entered into a revolving asset purchase agreement (Receivables Purchase Agree- ment) with Weinberg Capital Ltd. (special purpose entity). Within the agreed structure, NORMA Group sold trade receivables in the context of an ABS trans- action which was successfully initiated in December 2014. Receivables are sold by NORMA Group to a special purpose entity. As of December 31, 2017, domestic NORMA Group entities had sold receivables in an amount of EUR 15.2 million (Dec 31, 2016: EUR 13.5 million) under this asset-backed securities (ABS) program with a maxi- mum volume of EUR 25 million. From the receivables sold, EUR 0.6 million (Dec 31, 2016: EUR 3.8 million) were retained as loss reserves and not paid out. These assets were recognized as other financial assets. The basis for this transaction is the transfer of trade receivables of individual NORMA Group subsidiaries to a special purpose entity with a framework of undis- closed assignment. This special purpose entity (SPE) is not consolidated under IFRS 10 because neither the power over the SPE is attributable to NORMA Group nor does NORMA Group have an essential self-inter- est and no connection between power and variability of the returns of the special purpose entity exists. The requirements for a receivables transfer according to IAS 39.15 are met, since the receivables are trans- ferred according to IAS 39.18 a). Verification in accor- dance with IAS 39.20 shows that a substantial share of all risks and rewards were neither transferred nor retained. Therefore, according to IAS 39.30, NORMA Group’s continuing involvement must be recognized. This continuing involvement in the amount of EUR 273 thousand (Dec 31, 2016: EUR 245 thousand) includes the maximum amount that NORMA Group could con- ceivably have to pay back under the default guarantee and the expected interest payments until the payment is received for the carrying amount of the receivables transferred. The fair value of the guarantee / interest payments to be assumed has been estimated at EUR 192 thousand (Dec 31, 2016: EUR 171 thou- sand), taken through profit or loss and recognized under other liabilities. Receivables from construction contracts Trade receivables include the following receivables from customer-specific contract production recog- nized using the percentage of completion method: T 085 RECEIVABLES FROM CONSTRUCTION CONTRACTS IN EUR THOUSANDS Dec 31, 2017 Dec 31, 2016 Production costs, including result from construction contracts Payments received on account 1,051 0 1,051 2,270 – 745 1,525 Receivables from construction contracts include cus- tomer-specific contract production with an asset-side balance, whose production costs, taking account of profit shares and loss-free valuation, exceed the pay- ments received on account. The following table shows the gross amounts of the construction contracts as of December 31, 2017, and 2016: T 086 GROSS AMOUNT CUSTOMER CONTRACTS IN EUR THOUSANDS Dec 31, 2017 Dec 31, 2016 Amounts due from customers for contract work Amounts due to customers for contract work 1,051 1,525 0 1,051 0 1,525 161 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report 24. INVENTORIES 25. OTHER NON-FINANCIAL ASSETS 26. OTHER FINANCIAL ASSETS Inventories were as follows: Other non-financial assets were as follows: Other financial assets were as follows: T 087 INVENTORIES T 088 OTHER NON-FINANCIAL ASSETS T 089 OTHER FINANCIAL ASSETS IN EUR THOUSANDS Dec 31, 2017 Dec 31, 2016 IN EUR THOUSANDS Dec 31, 2017 Dec 31, 2016 IN EUR THOUSANDS Dec 31, 2017 Dec 31, 2016 Raw materials, consumables and supplies Work in progress Finished goods and goods for resale 38,252 16,395 96,582 32,471 20,997 86,417 151,229 139,885 Deferred costs VAT assets Prepayments Other assets 3,854 9,022 3,174 752 3,120 7,948 3,255 1,639 Receivables from ABS program Receivables from factoring Payment claims from acquisitions Other assets 16,802 15,962 638 0 0 363 1,001 3,830 1,095 407 353 5,685 On December 31, 2017, impairments were made on inventories amounting thousand (Dec 31, 2016: EUR 4,224 thousand). to EUR 4,385 Inventories include inventories amounting to EUR 5,150 thousand from Lifial and Fengfan, the entities acquired in 2017. On December 31, 2017, and 2016, the inventories were not collateralized with the exception of the cus- tomary business reservations of title. Receivables from the ABS program and from factoring include reserves for the trade receivables sold. NOTE 23 ‘TRADE AND OTHER RECEIVABLES’ In 2016, payment claims from acquisitions include outstanding receivables from a purchase price adjust- ment in connection with the acquisition of the Autoline business in 2016. 162 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report 27. EQUITY Subscribed capital The subscribed capital of the Company on December 31, 2017, and 2016 amounted to EUR 31,862 thous- and and was fully paid in. It is divided into 31,862,400 shares with no par value and a notional value of EUR 1. The liability of the shareholders for the obliga- tions of the Company to its creditors is limited to this capital. The amount of the subscribed capital is not permitted to be distributed by the Company to its shareholders. Authorized and Conditional capital The Management Board is entitled to increase the share capital by up to EUR 12,744,960.00 until May 19, 2020, by issuing up to 12,744,960 new no-par value registered shares in exchange for cash and / or contributions in kind either once or several times by resolution of the Annual General Meeting held on May 20, 2015, with the approval of the Supervisory Board, whereby the subscription rights of shareholders may be restricted (Authorized Capital 2015). The share capital is being increased by up to EUR 3,186,240.00 by resolution of the Annual Gene- ral Meeting on May 20, 2015, by issuing up to 3,186,240 new no-par value registered shares to grant convertible bonds and / or bonds with warrants (Conditional Capital 2015). The resolutions of the Annual General Meeting of April 6, 2011, Authorized Capital 2011 and Conditional Capital 2011, were repealed. Capital reserve The capital reserve contains: › amounts (premiums) received for the issuance of shares, › premiums paid by shareholders in exchange for the granting of a preference for their shares, › amounts resulting from other capital contributions of the owners. Management incentive schemes In the second quarter of 2015, the Matching Stock Program (MSP) for the Management Board of NORMA Group was switched over to cash settlement by reso- lution of the Supervisory Board. Due to the change in classification, EUR 6,278 thousand were recognized directly in equity as a reduction of the capital reserve against a corresponding provision. 163 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report Retained earnings Retained earnings consisted of the following: T 090 DEVELOPMENT OF RETAINED EARNINGS IN EUR THOUSANDS Balance as of December 31, 2015 Profit for the year Dividends paid Effect before taxes Tax effect Balance as of December 31, 2016 Profit for the year Dividends paid Acquisition of non-controlling interests Effect before taxes Tax effect Retained earnings Remeasurements of post-employment benefit obligations IPO costs directly netted with equity Reimbursement of IPO costs by shareholders Acquisition of non-controlling interest Effects from the application of IAS 19R 170,157 75,747 – 28,676 217,228 119,664 – 30,269 – 3,008 – 4,640 4,681 – 2,429 839 1,119 – 286 – 2,175 – 4,640 4,681 – 2,429 839 – 458 137 – 4,501 Total 165,600 75,747 – 28,676 1,119 – 286 213,504 119,664 – 30,269 – 4,501 – 458 137 Balance as of December 31, 2017 306,623 – 2,496 – 4,640 4,681 – 6,930 839 298,077 A dividend of EUR 30,269 thousand (EUR 0.95 per share) was paid to the shareholders of NORMA Group after the Annual General Meeting in May 2017, which reduced the retained earnings. Other reserves Other reserves consisted of the following: T 091 DEVELOPMENT OF OTHER RESERVES IN EUR THOUSANDS Balance as of January 1, 2016 Effect before taxes Tax effect Balance as of December 31, 2016 Effect before taxes Tax effect Balance as of December 31, 2017 164 Foreign exchange rate differences on translating foreign operations Cash flow hedges – 1,761 2,759 – 730 268 664 – 275 657 22,889 3,920 26,809 – 35,830 – 9,021 Total 21,128 6,679 – 730 27,077 – 35,166 – 275 – 8,364 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report 28. SHARE-BASED PAYMENTS Management incentive schemes The Matching Stock Program The Matching Stock Program (MSP) for the Manage- ment Board provides a long-term incentive to commit to the success of the Group. The MSP is a share- based option. To this end, the Supervisory Board specifies a number of share options to be granted each fiscal year with the proviso that the Management Board member makes a corresponding personal investment in the Group. The shares involved in the share options are those shares allocated or acquired and qualified as part of the MSP defined in the Management Board contract. The number of share options is calculated by multiply- ing the qualified shares (2017: 85,953; 2016: 85,953) held at the time of allotment by the option factor specified by the Supervisory Board. A new option factor is set for every tranche (the option factor for 2017 is 1.5; 2016: 1.5). The first tranche was allo- cated on the day of the IPO. The other tranches will be allocated on March 31 each following year. There are therefore 128,929 share options in the 2017 fiscal year (2016: 128,929 share options). The holding period is four years (on March 31, 2021, for the 2017 tranche, on March 31, 2020, for the 2016 tranche, on March 31, 2019, for the 2015 tranche, and on March 31, 2018, for the 2014 tranche). Non-forfeitable claims out of the options are earned pro rata over the respective performance period. The exercise price for the outstanding tranches will be the weighted average of the respective closing price of the Group’s share on the 60 trading days directly preceding the allocation of each tranche. Dividend payments by the Group during the vesting period are deducted from the exer- cise price of each tranche. The options of a tranche can only be exercised within a period of two years following the expiration of the holding period. In order for an option to be exercised, the weighted average of the last ten trading days must be at least 1.2 times that of the exercise price. The pay-out is limited to 2% of the average (adjusted) EBITA (tranches 2014, 2015, 2016 and 2017) or to 2% of the average (adjusted) EBITDA (tranche 2013) during the holding period (cap). When the option is exercised, the Group can decide whether to settle the option in shares or cash. In the second quarter of 2015, the MSP for the Man- agement Board of NORMA Group was switched over to cash settlement by resolution of the Supervisory Board. Due to the change in classification of the stock options from being a settlement in equity instruments to a cash settlement, the proportional fair value of the options was recalculated at the time of the change in estimates. The proportional expenses for the year 2015 up to the date of change in the amount of EUR 135 thousand were recognized within the capital reserve through profit or loss. The pro rata fair value on the date of the change in the assessment in the amount of EUR 6,278 thousand was recognized directly in equity as a reduction of the capital reserve against a corresponding provision. The determination of fair value, which is the basis for determining the pro rata provision on the balance sheet date, was carried out using a Monte Carlo method. The expected volatilities are set to be the his- torical volatility of the three-year period before the val- uation date. Due to the cash settlement, the options are valued at each balance sheet date and the result- ing changes in fair value are recognized through profit or loss, whereby the prorated expenses were ratably recognized over the performance period. 165 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report The option rights granted under the MSP changed as follows in the 2017 and 2016 fiscal years: T 092 DEVELOPMENT OF THE MSP OPTION RIGHTS Expected duration until exercise in years Proportional fair value per outstanding ‘share unit’ in EUR as of Dec 31, 2017 Fair value per ‘share unit’ in EUR as of December 31, 2017 Exercise price in EUR Balance as of Dec 31, 2015 Tentatively granted ‘share units’ Exercised Lapsed Balance as of Dec 31, 2016 Balance as of Dec 31, 2016 Tentatively granted ‘share units’ Exercised Lapsed Balance as of Dec 31, 2017 Tranche MSP 2013 Tranche MSP 2014 Tranche MSP 2015 Tranche MSP 2016 Tranche MSP 2017 0.42 1.42 2.42 3.42 1,746,138.00 1,064,221.00 685,067.00 362,363.00 n/a n/a n/a 20.71 15.03 36.86 11.78 42.24 145,804 137,366 128,929 11.14 44.77 0 128,929 145,804 137,366 128,929 128,929 145,804 137,366 128,929 128,929 145,804 0 17,187 120,179 31,607 97,322 54,464 74,465 13.66 40.65 0 0 0 128,929 77,322 51,607 In fiscal year 2017, expenses in the amount of EUR 3,212 thousand (2016: EUR 396 thousand) resulting from the MSP were recognized in employee benefits expense against a corresponding addition within the provisions. Furthermore, a payment amounting to EUR 3,004 was made for the exercised options of the 2013 tranche (2016: tranche 2012 EUR 2,534 thousand). The total provision for the MSP amounts to EUR 3,858 thousand as of December 31, 2017 (Dec 31, 2016: EUR 3,650 thousand). Long-Term Incentive Plan In fiscal year 2013, NORMA Group installed a share- based, long-term, variable compensation component for executives and certain other groups of employees (Long-Term Incentive Plan). The Long-Term Incentive Plan (LTI) is a share-based payment, cash settled plan that takes into account both the performance of the Company and the share price development. The participants receive a preliminary number of share units (virtual shares) at the start of the perfor- mance period based on a percentage of the respec- tive base salary multiplied by a conversion rate. The conversion rate is determined based on the average share price of the previous 60 trading days of the cal- endar year prior to the grant date. Once four years have elapsed, the number of share units granted at the start of the performance period is adjusted based on the performance the Company has achieved, incorporating both the targets defined during the per- formance period and the Company / regional factor. The goal achievement factor, measured by adjusted EBITA, as well as the Company / regional factor are applied as performance targets. The goal achieve- ment factor is based on the adjusted EBITA of NORMA Group. The absolute adjusted EBITA target is deter- mined for every year of the performance period based on the budgeted value. After conclusion of the four- year-period, the yearly recorded adjusted EBITA val- ues are defined as a percentage in relation to the tar- get values and averaged out over the four years. Allocation occurs above a goal achievement ratio of 90%. Between 90% and 100% goal achievement, every percentage point amounts to 10 percentage points of goal achievement factor. Between 100% and 200% goal achievement, the goal achievement factor grows by 1.5 percentage points per percentage point of goal achievement. 166 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report The share units granted under the LTI changed as fol- lows in the 2017 and 2016 fiscal years: T 093 DEVELOPMENT OF LTI Expected duration until exercise in years Fair value per ‘share unit’ in EUR as of Dec 31, 2017 Share price when granted in EUR Balance as of Dec 31, 2016 Tentatively granted ‘share units’ Exercised Lapsed Balance as of Dec 31, 2017 Expected duration until exercise in years Fair value per ‘share unit’ in EUR as of Dec 31, 2016 Share price when granted in EUR Balance as of Dec 31, 2015 Tentatively granted ‘share units’ Exercised Lapsed 1st Tranche LTI 2013 2nd Tranche LTI 2014 3rd Tranche LTI 2015 4th Tranche LTI 2016 5th Tranche LTI 2017 n/a n/a 20.68 n/a 56.27 36.40 1.00 54.96 36.89 2.00 53.81 48.57 29,767 18,567 32,995 31,210 – 29,767 – 0 – – – – 1,966 – 18,567 31,029 – 265 3,551 27,394 3.00 51.75 39.77 0 41,184 – – 41,184 1st Tranche LTI 2013 2nd Tranche LTI 2014 3rd Tranche LTI 2015 4th Tranche LTI 2016 n/a 39.77 20.68 1.00 39.89 36.40 2.00 38.94 36.89 31,158 22,144 38,056 – – – – – – 1,391 3,577 5,061 3.00 38.19 48.57 0 31,210 – – Balance as of Dec 31, 2016 29,767 18,567 32,995 31,210 The Company factor is determined by the Group Senior Management based on the Company’s devel- opment, as well as the development in relation to comparable companies. In addition to this, the devel- opment of free cash flows is taken into account when determining the factor. At the discretion of the Group Senior Management, unanticipated developments can also be taken into account and the Company factor corrected either downward or upward accordingly. The factor can assume values between 0.5 and 1.5. The regional factor is defined by the Group Senior Management prior to pay-out and can assume a value between 0.5 and 1.5. The factor takes into account the results of the region, as well as any region-spe- cific aspects. The value of the share units is then determined at the end of the fourth calendar year based on the average share price of the last 60 days of trading in this fourth year. In case the calculated Long-term Incentive pay- out exceeds 250% of the initial grant value, the max- imum pay-out is capped at 250%. The value deter- mined is paid out to the participants in cash in May of the fifth year. The LTI is a Group-wide and global compensation instrument with a long-term orientation. Due to the coupling to the development not only of the stock price, but also the Company’s performance, the LTI provides an additional incentive to create value through value-based action, aligned with the goals of NORMA Group. The determination of fair value, which is the basis for determining the pro rata provision on the balance sheet date, was performed using a Monte Carlo sim- ulation. Due to the cash settlement of the virtual share units, the fair value is measured on each balance sheet date and the resulting changes in the fair value are recognized in income or loss. The allocation of the expenses is made on a pro rate basis over the perfor- mance period. 167 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report In fiscal year 2017, expenses resulting from the LTI in the amount of EUR 953 thousand (2016: EUR 1,706 thousand) were recorded under personnel expense and within a corresponding provision. Furthermore, a payment amounting to EUR 947 (2016: EUR 0 thou- sand) was made for exercised options. In total, the provision for the LTI amounts to EUR 3,667 thousand as of December 31, 2017 (Dec 31, 2016: EUR 3,661 thousand). 29. RETIREMENT BENEFIT OBLIGATIONS Retirement benefit obligations result mainly from two German pension plans and a Swiss post-employment benefit plan. The German defined benefit pension plan for NORMA Group employees was closed for new entrants in 1990 and provides benefits in case of retirement, dis- ability, and death as life-long pension payments. The benefit entitlements depend on years of service and salary. The portion of salary that is above the income threshold for social security contribution leads to higher benefit entitlements compared to the portion of the salary up to that threshold. Although the plan was closed in 1990, NORMA Group is still exposed to cer- tain actuarial risks associated with defined benefit plans, such as longevity and compensation increases. Due to the amount of the obligation and the composi- tion of the plan participants, approximately 95% being pensioners, a significant change in the actuarial assumptions would have no significant effects on NORMA Group. Employees hired after 1990 are eligible under a defined contribution scheme. The contributions are paid into an insurance contract providing lump sum payments in case of retirements and deaths. members of the Management Board of NORMA Group. The annual retirement payment is measured as a percentage of the pensionable income. The pen- sion entitlement arises when the contract has expired, but not before reaching the age of 65, or if that indi- vidual is unable to work. The percentage depends on the number of years of service as a Management Board member. The percentage amounts to 4% of the last fixed annual salary prior to leaving for each com- pleted year of service. The percentage can increase to a maximum of 55%. Furthermore, a survivor’s pen- sion is to be provided as well. The obligations arising from the plan are subject to certain actuarial risks associated with defined benefit plans, such as longev- ity and compensation increases. Besides the German plans, there is a further benefit plan in Switzerland resulting from the Swiss ‘Berufli- ches Vorsorgegesetz’ law (BVG). According to the BVG, each employer has to grant post-employment benefits for qualifying employees. The plan is a capital-based plan under which the Company has to make contribu- tions equivalent to at least the limits specified in the plan conditions for employee contributions. These plans are administered by foundations that are legally separated from the entity and subject to the BVG. The Group has outsourced the investment process to a foundation, which sets the strategic asset allocation in its group life portfolio. All regulatory granted obliga- tions out of the plan are reinsured by an insurance company. This covers risks of disability, death and lon- gevity. Furthermore, there is a 100% capital and inter- est guarantee for the retirement assets invested. In the case of a shortfall, the employer and plan participants’ contribution might be increased according to decisions of the relevant foundation board. Strategies of the foundation boards to make up for potential shortfalls are subject to approval by the regulator. Furthermore, a plan for members of the Management Board was established in fiscal year 2015. This sec- ond German defined benefit plan is based on a direct commitment to an annual retirement payment for Besides the plans described in Germany and Switzer- land, NORMA Group also participates in a multi-em- ployer pension plan in the US for the benefit of employees of one of its US based plants. NORMA Group’s obligation to participate in the fund arises from the agreement with the employees’ labor organi- zation. The multi-employer pension plan is governed by US federal law under which the plan funds are held in trust and the plan administration and procedures substantially governed by federal regulation. The multi-employer pension plan is a defined benefit plan, and would normally be treated as such based on its associated actuarial estimates; however, the plan trustees do not provide the participating employers with sufficient information to individually account for the plan (or their portioned participation therein) as a defined benefit plan. For this reason, the plan is being treated in accordance with the rules for defined con- tribution pension plans (IAS 19.34). The share of con- tributions that NORMA Group paid to the pension schemes in the previous fiscal year amounts to EUR 1.2 million (2016: EUR 1.1 million). Contributions to the plan are recognized directly in personnel expenses for the period. Future changes to the contri- butions, if any, would be determined through negotia- tions with the workers’ organization, as they may be slightly modified from time to time by regulation, and except for which NORMA Group has no other fixed commitment to the plan. Conditionally, in the unlikely event that NORMA Group withdraws from the fund or a significant employer in the fund experiences a major solvency event, additional future contribution payment obligations could arise. The funded status of the multi-employer plan is reported annually by the US Department of Labor, and is influenced by various fac- tors, including investment performance, inflation, changes in demographics and changes in the partici- pants’ levels of performance. Based on the informa- tion provided by the plan administrator, the plan is undercapitalized. The value of the undercapitalization amounts to USD 836.4 million for all plan participants (over 150 companies). The portion of NORMA Group to this shortfall is 3.0% (based on information pro- vided for 2016). The expected employer contributions to the pension schemes for the following year 2018 amount to EUR 1,265 thousand. 168 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report Reconciliation of defined benefit obligations (DBO) and plan assets The amounts included in the Group’s Consolidated Financial Statements arising from its post-employ- ment defined benefit plans are as follows: T 094 COMPONENTS PENSION LIABILITY IN EUR THOUSANDS Dec 31, 2017 Dec 31, 2016 Present value of obligations Fair value of plan assets Liability in the balance sheet 15,537 3,410 12,127 14,805 3,019 11,786 The reconciliation of the net defined benefit liability (liability in the balance sheet) is as follows: A detailed reconciliation for the changes in the DBO is provided in the following table: T 095 RECONCILIATION OF THE NET DEFINED BENEFIT LIABILITY T 096 RECONCILIATION OF THE CHANGES IN THE DBO IN EUR THOUSANDS 2017 2016 IN EUR THOUSANDS 2017 2016 As of January 1 Current service cost Past service cost Administration costs Interest expenses Remeasurements: Return on plan assets excluding amounts included in net interest expenses Actuarial (gains) losses from changes in demographic assumptions Actuarial (gains) losses from changes in financial assumptions Experience (gains) losses Employer contributions Benefits paid Settlement payments Business combinations, disposals and other Foreign currency translation effects 11,786 11,951 747 0 16 124 745 0 20 162 As of January 1 Current service cost Past service cost Administration costs Interest expenses Remeasurements: Actuarial (gains) losses from changes in demographic assumptions Actuarial (gains) losses from changes in financial assumptions Experience (gains) losses Plan participants contribution Benefits paid Transfers Settlement payments Business combinations, disposals and other Foreign currency translation effects – 78 30 51 56 429 – 211 – 646 0 – 53 – 94 – 155 275 – 1,269 – 221 – 638 0 883 3 14,805 15,785 747 0 16 146 51 56 429 731 – 646 – 383 0 – 53 – 362 745 0 20 192 – 155 275 – 1,269 1,068 – 638 – 2,110 0 883 9 As of December 31 15,537 14,805 The total defined benefit obligation at the end of fiscal year 2017 includes EUR 7,996 thousand for active employees, EUR 87 thousand for former employees with vested benefits and EUR 7,454 thousand for retirees and surviving dependents. As of December 31 12,127 11,786 169 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report The transfer in the amount of EUR 383 thousand (2016: EUR 2,110 thousand) relates to the benefit plan in Switzerland and is a result of the legally required transfer of net defined benefit obligation to the new employer upon the departure of an employee. Experience gains and losses recognized in fiscal year 2017 are also a result of the described transfers within the benefit plan in Switzerland and a result of changes in the number of participants within the plan in Germany. A detailed reconciliation of the changes in the fair value of plan assets is provided in the following table: T 097 RECONCILIATION OF CHANGES IN THE FAIR VALUE OF PLAN ASSETS Disaggregation of plan assets The allocation of the plan assets of the benefit plans is as follows: T 098 DISAGGREGATION OF PLAN ASSETS IN EUR THOUSANDS Asset class Insurance contracts Cash deposit Equity securities Total 2017 2016 3,357 2,948 47 6 66 5 3,410 3,019 Cash deposits and equity securities have quoted prices in active markets. The values for insurance contracts represent the redemption value. No quoted prices in an active market are available for these. Actuarial assumptions The principal actuarial assumptions are as follows: T 099 ACTUARIAL ASSUMPTIONS IN % Discount rate Inflation rate Future salary increases 2017 2016 1.11 1.55 2.30 1.62 1.24 1.59 2.32 1.66 The biometric assumptions are based on the 2005 G Heubeck life-expectancy tables (revised 2016) for the German plan and on the life-expectancy tables of the BVG 2015 G for the Swiss plan. The tables are generation tables and hence differ according to sex, status and year of birth. Sensitivity analysis If the discount rate were to differ by +0.25% / −0.25% from the interest rate used on the balance sheet date, the defined benefit obligation for pension benefits would be an estimated EUR 435 thousand lower or EUR 476 thousand higher. If the future pension increase used were to differ by +0.25% / −0.25% from Man- agement’s estimates, the defined benefit obligation for pension benefits would be an estimated EUR 201 thou- sand higher or EUR 195 thousand lower. The reduc- tion / increase of the mortality rates by 10% results in an increase / deduction of life expectancy depending on the individual age of each beneficiary. That means, for example, that the life expectancy of a male NORMA Group employee age 55 years as of December 31, 2017, increases / decreases by approximately one year. In order to determine the longevity sensitivity, the mor- tality rates were reduced / increased by 10% for all ben- eficiaries. The effect on DBO as of December 31, 2017, due to a 10% reduction / increase in mortality rates would result in an increase of EUR 727 thousand or a decrease of EUR 737 thousand. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions, the same method (present value of the defined benefit obligation calculated with the projected unit credit method) has been applied as when calculating the post-employment benefit obligation recognized in the Consolidated Statement of Financial Position. Increases and decreases in the discount rate or rate of pension progression which are used in determining the DBO do not have a symmetrical effect on the DBO due to the compound interest effect created when determining the net present value of the future bene- fit. If more than one of the assumptions are changed simultaneously, the combined impact due to the changes would not necessarily be the same as the sum of the individual effects due to the changes. If the assumptions change at a different level, the effect on the DBO is not necessarily in a linear relation. 2017 3,019 22 78 211 731 0 – 383 – 268 2016 3,834 30 – 30 221 1,068 0 – 2,110 6 3,410 3,019 Future pension increases IN EUR THOUSANDS As of January 1 Interest income Remeasurements: Return on plan assets excluding amounts included in net interest expenses Employer contributions Plan participants contributions Benefits paid Transfers Foreign currency translation effects Fair value of plan assets at end of year 170 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report Future cash flows Employer contributions expected to be paid to the post-employment defined benefit plans in fiscal year 2018 are EUR 209 thousand (2017: EUR 199 thou- sand). Expected payments from post-employment benefit plans are as follows: T 100 EXPECTED PAYMENTS FROM POST-EMPLOYMENT BENEFIT PLANS IN EUR THOUSANDS Expected benefit payments 2018 2019 2020 2021 2022 2023 – 2027 IN EUR THOUSANDS Expected benefit payments 2017 2018 2019 2020 2021 2022 – 2026 2017 834 741 962 714 723 3,860 2016 731 715 702 916 677 3,152 The weighted average duration of the defined benefit obligation is 11.5 years (2016: 11.3 years). 171 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report 30. PROVISIONS The development of provisions is as follows: T 101 DEVELOPMENT OF PROVISIONS IN EUR THOUSANDS Guarantees Severance Early retirement Other personnel-related obligations Outstanding invoices Others Total provisions IN EUR THOUSANDS Guarantees Severance Early retirement Other personnel-related obligations Outstanding credit notes Outstanding invoices Others Total provisions As of Jan 1, 2017 Additions Amounts used Unused amounts reversed Interest accrued Changes in consolidation Transfers Foreign currency translation As of Dec 31, 2017 1,207 622 3,339 11,999 780 1,210 19,157 316 360 1,562 5,592 816 1,133 9,779 – 216 – 437 – 1,859 – 5,124 – 781 – 763 – 9,180 – 176 – 112 0 – 543 – 2 – 231 – 1,064 0 0 33 0 0 0 33 0 0 0 225 0 0 225 0 0 0 244 0 – 24 220 – 3 – 25 0 – 229 – 83 – 46 – 386 1,128 408 3,075 12,164 730 1,279 18,784 As of Jan 1, 2016 Additions Amounts used Unused amounts reversed Interest accrued Changes in consolidation Transfers Foreign currency translation As of Dec 31, 2016 1,226 899 3,410 11,481 1,072 798 1,928 20,814 325 257 1,139 4,585 0 811 1,364 8,481 – 187 – 338 – 1,266 – 4,166 0 – 878 – 1,370 – 8,205 – 154 – 334 0 – 6 – 307 – 1 – 443 – 1,245 0 0 55 4 0 0 0 59 0 140 0 0 0 0 0 140 0 0 0 58 – 757 0 – 267 – 966 – 3 – 2 1 43 – 8 50 – 2 79 1,207 622 3,339 11,999 0 780 1,210 19,157 172 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report T 102 PROVISIONS – SPLIT CURRENT/NON-CURRENT IN EUR THOUSANDS Guarantees Severance Early retirement Other personnel-related obligations Outstanding invoices Others Total provisions Dec 31, 2017 Dec 31, 2016 Total 1,128 408 3,075 12,164 730 1,279 18,784 thereof current thereof non-current 934 408 0 5,549 730 924 8,545 194 0 3,075 6,615 0 355 10,239 Total 1,207 622 3,339 11,999 780 1,210 19,157 thereof current thereof non-current 1,010 622 0 6,127 780 950 9,489 197 0 3,339 5,872 0 260 9,668 Early retirement contracts Employees at NORMA Group in Germany can in gen- eral engage in an early retirement contract (‘Alter- steilzeit’). In the first phase, the employee works 100% (‘Arbeitsphase’). In the second phase, he / she is exempt from work (‘Freistellungsphase’). The employees receive half of their pay for the total early retirement-phase as well as top-up payments (including social security costs paid by the employer). The duration of the early retirement has a maximum of six years. The accounting for early retirement (‘Altersteilzeit’) is based on actuarial valuations taking into account assumptions such as a discount rate of −0.12% p.a. (2016: 0.2% p.a.) as well as the 2005 G Heubeck life-expectancy tables. For signed early retirement contracts, a liability has been recognized. The liabil- ity includes top-up payments (‘Aufstockungsbe- träge’) as well as deferred salary payments (‘Erfül- lungsrückstände’). Guarantees Provisions for guarantees include provisions due to circumstances where a final agreement has not yet been achieved and provisions based on experience (customer claim quota, amount of damage, etc.). Future price increases are considered if material. Severance payments Provisions for severance payments include expected severance payments for NORMA Group employees due to circumstances where a final agreement has not yet been reached. The provisions will be paid out in the following fiscal year and are therefore reported under current provisions. 173 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report Other personnel-related provisions Other personnel-related provisions are as follows: T 103 PROVISIONS – OTHER PERSONNEL-RELATED IN EUR THOUSANDS LTI – Board Members LTI – Management STI – Board Members Matching Stock Program (MSP) NORMA-VA-Bonus Anniversary provisions Other personnel-related Dec 31, 2017 Dec 31, 2016 Notes Total thereof current thereof non-current thereof current thereof non-current (28) (28) 1,428 3,667 856 3,858 314 839 1,202 12,164 791 899 856 1,746 314 0 943 637 2,768 0 2,112 0 839 259 Total 1,800 3,661 880 3,650 300 788 920 796 996 880 2,400 300 0 755 1,004 2,665 0 1,250 0 788 165 5,872 5,549 6,615 11,999 6,127 The Company’s Long-Term Incentive Plan (LTI) for the Management Board consists of two different long- term compensation elements. The variable compen- sation is designed differently depending on the time when a Board member took office. With the Board members present before 2015, it consists of an EBITA component and an operating free cash flow before external use (FCF) component, each of which is observed over a period of three years (performance period). A new three-year performance period begins every year. Both components are calculated by multi- plying the average annual adjusted EBITA and FCF values actually achieved in the performance period by the adjusted EBITA and FCF bonus percentages specified in the employment contract. In the second step, the actual value of a component is compared to the medium-term plan approved by the Supervisory Board to evaluate the Company’s performance and adjustments are made to the LTI plan. The LTI plan is limited to two and a half times the amount that would be arrived at on the basis of the figures in the Com- pany’s medium-term plan. If the actual value is lower than the planned value, the LTI plan is reduced on a straight-line basis down to a minimum of EUR 0 if the three-year targets are missed by a significant amount. Due to the calculation of the variable remu- neration based on future results of the Group, uncertainties exist regarding the amount of the future outflows. Parts of the long-term compensa- tion component will be paid out in the first half of the following fiscal year and are therefore reported under the current provisions. When entering service as from reporting year 2015, the variable compensation of the Management Board consists of the NORMA VA Bonus. This variable remu- neration for the members of the Management Board who are not part of the MSP provides a long-term incentive for the Management Board to work hard to make the Company successful. The LTI is an appreci- ation bonus that is based on the Group’s performance. The Board member receives a percentage of the cal- culated increase in value. The NORMA Value Added Bonus corresponds to the percentage of the average increase in value from the current and the two previ- ous fiscal years. The annual increase in value is calcu- lated using the following formula: NORMA Value Added = (EBIT × (1 – t)) – (WACC × invested capital) The calculation of the first component is based on the consolidated earnings before interest and taxes (Group EBIT) for the fiscal year and the average corpo- rate tax rate (t). The second component is calculated from the Group cost of capital (WACC) multiplied by the capital invested. The NORMA Value Added Bonus is limited to a fixed annual salary. 75% of the amount attributable to the LTI is paid to each Management Board member the following year. The Company then uses the remaining 25% attributable to the LTI to pur- chase shares of NORMA Group SE in the name and on behalf of the individual Board members. Alternatively, the Company may pay out this balance to the Board member. In this case, the Management Board obli- gates itself to purchase shares of NORMA Group SE 174 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report EUR 3,650 thousand). In fiscal year 2017, EUR 3,004 thousand were paid for exercised options from the 2013 tranche. NOTE 28 ‘SHARE-BASED PAYMENTS.’ 31. BORROWINGS The borrowings were as follows: Anniversary provisions are based on actuarial valua- tions taking into account assumptions such as a dis- count rate of 1.25% p. a. as well as the 2005 G Heu- beck life-expectancy tables. Furthermore, other personnel-related provisions mainly include payable income tax and social security contributions in foreign countries. Other non-personnel-related provisions Provisions for outstanding invoices in the amount of EUR 730 thousand (2016: EUR 780 thousand) include expected obligations for the audit and advisory ser- vices. There are uncertainties regarding the amount and timing of the outflows. However, it is expected that this results in payments within a year. Other provisions mainly include obligations for long- term customer bonus agreements as well as for other taxes. The amount of the long-term customer bonus agreements depends on future sales volumes. There- fore, uncertainties exist regarding the amount of the final obligation. T 104 BORROWINGS IN EUR THOUSANDS Dec 31, 2017 Dec 31, 2016 Non-current Bank borrowings Current Bank borrowings 455,111 513,105 455,111 513,105 33,136 33,136 42,176 42,176 Total borrowings 488,247 555,281 Bank borrowings As of December 31, 2017, NORMA Group’s financing consists in the amount of EUR 18.0 million (2016: EUR 19.0 million) and USD 79.1 million of syndicated bank facilities (value in euros on December 31, 2017: EUR 66.0 million, 2016: USD 83.5 million or EUR 79.2 million). The adjusted syndicated bank facilities in fis- cal year 2015 led to a further improved interest profile and now much better reflect the currency of NORMA Group’s US dollar cash flows. Both tranches are due in 2021 but include an option to prolongate until 2022. In fiscal year 2017, the scheduled repayment of to EUR 4.8 million (2016: EUR 5.1 million). the syndicated bank facilities amounts with the balance of this amount within 120 days after the annual financial statements are approved at the Supervisory Board meeting. The Management Board member may not dispose of the shares for four years. Dividends and subscription rights are to be made freely available to the Management Board member. If a Board member takes office in the current fiscal year or does not work for the Company for a full twelve months in a fiscal year, the LTI is to be reduced pro- portionally (pro rata). Upon termination of the employ- ment contract, a Management Board member may dispose of his shares only after 12 months of leaving the Company. The LTI for Management (Long-Term Incentive Plan) is a variable compensation component based on the share price of the NORMA Group. A detailed descrip- NOTE 28 ‘SHARE-BASED PAYMENTS.’ tion can be found in The STI of the Management Board (Short-Term Incen- tive Plan) results from short term variable cash pay- ment. A description can be found in the REMUNERA- TION REPORT, P. 97. As of December 31, 2017, provisions for the Matching Stock Program (MSP) for NORMA Group’s Manage- ment Board amount to EUR 3,858 thousand (2016: 175 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report Furthermore, NORMA Group issued a promissory note valued at EUR 125.0 million with 5, 7 and 10-year terms in 2013, of which EUR 49.0 million were paid back in 2016. In the fourth quarter of 2014, NORMA Group issued a second promissory note valued at EUR 106.0 million with 3, 5, 7 and 10-year terms and at USD 128.5 million with 3, 5, and 7-year terms, of which EUR 14.5 million and USD 21.0 million were paid back in 2017 (value of the US dollar tranche in euro on December 31, 2017: EUR 89.6 million, 2016: EUR 121.9 million). In the third quarter of 2016, a third promissory note was issued with euro tranches in the amount of EUR 102.0 million with 5, 7 and 10-year terms and US dollar tranches in the amount of USD 52.5 million (value in euros on Dec 31, 2017: EUR 43.8 million; 2016: EUR 49.8 million) with 5 and 7-year terms. The maturity of the syndicated bank facilities and the promissory note on December 31, 2017, is as follows: T 105 MATURITY BANK BORROWINGS 2017 the bank borrowings Costs directly attributable to financing were netted with in accordance with IAS 39.43. They are amortized over the financing period using the effective interest method. The total amount, which was amortized over the remaining financing period, amounts to EUR 1,114 thousand as of December 31, 2017 (2016: EUR 1,467 thousand). Furthermore, parts of the syndicated bank facilities and the maturity of tranches of the promissory note with variable interest rates are hedged against inter- est rate changes. The derivative net assets amount to thousand on December 31, 2017 EUR 659 (Dec 31, 2016: net liabilities in the amount of EUR 438 thousand). The bank borrowings were unsecured on Decem- ber 31, 2017, and 2016. IN EUR THOUSANDS Syndicated bank facilities, net Promissory note, net Total up to 1 year > 1 year up to 2 years > 2 years up to 5 years 4,665 26,000 30,665 4,665 102,544 107,209 74,648 125,528 200,176 The maturity of the syndicated bank facilities and the promissory note on December 31, 2016, was as follows: T 106 MATURITY BANK BORROWINGS 2016 IN EUR THOUSANDS Syndicated bank facilities, net Promissory note, net Total up to 1 year > 1 year up to 2 years > 2 years up to 5 years 5,170 34,422 39,592 5,170 26,000 31,170 87,897 244,955 332,852 > 5 years 0 148,840 148,840 > 5 years 0 150,333 150,333 176 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report 32. OTHER NON-FINANCIAL LIABILITIES 33. OTHER FINANCIAL LIABILITIES T 109 FUTURE MINIMUM LEASE PAYMENTS NON-CANCELLABLE FINANCE LEASES Other non-financial liabilities are as follows: Other financial liabilities were as follows: IN EUR THOUSANDS Dec 31, 2017 Dec 31, 2016 Gross finance lease liabilities – minimum lease payments Up to 1 year > 1 year up to 5 years > 5 years Future finance charges on finance lease Present value of finance lease liabilities Up to 1 year > 1 year up to 5 years > 5 years 123 33 0 156 0 123 33 0 156 139 138 0 277 6 138 133 0 271 Lease liabilities are effectively secured because the rights to the leased assets will revert to the lessor in the event of default. T 107 OTHER NON-FINANCIAL LIABILITIES T 108 OTHER FINANCIAL LIABILITIES IN EUR THOUSANDS Non-current Lease liabilities Other liabilities Current Lease liabilities Acquisition liability Liabilities from ABS and Factoring Other liabilities Dec 31, 2017 Dec 31, 2016 33 4,191 4,224 123 2,981 467 2,736 6,307 133 1,107 1,240 138 0 496 485 1,119 2,359 Total other financial liabilities 10,531 The future aggregate minimum lease payments under non-cancellable finance leases and their respective present values are as follows: IN EUR THOUSANDS Dec 31, 2017 Dec 31, 2016 Non-current Government grants Other liabilities Current Government grants Non-income tax liabilities Social liabilities 446 43 489 50 2,004 5,582 521 89 610 341 2,892 4,438 Personnel-related liabilities (e.g. vacation, bonuses, premiums) 23,274 22,421 Other liabilities Deferred income Total other non-financial liabilities 383 567 31,860 32,349 398 722 31,212 31,822 NORMA Group received government grants, of which EUR 446 thousand were not recognized in profit or loss. They consist of grants in cash as well as land. The grants are bound to capital expenditures and employ- ees. NORMA Group recognizes the government grants as income over the period in which related expenses occur. In 2017, EUR 409 thousand were recognized as income (2016: EUR 450 thousand). 177 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report 34. TRADE AND OTHER PAYABLES 35. FINANCIAL LIABILITIES AND NET DEBT Trade and other payables were as follows: The financial liabilities of NORMA Group have the following maturity: T 110 TRADE AND OTHER PAYABLES IN EUR THOUSANDS Dec 31, 2017 Dec 31, 2016 Dec 31, 2017 T 111 MATURITY OF FINANCIAL LIABILITIES Trade payables and other payables Reverse factoring liabilities 120,351 25,398 96,189 23,388 145,749 119,577 All trade and other payables are due to third parties within one year. For information regarding trade and NOTE 3. ‘SUMMARY OF SIG- other payables, please refer to NIFICANT ACCOUNTING PRINCIPLES – TRADE AND OTHER PAYABLES.’ IN EUR THOUSANDS Borrowings Trade and other payables Finance lease liabilities Other financial liabilities Dec 31, 2016 IN EUR THOUSANDS Borrowings Trade and other payables Finance lease liabilities Other financial liabilities up to 1 year > 1 year up to 2 years > 2 years up to 5 years 33,136 145,749 123 6,184 106,612 199,782 32 245 1 3,946 > 5 years 148,717 185,192 106,889 203,729 148,717 up to 1 year > 1 year up to 2 years > 2 years up to 5 years 42,176 119,577 138 981 30,563 332,383 133 862 245 > 5 years 150,159 162,872 31,558 332,628 150,159 178 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report Net debt of NORMA Group is as follows: T 112 NET DEBT IN EUR THOUSANDS Dec 31, 2017 Dec 31, 2016 Bank borrowings, net 488,247 555,281 Derivative financial liabilities – hedge accounting Finance lease liabilities Other financial liabilities 1,419 156 10,375 2,181 271 2,088 Financial debt 500,197 559,821 Cash and cash equivalents 155,323 165,596 bank facilities in the amount of EUR 4,759 thousand and of the promissory note in the amount of EUR 32,288 thousand as well as effects from changes in the exchange rates on the US dollar por- tion of parts of the syndicated bank facilities and the promissory note. Within the derivatives, the negative market value of the hedging derivatives decreased. The increase in other financial liabilities is mainly due to a purchase price liability amounting to EUR 2,981 thousand as well as the liability in the amount of EUR 3,946 thou- sand recognized for the put option to acquire the interests of Fengfan. remaining non-controlling Net debt 344,874 394,225 NOTE 40 ‘BUSINESS COMBINATIONS’ NORMA Group’s financial debt decreased by 10.7% from EUR 559,821 thousand as of December 31, 2016, to EUR 500,197 thousand as of Decem- ber 31, 2017. The decrease in the bank borrowings is due to the scheduled repayment of the syndicated Compared to December 31, 2016 (EUR 394,225 thou- sand), net debt decreased by EUR 49,351 thousand or 12.5% to EUR 344,874 thousand. The main reason for this was the aforementioned effect from exchange rate changes on the foreign currency loans. 179 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Cash Flows 111Consolidated Statement of Changes in Equity112Notes to the Consolidated Financial Statements191Appendix to the Notes to the Consolidated Financial Statements193Responsibility Statement194Independent Auditor’s Report Other Notes 36. INFORMATION ON THE CONSOLIDATED STATEMENT OF CASH FLOWS In the Statement of Cash Flows, a distinction is made between cash flows from operating activities, invest- ing activities and financing activities. Net cash provided by operating activities is derived indirectly from profit for the period. The profit for the period is adjusted to eliminate non-cash expenses such as depreciation and amortization as well as expenses and payments for which the cash effects are investing or financing cash flows and to elimi- nate other non-cash expenses and income. Net cash provided by operating activities of EUR 145,996 thousand (2016: EUR 149,198 thousand) rep- resents changes in current assets, provisions and liabilities (excluding liabilities in connection with financing activities). As in the prior year, the Group participates in a reverse factoring program, a factoring program and an ABS program. Liabilities in the reverse factoring program are reported under trade and other payables. As of December 31, 2017, reverse factoring liabilities in the amount of EUR 25,398 thousand are recognized (Dec 31, 2016: EUR 23,388 thousand). NOTE 34 ‘TRADE AND OTHER PAYABLES’ The cash flows from the reverse fac- toring, the factoring and the ABS program are shown under the cash flow from operating activities as this corresponds to the economic substance of the trans- actions. Net cash provided by operating activities includes in 2017 cash outflows from the payments of the cash-settled share-based payments in the amount of EUR 3,981 thousand (2016: EUR 2,534 thousand), which result from the MSP tranche 2013 (2016: tranche 2012) for the Management Board of NORMA Group and in 2017 from the Long-Term Incentive Plan (LTI) for NORMA Group employees. The correction of income due to measurement of derivatives in the amount of EUR 4,552 thousand (2016: expenses in the amount of EUR 2,435 thou- sand) relates to fair value gains and losses recognized within the income statement assigned to the cash flows from financing activities. In 2016, other payments classified as investing activ- ities resulted from the transfer tax amounting to EUR 1,650 thousand paid in connection with the acquisition of the Autoline business which were clas- sified as cash flows from investing activities. Other non-cash income (–) / expenses (+) in net cash provided by operating activities mainly include foreign exchange rate gains and losses on external debt and intragroup monetary items in the amount of EUR 5,911 thousand (2016: EUR – 1,616 thousand). Furthermore, other non-cash income (–) / expenses (+) include non-cash interest expenses from the amorti- zation of accrued costs, amounting to EUR 354 thou- sand (2016: EUR 421 thousand). Cash flows from investing activities include net cash outflows from the acquisition and disposal of property, plant and equipment and intangible assets amounting to EUR 47,016 thousand (2016: EUR 46,226 thou- sand) including the change of liabilities from invest- ments in property, plant and equipment and intangible assets amounting to EUR 217 thousand (2016: EUR – 636 thousand). From the investments in non-current assets of EUR 47,654 thousand (2016: EUR 47,611 thousand), expenditures in the amount of EUR 28,507 thousand (2016: EUR 29,097 thousand) relate to growth and expenditures amounting to EUR 19,147 thousand (2016: EUR 18,514 thousand) to maintenance and continuous improvements. In 2017, also, net payments for acquisitions of sub- sidiaries in the amount of EUR 23,746 thousand (2016: EUR 87,623 thousand) which result from the payments due to the acquisition of Fengfan Fastener (Shaoxing) Co., Ltd (‘Fengfan’) in the second quarter of 2017 in the amount of EUR 12,185 thousand, for the acquisition of Lifial – Indústria Metalúrgica de Águeda, Lda. (‘Lifial’) in the first quarter of 2017 in the amount of EUR 11,909 thousand as well as from pay- ments in connection with the acquisition of the Auto- line business in the fourth quarter of 2016 in the amount of EUR 1,090 thousand are included in the cash flows from investing activities. Furthermore, net payments for acquisitions of subsidiaries consist of acquired cash and cash equivalents in the amount of NOTE 40 ‘BUSINESS COMBINATIONS’ EUR 1,438 thousand. The total amount of trade receivables sold within the NOTE 23 factoring and ABS program can be found in ‘TRADE AND OTHER RECEIVABLES.’ Cash flows resulting from interest paid are disclosed as cash flows from financing activities. 108 109 110 111 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 193 194 Appendix to the Notes to the Consolidated Financial Statements Responsibility Statement Independent Auditor’s Report 180 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS Cash is comprised of cash on hand and demand deposits of EUR 155,198 thousand on December 31, 2017 (Dec 31, 2016: EUR 165,470 thousand), as well as cash equivalents with a value of EUR 125 thousand (Dec 31, 2016: EUR 125 thousand). Cash from China, India, Russia, Brazil and Malaysia (Dec 31, 2017: EUR 21,760 thousand, Dec 31, 2016: EUR 10,668 thousand) cannot currently be distributed due to restrictions on capital movements. Reconciliation of Debt Movements to Cash Flows from Financing Activities The following table represents the reconciliation from the opening balance sheet values of the financial statements of debt arising from financing activities for the relevant closing balance sheet items and which led to changes in equity. The net payments for acquisitions of subsidiaries in 2017 and 2016 were as follows: as well as proceeds from derivatives in the amount of EUR 4,941 thousand (2016: repayment of EUR 3,485 thousand). thousand Furthermore, net repayment from loans amounting to EUR 42,255 (2016: net proceeds of EUR 94,271 thousand), dividend payments to non-con- trolling interests in the amount of EUR 159 thousand (2016: EUR 204 thousand) and repayments from finance lease liabilities in the amount of EUR 201 thou- sand (2016: EUR 294 thousand) are disclosed as cash flows from financing activities. NOTE 31 ‘BORROWINGS’ In connection with the acquisition of Fengfan, proceeds from outstanding capital contributions to a newly acquired subsidiary from former owners in the amount of EUR 3,924 thousand (2016: EUR 0 thousand) are included in the cash flows from financing activities. The changes in balance sheet items that are presented in the Consolidated Statement of Cash Flows cannot be derived directly from the balance sheet, as the effects of currency translation are non-cash transactions and changes in the consolidated Group are shown directly in the net cash used in investing activities. T 113 NET PAYMENTS FOR ACQUISITIONS OF SUBSIDIARIES IN EUR THOUSANDS 2017 2016 Acquisition liability at the beginning of the period Payment for acquisitions Payment for transfer taxes Acquired cash and cash equivalents Other changes Less acquisition liability at the end of the period Net payments for acquisitions of subsidiaries 0 28,173 0 – 1,438 – 8 5,094 81,031 1,650 0 – 152 2,981 0 23,746 87,623 Cash flows from financing activities mainly comprise outflows resulting from the payment of the dividend paid to shareholders of NORMA Group, amounting to EUR 30,269 thousand (2016: EUR 28,676 thousand), cash outflows resulting from interest paid (2017: EUR 13,672 thousand, 2016: EUR 12,026 thousand) 108 109 110 111 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 193 194 Appendix to the Notes to the Consolidated Financial Statements Responsibility Statement Independent Auditor’s Report 181 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS T 114 RECONCILIATION OF CHANGES IN ASSETS AND LIABILITIES TO CASH FLOWS FROM FINANCING ACTIVITIES IN EUR THOUSANDS Financial liabilites Derivatives held to hedge financial liabilities (assets (-) / liabilities (+)) Equity Other effects Short-term loans payable Long-term loans payable Note Finance lease obligations Interest rate swaps – cash flow hedge Foreign currency derivatives – fair value hedge Retained earnings Non- controlling interests Total Balance as of December 31, 2016 42,176 513,105 271 438 – 420 213,504 819 n / a 769,893 Changes in cash flow from financing activities Loan proceeds Loan repayments Inflow (+) / outflow (– ) from hedging derivatives Interest paid Repayment of debts from finance leases Dividends paid Procceeds from original shareholders from outstanding capital contributions into a newly acquired subsidiary Total change in cash flow from the financing activities 498 – 42,753 – 13,672 (31, 35) (31, 35) (22) (33) (27) (36) 4,941 – 201 – 30,269 – 159 498 – 42,753 4,941 – 13,672 – 201 – 30,428 3,924 3,924 (36) – 55,927 0 – 201 0 4,941 – 30,269 – 159 3,924 – 77,691 Changes from the acquisition or loss of subsidiaries or other business operations 4,942 Effects of changes in exchange rates – 2,957 – 27,045 – 4 – 1,097 – 4,553 n / a n / a n / a 4,942 – 30,006 – 5,650 Changes in the fair value Other changes Based on debt Interest expense New finance leases Transfer Other changes related to debt Other changes related to equity (27) Balance as of December 31, 2017 13,599 354 31,303 44,902 n / a – 31,303 – 30,949 n / a 33,136 455,111 10 80 90 n / a 156 n / a n / a n / a n / a n / a n / a n / a n / a 114,842 1,763 n / a n / a n / a n / a n / a 13,963 80 0 14,043 116,605 298,077 2,423 3,924 792,136 0 n / a – 659 0 n / a – 32 108 109 110 111 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 193 194 Appendix to the Notes to the Consolidated Financial Statements Responsibility Statement Independent Auditor’s Report 182 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS 37. SEGMENT REPORTING T 115 SEGMENT REPORTING IN EUR THOUSANDS 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 EMEA America Asia-Pacific Total segments Central functions Consolidation Consolidated Group Total revenue 527,935 459,049 423,054 390,303 124,227 84,126 1,075,216 933,478 24,050 35,802 – 82,182 – 74,393 1,017,084 894,887 thereof inter-segment revenue Revenue from external customers Contribution to consolidated Group sales 42,060 27,043 11,782 8,686 4,290 2,862 58,132 38,591 24,050 35,802 – 82,182 – 74,393 0 0 485,875 432,006 411,272 381,617 119,937 81,264 1,017,084 894,887 0 0 0 0 1,017,084 894,887 48% 48% 40% 43% 12% 9% 100% 100% Adjusted gross profit 1 305,095 271,116 243,749 235,941 55,392 41,000 604,236 548,057 n / a n / a – 2,930 – 2,500 601,306 545,557 Adjusted EBITDA 1 105,462 93,677 84,540 83,055 19,108 11,681 209,110 188,413 – 9,341 – 8,568 – 21 – 468 199,748 179,377 Adjusted EBITDA margin 1, 2 20.0% 20.4% 20.0% 21.3% 15.4% 13.9% 19.6% 20.0% Depreciation without PPA depreciation 3 – 11,550 – 10,225 – 8,915 – 7,871 – 3,440 – 2,683 – 23,905 – 20,779 – 1,325 – 1,113 Adjusted EBITA 1 93,912 83,452 75,625 75,184 15,668 8,998 185,205 167,634 – 10,666 – 9,681 Adjusted EBITA margin 1, 2 17.8% 18.2% 17.9% 19.3% 12.6% 10.7% 0 – 21 0 – 25,230 – 21,892 – 468 174,518 157,485 17.2% 17.6% 601,335 556,935 599,880 673,203 159,056 119,283 1,360,271 1,349,421 383,616 474,932 – 431,857 – 486,673 1,312,030 1,337,680 206,488 184,247 292,760 354,953 54,016 34,804 553,264 574,004 601,915 672,332 – 377,470 – 392,241 777,709 854,095 7,004 931 5,526 46,211 42,435 780 5,685 5,169 1,522 106 5,452 97 n / a n / a n / a n / a 47,733 47,887 5,791 5,266 Assets 4 Liabilities 5 CAPEX 22,931 19,988 16,276 16,921 Number of employees 6 3,259 2,950 1,495 1,439 1_For details regarding the adjustments, refer to 2_Based on segment sales. 3_Depreciation from purchase price allocations. 4_Including allocated goodwill, taxes are shown in the column ‘consolidation.’ 5_Taxes are shown in the column ‘consolidation.’ 6_Number of employees (average headcount). NOTE 7. 108 109 110 111 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 193 194 Appendix to the Notes to the Consolidated Financial Statements Responsibility Statement Independent Auditor’s Report 183 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS NORMA Group segments the Group at a regional level. The reportable segments of NORMA Group are EMEA, the Americas and Asia-Pacific. NORMA Group’s vision includes regional growth targets. Distribution Services are focused regionally and locally. EMEA, the Ameri- cas and Asia-Pacific have linked regional intercom- pany organizations of different functions. As a result, the Group’s management reporting and controlling system has a regional focus. The product portfolio does not vary significantly between these segments. Revenues of each segment are generated from the three product categories clamps (CLAMP), joining elements (CONNECT) and fluid systems / connec- tors (FLUID). NORMA Group measures the performance of its seg- ments through profit or loss indicators which are referred to as ‘adjusted EBITDA’ and ‘adjusted EBITA.’ ’Adjusted EBITDA’ comprises revenue, changes in inventories of finished goods and work in progress, other own work capitalized, raw materials and con- sumables used, other operating income and expenses, and employee benefits expense, adjusted for material one-time effects. EBITDA is measured in a manner consistent with that used in the Consolidated State- ment of Comprehensive Income. Inter-segment revenue is recorded at values that approximate third-party selling prices. Segment assets comprise all assets less (current and deferred) income tax assets. Taxes are shown in the reconciliation. Segment assets and liabilities are mea- sured in a manner consistent with that used in the Consolidated Statement of Financial Position. Assets of the ‘Central Functions’ include mainly cash and intercompany receivables. Segment liabilities comprise all liabilities less (current and deferred) income tax liabilities. Taxes are shown in the consolidation. Segment assets and liabilities are measured in a manner consistent with that used in the Consolidated Statement of Financial Position. Liabilities of the ‘Central Functions’ include mainly borrowings. Capex equals additions to non-current assets (prop- erty, plant and equipment and other intangible assets). Current and deferred tax assets and liabilities are shown in the consolidation. On December 31, 2017, EUR 14,805 thousand (Dec 31, 2016: EUR 18,148 thousand) in tax assets and EUR 68,503 thousand (Dec 31, 2016: EUR 111,932 thousand) in tax liabili- ties were shown in the consolidation. T 116 EXTERNAL SALES PER COUNTRY IN EUR THOUSANDS Germany USA, Mexico, Brazil Other countries 2017 2016 200,563 189,911 411,272 381,617 405,249 323,359 1,017,084 894,887 Non-current assets per country include non-current assets less deferred tax assets, derivative financial instruments, and shares in consolidated related par- ties and are as follows: T 117 NON-CURRENT ASSETS PER COUNTRY IN EUR THOUSANDS Dec 31, 2017 Dec 31, 2016 Germany USA, Mexico, Brazil Sweden Other countries Consolidation 38. CONTINGENCIES 117,021 119,414 434,498 506,566 49,116 49,996 231,007 204,676 – 12,919 – 14,822 818,723 865,830 ‘Adjusted EBITA’ includes, in addition to EBITDA, the depreciation adjusted for depreciation from purchase price allocations. External sales per country, measured according to the place of domicile of the company which manufactures the products, are as follows: The Group has contingent liabilities in respect of legal claims arising in the ordinary course of business (e.g. warranty obligations). In 2017, acquisition-related expenses in connection with the acquisition of the Autoline business, Lifial and Fengfan in the amount of EUR 3,494 thousand NOTE 7 were adjusted within EBITDA and EBITA. ‘ADJUSTMENTS’ NORMA Group does not believe that any of these con- tingent liabilities will have a material adverse effect on its business or any material liabilities will arise from contingent liabilities. 108 109 110 111 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 193 194 Appendix to the Notes to the Consolidated Financial Statements Responsibility Statement Independent Auditor’s Report 184 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS lease NORMA Group has significant operating arrangements with annual lease payments of more than EUR 200 thousand concerning the leasing of land and buildings. Except for usual renewable options, the lease contracts do not comprise other options. The lease arrangements are held by the fol- lowing companies. › NORMA UK Ltd. (Great Britain): lease term from 2006 to 2016, prolonged to 2028, soonest termina- tion in 2021, operating Lease expenditure (including non-cancellable and cancellable to EUR 10,967 thousand in 2017 (2016: EUR 10,101 thousand) is included in profit or loss in ‘other operat- ing expenses.’ amounting leases) The following table shows the future aggregate mini- mum lease payments (nominal value) under non-can- cellable operating leases: › NORMA Pacific Pty Ltd. (Australia): lease term from T 119 FUTURE MINIMUM LEASE PAYMENTS OF NON-CANCELLABLE OPERATING LEASES 2016 to 2021, soonest termination in 2021, › NORMA Michigan Inc. (USA): lease term from 2013 to 2019, soonest termination in 2019, › Connectors Verbindungstechnik AG (Switzerland): lease term from 2012 to 2019, soonest termination in 2019, › National Diversified Sales, Inc. (USA): lease terms from 2013 to 2020, soonest termination in 2020; 2015 to 2018, soonest termination in 2018; 2016 to 2019, soonest termination in 2019; 2016 to 2021, soonest termination in 2021 and 2017 to 2019, soonest termination in 2019, › R.G.RAY Corporation (USA): lease term from 2014 to 2019, soonest termination in 2019. IN EUR THOUSANDS Dec 31, 2017 Dec 31, 2016 Up to 1 year > 1 year up to 5 years > 5 years 8,579 11,496 933 6,936 12,163 1,180 21,008 20,279 39. COMMITMENTS Capital commitments Capital expenditure (nominal value) contracted for on the balance sheet date but not yet incurred is as follows: T 118 COMMITMENTS IN EUR THOUSANDS Dec 31, 2017 Dec 31, 2016 Property, plant and equipment Inventory Service contracts 7,538 1,484 109 9,131 5,698 1,383 90 7,171 There are no material commitments concerning intan- gible assets. Operating lease commitments The Group leases various vehicles, property and technical equipment under non-cancellable operat- ing lease agreements. The lease terms are between 1 and 15 years. The Group also leases various tech- nical equipment under cancellable operating lease agreements. 108 109 110 111 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 193 194 Appendix to the Notes to the Consolidated Financial Statements Responsibility Statement Independent Auditor’s Report 185 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS 40. BUSINESS COMBINATIONS Changes of the preliminary purchase price allocation of the Autoline business acquired in the fourth quarter of 2016 The purchase price allocation was adjusted in the sec- ond quarter of 2017 based on the final determination of the Trade Working Capital Adjustment and new infor- mation regarding facts and circumstances that existed as of the acquisition date. Had this information been available at the time, it would have had an effect on the allocation of the purchase price. The following table summarizes the consideration paid and the amounts of the assets acquired and liabilities assumed recognized on the acquisition date. T 120 PURCHASE PRICE ALLOCATION AUTOLINE IN EUR THOUSANDS Total France China Mexico Total France China Mexico Total France China Mexico Preliminary purchase price allocation Adjustments during the evaluation period Final purchase price allocation Consideration on Nov 30, 2016 80,624 49,655 20,610 10,359 1,084 195 542 347 81,708 49,850 21,152 10,706 Acquisition-related costs (included in other operating expenses in the Consolidated Statement of Comprehensive Income) Recognized amounts of identifiable assets acquired and liabilities assumed 2,076 n / a n / a n / a n / a n / a n / a n / a n / a n / a n / a n / a 1,560 – 170 – 10 – 160 15,745 14,029 Property, plant and equipment 15,915 14,039 Trademarks Customer lists Patented technology Inventory 1,410 26,901 1,410 5,633 10,606 10,606 8,520 2,255 Personnel-related liabilities – 2,200 – 1,829 Deferred tax assets 550 550 316 0 0 4,647 – 348 0 Total identifiable net assets 61,702 32,664 20,111 Goodwill 18,922 16,991 499 0 0 1,618 – 23 0 8,927 1,432 0 240 26 529 213 – 550 288 796 15,496 5,772 80,624 49,655 20,610 10,359 1,084 0 0 89 0 – 100 316 0 305 237 542 0 – 3 26 285 – 126 – 550 – 378 573 195 1,410 27,141 1,410 5,630 316 0 1,400 0 15,585 5,926 10,632 10,632 0 0 9,049 2,540 4,547 1,962 – 1,987 – 1,955 0 0 – 32 0 61,990 32,286 20,416 19,718 17,564 736 0 0 9,288 1,418 81,708 49,850 21,152 10,706 0 154 0 344 23 0 361 – 14 347 108 109 110 111 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 193 194 Appendix to the Notes to the Consolidated Financial Statements Responsibility Statement Independent Auditor’s Report 186 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS Lifial – Indústria Metalúrgica de Águeda, Lda. (‘Lifial’) On January 12, 2017, NORMA Group acquired Lifial – Indústria Metalúrgica de Águeda, Lda. (‘Lifial’), with economic effect on January 1, 2017. Lifial, based in Águeda, Portugal, has been manufactur- ing metal clamps for use in industry and agriculture for 28 years. Its portfolio includes heavy duty clamps, pipe supporting clamps, and U-bolt clamps for mounting antennas and solar modules. The company employs around 100 people and sells its trademark products directly and through distributors to a wide range of cus- tomers in Europe and North Africa. Annual turnover was around EUR 8 million in 2015. With the acquisition, NORMA Group is strengthening its product offering in the Distribution Services business and its market posi- tion on the Iberian Peninsula and across Europe. Goodwill of EUR 2,113 thousand derives from the acquisition, which mainly relates to the extended prod- uct range in the Distribution Services business and the strengthening of NORMA Group’s market position. T 121 PURCHASE PRICE ALLOCATION LIFIAL IN EUR THOUSANDS Consideration on Jan 1, 2017 Acquisition-related costs (included in other operating expenses in the Consolidated Statement of Comprehensive Income) Recognized amounts of identifiable assets acquired and liabilities assumed Cash and cash equivalents Property, plant and equipment Trademarks Customer lists Inventory Trade and other receivables Trade and other payables Personnel-related liabilities Other provisions Tax assets Tax liabilities Deferred tax assets Deferred tax liabilties the consideration of EUR 11,909 Of EUR 11,909 thousand were paid in cash. thousand, Total identifiable net assets Goodwill 11,909 101 653 2,519 246 3,937 3,998 1,143 – 646 – 185 – 225 355 – 820 53 – 1,232 9,796 2,113 11,909 None of the goodwill recognized is expected to be deductible for income tax purposes. The following table summarizes the consideration paid for Lifial and the assets acquired and liabilities assumed recognized as of the acquisition date: Personnel-related liabilities mainly consist of accrued salary payments. The revenue included in the Consolidated Statement of Comprehensive Income contributed by Lifial was EUR 7,491 thousand since January 1, 2017 (acquisi- tion date). During this period, Lifial contributed EUR 1,458 thousand to the consolidated result (the reported result does not include the step-up effects from the purchase price allocation of Lifial). Fengfan Fastener (Shaoxing) Co., Ltd. (‘Fengfan’) NORMA Group signed a purchase agreement to acquire 80 percent of the shares in Fengfan Fastener (Shaoxing) Co., Ltd. (‘Fengfan’), based in Shaoxing City, China, on March 28, 2017. Effective May 18, 2017, NORMA Group acquired this 80 percent share- holding in Fengfan. Founded in 1988, Fengfan manufactures joining products made of stainless steel, nylon and specialty materials. Its portfolio includes cable ties, fastening elements and specially coated, fire-resistant textiles, for example. The company uses cutting, coating, cast- ing and injection molding processes in production. With around 190 employees, Fengfan supplies to cus- tomers in the shipbuilding and heavy industries as well as to manufacturers of transport vehicles. Its products are marketed on the domestic Chinese mar- ket and exported to other countries. Its preliminary annual sales amounted to around EUR 15 million in 2016. Fengfan has a production and sales site in Sha- oxing City in the Zhejiang Province. Goodwill of EUR 8,800 thousand derives from the acquisition, which mainly relates to the strengthening of NORMA Group’s market position, the extended product range and expected customer and distribu- tion synergies. Of the consideration of EUR 15,174 thousand, EUR 12,185 thousand were paid in cash and EUR 2,989 thousand consist of an acquisition liability to the previous owners. In addition, NORMA Group has the right to acquire the remaining 20 percent of the shares. Due to the contract, NORMA Group does not bear the risks and rewards. The expected future pay- ment out of the purchase option of EUR 4,501 thou- sand is therefore shown in ‘other financial liabilities.’ None of the goodwill recognized is expected to be deductible for income tax purposes. 108 109 110 111 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 193 194 Appendix to the Notes to the Consolidated Financial Statements Responsibility Statement Independent Auditor’s Report 187 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS The purchase price allocation was adjusted in the fourth quarter of 2017 based on new information regarding facts and circumstances that existed as of the acquisition date. Had this information been avail- able at the time, it would have had an effect on the preliminary purchase price allocation published in the second quarter of 2017. The following table summa- rizes the consideration paid for Fengfan and the amounts of assets acquired and liabilities assumed recognized as of the acquisition date: Fengfan was acquired with effect from May 18, 2017. The acquired other financial assets consist of out- standing capital contributions of the previous owners which were settled as of December 31, 2017. In the Statement of Cash Flows, this position was shown within cash flows from financing activities. The revenue included in the Consolidated Statement of Comprehensive Income contributed by Fengfan was EUR 7,174 thousand since May 18, 2017 (acqui- sition date). During this period, Fengfan contributed EUR 613 thousand to the consolidated result (the reported result does not include the step-up effects from the purchase price allocation of Fengfan). No information can be provided on Fengfan’s sales and earnings prior to the company being acquired by NORMA Group since it was a newly founded com- pany formed by the seller to which certain assets and processes were sold by the seller in advance of the acquisition. T 122 PURCHASE PRICE ALLOCATION FENGFAN 41. RELATED PARTY TRANSACTIONS Sales and purchases of goods and services In 2017 and 2016, no management services were bought from related parties. There are no material sales or purchases of goods and services from non-consolidated companies, from the shareholders of NORMA Group, from key manage- ment or from other related parties in 2017 and 2016. IN EUR THOUSANDS Consideration on May 18, 2017 Acquisition-related costs (included in other operating expenses in the Consolidated Statement of Comprehensive Income) Recognized amounts of identifiable assets acquired and liabilities assumed Cash and cash equivalents Property, plant and equipment Trademarks Customer lists Patented technology Inventory Other non-financial assets Other finacial assets Other borrowings Deferred tax assets Deferred tax liabilties Total identifiable net assets Goodwill Acquired non-controlling interests Preliminary purchase price allocation Adjustments during the evaluation period Final purchase price allocation 15,174 424 785 1,958 175 7,072 519 883 449 3,924 – 4,942 81 – 1,805 9,100 7,894 – 1,820 15,174 n / a n / a 0 0 – 2 – 1,507 2 – 2 0 0 0 – 1 378 – 1,133 906 227 0 15,174 n / a 785 1,958 173 5,564 521 881 449 3,924 – 4,942 80 – 1,428 7,967 8,800 – 1,593 15,174 108 109 110 111 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 193 194 Appendix to the Notes to the Consolidated Financial Statements Responsibility Statement Independent Auditor’s Report 188 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS Compensation of members of the Management Board Compensation of the members of the Management Board according to IFRS is as follows: T 123 COMPENSATION OF MEMBERS OF THE MANAGEMENT BOARD (IFRS) IN EUR THOUSANDS Short-term benefits Other long-term benefits Termination benefits Share-based payment Total compensation according to IFRS 2017 2,282 583 248 3,078 2016 2,276 1,288 199 284 6,191 4,047 Provisions for the compensation of the members of the Management Board are as follows: T 124 PROVISIONS FOR COMPENSATION OF THE MANAGEMENT BOARD MEMBERS Details regarding the compensation of the Manage- ment Board can be found on PAGES 97 TO 102. 42. ADDITIONAL DISCLOSURES PURSUANT TO SECTION 315E (1) OF THE GERMAN COMMERCIAL CODE (HGB) Compensation of Board members The remuneration of the Management Board and Super- visory Board of NORMA Group GmbH was as follows: T 125 COMPENSATION OF BOARD MEMBERS IN EUR THOUSANDS Total Management Board Total Supervisory Board 2017 5,943 460 6,403 2016 3,848 460 4,308 The remuneration of the members of the Manage- ment Board was as follows: IN EUR THOUSANDS Notes Dec 31, 2017 Dec 31, 2016 T 126 COMPENSATION OF MEMBERS OF THE MANAGEMENT BOARD (§ 315E HGB) LTI – Management Board STI – Management Board Matching Stock Program (MSP) NORMA-VA-Bonus Total (30) (30) (28) (30) 1,428 856 3,858 314 6,456 1,800 880 Werner Deggim Dr. Michael Schneider Bernd Kleinhens John Stephenson Total IN EUR THOUSANDS 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 3,650 Fixed compensation 300 Variable compensation 6,630 Long-term incentives 471 135 1,462 471 158 556 341 0 861 327 0 320 90 817 1,256 Total compensation 2,068 1,185 1,202 1,144 1,666 306 105 369 780 294 84 629 1,007 294 98 347 739 1,426 1,398 309 4,208 5,943 361 2,089 3,848 Details regarding the individual provisions can be found in the respective notes. Beside the provisions shown above, a defined benefit obligation exists for the Management Board. The pres- ent value of the obligation amounts to EUR 559 thou- sand as of December 31, 2017 (Dec 31, 2016: EUR 362 thousand). NOTE 29 ‘RETIREMENT BENEFIT OBLIGATIONS’ Besides these expenses, expenses for a defined bene- fit obligation for Dr. Michael Schneider in the amount of EUR 248 thousand (2016: EUR 199 thousand) are also NOTE recognized within employee benefits expense. 29 ‘RETIREMENT BENEFIT OBLIGATIONS’ 108 109 110 111 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 193 194 Appendix to the Notes to the Consolidated Financial Statements Responsibility Statement Independent Auditor’s Report 189 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS Fees for the auditor Fees for the auditor, PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, Frankfurt / Main were expensed as follows: T 127 FEES FOR THE AUDITOR IN EUR THOUSANDS Auditing services Other confirmation services Other services 2017 2016 613 58 55 726 485 30 50 565 In addition to auditing services, the auditor provided confirmation services for financial covenants and for the EMIR audit. Other services include consulting ser- vices in connection with IFRS transition projects, the non-financial statement and IT systems. Headcount The average headcount breaks down as follows: T 128 AVERAGE HEADCOUNT NUMBER Direct labor Indirect labor Salaried 2017 2016 2,705 1,132 1,954 5,791 2,416 1,169 1,681 5,266 Corporate governance (section 161 AktG) The Management Board and Supervisory Board have issued a Corporate Governance Declaration pursuant to section 161 of the German Stock Corporation Act (Aktiengesetz) and made it available to shareholders HTTPS://INVESTORS. on the website of NORMA Group. NORMAGROUP.COM The category ‘direct labor’ consists of employees who are directly engaged in the production process. The numbers fluctuate according to the level of output. The category ‘indirect labor’ consists of personnel that does not directly produce products, but rather supports production. Salaried employees are employ- ees in administrative / sales / central functions. Consolidation Name, place of domicile and share in capital pursuant to section 313 (2) No. 1 HGB of the consolidated NOTE 4 ‘SCOPE OF group of companies is presented in CONSOLIDATION.’ 43. EXEMPTIONS UNDER SECTION 264, PARAGRAPH 3 OF THE GERMAN COMMERCIAL CODE (HGB) In 2017, the following German subsidiaries made use of disclosure exemptions pursuant to section 264, Paragraph 3 of the German Commercial Code (HGB): › NORMA Group Holding GmbH, Maintal › NORMA Distribution Center GmbH, Marsberg › NORMA Germany GmbH, Maintal › NORMA Verwaltungs GmbH, Maintal 44. EVENTS AFTER THE BALANCE SHEET DATE Proposal for the distribution of earnings The Management Board proposes that a dividend of EUR 1.05 be paid as a dividend per bearer of shares, leading to a total dividend payment of EUR 33,455,520. As of March 9, 2018, no events were known that would have led to a material change in the disclosure or valuation of the assets and liabilities as of Decem- ber 31, 2017. 108 109 110 111 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 193 194 Appendix to the Notes to the Consolidated Financial Statements Responsibility Statement Independent Auditor’s Report 190 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS Appendix to the Notes to the Consolidated Financial Statements Voting Rights Notification According to section 160 (1) No. 8 AktG, information regarding voting rights that have been notified to the company pursuant to section 33 (1) or (2) of the Ger- man Securities Trading Act (Wertpapierhandels- gesetz – WpHG) have to be disclosed. The following sheet gives an overview of all voting rights that have been sent to the company as of March 9, 2018. It contains the information of the last notification of each shareholder and the percentage and shares may have changed in the meantime. All notifications of voting rights by the company in the reporting period and up until March 9, 2018 are available on the website of NORMA Group HTTPS://INVESTORS.NORMAGROUP.COM. T 129 VOTING RIGHTS NOTIFICATIONS Notifying party Achievement of voting rights Share in % Allianz Global Investors Fund SICAV, Senningerberg, Luxembourg Allianz Global Investors GmbH, Frankfurt/Main, Germany Ameriprise Financial Inc., Wilmington, Delaware, USA1 Atlantic Value General Partner Limited, London, United Kingdom AXA S.A., Paris, France 2 BNP Paribas Asset Management France S.A.S., Paris, France BNP Paribas Investment Partners S.A., Paris, France Capital Research and Management Company, Los Angeles, California, USA Impax Asset Management Group Plc, London, United Kingdom NN Group N.V., Amsterdam, The Netherlands SMALLCAP World Fund, Inc., Los Angeles, California, USA T. Rowe Price Group, Inc., Baltimore, Maryland, USA The Capital Group Companies, Inc., Los Angeles, California, USA November 16, 2017 July 28, 2017 December 21, 2016 November 27, 2017 June 9, 2017 January 26, 2018 July 14, 2016 March 7, 2014 September 29, 2017 November 28, 2017 October 30, 2014 September 14, 2017 March 7, 2014 3.04 10.001 5.57 2.88 4.98 2.98 4.91 3.05 3.31 2.96 3.05 2.95 3.05 Shares 969,853 3,186,608 1,773,418 918,964 1,585,754 949,114 1,564,752 973,100 1,053,894 943,401 970,940 940,906 Pursuant to WpHG § 33, 34 WpHG § 33, 34 WpHG § 33, 34 WpHG § 33, 34 WpHG § 33, 34 WpHG § 33, 34 WpHG § 33, 34 WpHG § 34 (1) sent. 1 no. 6 WpHG § 33, 34 WpHG § 33, 34 WpHG § 33, 34 WpHG 973,100 § 34 (1) sent. 1 no. 6 in connection with sent. 2 and 3 WpHG 1_ The voting rights attributed to the notifying party are held by the following shareholder whose share in the voting rights in NORMA Group SE amounts to 3% or more: Threadneedle Investment Funds ICVC. 2_ Chain of controlled undertakings: AXA Investment Managers S.A. (4.52%). 108 109 110 111 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 Appendix to the Notes to the Consolidated Financial Statements 193 194 Responsibility Statement Independent Auditor’s Report 191 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS Coporate Bodies of NORMA Group SE MEMBERS OF THE MANAGEMENT BOARD MEMBERS OF THE SUPERVISORY BOARD Werner Deggim Master’s degree in Mechanical Engineering, Chief Executive Officer (CEO) until December 31, 2017 Bernd Kleinhens Master’s degree in Mechanical Engineering, Managing Director Business Development until December 31, 2017 Chief Executive Officer (CEO) since January 1, 2018 Dr. Michael Schneider PhD in Economics, Chief Financial Officer (CFO) John Stephenson Master of Science, Chief Operating Officer (COO) until January 31, 2018 Dr. Stefan Wolf (Chairman) › Chairman of the Management Board (CEO) of ElringKlinger AG, Dettingen, Germany › Member of the Supervisory Board of Allgaier Werke GmbH, Uhingen, Germany Lars M. Berg (Vice-Chairman) › Consultant › Chairman of the Supervisory Board of Net Insight AB, Stockholm, Sweden › Chairman of the Supervisory Board of Greater Than AB, Stockholm, Sweden Dr. Knut Michelberger › Consultant › Member of the Advisory Board of Rena Technologies GmbH, Gütenbach, Germany › Member of the Supervisory Board (raad van commissarissen) of Weener Plastics Group, Ede, Netherlands › Managing Director of Formel D GmbH, Troisdorf, Germany, and affiliated companies; for the duration of this mandate, the membership in the Advisory Board (Vice-Chairman) of the parent company Racing TopCo GmbH remains dormant › Member of the Supervisory Board of BioElectric › Member of the Advisory Board of Kaffee Partner Solutions AB, Stockholm, Sweden (until May 12, 2017) Günter Hauptmann › Consultant › Chairman of the Advisory Board of Atesteo GmbH (formerly GIF GmbH), Alsdorf, Germany (until February 14, 2018) › Member of the Advisory Board of Moon TopCo GmbH (Schlemmer Group), Poing, Germany Holding GmbH, Osnabrück, Germany › Chairman of the Board of Baltic Coffee Holding, Riga, Latvia (until October 31, 2017) Dr. Christoph Schug › Consultant › Member of the Advisory Board of Bomedus GmbH, Bonn, Germany › Member of the Advisory Board of MoebelFirst GmbH, Cologne, Germany Erika Schulte › Managing Director of Hanau Wirtschaftsförderung GmbH, Hanau, Germany › No other mandates 108 109 110 111 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 Appendix to the Notes to the Consolidated Financial Statements 193 194 Responsibility Statement Independent Auditor’s Report 192 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS Responsibility Statement To the best of our knowledge, and in accordance with the applicable reporting principles, the Consolidated Financial Statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the Group Management Report includes a fair review of the development and perfor- mance of the business and the position of the Group, together with a description of the principal opportuni- ties and risks associated with the expected develop- ment of the Group. Maintal, March 9, 2018 NORMA Group SE The Management Board Bernd Kleinhens Dr. Michael Schneider 108 109 110 111 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 Appendix to the Notes to the Consolidated Financial Statements 193 Responsibility Statement 194 Independent Auditor’s Report 193 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS Independent Auditor’s Report Report on the Audit of the Consolidated Financial Statements and of the Group Management Report AUDIT OPINIONS We have audited the Consolidated Financial State- ments of NORMA Group SE, Maintal, and its subsidiaries (the Group), which comprise the Consoli- dated Statement of Financial Position as of December 31, 2017, and the Consolidated Statement of Com- prehensive Income, the Consolidated Statement of Profit or Loss, the Consolidated Statement of Changes in Equity and the Consolidated Statement of Cash Flows for the financial year from January 1 to Decem- ber 31, 2017, and Notes to the Consolidated Financial Statements, including a summary of significant accounting policies. In addition, we have audited the Group Management Report of NORMA Group SE for the financial year from January 1 to December 31, 2017. We have not audited the content of those parts of the Group Management Report listed in the ‘Other Information’ section of our Auditor’s Report. In our opinion, on the basis of the knowledge obtained in the audit, › the accompanying Consolidated Financial State- ments comply, in all material respects, with the IFRSs as adopted by the EU, and the additional requirements of German commercial law pursuant to § [Article] 315e Abs. [paragraph] 1 HGB [Han- delsgesetzbuch: German Commercial Code] and, in compliance with these requirements, give a true and fair view of the assets, liabilities, and financial posi- tion of the Group as at December 31, 2017, and of its financial performance for the financial year from January 1 to December 31, 2017 and › the accompanying Group Management Report as a whole provides an appropriate view of the Group’s position. In all material respects, this Group Man- agement Report is consistent with the Consolidated Financial Statements, complies with German legal requirements and appropriately presents the oppor- tunities and risks of future development. Our audit opinion on the Group Management Report does not cover those parts of the Group Management Report listed in the ‘Other Information’ section of our Auditor’s Report. Pursuant to § 322 Abs. 3 Satz [sentence] 1 HGB, we declare that our audit has not led to any reserva- tions relating to the legal compliance of the Consolidated Financial Statements and of the Group Management Report. BASIS FOR THE AUDIT OPINIONS We conducted our audit of the Consolidated Financial Statements and of the Group Management Report in accordance with § 317 HGB and the EU Audit Regula- tion (No. 537/2014, referred to subsequently as ‘EU Audit Regulation’) and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschafts- prüfer [Institute of Public Auditors in Germany] (IDW). Our responsibilities under those requirements and principles are further described in the ‘Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of the Group Management Report’ section of our Auditor’s Report. We are inde- pendent of the group entities in accordance with the requirements of European law and German commer- cial and professional law, and we have fulfilled our other German professional responsibilities in accor- dance with these requirements. In addition, in accor- dance with Article 10 (2) point (f) of the EU Audit Regulation, we declare that we have not provided non-audit services prohibited under Article 5 (1) of the EU Audit Regulation. We believe that the audit evi- dence we have obtained is sufficient and appropriate to provide a basis for our audit opinions on the Consolidated Financial Statements and on the Group Management Report. KEY AUDIT MATTERS IN THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS Key audit matters are those matters that, in our pro- fessional judgment, were of most significance in our audit of the Consolidated Financial Statements for the financial year from January 1 to December 31, 2017. These matters were addressed in the context of our audit of the Consolidated Financial State- ments as a whole, and in forming our audit opinion thereon; we do not provide a separate audit opinion on these matters. In our view, the matters of most significance in our audit were as follows: 1. Recoverability of goodwill 2. Company acquisitions 3. Accounting treatment of a new factoring agreement 108 109 110 111 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 193 194 Appendix to the Notes to the Consolidated Financial Statements Responsibility Statement Independent Auditor’s Report 194 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS Our presentation of these key audit matters has been structured in each case as follows: a) Matter and issue b) Audit approach and findings c) Reference to further information Hereinafter we present the key audit matters: 1. Recoverability of goodwill a) In the Consolidated Financial Statements of NORMA Group SE, a total amount of EUR 356.7 million, representing around 27% of total assets, is reported under the balance sheet item ‘Goodwill’. The Com- pany allocates goodwill to the groups of cash- generating units, which correspond to the Group’s operating segments. Goodwill is tested for impair- ment (‘impairment test’) on an annual basis or if there are indications that goodwill may be impaired, to determine any possible need for write-downs. For the purposes of the impairment test, the carrying amount of the relevant cash-generating unit is com- pared with its fair value less costs of disposal. This measurement is generally based on the present value of the future cash flows of the relevant cash-generating unit to which the respective good- will is allocated. Present values are calculated using discounted cash flow models. For this purpose, the Group’s five-year financial plan prepared by the executive directors and adopted by the Supervisory Board forms the starting point for future projections based on assumptions about long-term rates of growth. In doing so, expectations relating to future market developments and country-specific assump- tions about the performance of macroeconomic indicators are also taken into account. The discount rate used is the weighted average cost of capital for the relevant cash-generating unit. The outcome of this valuation is dependent to a large extent on the estimates made by the executive directors with respect to the future cash inflows from the respec- tive group of cash-generating units, the discount rate used, the rate of growth and other assumptions, and is therefore subject to considerable uncertainty. Against this background and due to the complex nature of the valuation, this matter was of particular significance in the context of our audit. b) As part of our audit, we evaluated the methodology used for the purposes of performing the impairment test, among other things. We also assessed whether the future cash inflows underlying the measure- ments and the discount rates used on the whole provide an appropriate basis for the impairment tests of the individual cash-generating units. We assessed the appropriateness of the future cash inflows used in the calculation, inter alia, by com- paring this data with the current budgets in the five- year financial plan prepared by the executive direc- tors and approved by the Supervisory Board, and by reconciling it with general and sector-specific mar- ket expectations. In addition, we assessed whether the basis for including the costs of Group functions was appropriate. In the knowledge that even rela- tively small changes in the discount rate applied can have a material impact on the value of the entity calculated using this method, we focused our testing in particular on the parameters used to determine the discount rate applied, and assessed the calculation model. Furthermore, in addition to the analyses carried out by the Company we per- formed our own sensitivity analyses and, taking into account the information available, determined that the carrying amounts of the cash-generating units, including the allocated goodwill, were adequately covered by the discounted future net cash inflows. Overall, the measurement parameters and assump- tions used by the executive directors are in line with our expectations and are also within ranges consid- ered by us to be reasonable. c) The Company’s disclosures on goodwill are con- tained in sections 5, 7 and 19 of the Notes to the Consolidated Financial Statements. 2. Company acquisitions a) In the financial year 2017, NORMA Group SE acquired 80% of the shares in Fengfan Fastener (Shaoxing) Co., Ltd., headquartered in Shaoxing City, China. Furthermore, all of the shares in Lifial – Indústria Metalúrgica de Águeda, Lda., headquar- tered in Águeda, Portugal, were also purchased. The purchase price for the two acquisitions totaled EUR 27.1 million. In general, the assets and liabili- ties acquired are recognized at fair value as of the respective acquisition date, based on a number of assumptions made by the executive directors. After taking into account the share of the net assets acquired attributable to NORMA Group SE of EUR 16.2 million, the resulting purchased goodwill amounts in total to EUR 10.9 million. Due to the complexity of measuring the acquisitions and their material impact, in terms of amount, on the assets, liabilities, financial position, and financial perfor- mance of NORMA Group SE, they were of particular significance in the context of our audit. b) As part of our audit, we assessed the accounting treatment of the acquisitions with the assistance of our internal valuations specialists. For this purpose, we initially inspected and evaluated the respective contractual agreements underlying the acquisi- tions. At the same time, we reconciled the purchase prices paid by NORMA Group SE as consideration for the shares received with the supporting docu- mentation for the payments made provided to us, among other procedures. We assessed the opening balance sheets underlying the aforementioned acquisitions. We evaluated the fair values, e.g. for customer relationships, calculated by a valuer appointed by NORMA Group SE by reconciling the numerical data with the original financial account- ing records and the parameters used. We also used checklists to establish whether the requirements set out in IFRS 3 for disclosures in the Notes to the Consolidated Financial Statements had been com- plied with in full. In total, based on these and other procedures performed and the information avail- 108 109 110 111 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 193 194 Appendix to the Notes to the Consolidated Financial Statements Responsibility Statement Independent Auditor’s Report 195 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS able, we were able to satisfy ourselves that the acquisition of the respective shares was appropri- ately presented. c) The Company’s disclosures pertaining to the acqui- sitions are contained in section 40 ‘Business com- binations’ of the Notes to the Consolidated Finan- cial Statements enthalten. 3. Accounting treatment of a new factoring agreement a) In the financial year 2017, a number of subsidiaries of NORMA Group SE joined a factoring program. In accordance with the terms of the underlying agree- ment, receivables due from particular customers may be sold to the factor up to a certain volume. As at balance sheet date December 31, 2017, receiv- ables amounting to EUR 9.0 million had been sold and recorded as a reduction in receivables in the Consolidated Financial Statements. The sales are subject to purchase price retentions and since all the risks and rewards of ownership have neither been transferred nor retained, the Group recognizes a residual exposure (continuing involvement). In light of the complex contractual arrangements and the demanding accounting and reporting require- ments under IAS 39, in our view, the initial account- ing treatment of the new factoring agreement was of particular significance for our audit. b) For the purposes of our audit, we included our internal specialists from Corporate Treasury Solu- tions in the evaluation of the factoring agreement and in the examination of the calculation of the con- tinuing involvement and its presentation in the Consolidated Financial Statements. For the assess- ment of the accounting treatment of the factoring agreement, among other things we inspected, retraced and evaluated the contractual arrange- ments. We jointly dealt with the contractual details as well as the information provided by the Company and the criteria set out in IAS 39 on the precondi- tions for the derecognition of assets. Based on our audit procedures, we were able to satisfy ourselves that the estimates and assumptions made by the executive directors are justified and sufficiently documented to ensure an appropriate presentation in the Consolidated Financial Statements. c) The Company’s disclosures pertaining to the fac- toring agreement are contained in section 23 ‘Trade receivables and other receivables’ of the Notes to the Consolidated Financial Statements. OTHER INFORMATION The executive directors are responsible for the other information. The other information comprises the fol- lowing non-audited parts of the Group Management Report: › the Group Statement on Corporate Governance pur- suant to § 289f HGB and § 315d HGB included in the section ‘Principles of the Group’ of the Group Management Report › the Corporate Governance Report pursuant to No. 3.10 of the German Corporate Governance Code › the separate Non-Financial Report pursuant to § 289b Abs. 3 HGB and § 315b Abs. 3 HGB The other information comprises further the remain- ing parts of the Annual Report – excluding cross- references to external information – with the excep- tion of the audited Consolidated Financial Statements, the audited Group Management Report and our Audi- tor’s Report. Our audit opinions on the Consolidated Financial Statements and on the Group Management Report do not cover the other information, and consequently we do not express an audit opinion or any other form of assurance conclusion thereon. In connection with our audit, our responsibility is to read the other information and, in so doing, to con- sider whether the other information › is materially inconsistent with the Consolidated Financial Statements, with the Group Management Report or our knowledge obtained in the audit, or › otherwise appears to be materially misstated. RESPONSIBILITIES OF THE EXECUTIVE DIRECTORS AND THE SUPERVISORY BOARD FOR THE CONSOLIDATED FINANCIAL STATEMENTS AND THE GROUP MANAGEMENT REPORT The executive directors are responsible for the prepa- ration of the Consolidated Financial Statements that comply, in all material respects, with IFRS as adopted by the EU and the additional requirements of German commercial law pursuant to § 315e Abs. 1 HGB and that the Consolidated Financial Statements, in compli- ance with these requirements, give a true and fair view of the assets, liabilities, financial position, and financial performance of the Group. In addition, the executive directors are responsible for such internal control as they have determined 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 executive directors are responsible for assessing the Group’s ability to continue as a going concern. They also have the responsibility for disclosing, as applicable, mat- ters related to going concern. In addition, they are respon- sible for financial reporting based on the going concern basis of accounting unless there is an intention to liqui- date the Group or to cease operations, or there is no real- istic alternative but to do so. Furthermore, the executive directors are responsible for the preparation of the Group Management Report 108 109 110 111 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 193 194 Appendix to the Notes to the Consolidated Financial Statements Responsibility Statement Independent Auditor’s Report 196 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS that, as a whole, provides an appropriate view of the Group’s position and is, in all material respects, con- sistent with the Consolidated Financial Statements, complies with German legal requirements, and appro- priately presents the opportunities and risks of future development. In addition, the executive directors are responsible for such arrangements and measures (systems) as they have considered necessary to enable the preparation of a Group Management Report that is in accordance with the applicable Ger- man legal requirements, and to be able to provide suf- ficient appropriate evidence for the assertions in the Group Management Report. The Supervisory Board is responsible for overseeing the Group’s financial reporting process for the prepa- ration of the Consolidated Financial Statements and of the Group Management Report. AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS AND OF THE GROUP MANAGEMENT REPORT 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 whether the Group Management Report as a whole provides an appropri- ate view of the Group’s position and, in all material respects, is consistent with the Consolidated Financial Statements and the knowledge obtained in the audit, complies with the German legal requirements and appropriately presents the opportunities and risks of future development, as well as to issue an Auditor’s Report that includes our audit opinions on the Consol- idated Financial Statements and on the Group Management Report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with § 317 HGB and the EU Audit Regula- tion and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) will always detect a material misstatement. Mis- statements can arise from fraud or error and are con- sidered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Consolidated Financial Statements and this Group Management Report. We exercise professional judgment and maintain pro- fessional skepticism throughout the audit. We also › identify and assess the risks of material misstate- ment of the Consolidated Financial Statements and of the Group Management Report, 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 audit opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepre- sentations, or the override of internal control. › obtain an understanding of internal control relevant to the audit of the Consolidated Financial State- ments and of arrangements and measures (sys- tems) relevant to the audit of the Group Manage- ment Report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an audit opinion on the effec- tiveness of these systems › evaluate the appropriateness of accounting policies used by the executive directors and the reasonable- ness of estimates made by the executive directors and related disclosures › conclude on the appropriateness of the executive directors’ use of the going concern basis of account- ing 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 con- cern. If we conclude that a material uncertainty exists, we are required to draw attention in the Audi- tor’s Report to the related disclosures in the Consol- idated Financial Statements and in the Group Management Report or, if such disclosures are inad- equate, to modify our respective audit opinions. Our conclusions are based on the audit evidence obtained up to the date of our Auditor’s Report. How- ever, future events or conditions may cause the Group to cease to be able to continue as a going concern. › evaluate the overall presentation, structure and con- tent of the Consolidated Financial Statements, including the disclosures, and whether the Consoli- dated Financial Statements present the underlying transactions and events in a manner that the Con- solidated Financial Statements give a true and fair view of the assets, liabilities, financial position and financial performance of the Group in compliance with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to § 315e Abs. 1 HGB › obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express audit opinions on the Consolidated Financial Statements and on the Group Management Report. We are responsible for the direction, supervision and perfor- mance of the group audit. We remain solely respon- sible for our audit opinions. › evaluate the consistency of the Group Management Report with the Consolidated Financial Statements, its conformity with German law, and the view of the Group’s position it provides › perform audit procedures on the prospective infor- mation presented by the executive directors in the Group Management Report. On the basis of suffi- cient appropriate audit evidence, we evaluate, in particular, the significant assumptions used by the executive directors as a basis for the prospective information, and evaluate the proper derivation of the prospective information from these assump- 108 109 110 111 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 193 194 Appendix to the Notes to the Consolidated Financial Statements Responsibility Statement Independent Auditor’s Report 197 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS tions. We do not express a separate audit opinion on the prospective information and on the assumptions used as a basis. There is a substantial unavoidable risk that future events will differ materially from the prospective information. We communicate with those charged with gover- nance 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 those charged with governance with a statement that we have complied with the relevant independence requirements, and communicate with them all relationships and other matters that may rea- sonably be thought to bear on our independence, and where applicable, the related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the Consoli- dated Financial Statements of the current period and are therefore the key audit matters. We describe these matters in our Auditor’s Report unless law or regula- tion precludes public disclosure about the matter. OTHER LEGAL AND REGULATORY REQUIREMENTS We were elected as group auditor by the Annual Gen- eral Meeting on May 23, 2017. We were engaged by the Supervisory Board on October 9, 2017. We have been the group auditor of the NORMA Group SE, Main- tal, without interruption since the fiscal year 2010. We declare that the audit opinions expressed in this Auditor’s Report are consistent with the additional report to the audit committee pursuant to Article 11 of the EU Audit Regulation (long-form audit report). GERMAN PUBLIC AUDITOR RESPONSIBLE FOR THE ENGAGEMENT The German Public Auditor responsible for the engagement is Thomas Tilgner. Frankfurt/Main, March 9, 2018 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft Thomas Tilgner Wirtschaftsprüfer [ppa.] Richard Gudd Wirtschaftsprüfer German Public Auditor German Public Auditor 108 109 110 111 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 193 194 Appendix to the Notes to the Consolidated Financial Statements Responsibility Statement Independent Auditor’s Report 198 NORMA Group SE – ANNUAL REPORT 2017CCONSOLIDATED FINANCIAL STATEMENTS D FURTHER INFORMATION 200 Glossary 204 List of Graphics 205 List of Tables 207 Overview by Quarter 2017 208 Multi-Year Overview 210 Financial Calendar 2018, Contact and Imprint COVER TO OUR SHAREHOLDERS CONSOLIDATED MANAGEMENT REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 003 The Value Chain of NORMA Group 027 The Management Board 047 Principles of the Group 004 Two Strong Distribution Channels 028 Letter from the 058 Economic Report 005 Financial Figures 2017 006 Research and Development 010 Purchasing 014 Production 018 Logistics 022 Sales Management Board 030 NORMA Group on the Capital Market 034 Supervisory Board Report 038 Corporate Governance Report 080 Forecast Report 085 Risk and Opportunity Report 097 Remuneration Report 103 Other Legally Required Disclosures 106 Report on Transactions with Related Parties 108 Consolidated Statement of Comprehensive Income 109 Consolidated Statement of Financial Position 110 Consolidated Statement of Cash Flows 111 Consolidated Statement of Changes in Equity 112 Notes to the Consolidated Financial Statements 191 Appendix to the Notes to the Consolidated Financial Statements 193 Responsibility Statement 194 Independent Auditor’s Report 199 NORMA Group SE – ANNUAL REPORT 2017 Glossary 5S METHODOLOGY 5S is a method for organizing a work space for effi- ciency and effectiveness in order to reduce industrial accidents. AFTERMARKET SEGMENT The market concerned with the maintenance / repair of investment goods or long-life final goods (e.g. vehi- cles) or the sale of replacement parts or complemen- tary parts for the goods. This involves the sale of ser- vices and/or parts that are directly related to the previous sale of the goods. APAC Abbreviation for the Asia-Pacific region. ASSET BACKED SECURITIES (ABS) PROGRAM A specific way of converting payment claims into negotiable securities with a financing company. BEST-LANDED-COST-APPROACH Assessment of the total costs of a product including the price of the product as well as the charges for the shipping, taxes and/or duties. BUBBLE ASSIGNMENT Short-term exchange program for employees to pro- mote internal knowledge transfer, intercultural aware- ness, the development of networks and the individual development of participants. BREXIT In a referendum on June 23, 2016, the citizens of the United Kingdom voted against the country remaining in the European Union (EU). The collective conse- quence of the EU exit has taken on the popular, unof- ficial term of Brexit. CAQ SOFTWARE Software for quality assurance. CASH-POOLING Consolidating liquidity within the Group through cen- tral financial management with the purpose of com- pensating for excess liquidity or liquidity shortfalls. CODE OF CONDUCT A set of policies which can and should be applied in a wide range of contexts and environments depending on the situation. In contrast to a rule, the target audi- ence is not obliged to always comply with the Code of Conduct. A Code of Conduct is more of a personal commitment to follow or abstain from certain patterns of behavior, ensuring that nobody gains an unfair ad- vantage by circumventing these patterns. CORPORATE GOVERNANCE A set of all international and national rules, regula- tions, values and principles which apply to companies and determine how these companies are to be man- aged and monitored. CORPORATE RESPONSIBILITY A form of corporate self-regulation integrated into a business model by taking societal and environmental aspects into account. COVERAGE The regular assessment of the economic and financial situation of a listed company by banks or financial re- search institutions. CROSS-SELLING EFFECTS The action or practice of selling an additional product or service to an existing customer. DISTRIBUTION SERVICES (DS) One of NORMA Group’s two ways to market, providing a wide range of high-quality, standardized joining products for a broad range of applications and cus- tomers. COMMODITY A term used in procurement for any kind of material good used by traders. E-PROCUREMENT Electronic purchasing system. COMPLIANCE Conforming to rules: companies adhering to Codes of Conduct, laws and guidelines. EARNINGS BEFORE INTEREST, TAXES AND AMORTIZATION (EBITA) EBITA describes earnings before interest, taxes and amortization of intangible assets. For long-term com- parison and a better understanding of business de- velopment, NORMA Group adjusts the EBITA for cer- tain one-time expenses. These are described in the Management Report as well as in the Notes to the Consolidated Financial Statements. 200 Glossary 204 List of Graphics 205 List of Tables 207 Overview by Quarter 2017 208 Multi-Year Overview 210 Financial Calendar 2018, Contact and Imprint 200 NORMA Group SE – ANNUAL REPORT 2017DWEITERE INFORMATIONEN EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA) Earnings before interest, taxes, depreciation (of prop- erty, plant and equipment) and amortization (of intan- gible assets). It is a measure of a company’s operating performance before investment expenses. For long- term comparison and a better understanding of its business development, NORMA Group adjusts the EB- ITA for certain one-time expenses. These are de- scribed in the Management Report as well as in the Notes to the Consolidated Financial Statements. EBITA MARGIN (ADJUSTED) The adjusted EBITA margin is calculated from the ratio of adjusted EBITA to sales and is an indicator of the profitability of NORMA Group’s business activities. EBITDA MARGIN (ADJUSTED) The adjusted EBITDA margin is calculated from the ratio of adjusted EBITDA to sales. ECONOMIES OF SCALE Indicates the ratio of the production volume to the production factors used. In the case of positive scale effects, the production output is also increased with the intensification of production factors. EMEA Abbreviation for the economic area of Europe (com- prising Western and Eastern Europe), the Middle East and Africa. ENGINEERED JOINING TECHNOLOGY (EJT) One of NORMA Group’s two ways to market. It pro- vides customized, highly engineered joining technolo- gy products primarily, but not exclusively, for industri- al OEM customers. EQUITY RATIO Equity in relation to total assets. EUROPEAN MARKET INFRASTRUCTURE REGULATION (EMIR) EU regulation that regulates the over-the-counter market with derivative products. The main stipulation of this regulation obligates market participants to clear their over-the-counter standard derivative trans- actions through a central counterpart and report these transactions to a trade repository. FREE CASH FLOW Indicates the amount of money that is available to pay dividends to shareholders and/or repay loans. EDI (ELECTRONIC DATA INTERCHANGE) Collective term for data exchange using electronic transfer methods. GEARING Gearing is a measure of a company’s debt level. Gear- ing is calculated from the ratio of net debt to equity. ELASTOMERS Stable but elastic plastics which are used at a tem- perature above their glass transition temperature. The plastics can deform under tensile or compressive load, but then return to their original shape. GEMBA WALK Daily walk through the production halls, inspecting in- dividual processes in the opposite order of workflow and analyzing potential opportunities for improve- ments. INITIAL PUBLIC OFFERING (IPO) First offering of shares of a company on the organized capital market. INNOVATION ROADMAPPING Systematic approach to adapt company-specific prod- uct innovations to future market and technological developments. INNOVATION SCOUTING Structured observation of changes, potentials and rel- evant knowledge of technological developments and processes. INTERNATIONAL LABOUR ORGANIZATION (ILO) The International Labor Organization is a specialized agency of the United Nations charged with promoting social justice, as well as human and labor rights. This includes the fight against human trafficking. INTERNATIONAL SECURITIES IDENTIFICATION NUMBER (ISIN) 12-digit alphanumerical code used to identify a secu- rity traded on the stock market. ISO 14001 An international environmental management standard that specifies the internationally accepted require- ments for an environmental management system. ISO 9001 International standard that defines the minimum require- ments that quality management systems must meet. GLOBAL EXCELLENCE PROGRAM A cost optimization program started in 2009. It coor- dinates and manages all of NORMA Group’s sites and business units. 200 Glossary 204 List of Graphics 205 List of Tables 207 Overview by Quarter 2017 208 Multi-Year Overview 210 Financial Calendar 2018, Contact and Imprint 201 NORMA Group SE – ANNUAL REPORT 2017DWEITERE INFORMATIONEN ISO/TS 16949 An international standard that combines the existing general demands on quality management systems of the (mostly North American and European) automo- tive industry. KAIZEN A methodical concept with focus on continuous and infinite improvement. The improvement takes place as a gradual, punctual perfection or optimization of a product or process. KANBAN Method of production process control for the reduc- tion of local stocks of precursors. LEAN MANUFACTURING A systematic method for the elimination of waste within a manufacturing process. An integrated so- cio-technical system reduces or minimizes sup- ply-side, customer-side and internal fluctuations. LEVERAGE Leverage is a measure of a company’s debt and is calculated as the ratio of net debt (without hedging instruments) to adjusted EBITDA over the last 12 months (LTM). For the purpose of a better comparison, adjusted EBITDA LTM includes the companies ac- quired during the year. LONG-TERM ASSIGNMENT Long-term exchange program for employees to pro- mote internal knowledge transfer, intercultural aware- ness, the development of networks and the individual development of participants. MATERIAL COST RATIO The material cost ratio of NORMA Group results from the ratio of material expenses to sales. Furthermore, NORMA Group presents material expenses in relation to total output. The latter is the result of sales plus changes in inventories of finished goods and work in progress and other capitalized own work. NATIONAL BUREAU OF STATISTICS (NBS) Chinese statistical office. NET DEBT Net debt is the sum of financial liabilities less cash and cash equivalents. Financial liabilities also include liabilities from derivative financial instruments that are held for trading purposes or as hedging instruments. NET OPERATING CASH FLOW Net operating cash flow is calculated on the basis of EBITDA plus changes in working capital, less invest- ments from operating activities. Net cash flow is a key financial control figure for NORMA Group and serves as a measure for the Group’s liquidity. OHSAS 18001 Occupational Health and Safety Assessment Series; certification of occupational health and safety man- agement systems. ORIGINAL EQUIPMENT MANUFACTURER (OEM) A company that retails products under its own name. PRIME STANDARD A segment of the regulated stock market with higher inclusion requirements than the General Standard. It is the private law segment of the Frankfurt Stock Ex- change with the highest transparency standards. All companies listed in the DAX, MDAX, TecDAX and SDAX must be included in the Prime Standard. REVERSE FACTORING A financing solution initiated by the ordering party in order to help its suppliers finance their receivables more easily and at a lower interest rate than they would normally be offered. ROADSHOW Series of corporate presentations made to investors by an issuer at various financial locations to attract investment in the company. SECURITIES ID NUMBER (WKN) A six-character combination of numbers and letters used in Germany to identify securities. SELECTIVE CATALYTIC REDUCTION (SCR) Selective catalytic reduction is a method used to reduce particle and nitric oxide emissions. SENIOR FACILITY AGREEMENT (SFA) Loan agreement. SMED (SINGLE MINUTE EXCHANGE OF DIE) Optimization of set up times of processes through both organizational and technical measures. SOCIETAS EUROPAEA (SE) Legal form for stock companies in the European Union and the European Economic Area. With the SE, the EU started allowing for companies to be founded in ac- cordance with a largely uniform legal framework at the end of 2004. 200 Glossary 204 List of Graphics 205 List of Tables 207 Overview by Quarter 2017 208 Multi-Year Overview 210 Financial Calendar 2018, Contact and Imprint 202 NORMA Group SE – ANNUAL REPORT 2017DWEITERE INFORMATIONEN SUNSHINE-LINE A short-term bilateral framework credit line for gener- al company purposes, which can be used as current bank overdrafts as well as in the form of debts or money market loans. THERMOPLASTS (ALSO KNOWN AS PLASTOMERS) Plastics which become elastic (thermoplastic) in a particular temperature range, whereby this process is reversible. UN GLOBAL COMPACT The United Nations Global Compact is a United Nations initiative to encourage businesses worldwide to adopt sustainable and socially responsible policies, and to report on their implementation UNIVERSAL DECLARATION OF HUMAN RIGHTS (UDHR) The Universal Declaration of Human Rights (UDHR) is a historic document that contains 30 articles affirm- ing an individual’s rights which, although not legally binding in themselves have been elaborated in sub- sequent international treaties, economic transfers, regional human rights instruments, national constitu- tions, and other laws. WORKING CAPITAL Trade working capital describes the Group’s current net operating assets and is calculated as the sum of inven- tories and trade receivables minus trade payables. XETRA An electronic trading system operated by Deutsche Börse AG for the spot market. 200 Glossary 204 List of Graphics 205 List of Tables 207 Overview by Quarter 2017 208 Multi-Year Overview 210 Financial Calendar 2018, Contact and Imprint 203 NORMA Group SE – ANNUAL REPORT 2017DWEITERE INFORMATIONEN Page Graphic Page Consolidated Management Report G 012 NORMA Group (Simplified Structure) G 013 Organizational Structure of NORMA Group G 014 Sales by Distribution Channels 2017 G 015 Strategic Goals of NORMA Group G 016 Development of Sales 2017 G 017 Cost of Materials and Cost of Materials Ratio (Adjusted) G 018 Adjusted EBITA and Adjusted EBITA Margin G 019 Asset and Capital Structure G 020 Maturity Profile by Currency G 021 Maturity Profile by Financial Instruments G 022 Breakdown of Sales by Segment G 023 Price Development Technical Polymer (PA66) in Europe G 024 Development of Nickel Prices and the Alloy Surcharge 1.4301 G 025 Purchasing Turnover 2017 by Material Groups G 026 Breakdown of Employees by Group G 027 Personnell Development at NORMA Group G 028 Incident Rate G 029 Marketing Expenditures 2017 by Segment G 030 Risk Management System of NORMA Group 48 49 50 53 65 66 66 67 69 69 70 74 74 75 76 77 78 79 85 List of Graphics Graphic Introduction G 001 NORMA Group's Innovation System G 002 Process for Assuring Delivery Quality G 003 Number of Produced Parts at the Biggest NORMA Group Sites G 004 Tools in the NPS Toolbox G 005 Distribution of Costs for Transport by Traffic Carrier G 006 Information and Material Flow in the Vehicle Industry To Our Shareholders G 007 Index-Based Comparison of NORMA Group’s Share Price Performance in 2017 with the MDAX and DAX G 008 Distribution of Trading Activity in 2017 G 009 Free Float by Region G 010 Analyst Recommendations G 011 Share Price Development of the NORMA Group Share Since the IPO in 2011 Compared to the MDAX 9 13 15 17 20 21 30 31 31 32 33 200 Glossary 204 List of Graphics 205 List of Tables 207 Overview by Quarter 2017 208 Multi-Year Overview 210 Financial Calendar 2018, Contact and Imprint 204 NORMA Group SE – ANNUAL REPORT 2017DWEITERE INFORMATIONEN List of Tables Table Introduction Page Table Page Table Page Consolidated Management Report Consolidated Financial Statements T 001 Financial Figures 2017 5 T 008 Overview of End Markets and Brands by Segment To Our Shareholders T 002 Overview of Voting Rights Notifications T 003 Analysts Covering NORMA Group T 004 Key Figures for the NORMA Group Share Since the IPO T 005 Responsibilities of the Management Board T 006 Other Mandates of the Supervisory Board Members T 007 Directors’ Dealings 31 32 33 39 42 44 T 009 Financial Control Parameters T 010 Non-Financial Control Parameters T 011 Major Product Developments in 2017 T 012 R&D Key Figures T 013 GDP Growth Rates (Real) T 014 Regulation of Average Emissions (CO2) for Vehicle Fleets T 015 Actual Business Development Compared to the Forecast T 016 Adjustments T 017 Effects on Group Sales T 018 Development of Sales Channels T 019 Development of Segments T 020 Investment Highlights in 2017 T 021 Core Workforce by Segment T 022 Forecasts for GDP Growth (Real) T 023 Engineering: Real Change in Industry Sales T 024 T 025 Automotive Industry: Global Production and Development of Sales (Light and Commercial Vehicles) Construction Industry: Development of European Construction Output T 026 Forecast for Fiscal Year 2018 T 027 Risk and Opportunity Portfolio of NORMA Group T 028 Overview of the Matching Stock Program (MSP) at the Time of Allotment T 029 Management Board Remuneration in 2017 T 030 Remuneration Granted to the Management Board T 031 Inflow from Management Board Member Remuneration T 032 Remuneration of the Supervisory Board 2017 51 54 54 57 57 58 61 62 64 64 65 70 72 77 80 81 81 81 84 96 98 99 100 101 102 T 033 Consolidated Statement of Comprehensive Income T 034 Consolidated Statement of Financial Position T 035 Consolidated Statement of Cash Flows T 036 Consolidated Statement of Changes in Equity T 037 Valuation Methods T 038 Exchange Rates T 039 Offsetting of Financial Instruments T 040 Change in Scope of Consolidation T 041 List of Group Companies of NORMA Group as of December 31, 2017 T 042 Foreign Exchange Risk T 043 Maturity Structure of Non-Derivative Financial Liabilities T 044 Maturity Structure of Derivative Financial Instruments T 045 Profit and Loss Net of Adjustments T 046 Revenue by Category T 047 Raw Materials and Consumables Used T 048 Other Operating Income T 049 Other Operating Expenses T 050 Employee Benefits Expense T 051 Financial Income and Costs T 052 Net Foreign Exchange Gains / Losses T 053 Earnings per Share T 054 Income Taxes T 055 Tax Reconciliation T 056 Income Tax Charged / Credited to Other Comprehensive Income T 057 Deferred Tax Assets and Deferred Tax Liabilities T 058 Movement in Deferred Tax Assets and Liabilities T 059 Deferred Income Tax Assets T 060 Deferred Income Tax Liabilities T 061 Expiry of Recognized Tax Losses 108 109 110 111 119 120 125 131 132 134 136 137 140 142 142 142 143 143 143 144 144 145 145 145 146 146 146 147 147 200 Glossary 204 List of Graphics 205 List of Tables 207 Overview by Quarter 2017 208 Multi-Year Overview 210 Financial Calendar 2018, Contact and Imprint 205 NORMA Group SE – ANNUAL REPORT 2017DWEITERE INFORMATIONEN Table T 126 Compensation of Members of the Management Board (§ 315E HGB) T 127 Fees for the Auditor T 128 Average Headcount T 129 Voting Rights Notifications Further information T 130 Overview by Quarter 2017 T 131 Multi-Year Overview T 132 Financial Calendar 2018 Page 189 190 190 191 207 208 210 Table Page Table Page T 062 Expiry of not Recognized Tax Losses T 063 Development of Goodwill and Other Intangible Assets T 064 Goodwill and Other Intangible Assets – Carrying Amounts T 065 Change in Goodwill T 066 Goodwill Allocation per Segment T 067 Goodwill per Segment – Key Assumptions T 068 Development of Property, Plant and Equipment T 069 Property, Plant and Equipment – Carrying Amounts T 070 Finance Leases – Land and Buildings T 071 Finance Leases – Machinery 200 Glossary T 072 Finance Leases – Other Equipment 204 List of Graphics T 073 Financial Instruments – Classes and Categories T 074 Financial Instruments – Fair Value Hierarchy T 075 Financial Instruments – Net Gains and Losses T 076 Derivative Financial Instruments T 077 Change in Hedging Reserve Before Tax T 078 Gains and Losses Fair-Value Hedges T 079 Trade and Other Receivables T 080 Trade Receivables T 081 Trade Receivables – Maturity Analysis T 082 Trade Receivables – Impairments T 083 Trade and Other Receivables – Carrying Amount per Currency T 084 Trade Receivables – Development Impairments T 085 Receivables from Construction Contracts T 086 Gross Amount Customer Contracts T 087 Inventories T 088 Other Non-Financial Assets T 089 Other Financial Assets T 090 Development of Retained Earnings T 091 Development of Other Reserves T 092 Development of the MSP Option Rights T 093 Development of LTI T 094 Components Pension Liability 205 List of Tables 207 Overview by Quarter 2017 208 Multi-Year Overview 210 Financial Calendar 2018, Contact and Imprint 206 147 148 150 150 150 151 152 153 153 153 153 154 156 157 157 158 159 159 159 159 160 160 160 161 161 162 162 162 164 164 166 167 169 T 095 Reconciliation of the Net Defined Benefit Liability T 096 Reconciliation of the Changes in the DBO T 097 Reconciliation of Changes in the Fair Value of Plan Assets T 098 Disaggregation of Plan Assets T 099 Actuarial Assumptions T 100 Expected Payments from Post-Employment Benefit Plans T 101 Development of Provisions T 102 Provisions – Split Current / Non-Current T 103 Provisions – Other Personnel-Related T 104 Borrowings T 105 Maturity Bank Borrowings 2017 T 106 Maturity Bank Borrowings 2016 T 107 Other Non-Financial Liabilities T 108 Other Financial Liabilities T 109 Future Minimum Lease Payments Non-Cancellable Finance Leases T 110 Trade and Other Payables T 111 Maturity of Financial Liabilities T 112 Net Debt T 113 Net Payments for Acquisitions of Subsidiaries T 114 Reconciliation of Changes in Assets and Liabilities to Cash Flows from Financing Activities T 115 Segment Reporting T 116 External Sales per Country T 117 Non-Current Assets per Country T 118 Commitments T 119 Future Minimum Lease Payments of Non-Cancellable Operating Leases T 120 Purchase Price Allocation Autoline T 121 Purchase Price Allocation Lifial T 122 Purchase Price Allocation Fengfan T 123 T 124 Compensation of Members of the Management Board (IFRS) Provisions for Compensation of the Management Board Members T 125 Compensation of Board Members 169 169 170 170 170 171 172 173 174 175 176 176 177 177 177 178 178 179 181 182 183 184 184 185 185 186 187 188 189 189 189 NORMA Group SE – ANNUAL REPORT 2017DWEITERE INFORMATIONEN Overview by Quarter 2017 1 T 130 OVERVIEW BY QUARTER 2017 Income statement Revenue Adjusted gross profit Adjusted EBITA Adjusted EBITA margin EBITA Adjusted profit for the period Adjusted EPS Profit for the period EPS Cash flow Cash flow from operating activities Net operating cash flow Cash flow from investing activities Cash flow from financing activities Balance sheet Total assets Equity Equity ratio Net debt EUR millions EUR millions EUR millions % EUR millions EUR millions EUR EUR millions EUR EUR millions EUR millions EUR millions EUR millions EUR millions EUR millions % EUR millions Q1 2017 2 Q2 2017 2 Q3 2017 2 Q4 2017 2 254.9 152.2 45.0 17.7 43.1 27.1 0.85 22.5 0.70 9.3 4.5 – 22.3 – 1.0 264.1 157.8 46.6 17.7 45.7 28.7 0.90 24.6 0.77 32.9 36.0 – 22.2 – 28.0 244.4 144.2 42.7 17.5 39.9 24.4 0.77 19.1 0.60 34.0 31.5 – 12.5 – 8.8 253.6 147.1 40.1 15.8 38.1 24.8 0.78 53.7 1.68 69.8 60.9 – 13.7 – 39.9 Mar 31, 2017 Jun 30, 2017 Sep 30, 2017 Dec 31, 2017 1,363.7 505.0 37.0 407.4 1,323.4 476.0 36.0 423.9 1,314.9 485.5 36.9 389.3 1,312.0 534.3 40.7 344.9 1_Minor deviations may occur due to commercial rounding for the full year 2017 compared with the summation of the corresponding quarterly amounts. 2_The adjustments are described in the Notes. NOTES, P. 139 200 Glossary 204 List of Graphics 205 List of Tables 207 Overview by Quarter 2017 208 Multi-Year Overview 210 Financial Calendar 2018, Contact and Imprint 207 NORMA Group SE – ANNUAL REPORT 2017DWEITERE INFORMATIONEN Multi-Year Overview¹ T 131 MULTI-YEAR OVERVIEW Order situation Order book (Dec 31) Income statement Revenue thereof EMEA thereof Americas thereof Asia-Pacific EJT DS Adjusted gross profit Adjusted EBITA 2 Adjusted EBITA margin 2 EBITA Adjusted profit for the period 2 Profit for the period Adjusted EPS 2 EPS Financial result Adjusted tax rate R&D expenses R&D ratio (in relation to EJT sales) (Adjusted) cost of materials 2 (Adjsuted) cost of materials ratio 2 Personnel expenses 5 2017 2016 2015 2014 2013 2012 3 2011 2010 EUR millions 329.1 302.4 295.8 279.6 236.7 215.4 218.6 188.0 EUR millions EUR millions EUR millions EUR millions EUR millions EUR millions EUR millions EUR millions % EUR millions EUR millions EUR millions EUR EUR EUR millions % EUR millions % EUR millions % of sales EUR millions 1,017.1 485.9 411.3 119.9 638.2 372.3 601.3 174.5 17.2 166.8 105.0 119.8 3.29 3.76 –16.1 30.0 29.4 4.6 418.6 41.2 269.6 894.9 432.0 381.6 81.3 535.9 354.5 545.6 157.5 17.6 150.4 94.6 75.9 2.96 2.38 889.6 416.0 395.3 78.2 540.3 344.1 533.1 156.3 17.6 150.5 88.7 73.8 2.78 2.31 694.7 394.5 237.8 62.5 481.0 211.5 405.6 121.5 17.5 113.3 71.5 54.9 2.24 1.72 635.5 388.0 191.5 56.0 443.9 193.6 371.4 112.6 17.7 112.1 62.1 55.6 1.95 1.74 604.6 367.5 193.3 43.8 427.6 174.5 344.4 105.4 17.4 105.1 61.8 56.6 1.94 1.78 – 14.6 – 17.2 – 14.5 – 15.6 – 13.2 28.9 28.8 5.4 352.9 39.4 243.9 32.1 25.4 4.7 362.9 40.8 234.1 33.3 25.7 5.3 289.9 41.7 188.3 32.6 21.9 4.9 269.4 42.4 169.7 30.3 22.1 5.1 263.5 43.6 156.5 581.4 372.7 173.0 35.7 411.5 170.3 322.6 102.7 17.7 84.7 57.6 35.7 1.92 1.19 – 29.6 30.04 16.8 4.1 262.3 45.1 143.7 490.4 336.6 123.8 30.0 323.6 168.3 274.7 85.4 17.4 64.9 48.2 30.3 1.93 1.21 – 14.9 27.0 16.6 5.1 220.5 45.0 124.4 continued on P. 209 1_Key figures prior to the IPO in 2011 are not shown due to lack of comparability between HGB and IFRS. For this reason, the multi-year-overview includes only the years from 2010 onwards. 2_ In 2017 adjustments were made which especially relate to the acquisition of the Autoline business. The adjustments are described in the Notes. 3_ 2012: The accounting rules changed in 2013 due to the first-time use of IAS 19R. In order to better compare the earnings, assets and financial positions, the 2012 figures have been adjusted to suit the new accounting rules and may therefore deviate from the figures published NOTES, P. 139 Adjustments of prior years are shown in the respective Annual Reports from prior years. in the 2012 Annual Report. 4_Adjusted for deferred tax liabilities of EUR 2.8 million resulting from 2007. 5_From 2010 to 2011 and 2014 to 2017, adjusted by one-off effects. 200 Glossary 204 List of Graphics 205 List of Tables 207 Overview by Quarter 2017 208 Multi-Year Overview 210 Financial Calendar 2018, Contact and Imprint 208 NORMA Group SE – ANNUAL REPORT 2017DWEITERE INFORMATIONEN T 131 MULTI-YEAR OVERVIEW (CONTINUED) Cash flow Cash flow from operating activities Net operating cash flow Cash flow from investing activities Cash flow from financing activities Balance sheet Total assets Equity Equity ratio Net debt Working capital Working capital ratio Employees Core workforce Total workforce incl. temporary workers Share Number of shares (weighted) Number of shares (year-end) EUR millions EUR millions EUR millions EUR millions EUR millions EUR millions % EUR millions EUR millions % of sales 2017 2016 2015 2014 2013 2012 2011 2010 146.0 132.9 –70.8 –77.7 149.2 148.5 – 133.8 49.6 128.2 134.7 – 44.5 – 70.4 96.4 109.2 – 265.1 57.7 1,312.0 1,337.70 1,167.90 1,078.40 534.3 40.7 344.9 158.2 15.6 6,115 7,667 483.6 36.2 394.2 144.5 16.1 5,450 6,664 429.8 36.8 360.9 151.9 17.1 5,121 6,306 368.0 34.1 373.1 141.8 20.4 4,828 5,975 115.4 103.9 – 43.4 51.7 823.7 319.9 38.8 153.5 110.8 17.4 4,134 4,947 96.1 81.0 – 58.1 – 34.1 691.8 289.2 41.8 199.0 115.9 19.2 3,759 4,485 71.7 66.8 – 33.7 – 0.5 648.6 256.0 39.5 198.5 106.2 18.3 3,415 4,252 62.1 51.7 – 56.6 – 3.1 578.8 78.4 13.5 344.1 86.7 17.7 3,028 3,830 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 30,002,126 24,862,400 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 31,862,400 24,862,400 200 Glossary 204 List of Graphics 205 List of Tables 207 Overview by Quarter 2017 208 Multi-Year Overview 210 Financial Calendar 2018, Contact and Imprint 209 NORMA Group SE – ANNUAL REPORT 2017DWEITERE INFORMATIONEN Financial Calendar 2018, Contact and Imprint T 132 FINANCIAL CALENDER 2018 Date Event May 9, 2018 Publication of Interim Statement Q1 2018 May 17, 2018 Ordinary Annual General Meeting 2018, Frankfurt August 1, 2018 Publication of Interim Report Q2 2018 November 7, 2018 Publication of Interim Statement Q3 2018 EDITOR NORMA Group SE Edisonstraße 4 63477 Maintal, Germany Phone: +49 6181 6102 740 E-mail: www.normagroup.com info@normagroup.com The financial calendar is constantly updated. Please visit the Investor Relations section on the Company HTTPS://INVESTORS.NORMAGROUP.COM. website CONTACT E-mail: ir@normagroup.com CONTACT PERSONS Andreas Trösch Vice President Investor Relations Phone: + 49 6181 6102 741 E-mail: andreas.troesch@normagroup.com Vanessa Wiese Senior Manager Investor Relations Phone: + 49 6181 6102 742 E-mail: vanessa.wiese@normagroup.com Dana Feuerberg Senior Manager Investor Relations Phone: + 49 6181 6102 748 E-mail: dana.feuerberg@normagroup.com DESIGN & REALIZATION MPM Corporate Communication Solutions, Mainz EDITING NORMA Group MPM Corporate Communication Solutions, Mainz PHOTO CREDITS NORMA Group PRINT Woeste Druck, Essen Note on the Annual Report This Annual Report is also available in German. If there are differences between the two, the German version takes priority. Note on rounding Please note that slight differences may arise as a result of the use of rounded amounts and percentages. Forward-looking statements This Annual Report contains certain future-oriented statements. Future-oriented state- ments include all statements which do not relate to historical facts and events and contain future-oriented expressions such as ‘believe,’ ‘estimate,’ ‘assume,’ ‘expect,’ ‘forecast,’ ‘intend,’ ‘could’ or ‘chould’ or expressions of a similar kind. Such future-oriented state- ments are subject to risks and uncertainties since they relate to future events and are based on the Company’s current assumptions, which may not in the future take place or be fulfilled as expected. The Company points out that such future-oriented statements provide no guarantee for the future and that the actual events including the financial posi- tion and profitability of NORMA Group SE and developments in the economic and regula- tory fundamentals may vary substantially (particularly on the down side) from those explic- itly or implicitly assumed in these statements. Even if the actual assets for NORMA Group SE, including its financial position and profitability and the economic and regulatory fun- damentals, are in accordance with such future-oriented statements in this Annual Report, no guarantee can be given that this will continue to be the case in the future. Publishing date March 21, 2018 200 Glossary 204 List of Graphics 205 List of Tables 207 Overview by Quarter 2017 208 Multi-Year Overview 210 Financial Calendar 2018, Contact and Imprint 210 NORMA Group SE – ANNUAL REPORT 2017DWEITERE INFORMATIONEN NORMA Group SE Edisonstraße 4 63477 Maintal, Germany Phone: +49 6181 6102 740 E-mail: info@normagroup.com Internet: www.normagroup.com