A N N U A L R E P O R T 2 0 1 4 OUR UNITS U S A Gastonia, NC Sterling Heights, MI Schaumburg, IL E U R O P E Luxembourg, Luxembourg Koblenz, Germany Derio, España Poissy, France Banbury, Great Britain Torino, Italy Brasov, Romania N A F T A N A F T A 35%* [ €176.8 million ] M E X I C O Ramos Arizpe Production Powerise Production gas spring Sales Office Stabilus S.A. * Revenue by region (location of Stabilus company) B R A Z I L Itajubá C H I N A Changzhou City Shanghai S O U T H K O R E A Busan Suwon J A P A N Yokohama E U R O P E 53%* [ €267.3 million ] A S I A / P A C I F I C A N D R O W 12%* [ €63.2 million ] N E W Z E A L A N D Auckland S I N G A P O R E Singapore A U S T R A L I A Dingley K E Y F I G U R E S IN € MILLIONS Revenue EBITDA Adjusted EBITDA EBIT Adjusted EBIT 2014 507.3 71.3 92.5 31.2 65.1 2013 CHANGE % CHANGE 460.1 47.2 10.3% 75.9 87.1 35.2 59.1 (4.6) (6.1)% 5.4 6.2% (4.0) (11.4)% 6.0 10.2% Capital expenditure (35.6) (34.4) (1.2) 3.5% Adjusted operating cash flow before tax (AoCF) Free cash flow (FCF) EBITDA as % of revenue Adjusted EBITDA as % of revenue EBIT as % of revenue Adjusted EBIT as % of revenue Capital expenditure as % of revenue AoCF as % of adjusted EBITDA FCF as % of adjusted EBITDA 80.5 22.1 14.1% 18.2% 6.2% 12.8% 7.0% 87.0% 23.9% 43.9 20.5 36.6 83.4% 1.6 7.8% 16.5% 18.9% 7.7% 12.8% 7.5% 50.4% 23.5% Revenue by markets Revenue by region (location of Stabilus company) 5% SWIVEL CHAIR 28% INDUSTRIAL 17% AUTOMOTIVE POWERISE 12% ASIA / PACIFIC AND ROW 50% AUTOMOTIVE GAS SPRING 35% NAFTA 53% EUROPE A N N U A L R E P O R T 2 0 1 4 A N N U A L R E P O R T A N N U A L R E P O R T 2 0 1 4 H I D D E N C H A M P I O N Gas struts, dampers, and electromechanical drives simplify an enormous number of everyday manual tasks. Wherever you find something that can be lifted or lowered, opened or closed with ease, it’s probably thanks to a Stabilus product. These products satisfy the growing demand for ergonomics in today’s lifestyles. Certainly by the time of the IPO in May 2014, investors had identified the world market leader Stabilus as a hidden champion. A s a w o r l d m a r ke t l e a d e r f o r g a s s p r i n g s a n d d a m p e r s, w e A s a w o r l d m a r ke t l e a d e r f o r g a s s p r i n g s a n d d a m p e r s, w e h a v e d e m o n s t r a t e d o u r e x p e r t i s e f o r e i g h t d e c a d e s : I n t h e h a v e d e m o n s t r a t e d o u r e x p e r t i s e f o r e i g h t d e c a d e s : I n t h e a u t o m o t i v e i n d u s t r y , i n t h e f u r n i t u r e s e c t o r, i n h o u s e a n d a u t o m o t i v e i n d u s t r y , i n t h e f u r n i t u r e s e c t o r, i n h o u s e a n d 0 1 A U T O M O T I V E b u i l d i n g t e c h n o l o g y a n d e v e n i n m e d i c a l p r o d u c t s a s w e l l a s b u i l d i n g t e c h n o l o g y a n d e v e n i n m e d i c a l p r o d u c t s a s w e l l a s rehabi lita tio n te ch nolo gy. Our g as s p ri n g s, d a mp ers a n d el ectro rehabi lita tio n te ch nolo gy. Our g as s p ri n g s, d a mp ers a n d el ectro m e c h a n i c a l d r i v e s a l l o w y o u t o o p t i m i z e o p e n i n g , c l o s i n g , m e c h a n i c a l d r i v e s a l l o w y o u t o o p t i m i z e o p e n i n g , c l o s i n g , l i f t i n g , l o w e r i n g , d a m p i n g a n d a d j u s t i n g a c t i o n s. l o w e r i n g , d a m p i n g a n d a d j u s t i n g a c t i o n s. Th e s a t i s f a c t i o n o f o u r c u s t o m e r s i s o u r t o p p r i o r i t y . Th a t ‘ s Th e s a t i s f a c t i o n o f o u r c u s t o m e r s i s o u r t o p p r i o r i t y . Th a t ‘ s w h y w e s e t t h e h i g h e s t r e q u i r e m e n t s f o r t h e q u a l i t y o f o u r w h y w e s e t t h e h i g h e s t r e q u i r e m e n t s f o r t h e q u a l i t y o f o u r 0 2 I N D U S T R I A L p r o d u c t s, w h e t h e r t h e y a r e m a s s p r o d u c e d o r m a n u f a c t u r e d p r o d u c t s, w h e t h e r t h e y a r e m a s s p r o d u c e d o r m a n u f a c t u r e d i n s m a l l b a t c h e s. W e g u a r a n t e e t h e h i g h e s t s t a n d a r d f o r i n s m a l l b a t c h e s. W e g u a r a n t e e t h e h i g h e s t s t a n d a r d f o r o u r p r o d u c t s w o r l d w i d e. P A G E 16 P A G E 20 01 01 S R E S D R L E O D H L E O R H A E H R S A H R S U O R U O O T O T A T R O T P R E O R P E T R N E T M N E E G M A E N G A A M N A M B S T N S E T M N E E T M A E T T S A L T A S I L C A N A C N N I A F N I I F C N O I N T O A I M T R A O M F R N O I F L N A N L O A I N T O I D I T D I A D D A I D 01.1_To_our_shareholders.indd 1 12.12.14 14:47 K E Y F I G U R E S IN € MILLIONS Revenue EBITDA Adjusted EBITDA EBIT Adjusted EBIT 2014 507.3 71.3 92.5 31.2 65.1 2013 CHANGE % CHANGE 460.1 47.2 10.3% 75.9 87.1 35.2 59.1 (4.6) (6.1)% 5.4 6.2% (4.0) (11.4)% 6.0 10.2% Capital expenditure (35.6) (34.4) (1.2) 3.5% Adjusted operating cash flow before tax (AoCF) Free cash flow (FCF) EBITDA as % of revenue Adjusted EBITDA as % of revenue EBIT as % of revenue Adjusted EBIT as % of revenue Capital expenditure as % of revenue AoCF as % of adjusted EBITDA FCF as % of adjusted EBITDA 80.5 22.1 14.1% 18.2% 6.2% 12.8% 7.0% 87.0% 23.9% 43.9 20.5 36.6 83.4% 1.6 7.8% 16.5% 18.9% 7.7% 12.8% 7.5% 50.4% 23.5% Revenue by markets Revenue by region (location of Stabilus company) 5% SWIVEL CHAIR 28% INDUSTRIAL 17% AUTOMOTIVE POWERISE 12% ASIA / PACIFIC AND ROW 50% AUTOMOTIVE GAS SPRING 35% NAFTA 53% EUROPE A N N U A L R E P O R T 2 0 1 4 A N N U A L R E P O R T 2 0 1 4 A s a w o r l d m a r ke t l e a d e r f o r g a s s p r i n g s a n d d a m p e r s, w e h a v e d e m o n s t r a t e d o u r e x p e r t i s e f o r e i g h t d e c a d e s : I n t h e a u t o m o t i v e i n d u s t r y , i n t h e f u r n i t u r e s e c t o r, i n h o u s e a n d b u i l d i n g t e c h n o l o g y a n d e v e n i n m e d i c a l p r o d u c t s a s w e l l a s rehabi lita tio n te ch nolo gy. Our g as s p ri n g s, d a mp ers a n d el ectro m e c h a n i c a l d r i v e s a l l o w y o u t o o p t i m i z e o p e n i n g , c l o s i n g , l i f t i n g , l o w e r i n g , d a m p i n g a n d a d j u s t i n g a c t i o n s. Th e s a t i s f a c t i o n o f o u r c u s t o m e r s i s o u r t o p p r i o r i t y . Th a t ‘ s w h y w e s e t t h e h i g h e s t r e q u i r e m e n t s f o r t h e q u a l i t y o f o u r p r o d u c t s, w h e t h e r t h e y a r e m a s s p r o d u c e d o r m a n u f a c t u r e d i n s m a l l b a t c h e s. W e g u a r a n t e e t h e h i g h e s t s t a n d a r d f o r o u r p r o d u c t s w o r l d w i d e. C O N T E N T A T O O U R S H A R E H O L D E R S 04 06 08 10 14 16 20 CEO Letter International Management Team Supervisory Board Equity Story Stabilus Share Automotive Industrial B G R O U P M A N A G E M E N T R E P O R T 27 27 27 28 33 34 35 38 39 41 41 General Reorganization and IPO Business and General Environment Results of Operations Development of Operating Segments Financial Position Liquidity Risks and Opportunities Corporate Governance Subsequent Events Outlook C F I N A N C I A L S T A T E M E N T S 45 46 48 49 50 116 117 118 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to Consolidated Financial Statements Responsibility Statement Management and Supervisory Board of Stabilus S.A. Independent Auditor’s Report D A D D I T I O N A L I N F O R M A T I O N 122 122 123 Financial Calendar Disclaimer Information Resources S R E D L O H E R A H S R U O O T A T R O P E R T N E M E G A N A M B S T N E M E T A T S L A I C N A N I F C N O I T A M R O F N I L A N O I T I D D A D 01.1_To_our_shareholders.indd 1 12.12.14 14:47 01 A N N U A L R E P O R T 2 0 1 4 T O O U R S H A R E H O L D E R S P O W E R I S E TO O U R S H A R E H O L D E R S POWERISE spindle drives are used for single sided or doublesided application. They are mod ular systems based on various standard compo nents. The mechanical spring intergrated into the spindle drive is the key element of the over all system that provides the desired functions – including comfortable manual operation. Opti mized pitch and surface of the spindle make for an almost silent movement. Stabilus offers the spindle drive as compact axial parallel design or as slim coaxial version. A N N U A L R E P O R T 2 0 1 4 03 S R E D L O H E R A H S R U O O T A T R O P E R T N E M E G A N A M B S T N E M E T A T S L A I C N A N I F C N O I T A M R O F N I L A N O I T I D D A D CEO Letter T O O U R S H A R E H O L D E R S D i e t m a r S i e m s s e n C h i e f E x e c u t i v e O f f i c e r LETTER FROM THE CHIEF EXECUTIVE OFFICER Dear Shareholders, Customers, Business Partners, Employees, Ladies and Gentlemen, We have come to the end of a successful and eventful fiscal year during which we once again achieved significant growth across all segments and markets. As a world market leader for gas springs, dampers and electromechanical drives, we are firmly established on the market and can look back with pride on a history dating back eighty years. The 2014 fiscal year now marks our third successive record year. For the first time, we exceeded the sales threshold of €500 million by a margin of €7 million. As well as achieving record sales, we have laid important foundations for our future growth: With newly acquired major customers and orders from Asia, Europe and the US, the construction of a new production plant for our industrial products in the rapidly expanding Chinese market and the expansion of our plant in Romania, as well as by almost doubling our capacity in the automotive sector in China. We are also experiencing strong demand around the world for our electromechanical Powerise systems that automatically open and close automobile trunk lids and tailgates. Our IPO in May 2014 was a major milestone. This represents an important step for Stabilus and its employees. Longterm access to the capital markets will enable us to accelerate our organic growth, as well as allowing us to think about external growth. At this point, I would like to extend a special welcome to our new shareholders, who have decided to invest in a rapidly expanding and profitable company that offers significant potential. This is because Stabilus will continue to benefit from the pronounced trend towards greater comfort and optimum ergo nomics in all areas of life, which is being driven by demographic developments and the increasing importance of the highly comfortoriented markets of Asia. 04 A N N U A L R E P O R T 2 0 1 4 T O O U R S H A R E H O L D E R S CEO L etter Overall, the 2014 fiscal year saw us produce a record 138 million gas springs and dampers (previous year: 132 million units) as well as 2.2 million Powerise systems – up from 1.2 million units in the previous year. Accordingly, our sales increased by 10% yearonyear, from €460.1 million to €507.3 million. The strongest driver of growth in the automotive business was the Powerise sector, where sales soared by 55% to €85.8 million. As a result of this encouraging growth across all business areas, we even slightly outperformed our sales forecast of €505 million for the 2014 fiscal year. In geographical terms, our strongest growth was achieved in the US, but we also increased our sales in Asia and Europe. This significant rise in sales was also reflected in our earnings situation. Adjusted EBIT increased by 10%, from €59.1 million in the previous year to €65.1 million, resulting in net income for the year of €10.0 million. We are very satisfied with our performance in the 2014 fiscal year. At the same time, the prospects for our business also remain exceptionally promising. In light of these circumstances, we are confident that we can grow faster than the market in the years ahead. This is because the everincreasing comfort requirements among customers will lead to the far more widespread use of gas springs, dampers and electromechanical lid drives. As a global market leader for these products, we will benefit from this trend to an aboveaverage extent and will continue to invest systematically in realizing our growth potential in the coming fiscal year. Our innovation process is also bearing fruit: New products and applications are already on the market and are helping to support our continued growth. For the growth rate of revenue, adjusted EBITDA and adjusted EBIT in fiscal year 2015, we target to achieve a similar growth rate as achieved for the fiscal year 2014. We will focus in particular on the continued development of the rapidly growing Asian market and the ongoing market penetration of our Powerise systems. I would like to express my gratitude to the more than 4,000 Stabilus employees around the world for their continuing excellent contribution to the success of our company, to our business partners for the close and, in many cases long standing working relationships we enjoy, to our customers for their loyalty, and to our shareholders for their confidence in Stabilus. We very much look forward to sharing yet another fiscal year of success and strong growth with you! Yours sincerely, D i e t m a r S i e m s s e n C h i e f E x e c u t i v e O f f i c e r A N N U A L R E P O R T 2 0 1 4 05 T R O P E R T N E M E G A N A M B S T N E M E T A T S L A I C N A N I F C N O I T A M R O F N I L A N O I T I D D A D In ter national Management Team T O O U R S H A R E H O L D E R S INTERNATIONAL MANAGEMENT TEAM 03 05 07 06 04 01 02 0 1 0 3 0 5 0 7 B a l m e r t , J o a c h i m H i n c k , M i c h a e l S a n d e r, K a r s t e n H o s a n , H a n s - J o s e f V i c e P r e s i d e n t Q u a l i t y C o u n t r y H e a d J a p a n V i c e P r e s i d e n t B u s i n e s s C h i e f Te c h n i c a l O f f i c e r / M a n a g e m e n t U n i t A u t o m o t i v e V i c e P r e s i d e n t B u s i n e s s U n i t S w i v e l C h a i r 0 2 0 4 0 6 L e e, J o o n g - H o ( J a m e s ) T i a n , X u e f e n g ( A l e x ) S i e m s s e n , D i e t m a r C o u n t r y H e a d Ko r e a C o u n t r y H e a d C h i n a C h i e f E x e c u t i v e O f f i c e r 06 A N N U A L R E P O R T 2 0 1 4 T O O U R S H A R E H O L D E R S In ternatio nal Man ag ement Tea m 08 10 12 14 09 11 13 0 8 1 0 1 2 1 4 S a b e t , D a v i d K a d e n b a c h , E k k e h a r d H a b a , A n t h o n y W i l h e l m s, M a r k V i c e P r e s i d e n t B u s i n e s s V i c e P r e s i d e n t G l o b a l R e g i o n a l H e a d C h i e f F i n a n c i a l O f f i c e r U n i t Po w e r i s e P u r c h a s i n g N A F TA 0 9 1 1 1 3 K r ö t z , A n s g a r H u b e r, R a l p h W i d m e r, M a r t i n a C h i e f O p e r a t i o n s O f f i c e r V i c e P r e s i d e n t B u s i n e s s V i c e P r e s i d e n t G l o b a l U n i t I n d u s t r i a l H R A N N U A L R E P O R T 2 0 1 4 07 T R O P E R T N E M E G A N A M B S T N E M E T A T S L A I C N A N I F C N O I T A M R O F N I L A N O I T I D D A D Supervisory Board T O O U R S H A R E H O L D E R S U d o S t a r k C h a i r m a n REPORT OF THE REPORT OF THE SUPERVISORY BOARD SUPERVISORY BOARD Dear Shareholders, Since its establishment on May 5, 2014, the Supervisory Board of Stabilus S.A. performed its tasks and monitored the management activities of the Board of Management in accordance with legal requirements and the articles of association of Stabilus S.A. The Board of Management and the Supervisory Board remained in close and regular contact. The Supervisory Board regularly advised the Board of Management in regards to strategic and operational decisions as well as governance topics and decided on requests for approval presented by the Board of Management. Stabilus S.A. is the legal successor of Servus Holdco S.à r.l. which changed its company name and its legal form on May 5, 2014. On the same date, the Supervisory Board was established and the present members of the Supervisory Board were appointed. Subsequently, the Supervisory Board approved appointment of the present members of the Board of Management and resolved to set up an Audit Committee and a Remuneration Committee. On May 23, 2014, Stabilus S.A. concluded its public offering and admission of trading of its shares at the Frankfurt Stock Exchange which had been discussed with and approved by the Supervisory Board. Cooperation with the Board of Management The Board of Management reported regularly, promptly and extensively in verbal and written form to the Supervisory Board regarding the position and performance of the company and the Stabilus Group. Furthermore, the Board of Management informed the Supervisory Board on a regular basis concerning the future business policy, including the strategic and organizational direction. Between the Supervisory Board meetings, the CEO and the CFO kept the Chairman of the Supervisory Board informed about new developments. In each of the Supervisory Board meetings, of which there were 5 in total since the establishment of the Supervisory Board, the Board of Management reported the commercial position of the company and key financial data. 08 A N N U A L R E P O R T 2 0 1 4 T O O U R S H A R E H O L D E R S Sup erviso ry Bo ard Major investments of the group companies, in particular investments for machines and other equipment, were presented to the Supervisory Board and the Board of Management applied for respective approvals if required. The investment decisions particularly focused on further improvements of the German production facility's competitive position and business expansion in Asia. The Board of Management reported about quality management and other operational topics related to Stabilus products as well as other topics of particular interest. In addition, the Board of Management conferred with the Supervisory Board in regards to the Group's financial situation, the optimization of its financial structure and the reduction of the company's interest charges. The Supervisory Board and the Audit Committee regularly examined the risk position of the Stabilus Group and the further development of the systems and procedures for controlling and reducing risks. The Audit Committee reviewed the Group's compliance organization and initiated further improvement. The Supervisory Board and the Board of Management assessed in particular the effects of eventual downturn scenarios in the various markets of the company and adequate measures which then might be required. Drawing up of the Consolidated Financial Statements The Supervisory Board examined the consolidated financial statements and the consolidated management report for the financial year ending on September 30, 2014. Representatives of the auditor KPMG Luxembourg S.à r.l. attended the meetings of the Audit Committee and the Supervisory Board on December 1, 2014 at which the consolidated financial statements were examined. The representatives of the auditor reported extensively on their findings, provided a written presentation and were available to give additional explanations and opinions. The Supervisory Board did not raise any objections to the consolidated financial statements drawn up by the Board of Management for the financial year ending on September 30, 2014 and to the auditors’ presentation. According to the proposal of the Audit Committee, the Supervisory Board agreed to the proposal of the Board of Management to approve the consolidated financial statements. The auditor issued an unqualified audit opinion on December 1, 2014. On behalf of the Supervisory Board, I want to thank the Board of Management for the open and cooperative exchanges and collaboration during the year, the Stabilus employees for their excellent contributions to the com pany’s success as well as our shareholders for the trust they place in Stabilus. Luxembourg, December1, 2014 On behalf of the Supervisory Board of Stabilus S.A. U d o S t a r k C h a i r m a n o f t h e S u p e r v i s o r y B o a r d A N N U A L R E P O R T 2 0 1 4 09 T R O P E R T N E M E G A N A M B S T N E M E T A T S L A I C N A N I F C N O I T A M R O F N I L A N O I T I D D A D L E A D E R S H I P M A N A G E M E N T 1 D I V E R S I F I C AT I O N 2 5 4 3 P E R F O R M A N C E G R O W T H 10 ANNUAL REPORT 2014Equity Story TO OUR SHAREHOLDERS A H I G H LY AT T R A C T I V E I N V E S T M E N T O P P O R T U N I T Y Attractive growth outlook and strong margin profile secured by a clear global leadership position. L E A D E R S H I P 1 ~15 x ~3 x Larger market share than the closest com- petitor in automotive Larger market share than second player in industrial Global scale combined with technology and quality leadership create high barriers to entry >2,500 1/1 50 /50 D I V E R S I F I C AT I O N Well-diversified cus- tomer base (~100 cus- tomers in automotive and ~2,500 in indus- trial) 7% Average revenue growth1 2 G R O W T H 3 “In the region, for the region” (1 highly auto- mated and 1 semi-auto- mated gas spring plant per region) ~50% / ~50% gross margin contribution from both industrial and automotive 55% Increasing comfort requirements particu- larly in Asia Increasing preference for large tailgate cars worldwide Revenue growth rate in Powerise business in FY 2014 12% 11% P E R F O R M A N C E Adjusted EBIT margin2 Strong cash flow gener- ation (11% FCF yield3) and solid balance sheet 4 M A N A G E M E N T Long standing experi- ence with strong track record 5 Re-ignited growth by strengthening focus on emerging markets, industrial customers and new applications Improved cost structure by increasing flexibility of workforce and fur- ther globalizing foot- print Further technological and cost breakthroughs in Powerise ¹ CAGR for FY2011–14. ² Average for FY2011–14. 3 Average FCF yield defined as (adjusted EBITDA-capex)/revenue, FY2011-14. 11 ANNUAL REPORT 2014 Equity StoryTO OUR SHAREHOLDERSMANAGEMENT REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATIONDCB I N T E R V I E W W I T H D I E T M A R S I E M S S E N , C E O STABILUS – THE HIDDEN CHAMPION F o l l o w i n g i t s I P O i n M a y 2 014 , a n a l y s t s a n d i n v e s t o r s i d e n t i f i e d S t a b i l u s a s a h i d d e n c h a m p i o n . T h e s u c c e s s f u l m a r ke t d é b u t f u l l y v i n d i c a t e d t h i s a s s e s s m e n t . What sets the hidden champion Stabilus apart? supplier, we are also responsible for a growing number of applications, although we do not offer finished pro- Siemssen: The answer to this question is both simple ducts in the conventional sense. Our products perform and complex. Stabilus products are not immediately their functions more or less hidden from view, which is visible to the user. Nevertheless, almost every one of us why our brand name is not universally known. This fact, experiences on a daily basis the ergonomic relief pro- combined with our global presence and worldwide vided by the gas springs, dampers or electromechanical market leadership, is what makes us a “hidden cham- drives manufactured by our company. Whether opening pion”. This characterization is also supported by our and closing the trunk of a car, stowing hand luggage position as the sole supplier worldwide for the majority on an aircraft, adjusting the backrest of a desk chair, or of our products, which naturally gives us a high market lying down on a height-adjustable treatment bed in a share. In addition, our production volume is signifi- doctor‘s surgery: Our products facilitate ease of opera- cantly higher than that of the competition. tion in all kinds of places. As a component and system One of the mega-trends of our time is the grow- ing demand for ergonomics, which is also a consequence of longer human life expectancy. What role does this trend play for Stabilus? Siemssen: This is a trend from which we are benefiting greatly. We all value the convenience of being able to operate things effortlessly that would otherwise pres- ent a challenge. Stabilus products simplify many every- day manual tasks. Wherever something can be easily lifted, lowered, opened or closed, it is highly likely that a Stabilus product is responsible – be it a gas spring, a damper or an electromechanical drive. And people of all ages appreciate the comfort made possible by our technologies. The functionality and ergonomics offered by Stabilus products are perfectly in step with the mega-trend of ergonomics. » As a manufacturer of electromechanical drives, gas springs and dampers, Stabilus plays an integral part in everyday life.« 12 ANNUAL REPORT 2014Equity Story TO OUR SHAREHOLDERS With a commanding market share in the passen- ger car segment and significant industrial busi- ness, Stabilus is the clear global market leader. Do you have any concerns that your market could become saturated? Siemssen: Despite the high market shares that both business areas have already achieved, Stabilus con ti- nues to expand in its markets. The high quality of our products and our competitive edge are the factors behind our expansion. Stabilus is an innovation-driven company that is constantly coming up with new uses and applications for its products. The number of gas springs in commercial vehicles or agricultural ma chinery, for example, is increasing steadily. The same applies to the number of possible applications in the medical field, in shipping, in the rail industry, etc. The trend for making things easier to operate continues unabated, with the result that we are seeing continued growth in demand. In particular, markets such as Asia, particularly China are also developing rapidly and hence offering » Our products meet the growing demand for ergonomics and comfort and accordingly one of the mega trends of our time.« significant potential. How is Stabilus meeting this growth in demand from an operational perspective? The market for gas springs and electromechani- cal drives is growing. Where do you see the Siemssen: We are investing continuously in our pro- great est future potential? duction plants to ensure that we can satisfy the rising order volumes with on-time delivery and the customary Siemssen: Our electromechanical lid drive, the Power ise, high quality level that is expected of Stabilus. For is particularly interesting. It allowed us to switch from example, we have extended our plants in Mexico and being a component supplier to a system supplier for the Romania in recent years and are currently working automotive industry. One simple example of its func- on the simultaneous expansion of the industry and auto- tionality is the automatic operation of automobile tail- motive segments in China. Our goal remains to gene rate gates, which can be opened or closed at the press of continued profitable growth in spite of these invest- a button thanks to the Powerise drive. This simplifies the ments. Wherever we have a presence, we manufacture familiar firm hand grip that was required in the past in the region for the region, including local sourc ing where and prevents the need to handle a dirty or wet tailgate. possible. With locations on almost every continent, our More and more manufacturers are offering their cus- production and sales architecture effectively covers our tomers this option in a growing number of vehicle worldwide sales and procurement markets. models. Whereas the automatic tailgate was previously only available on luxury cars, it is now also offered in mass-market models. These developments represent yet another growth driver for Stabilus. We are also working intensively on new potential applications for Powerise technology in industry. 13 ANNUAL REPORT 2014 Equity StoryTO OUR SHAREHOLDERSMANAGEMENT REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATIONDCB Stabilus Sh are STABILUS SHARE Successful IPO on May 23, 2014 Inclusion in the SDAX increases the international visibility of the Stabilus Group Strong performance of the share following the IPO On May 23, 2014, Stabilus S.A. was listed in the Prime as of September 30, 2014. These shares were subject Standard of the Frankfurt Stock Exchange’s regulated to a lock-up period of six months after May 27, 2014. market. Shares of the company were offered to the The members of the Management Board also committed public in Germany and placed privately with institu- themselves to comply with market protection agree- tional investors in certain jurisdictions outside Germany ments and limitations on disposal (lock-up) for a period between May 9, 2014 and May 22, 2014. The price of twelve months. range was set between €19 and €25 per share. Shares were allocated at €21.50. Stabilus S.A.’s IPO was over- According to the voting rights notifications as of Septem- subscribed multiple times at the issue price. The first ber 30, 2014 further 5.65% were held by J.P. Morgan trading price was €22.75. In the IPO 12,157,335 bearer Chase & Co., 5.60% by Pelham Capital and 5.01% by shares with a nominal value of €0.01 each were Mondrian Investment Partners. The Management and placed; thereof 9,134,079 shares were placed by the Supervisory Board held approximately 1% of Stabilus selling shareholder Servus Group HoldCo II S.à r.l. and shares. These shareholdings are included in the free float. 3,023,256 new shares were issued. As of September 30, 2014, the share price amouted to Following the Company’s IPO, the free float amounted €24.70. With a gain of almost 9% since May 23, 2014, to 58.7%, representing 12,157,335 shares out of a Stabilus shares were able to substantially outperfom total capital stock of 20,723,256 shares. The remainder most stock market indices including SDAX, DAXsector of 41.3% or 8,565,921 was still in the possession of All Automobile and DAXsector Industrial. the selling shareholder Servus Group HoldCo II S.à r.l. Shareholder Structure in % as of September 30, 2014 41.3% Servus Group HoldCo II S.à r.l. 14 SDAX Effective September 22, 2014, the shares of Stabilus S.A. have been included in the German SDAX index by Deutsche Börse AG. This is testa- ment to the high liquidity of the Stabilus shares and will further increase the company’s interna- tional visibility. 58.7% Free float ANNUAL REPORT 2014TO OUR SHAREHOLDERS Share price performance Data in per cent for May 2014 to September 2014 First trading day: May 23, 2014 (€22.75) Stab ilus Share Closing price: September 30, 2014 (€24.70) 15% 10% 5% 0% – 5% – 10% –15% May 2014 Jun 2014 Jul 2014 Aug 2014 Sep 2014 Stabilus SDAX (Price index) DAXsector Industrial (Price index) DAXsector All Automobile (Price index) IPO General Data Ticker symbol ISIN STM LU1066226637 German securities code (WKN) A113Q5 Stock exchange Frankfurt Stock Exchange Market segment / Transparency Standard Regulated market (Prime Standard) Type of issue Offering period Price range Subscription price First trading day First price Issue volume (number of shares) Issue volume (in €) Underwriter Public offering of shares in Germany and private placements in certain jurisdictions outside Germany (i) May 12, 2014 - May 22, 2014 for retail investors (ii) May 9 , 2014 - May 22, 2014 for institutional investors €19.00 – €25.00 €21.50 May 23, 2014 €22.75 12,157,335 shares thereof capital increase (new shares): 3,023,256 shares thereof secondary placement incl. executed greenshoe option (existing shares): 9,134,079 shares €261,382,702.50 thereof capital increase (new shares): €65,000,004.00 thereof secondary placement incl. executed greenshoe option (existing shares): €196,382,698.50 (i) Joint Global Coordinators & Joint Bookrunners: Commerzbank, J. P. Morgan (ii) Co-Lead Managers: Société Générale Corporate & Investment Banking, UniCredit Bank AG Free float after IPO 58.67% Lock-up (i) Present members of the Management Board: 12 months (ii) Servus Group HoldCo II S.à r.l.: 6 months 15 ANNUAL REPORT 2014TO OUR SHAREHOLDERSMANAGEMENT REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION Au tom otive T O O U R S H A R E H O L D E R S A U T O M O T I V E T H E F U T U R E O F C O M F O R T G a s s p r i n g s , d a m p e r s a n d e l e c t r o m e c h a n i c a l d r i v e s a r e n o w i n t e g r a l c o m p o n e n t s o f e v e r y a u t o m o b i l e . 16 A N N U A L R E P O R T 2 0 1 4 T O O U R S H A R E H O L D E R S A utom ot ive T R O P E R T N E M E G A N A M B S T N E M E T A T S L A I C N A N I F C N O I T A M R O F N I L A N O I T I D D A D A N N U A L R E P O R T 2 0 1 4 17 Au tom otive A N U N S E R E A K T I O N Ä R E A U TO M OT I V E St a b i l u s i s a s u p p l i e r t o o v e r 10 0 a u t o b r a n d s w o r l d w i d e . O u r p r o d u c t s f e a t u r e i n n u m e r o u s a p p l i c a t i o n s i n p a s s e n g e r c a r s . E N G I N E H O O D High performance gas spring to help opening and closing the hood S E AT A D J U S T M E N T Gas spring that controls motion, lifts, lowers and balances D O O R S TO P Gas spring that allowes dors to be held open at any position 16 A N U N S E R E A K T I O N Ä R E A utom ot ive G U L LW I N G D O O R Gas spring that eases the handling of the doors Gas spring that controls motion, lifts, lowers and balances C O N V E R T I B L E TO P Gas spring controls the mechanism of the foldable roof B A C K R E S T A D J U S T M E N T Gas spring that eases folding down the back rest TA I L G AT E Hydraulic damper that provides safe and easy tailgate opening B O OT L I D Automatic lid motor for automatic opening and closing of trunk lids and tailgates T R O P E R T N E M E G A N A M B S T N E M E T A T S L A I C N A N I F C N O I T A M R O F N I L A N O I T I D D A D 17 Au tom otive A N U N S E R E A K T I O N Ä R E P O W E R I S E T h e s t r o n g e s t g r o w t h d r i v e r s in t h e a u t o m o t i v e b u s i n e s s a r e S t a b i l u s e l e c t r o m e c h a n i c a l d r i v e s . T R U N K With the Powerise systems from Stabilus, the trunk will open and close by remote control within seconds. It can also be held at any position in between. Powerise The demand for Powerise has more than tripled within the last three years 16 T O O U R S H A R E H O L D E R S A utom ot ive G L O B A L M A R K E T S H A R E Stabilus has an outstanding market share in gas springs and a strong growing market share in Powerise drives. G E S C H Ä F T S B E R I C H T 2 0 1 4 17 T R O P E R T N E M E G A N A M B S T N E M E T A T S L A I C N A N I F C N O I T A M R O F N I L A N O I T I D D A D Au tom otive C O M P O N E N T S U P P L I E R A N D S YS T E M PA R T N E R TO T H E A U TO M OT I V E I N D U S T RY G a s s p r i n g s , d a m p e r s a n d P o w e r i s e s y s t e m s : S t a b i l u s p r o d u c t s i m p r o v e e r g o n o m i c s a n d b r i n g c o m f o r t t o p a s - s e n g e r c a r s 0 2 The Stabilus story began 80 years ago with the Throughout the automotive market, there is a growing production of accessory parts for automobiles. trend towards using gas springs in the most diverse A lot has changed since then, but one thing is areas of passenger cars. Consequently, the number of more true today than ever: Stabilus is an inte- gas springs fitted to some models has more than dou- gral part of every passenger car. As a supplier to bled over the last few years. Whereas gas springs were over 100 auto brands around the world and previously primarily used for tailgates, they are now with a formidable market share, Stabilus is an being fitted in areas such as the hood, the doors, the undisputed global market leader for gas springs seats, and other applications. and dampers. In light of current market requirements, our electrome- chanical Powerise drive is particularly interesting. With the product family of the same name, Stabilus moved 0 1 from being a component supplier to a system supplier for the automotive industry. Powerise drives allow the trunk or tailgate of a passenger car to be opened and closed electrically at the press of a button. A growing number of manufacturers offers customers this option in their vehicle models. Up until a few years ago, auto- matic tailgates were the preserve of high-end luxury cars. In recent years, however, they have also been introduced in mid-range models for the mass market. Car drivers from all over the world are demanding ever-increasing levels of comfort and ease of use. For 18 ANNUAL REPORT 2014TO OUR SHAREHOLDERS A utom ot ive 0 3 this reason, the coming years will see electromechani- cal tailgate drives make further inroads into the automo- bile market. For Stabilus, the broadening of the application areas for gas springs and Powerise systems in automobiles offers significant scope for growth which it intends to lever- age over the coming years. In addition to its expertise for products and their appli- cations, it is expertise in the production process that sets Stabilus apart from the competition. Production machinery and systems are developed and, to a large extent, manufactured in-house. Stabilus uses these systems to manufacture quality parts that guarantee easy and reliable movement and outstanding damping. In addition to manufacturing products of outstanding quality, Stabilus is on hand to support its customers from the design phase and throughout the develop- ment process all the way to series production. With a presence in most regions of the global automotive in- dustry and an extensive network of local sales offices, Stabilus guarantees the optimum integration of its gas springs, dampers, and Powerise systems in the respec- tive end products. 0 1 0 2 0 3 Development and design is performed using CAD systems. Powerise systems consist of sin- gle-sided or double-sided drives. As a partner to the auto industry, Stabilus cooperates with manu- facturers’ development teams to create perfectly integrated products. 0 4 Stabilus products increase the ergonomics in the passenger cabin. 0 4 19 ANNUAL REPORT 2014TO OUR SHAREHOLDERSMANAGEMENT REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATIONDCB In dus trial T O O U R S H A R E H O L D E R S I N D U S T R I A L F O R M O R E S A F E T Y T h e i n s t a l l a t i o n o f g a s s p r i n g s , d a m p e r s o r e l e c t r o m e c h a n i c a l d r i v e s e n s u r e s s i m p l e a n d e r g o n o m i c o p e r a t i o n i n a w i d e r a n g e o f a p p l i c a t i o n s . 20 A N N U A L R E P O R T 2 0 1 4 A N N U A L R E P O R T 2 0 1 4 T O O U R S H A R E H O L D E R S In dustri al T R O P E R T N E M E G A N A M B S T N E M E T A T S L A I C N A N I F C N O I T A M R O F N I L A N O I T I D D A D A N N U A L R E P O R T 2 0 1 4 21 In dus trial A N U N S E R E A K T I O N Ä R E Wherever something in the home can be lifted or lowered, opened or closed with ease, it’s probably thanks to a Stabilus gas spring D O M E S T I C E N G I N E E R I N G Protective hoods and flaps are safely opened with gas springs I N D U S T R I A L F O R M O R E S A F E T Y T h e i n s t a l l a t i o n o f g a s s p r i n g s , d a m p e r s R A I L o r e l e c t r o m e c h a n i c a l d r i v e s e n s u r e s s i m p l e Gas springs and dampers can be found in rails, maintenance a n d e r g o n o m i c o p e r a t i o n i n a w i d e r a n g e hatches and passenger seats o f a p p l i c a t i o n s . C O N S T R U C T I O N Stabilus products make hoods, doors, seats and steering columns easier to operate Gas springs and dampers are fitted to flaps, drivers’ seats, windows and doors. T R U C K / B U S 20 A N U N S E R E A K T I O N Ä R E T O O U R S H A R E H O L D E R S In dustri al I N D U S T R I A L Stabilus products have over 1,000 possible uses and are an integral part of ergonomically optimized applications. A G R I C U LT U R E In windows, doors, flaps, and hoods – Stabilus plays an indispensable role M E D I C I N E The use of gas springs in beds, treatment beds and operating tables enhances their safety and ease of use AV I AT I O N On aircraft, gas springs are built into seats and overhead luggage compartments Corrosion-resistant stainless steel gas springs are used in various flaps M A R I T I M E T R O P E R T N E M E G A N A M B S T N E M E T A T S L A I C N A N I F C N O I T A M R O F N I L A N O I T I D D A D 21 In dus trial S W I V E L C H A I R T h e e r g o n o m i c s a n d l o a d - b e a r i n g r e q u i r e m e n t s o f o f f i c e c h a i r s a r e p a r t i c u l a r l y h i g h . S W I V E L C H A I R Gas springs enable convenient and safe height adjustment as well as variable manual adjust- ment of the backrest and seat tilt. I N D U S T R I A L F O R M O R E S A F E T Y T h e i n s t a l l a t i o n o f g a s s p r i n g s , d a m p e r s o r e l e c t r o m e c h a n i c a l d r i v e s e n s u r e s s i m p l e a n d e r g o n o m i c o p e r a t i o n i n a w i d e r a n g e o f a p p l i c a t i o n s . 20 T O O U R S H A R E H O L D E R S In dustri al A P P L I C AT I O N S More than 2,500 customers from a wide range of industrial sectors use gas springs and dampers in over 1,000 applications. A N N U A L R E P O R T 2 0 1 4 21 T R O P E R T N E M E G A N A M B S T N E M E T A T S L A I C N A N I F C N O I T A M R O F N I L A N O I T I D D A D 0 1 C U S TO M I Z E D PRO DUCT SOLUTIONS F O R A W I D E R A N G E O F S E C TO R S From transpor t to of fice chairs, from house- holds to hospitals: Stabilus plays a key role in vir tually ever y area of life Stabilus products are an integral part of everyday Stabilus products are used wherever things need to be life and are used in a wide range of industries. In lifted or lowered, opened or closed. In many such cases, the industrial sector alone, over 2,500 customers the installation of gas springs, dampers or electrome- rely on Stabilus gas springs and dampers – and chanical drives ensures simple and ergonomic operation. the number is rising. Increasing demands in terms of ergonomics are a direct consequence of longer With over 1,000 possible applications across various human life expectancy. Stabilus offers the right areas of industry, such as aerospace, mechanical engi- products for this mega-trend, enabling seemingly neering, medical and commercial vehicle technology, challenging tasks to be carried out effortlessly. and furniture design, the range of uses is vast. Whether stowing hand luggage on an aircraft or adjusting the seat, using a height-adjustable treatment bed or sit- ting in a wheelchair in a doctor’s surgery: Gas springs, dampers and electromechanical drives make things easier. As a component and system supplier, Stabilus is responsible for a growing number of ergonomically optimized applications. One of the key factors in ensuring that gas springs perform to their full ergonomic potential in everyday use in the most diverse applications is a development process that reflects the specific application require- ments of the end products. In order to maximize the benefits to the user, a high level of product diversity is required. For this reason, Stabilus offers gas springs and dampers in many variants that can be customized to the conditions needed for the customer’s end product. 2,500 In the industrial sector alone, over 2,500 customers use gas springs and dampers in their products. 22 ANNUAL REPORT 2014Industrial TO OUR SHAREHOLDERS 0 2 0 1 0 2 Stabilus gas springs generally perform their duties hidden from view. They simplify the operation of many everyday items. Yet another example of gas springs in action: The colorful AIDA logo on the smokestack is tilted with the help of gas springs during cleaning work. 1,000 With over 1,000 possible appli- cations across various industrial sectors, such as aerospace, mechanical engineering, medical and commercial vehicle tech- nology, and furniture design, the range of applications is vast. 23 Another important prerequisite for lasting customer satisfaction is the excellent quality of the series prod- uct. With production machinery that is developed and manufactured in-house, Stabilus guarantees con- sistent quality at the very highest standards worldwide. One example of development reflecting the use of the end product is gas springs for swivel chairs. Stabilus is the only manufacturer outside Asia to design these springs specially for this purpose. This is the only way to satisfy the highest requirements in terms of ergonomics and the load-bearing capacity of office chairs while also allowing flexible adjustments to suit each user. Stabilus maintains a global presence with eleven plants in nine countries on almost every continent. The company primarily manufactures in direct regional proximity to customers. In addition to direct channels of communication and prompt reaction times, this strategy ensures that customers have a local contact partner who knows their sales, understands their specific needs and can act accordingly. ANNUAL REPORT 2014 IndustrialTO OUR SHAREHOLDERSMANAGEMENT REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATIONDCB G R O U P M A N A G E M E N T R E P O R T S TA B - O - S H O C G R O U P M A N A G E M E N T R E P O R T The STAB-O-SHOC TA series from STABILUS was originally developed as steering dampers. But due to their flexibility and ruggedness, these dampers have proven themselves as reliable partners outside of vehicle construction wherever vibrations had to be reduced and safely dampened. A N N U A L R E P O R T 2 0 1 4 25 S T N E M E T A T S L A I C N A N I F C N O I T A M R O F N I L A N O I T I D D A D Contents G R O U P M A N A G E M E N T R E P O R T G R O U P M A N A G E M E N T R E P O R T as of and for the fiscal year ended September 30, 2014 2 7 G E N E R A L 3 5 L I Q U I D I T Y 2 7 R E O R G A N I Z A T I O N A N D I P O 3 8 R I S K S A N D O P P O R T U N I T I E S 2 7 B U S I N E S S A N D G E N E R A L E N V I R O N M E N T 3 9 C O R P O R A T E G O V E R N A N C E 2 8 R E S U L T S O F O P E R A T I O N S 4 1 S U B S E Q U E N T E V E N T S 3 3 D E V E L O P M E N T O F O P E R A T I N G S E G M E N T S 4 1 O U T L O O K 3 4 F I N A N C I A L P O S I T I O N 26 A N N U A L R E P O R T 2 0 1 4 G e n e r a l R e o r g a n i z a t i o n a n d I P O B u s i n e s s a n d g e n e r a l e n v i r o n m e n t G E N E R A L 9,134,079 shares were placed by the selling shareholder Servus Group HoldCo II S.à r.l. and 3,023,256 new shares were issued. The parent company of the Luxembourg based Stabilus Group is Following the Company’s IPO, the free float amounted to 58.7%, Stabilus S.A. (Stabilus). representing 12,157,335 shares out of a total capital stock of 20,723,256 shares. The remainder of 41.3% or 8,565,921 is still in Stabilus Group’s operating entities typically use the brand name the possession of the former majority shareholder Servus Group “Stabilus” in their registered name. The Group operates in three HoldCo II S.à r.l. These shares are subject to a lock-up period of six regions with its subsidiaries. These regions are Europe (Luxem- months after May 27, 2014. The members of the Management bourg, Germany, France, Italy, Romania, Spain, Switzerland and Board also committed themselves to comply with market protection United Kingdom), NAFTA (United States and Mexico) and Asia / agreements and limitations on disposal (lock-up) for a period of Pacific and rest of world (RoW) (China, South Korea, Japan, Aus- twelve months for shares purchased at the IPO. tralia, Brazil, New Zealand). The Group used the proceeds from the issuance of new shares The Stabilus Group is a leading manufacturer of gas springs and amounting (before deduction of transaction costs) to €65.0 million dampers as well as electrical lifting equipment. The products are to partially redeem its senior secured notes. In addition, prior to used in a wide range of applications in the automotive and the the IPO and immediately following the IPO, the Group structure industrial sector, as well as in many furniture applications. Typically was reorganized (hereinafter also referred to as “IPO reorganiza- the products are used to aid the lifting and lowering or dampening tion”). As a result, the equity upside-sharing instruments (EUSIs) of movements. As a world market leader for gas springs, the Group and the upstream loan to the selling shareholder were extinguished ships to all key vehicle producers. Various Tier 1 suppliers of the and will no longer be recognized on the Group’s balance sheet. global car industry further diversify the Group’s customer base. R E O R G A N I Z AT I O N A N D I P O BUSINESS AND GENERAL ENVIRONMENT Macroeconomic development Following the shareholder resolution dated May 5, 2014, the cor- porate form and the name of the Company were changed from In calendar year 2013, the growth in global gross domestic product “Servus HoldCo S.à r.l.” to “Stabilus S.A.” (GDP) was with 3.3% at about 2012 level (calendar year 2012: Since September 2014 Stabilus S.A. is listed in the SDAX of the International Monetary Fund (IMF) reduced its growth forecast for Frankfurt Stock Exchange. At the Initial Public Offering (IPO) in May, the global economy from 3.4% to 3.3% for the current calendar Stabilus S.A. was listed at the Prime Standard of the Frankfurt year 2014. The forecast for 2015 was reduced by 0.2 percentage 3.2%). In its latest October 2014 World Economic Outlook, the Stock Exchange’s regulated market. Shares of the Company were points to 3.8%. offered to the public in Germany and placed privately with institu- tional investors in certain jurisdictions outside Germany between The IMF still believes that there are considerable risks in the high May 9, 2014 and May 22, 2014. The price range was set between debt levels of many so called “advanced” economies. Structural €19 and €25 per share. Shares were allocated at €21.50. Stabilus reforms continue to be needed to effectively counter the risks. S.A.’s IPO was oversubscribed multiple times at the issue price. The first trading price was €22.75. In the IPO, 12,157,335 bearer shares with a nominal value of €0.01 each were placed; thereof 27 ANNUAL REPORT 2014GROUP MANAGEMENT REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATIONDC Resu lts of operatio ns Development of vehicle markets calendar year 2012. About 80% of this increase relates to China, but also the development of production volumes in NAFTA contin- A very important factor for our revenues in the automotive and ues to be strongly positive. The number of light vehicles produced industrial market is global production volumes of newly manufac- in Europe slightly improved in calendar year 2013. tured light vehicles which comprise passenger cars, station wagons, SUVs, vans and light commercial vehicles weighing less than six tons. For calendar year 2014, the total worldwide production of light The global demand for vehicles developed positively in the last total increase by ca. 3% compared to 2013 will result from the twelve months. Following the global increase in demand for positive developments in NAFTA (around +5%), Asia (around +4%) passenger cars, station wagons and light commercial vehicles, the and Europe (around +3%), while the production volumes in other number of vehicles produced in calendar year 2013 increased to markets are expected to shrink by around (5)%. vehicles in 2014 is expected to amount up to 87 million units. The around 85 million units, up by ca. 4% from the 82 million units in RESULTS OF OPERATIONS The table below sets out Stabilus Group’s consolidated income state- ment for the fiscal year 2014 in comparison to the fiscal year 2013: Year ended Sept 30, 2014 507.3 (387.7) 119.6 (20.3) (38.7) (32.6) 6.0 (2.9) 31.2 17.5 (38.8) 9.9 0.1 10.0 2013 460.1 (349.7) 110.4 (17.6) (38.9) (21.2) 6.1 (3.6) 35.2 5.4 (46.5) (5.9) (10.1) (16.0) T _ 001 % change 10.3% 10.9% 8.3% 15.3% (0.5)% 53.8% (1.6)% (19.4)% (11.4)% >100.0% (16.6)% <(100.0)% <(100.0)% <(100.0)% change 47.2 (38.0) 9.2 (2.7) 0.2 (11.4) (0.1) 0.7 (4.0) 12.1 7.7 15.8 10.2 26.0 Income statement I N € M I L L I O N S Revenue Cost of sales Gross profit Research and development expenses Selling expenses Administrative expenses Other income Other expenses Profit from operating activities (EBIT) Finance income Finance costs Profit / (loss) before income tax tax income / (expense) Profit for the period 28 ANNUAL REPORT 2014GROUP MANAGEMENT REPORT Resu lts of o perati ons Revenue Group’s total revenue developed as follows: Revenue by region (location of Stabilus company) T _ 002 I N € M I L L I O N S Europe NAFTA Asia / Pacific and rest of world Revenue Revenue by markets I N € M I L L I O N S Automotive Gas spring Powerise Industrial Swivel chair Revenue Year ended Sept 30, 2014 267.3 176.8 63.2 507.3 Year ended Sept 30, 2014 340.8 255.0 85.8 142.3 24.2 507.3 2013 244.6 157.9 57.6 460.1 2013 298.0 242.7 55.3 136.9 25.2 460.1 change % change 22.7 18.9 5.6 47.2 9.3% 12.0% 9.7% 10.3% T _ 003 change % change 42.8 12.3 30.5 5.4 (1.0) 47.2 14.4% 5.1% 55.2% 3.9% (4.0)% 10.3% Total revenue in the fiscal year 2014 increased by 10.3% compared Cost of sales and overhead expenses to the previous fiscal year. The increase is reflected in all regional areas with NAFTA slightly ahead with an increase of 12.0% to C O S T O F S A L E S Europe with 9.3% and Asia / Pacific and rest of world with 9.7% respectively. The increase is mainly due to our growing Powerise Cost of sales in the fiscal year 2014 increased by 10.9%, compared business. Its revenue increased from €55.3 million in the fiscal year to the previous fiscal year, and thus increased in line with increased 2013 to €85.8 million in the fiscal year 2014. While our revenue total revenue. The cost of sales as a percentage of revenue remained in the swivel chair business decreased year-on-year by (4.0)% to roughly stable at 76.4% (PY: 76.0%). €24.2 million, the revenue in our automotive Powerise business grew by 55.2% or €30.5 million. The ongoing increase in the Powerise R & D E X P E N S E S business is mainly the result of new OEM platform wins and the following market introduction of new Powerise variants. The increase R&D expenses in the fiscal year 2014 increased by 15.3% compared in the automotive gas spring by 5.1% or €12.3 million is mainly to the prior fiscal year 2013. Also as percentage of revenue, R&D driven by the improved economic environment and recovering vehicle expenses increased slightly from 3.8% in fiscal year 2013 to 4.0% sales in Europe. Sales in the industrial business increased by 3.9% in fiscal year 2014. The increase is mainly due to the higher per- from €136.9 million in the fiscal year ended September 30, 2013 to sonnel expenses included in the R&D function costs. The Group €142.3 million in the fiscal year ended September 30, 2014. invests in the development of new applications and products and 29 ANNUAL REPORT 2014GROUP MANAGEMENT REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATIONDC Resu lts of operatio ns in the continuous optimization and improvement of existing prod- F I N A N C E I N C O M E A N D C O S T S ucts and product lines. The main focus in the fiscal year 2014 were the R&D projects for the Powerise products. Finance income increased from €5.4 million in fiscal year 2013 to €17.5 million in fiscal year 2014 primarily due to the increased net S E L L I N G E X P E N S E S foreign exchange gains on financial assets and liabilities. Selling expenses remained essentially unchanged at €(38.9) million Finance costs decreased significantly from €(46.5) million to in the fiscal year ended September 30, 2013 to €(38.7) million in €(38.8) million in fiscal year 2014 by €7.7 million. The decrease the fiscal year ended September 30, 2014. As a percent of revenue, was essentially caused by a decrease in losses from changes in these expenses decreased from 8.5% to 7.6%. the carrying amount of EUSIs by €5.2 million and a decrease of A D M I N I S T R AT I V E E X P E N S E S net foreign exchange losses by €7.2 million. I N C O M E TA X E X P E N S E Administrative expenses increased significantly from €(21.2) million in fiscal year 2013 to €(32.6) million in fiscal year 2014. As per- After an income tax expense of €(10.1) million in fiscal year 2013, in centage of revenue, administrative expenses increased as well, fiscal year 2014 the Group recorded a tax income of €0.1 million. from 4.6% to 6.4%. The increase is mainly due to the expenses This was mainly driven by the development of taxable profit in the with regards of the 2014 IPO and is estimated to return to histo- period, the deferred taxes amount and the expense resulting from rical average levels in the coming fiscal year 2015. the German tax audit covering past four years which were compen- sated by the deferred tax income driven by the usage of the interest OT H E R I N C O M E A N D E X P E N S E carry-forwards in the German tax group. See Notes to Consolidated Financial Statements below, Note 10, for further details. Other income slightly decreased from €6.1 million in fiscal year 2013 by €(0.1) million to €6.0 million in fiscal year 2014. This decrease by (1.6)% is primarily the result of exchange rate related valuation at the balance sheet day. Other expense decreased from €(3.6) million in fiscal year 2013 to €(2.9) million in year under review. 30 ANNUAL REPORT 2014GROUP MANAGEMENT REPORT Resu lts of o perati ons Year ended Sept 30, 2014 31.2 20.2 19.9 71.3 17.6 2.1 1.5 21.2 92.5 2013 35.2 21.7 19.0 75.9 6.1 3.6 1.5 11.2 87.1 change (4.0) (1.5) 0.9 (4.6) 11.5 (1.5) – 10.0 5.4 T _ 004 % change (11.4)% (6.9)% 4.7% (6.1)% >100.0% (41.7)% 0.0% 89.3% 6.2% E B I T DA A N D A D J U S T E D E B I T DA The table below sets out a reconciliation of EBIT to EBITDA and adjusted EBITDA for the fiscal years 2014 and 2013: Reconciliation of EBIT to adjusted EBITDA I N € M I L L I O N S Profit from operating activities (EBIT) Depreciation Amortization EBITDA Advisory* Restructuring / ramp-up Pension interest add back Total adjustments Adjusted EBITDA * IPO, legal, bond issuance, tax audit and reorganization related advisory expenses. Adjusted EBITDA represents EBITDA, as adjusted by management primarily in relation to severance, consulting, restructuring, one-time legal disputes and other non-recurring costs (e.g. IPO), as well as interest on pension charges. Adjusted EBITDA is presented because we believe it is a relevant measure for assessing performance as it is adjusted for certain one-time or non-recurring items that are not expected to impact our Group going forward, and thus aids in an understanding of EBITDA in a given period. 31 ANNUAL REPORT 2014GROUP MANAGEMENT REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATIONDC Resu lts of operatio ns E B I T A N D A D J U S T E D E B I T The table below shows reconciliations of profit from operating activities (EBIT) to adjusted EBIT for the fiscal years 2014 and 2013: Reconciliation of EBIT to adjusted EBIT I N € M I L L I O N S Profit from operating activities (EBIT) Advisory* Restructuring / ramp-up Pension interest add back PPA adjustments – depreciation and amortization Total adjustments Adjusted EBIT Year ended Sept 30, 2014 31.2 17.6 2.1 1.5 12.7 33.9 65.1 2013 35.2 6.1 3.6 1.5 12.7 23.9 59.1 change (4.0) 11.5 (1.5) – – 10.0 6.0 T _ 005 % change (11.4)% >100.0% (41.7)% 0.0% 0.0% 41.8% 10.2% * IPO, legal, bond issuance, tax audit and reorganization related advisory expenses. Adjusted EBIT represents EBIT, as adjusted by management primarily in relation to severance, consulting, restructuring, one-time legal disputes, IPO related costs, launch costs for new products and other non-recurring costs, as well as interest on pension charges and the depreciation and amortization of adjustments of group’s assets to fair value resulting from the April 2010 purchase price allocation. 32 ANNUAL REPORT 2014GROUP MANAGEMENT REPORT D E V E L O P M E N T O F O P E R AT I N G S E G M E N T S Stabilus Group is organized and managed primarily on a regional level. The three reportable operating segments of the Group are Europe, NAFTA, Asia / Pacific and rest of world (RoW). The table below sets out the development of our operating seg- ments for the fiscal years 2014 and 2013. Operating segments I N € M I L L I O N S Europe External revenue1) Intersegment revenue1) Total revenue1) Adjusted EBITDA as % of revenue NAFTA External revenue1) Intersegment revenue1) Total revenue1) Adjusted EBITDA as % of revenue Asia / Pacific and RoW External revenue1) Intersegment revenue1) Total revenue1) Adjusted EBITDA as % of revenue 1) Revenue breakdown by location of Stabilus company (i. e. “billed-from view”). Develop ment of op erating segmen ts Year ended Sept 30, 2014 2013 change % change T _ 006 267.3 23.5 290.8 57.5 244.6 28.7 273.3 54.6 19.8% 20.0% 176.8 2.5 179.3 22.8 157.9 2.4 160.3 21.0 12.7% 13.1% 63.2 0.1 63.3 12.2 57.6 0,1 57.7 11.5 19.3% 19.9% 22.7 (5.2) 17.5 2.9 18.9 0.1 19.0 1.8 5.6 – 5.6 0.7 9.3% (18.1)% 6.4% 5.3% 12.0% 4.2% 11.9% 8.6% 9.7% 0.0% 9.7% 6.1% 33 ANNUAL REPORT 2014GROUP MANAGEMENT REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATIONDC Financ ial positio n The external revenue generated by our European companies margin decreased slightly from 13.1% in the fiscal year 2013 to increased by 9.3% from €244.6 million in the fiscal year 2013 to 12.7% in the fiscal year 2014 mainly driven by the currency devel- €267.3 million in the fiscal year 2014. Adjusted EBITDA of this opment of the USD-EUR. operating segment increased in this period by 5.3% to €57.5 mil- lion with an adjusted EBITDA margin of 19.8%. In the fiscal year 2014, the external revenue of our companies in the Asia / Pacific and RoW segment increased by €5.6 million or The external revenue of our companies located in the NAFTA 9.7%, compared to the corresponding fiscal year 2013. This seg- region increased by 12.0% from €157.9 million in the fiscal year ment’s result, measured as adjusted EBITDA, increased by €0.7 mil- 2013 to €176.8 million in the fiscal year 2014 primarily due to lion or 6.1%. Within this segment China remains strong, while the strong growth in Powerise business. NAFTA’s adjusted EBITDA Brazil recorded lower revenue and margin than in fiscal year 2013. F I N A N C I A L P O S I T I O N Balance sheet I N € M I L L I O N S Assets Total non-current assets Total current assets Total assets Equity and liabilities Total equity Total non-current liabilities Total current liabilities Total liabilities Total equity and liabilities 1) adjusted according to IAS 19 (revised) Sept 30, 2014 Sept 30, 20131) change % change T _ 007 351.1 169.2 520.3 76.1 353.7 90.5 444.2 520.3 429.0 160.3 589.3 80.3 421.1 87.9 509.0 589.3 (77.9) 8.9 (69.0) (4.2) (67.4) 2.6 (64.8) (69.0) (18.2)% 5.6% (11.7)% (5.2)% (16.0)% 3.0% (12.7)% (11.7)% TOTA L A S S E T S N O N - C U R R E N T A S S E T S The Group’s total assets decreased by 11.7% to €520.3 million Non-current assets decreased by €(77.9) million primarily due to (PY: €589.3 million). This is mainly due to the reorganization of the distribution of the upstream shareholder loan caused by the the Group prior to and immediately following the IPO, which has disposal of the Company’s interest in Servus II (Gibraltar) Limited. been described in the prospectus (the prospectus is available under www.stabilus.com). As a result, the equity upside-sharing instruments (EUSIs) and the upstream shareholder loan were extinguished and will no longer be recognized on the Group’s balance sheet. 34 ANNUAL REPORT 2014GROUP MANAGEMENT REPORT Liq uid ity C U R R E N T A S S E T S by €58.9 million (i.e. €65.0 million proceeds from capital increase, net of transaction costs and early redemption premium). In addi- Current assets increased by 5.6% or €8.9 million. This is essentially tion, the equity upside-sharing instruments have been extinguished the consequence of higher cash balance and lower trade account following the IPO reorganization and are not recognized on the receivable, compared to September 30, 2013. The effect was mainly Company’s balance sheet as of September 30, 2014. The carrying triggered by the sale of receivable program (factoring) initiated in amount of non-current financial liabilities as of September 30, 2014 the fiscal year 2014. amounts to €256.6 million, €58.5 million lower versus Septem- E Q U I T Y ber 30, 2013 amount of €315.1 million. C U R R E N T L I A B I L I T I E S The Group’s equity as of September 30, 2014 decreased, as com- pared to September 30, 2013, from €80.3 million to €76.1 million. Current liabilities increased slightly by €2.6 million from €87.9 mil- The profit generated in the fiscal year 2014 amounts to 10.0 mil- lion as of September 30, 2013 to €90.5 million as of September lion, IPO costs (net of tax) directly recognized in equity amounts up 30, 2014. The increase of the trade account payables and current to €(1.2) million and other comprehensive income amounts to tax liabilities was partly offset by a decrease in provisions and the €(6.9) million. Other comprehensive income comprises unrealized financial liabilities. actuarial losses of €(6.5) million on our German pension plan and losses from foreign currency translations of €(0.4) million. The equity ratio improved from 13.6% as of September 30, 2013 to 14.6% as of September 30, 2014. L I Q U I D I T Y N O N - C U R R E N T L I A B I L I T I E S Non-current liabilities decreased by €67.4 million or 16.0%, activities. Going forward we expect that our capital expenditure primarily as a result of reduced non-current financial liabilities. and debt service will be covered by operating cash flow in the next Our primary sources of liquidity are cash flows from operating The Group used the proceeds from the capital increase (issue of twelve months. new shares) to redeem the senior secured notes on June 5, 2014 Cash flows I N € M I L L I O N S Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net increase / (decrease) in cash Effect of movements in exchange rates on cash held Cash as of beginning of the period Cash as of end of the period Year ended Sept 30, 2014 87.8 (35.6) (41.2) 11.0 0.7 21.8 33.5 2013 62.8 (113.1) 31.3 (19.0) (0.9) 41.6 21.8 T _ 008 change % change 25.0 77.5 39.8% (68.5)% (72.5) <(100.0)% 30.0 1.6 (19.8) 11.7 <(100.0)% <(100.0)% (47.6)% 53.7% 35 ANNUAL REPORT 2014GROUP MANAGEMENT REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATIONDC Liquidity C A S H F L O W F R O M O P E R AT I N G A C T I V I T I E S C A S H F L O W F R O M F I N A N C I N G A C T I V I T I E S Cash flow from operating activities increased by 39.8% from Cash flow from financing activities amounts to €(41.2) million in €62.8 million in fiscal year 2013 to €87.8 million in fiscal year fiscal year 2014 and to €31.3 million in fiscal year 2013. This is mainly 2014 mainly due to working capital improvements, specifically the result of higher interest payments following the issuance of the sales receivable program. the senior secured notes in June 2013 compared to the fiscal year C A S H F L O W F R O M I N V E S T I N G A C T I V I T I E S 2013 and the partial redemption of the senior secured notes. As a result of the aforementioned changes of cash flows from Cash outflow from investing activities decreased by €77.5 million operating and investing activities and with adjustments to EBITDA from €(113.1) million in fiscal year 2013 to €(35.6) million in fiscal amounting to €21.2 million (PY: €11.2 million), adjusted operating year 2014, mainly due to the €(80.0) million payment for the cash flow before tax (AoCF) increased from €43.9 million in fiscal upstream shareholder loan in the prior year. For further details in year 2013 to €80.5 million in fiscal year 2014. The following table regards to the upstream shareholder loan please refer to the Notes sets out the composition and development of the non-IFRS key figure to Consolidated Financial Statements, Note 15, below. adjusted operating cash flow before tax in the reporting period. Adjusted operating cash flow before tax (AoCF) T _ 009 I N € M I L L I O N S Cash flows from operating activities Cash flows from investing activities Excl. payment for upstream shareholder loan Excl. changes in restricted cash Excl. income tax payments Operating cash flow before tax Adjustments to EBITDA Adjusted operating cash flow before tax Year ended Sept 30, 2014 87.8 (35.6) – – 7.1 59.3 21.2 80.5 2013 62.8 (113.1) 80.0 (2.7) 5.7 32.7 11.2 43.9 change % change 25.0 77.5 (80.0) 2.7 1.4 26.6 10 36.6 39.8% (68.5)% (100.0)% (100.0)% 24.6% 81.3% 89.3% 83.4% 36 ANNUAL REPORT 2014GROUP MANAGEMENT REPORT Liq uid ity Adjusted operating cash flow before tax (AoCF) represents operat- F R E E C A S H F L O W ( F C F ) ing cash flow before tax and before extraordinary and exceptional items. Operating cash flow before tax, in turn, comprises IFRS cash Free cash flow (FCF) slightly increased from €20.5 million in fiscal flow statement line items “cash flow from operating activities” and year 2013 to €22.1 million. The following table sets out the com- “cash flow from investing activities” according to IAS 7, excluding position of the non-IFRS figure free cash flow. “changes in restricted cash”, “income tax payments”, and “pay- ment for upstream shareholder loan”. Free cash flow T _ 010 I N € M I L L I O N S Cash flows from operating activities Cash flows from investing activities Payments for interest Excl. payment for upstream shareholder loan Free cash flow Year ended Sept 30, 2014 87.8 (35.6) (30.1) – 22.1 2013 62.8 (113.1) (9.2) 80.0 20.5 change % change 25.0 77.5 (20.9) (80.0) 1.6 39.8% (68.5)% >100.0% (100.0)% 7.8% Free cash flow (FCF) comprises IFRS cash flow statement items “cash flow from operating activities”, “cash flow from investing activities” and “payments for interest” (net interest payments), excluding “payment for upstream shareholder loan”. 37 ANNUAL REPORT 2014GROUP MANAGEMENT REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATIONDC Risks an d opport unit ies R I S K S A N D O P P O R T U N I T I E S Risk management and control over financial reporting in the Stabilus Group By separating financial functions and through ongoing review, we ensure that potential errors are identified timely and accounting standards complied with. Our internal control system is an integral component of the risk management. The purpose of our internal control system for accounting and reporting is to ensure their compliance with legal stipulations, with the principles of proper accounting, with the rules on the International Financial Reporting Standards as The Company considers Risk Management (RM) to be a key part of adopted by the EU and with Group standards. In addition, we per- effective management and internal control. The Company strives for form assessments to help identify and minimize any risk with a effective RM and financial navigation to safeguard the assets of direct influence on our financial reporting. We monitor changes in the Company and to proactively support the Company’s strategic accounting standards and enlist the advice of external experts to and compliance initiatives. The goal of RM is to help the Company reduce the risk of accounting misstatements in complex issues. to operate more effectively in a dynamic environment by providing a framework for a systematic approach to risks management and The Company and individual entity financial statements are subject exploring opportunities with an acceptable level of risk. The Super- to external audits which act as an independent check and monitor- visory Board and the Management Board regularly discuss the ing mechanism of the accounting system and it’s output. The prin- operational and financial results as well as the related risks. cipal risks that could have a material impact on the Group are set out in the note 32 of the consolidated financial statement and are Risk Management covers financial, strategic, compliance as well summarized below: operational aspects. Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group’s processes, personnel, technology and infrastructure, and Foreign currency risk from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and The Stabilus Group reviews the need of forward currency exchange generally accepted standards of corporate behavior. These opera- or interest transaction in regular intervals. As of September 30, 2014, tional risks arise from all of the Group’s operations. The Group’s no forward exchange transactions or interest hedges were made objective is to manage operational risk in a way to balance the within the Group. Operationally we strive to increase our local avoidance of financial losses and damages to the Group’s reputa- content to improve our natural hedging position. tion with overall cost effectiveness, as well as avoiding control pro- cedures that restrict initiative and creativity. The Company’s policy on managing financial risks seeks to ensure effective liquidity and Credit risk cash flow management and protection of group equity capital against financial risks. As part of its evolution, the Company The Group has adopted a policy of dealing only with creditworthy implements continuous improvements in its risk management and counterparties and obtaining sufficient collateral where appropriate, internal control system. as a means of mitigating the risk of financial loss from defaults. Receivable exposure is controlled by counterparty limits that are Our accounting control system is designated to ensure all business reviewed in regular intervals. Trade receivables consist of a large transactions are correctly and promptly accounted for and that reli- number of customers which are spread across diverse industries able data on the Company’s financial situation is available. It and geographical areas. Ongoing credit evaluation is performed on ensures compliance with legal stipulations, accounting standards the financial condition of accounts receivable and, where appropri- and accounting rules. A Group-wide calendar of deadlines helps ate and available, credit guarantee insurance cover is purchased. ensure the complete and timely processing of financial statements. 38 ANNUAL REPORT 2014GROUP MANAGEMENT REPORT Corp orate Go vern ance Liquidity risk less NAFTA in particular saw their vehicle markets develop more dynamically than previously anticipated. Stabilus has set an appropriate liquidity risk management frame- work for the management of the Group’s short, medium and long- term funding and liquidity requirements. The Group manages liquidity risk by regular reviews, maintaining certain cash reserves, as well as open credit lines. There is a risk that financial covenants of the Senior Secured Loan contract and the revolving credit facility agreement will not be C O R P O R AT E G O V E R N A N C E complied with. All covenants and other conditions set out in the As a Luxembourg société anonyme, the Company is subject to the loan contracts were complied with in the past financial year. The corporate governance regime as set forth in particular in the law of Group planning shows that these covenants will also be complied August 10, 1915 on commercial companies. As a company whose with during the forecast period of the next twelve months. shares are listed on a regulated market, the Company is further Interest rate risk subject to the law of May 24, 2011 on the exercise of certain shareholder rights in listed companies. As a Luxembourg société anonyme whose shares are exclusively The Stabilus Group is reviewing continuously the need of forward listed on a regulated market in Germany, the Company is not interest swaps. As of September 30, 2014, no interest hedges were required to adhere to the Luxembourg corporate governance regime closed within the Group. Technical and litigation risks applicable to companies that are traded in Luxembourg or to the German corporate governance regime applicable to stock corpora- tions organized in Germany. The Company has decided to set up own corporate governance rules as described in the following para- graphs rather than to confirm such corporate governance regimes The Group’s products are used in many different applications. A in order to build up a corporate governance structure which meets manufacturing quality management system was implemented many the specific needs and interest of the Company. years ago to ensure a high degree of functionality and process reli- ability. Technical risks for new applications are analyzed during The internal control systems and risk management for the establish- the offer phase in an opportunities and risks summary and are reas- ment of financial information is described in the section “Risk man- sessed regularly in the course of the project. The Group is subject agement and control over financial reporting in the Stabilus Group”. to some claims, proceedings and lawsuits related to products, patents and other matters incidental to these businesses. The in- According to the Articles of Incorporation of the Company, the house legal department monitors these risks continuously and Management Board must be composed of at least two Management reports regularly to Group management and the Supervisory Board. Board members, and the Supervisory Board must be composed of Insurance coverage within certain limits is provided. at least three Supervisory Board members. The Supervisory Board Opportunities of the further develop- ment of the Company has set up the following committees in accordance with the Arti- cles of Incorporation: Audit Committee and Remuneration Commit- tee. The Audit Committee is responsible for the consideration and evaluation of the auditing and accounting policies and its financial controls and systems. The Remuneration Committee is responsible At the end of the reporting period, macro conditions in the majority for making recommendations to the Supervisory Board and the of the economic regions around the globe as well as market perfor- Management Board on the terms of appointment and the benefits mance measured on the basis of global automobile production of the managers of the Company as well as for making recommen- were as favourable as at the beginning of the fiscal year. Neverthe- dations on bonus payments to be made to all Stabilus employees. 39 ANNUAL REPORT 2014GROUP MANAGEMENT REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATIONDC Corporate Gover nanc e Further details on the composition and purpose of these commit- F) The Articles of Incorporation of the Company do not contain tees and of the Management Board and the Supervisory Board any restrictions on voting rights. is described in the section “Management and Supervisory Board G) There are no agreements with shareholders which are known to of Stabilus S.A.”. the Company and may result in restrictions on the transfer of securities or voting rights within the meaning of Directive The Annual General Meeting shall be held on the third Wednesday 2004 / 109 / EC (Transparency Directive). of the month of February at 10 a.m. Luxembourg time. If such day H) Rules governing the appointment and replacement of Manage- is not a business day in Luxembourg, the meeting shall be held on ment Board members and the amendment of the Articles of the next following business day, at the same hour. The Management Incorporation: Board and Supervisory Board may convene extraordinary General – The Management Board members are appointed by the Meetings as often as the Company’s interests so require. An extraor- Supervisory Board by the majority of the votes of the mem- dinary general shareholders’ meeting must be convened upon the bers present or represented (abstention or non-participation request of one or more shareholders who together represent at being taken into account as a vote against the appoint- least one tenth of the Company’s share capital. ment), or in the case of a vacancy, by way of a decision of the remaining Management Board members for the period Each share entitles the holder to one vote. The right of a share- until the next Supervisory Board Meeting. holder to participate in a General Meeting and to exercise the vot- – Management Board members serve for the following terms: ing rights attached to his shares are determined with respect to Chief Executive Officer four years, Chief Financial Officer the shares held by such shareholder the 14th day before the General three years and other Board members one year. Manage- Meeting. Each shareholders can exercise their voting rights in person, ment Board members are eligible for re-appointment. through a proxyholder or in writing (if provided for in the relevant – Management Board members may be removed at any time convening notice). with or without cause by the Supervisory Board by a simple majority of the votes. The information required by article 10.1 of Directive 2004 / 25 / EC – Resolutions to amend the Articles of Incorporation may be on takeover bids which has been implemented by article 11 of adopted by a majority of two thirds of the votes validly the law of May 19, 2006 on takeovers (the “Law on Takeovers”) is cast, without counting the abstentions, if the quorum of half set forth here below under “Disclosure Regarding Article 11 of the of the share capital is met. If the quorum requirement of Law on Takeovers of May 19, 2006”. half of the share capital of the Company is not met at the first General Meeting, then the shareholders may be re-con- D I S C L O S U R E R E G A R D I N G A R T I C L E 1 1 O F T H E vened to a second General Meeting. No quorum is required L A W O N TA K E O V E R S O F M AY 1 9 , 2 0 0 6 in respect of such second General Meeting and the resolu- tions are adopted by a supermajority of two-thirds of the A) For information regarding the structure of capital, reference is votes validly cast, without counting the abstentions. made to note 21 of the consolidated financial statements. I) Powers of the Management Board: B) The Articles of Incorporation of the Company do not contain – The Company is managed by a Management Board under any restrictions on the transfer of shares of the Company. the supervision of the Supervisory Board. C) Information regarding section c) of the law (significant direct – The Management Board is vested with the broadest powers and indirect shareholdings) can be found in note 38 of the con- to perform or cause to be performed any actions necessary solidated financial statement. or useful in connection with the purpose of the Company. D) The Company has not issued any securities granting special – All powers not expressly reserved by the Companies Act or control rights to their holders. by the Articles of Incorporation to the General Meeting or E) The control rights of any shares issued in connection with the Supervisory Board fall within the authority of the Man- employee share schemes are exercised directly by the respective agement Board. employees. 40 ANNUAL REPORT 2014GROUP MANAGEMENT REPORT Sub seq uent events Outlo o k – Certain transactions and measures are subject to the prior approval of the Supervisory Board on the terms set out in the Articles of Incorporation. S U B S E Q U E N T E V E N T S – The Management Board may appoint one or more persons, The Group evaluates the opportunity to benefit of the current low who may be a shareholder or not, or who may be a member financing cost through a new refinancing. of the Management Board or not, to the exclusion of any member of the Supervisory Board, who shall have full author- As of November 28, 2014, there were no further events or develop- ity to act on behalf of the Company in all matters pertaining ments that could have materially affected the measurement and pres- to the daily management and affairs of the Company. entation of Group’s assets and liabilities as of September 30, 2014. – The Management Board is also authorized to appoint a per- son, either a director or not, to the exclusion of any member of the Supervisory Board, for the purposes of performing specific functions at every level within the Company. – The Management Board may also appoint committees and sub-committees in order to deal with specific tasks, to O U T L O O K advise the Management Board or to make recommendations The forecast for the global light vehicle production sees an annual to the Management Board and / or, as the case may be, the production growth rate between 3% and 4% for the next 3 years. General Meeting, the members of which may be selected either The growth rate in China is expected to slow down to around 4% from among the members of the Management Board or not, in 2018. The NAFTA region is expected to grow on a constant level to the exclusion of any member of the Supervisory Board. of 2% where as the production in Europe is expected to increased – The Management Board does not have currently any author- by 2016 and 2017 with an annual groth rate of around 4%. ity to issue shares in the Company under the Articles of Incorporation. For the growth rate of revenue, adjusted EBITDA and adjusted EBIT – The Management Board does not have currently any author- we target to achieve a similar growth rate as achieved for the fiscal ity to buy back shares under the Articles of Incorporation or year 2014. a buy-back program. J) There are no significant agreements to which the Company is party and which take effect, alter or terminate upon a change of control of the Company following a takeover bid. K) There are no agreements between the Company and its Man- agement Board members or employees providing for compensa- tion if they resign or are made redundant without valid reason or if their employment ceases because of a takeover bid. 41 ANNUAL REPORT 2014GROUP MANAGEMENT REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATIONDC F I N A N C I A L S T A T E M E N T S L I F T- O - M AT F I N A N C I A L S TAT E M E N T S Stabilus gas pressure springs in the LIFT-O-MAT line are used whenever loads need to be lifted or lowered in a controlled manner. They provide force assist and thus ensure optimum weight equalization. With LIFT-O-MAT gas springs, open- ing and closing doors and lids becomes child’s play. Its damping properties ensure safe and user-friendly motion sequences. A N N U A L R E P O R T 2 0 1 4 43 S T N E M E T A T S L A I C N A N I F S T N E M E T A T S L A I C N A N I F C N O I T A M R O F N I L A N O I T I D D A D CONTENTS C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S for the fiscal year ended September 30, 2014 4 5 C O N S O L I D A T E D S T A T E M E N T O F C O M P R E H E N S I V E I N C O M E 4 6 C O N S O L I D A T E D S T A T E M E N T 85 16 Other assets 85 17 Inventories 86 18 Trade accounts receivable 86 19 Current tax assets 86 20 Cash and cash equivalents O F F I N A N C I A L P O S I T I O N 87 21 Equity 89 22 Financial liabilities 93 23 Other financial liabilities 4 8 C O N S O L I D A T E D S T A T E M E N T 93 24 Provisions O F C H A N G E S I N E Q U I T Y 95 25 Pension plans and similar obligations 4 9 C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O W S 5 0 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 1 General Information 2 Basis for presentation 3 Accounting policies 4 Revenue 99 26 Trade accounts payable 99 27 Current tax liabilities 99 28 Other liabilities 99 29 Leasing 101 30 Contingent liabilities and other financial commitments 103 31 Financial instruments 105 32 Risk reporting 108 33 Capital management 109 34 Notes to the consolidated statement of cash flows 110 35 Segment reporting 112 36 Share-based payment 113 37 Auditor’s fees 114 38 Related party relationships 5 Cost of sales, research and development, 114 39 Remuneration of key management personnel selling and administrative expenses 115 40 Subsequent events 6 Other income 7 Other expenses 8 Finance income 9 Finance costs 10 Income tax expense 11 Earnings per share 1 1 6 R E S P O N S I B I L I T Y S T A T E M E N T 1 1 7 M A N A G E M E N T A N D S U P E R V I S O R Y B O A R D O F S T A B I L U S S . A . 12 Property, plant and equipment 1 1 8 I N D E P E N D E N T A U D I T O R ’ S R E P O R T 13 Goodwill 14 Other intangible assets 15 Other financial assets A N N U A L R E P O R T 2 0 1 4 50 51 62 71 72 73 73 74 74 74 77 79 80 82 83 44 Comp rehensive Inc ome T _ 011 Year ended Sept 30, 2014 507,333 20131) 460,103 (387,737) (349,705) 119,596 (20,291) (38,703) (32,563) 6,012 (2,855) 31,196 17,451 (38,775) 9,872 78 9,950 (136) 110,398 (17,573) (38,933) (21,214) 6,054 (3,536) 35,196 5,463 (46,525) (5,866) (10,145) (16,011) (73) 10,086 (15,938) (422) (6,444) (6,866) 3,084 (136) 3,220 3,145 (671) 2,474 (13,537) (73) (13,464) 0.54 0.54 (0.90) (0.90) N OT E 4 5 5 5 5 6 7 8 9 10 21 21 11 11 C O N S O L I DAT E D S TAT E M E N T O F C O M P R E H E N S I V E I N C O M E for the fiscal year ended September 30, 2014 Consolidated statement of comprehensive income I N € T H O U S A N D S Revenue Cost of sales Gross profit Research and development expenses Selling expenses Administrative expenses Other income Other expenses Profit from operating activities Finance income Finance costs Profit / (loss) before income tax Income tax income / (expense) Profit / (loss) for the period thereof attributable to non-controlling interests thereof attributable to shareholders of Stabilus Other comprehensive income / (expense) Foreign currency translation difference 2) Unrealized actuarial gains / (losses), net of taxes 3) Other comprehensive income / (expense), net of taxes Total comprehensive income / (expense) for the period thereof attributable to non-controlling interests thereof attributable to shareholders of Stabilus Earnings per share (in €): basic diluted 1) Information related to the adjustment of the prior-year figures according to IAS 19 (revised) is disclosed in Note 2. 2) Item that may be reclassified (‘recycled’) to profit and loss at future point in time when specific conditions are met. 3) Item that will not be reclassified to profit and loss. The accompanying Notes form an integral part of these Consolidated Financial Statements. 45 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND Financ ial Posit ion C O N S O L I DAT E D S TAT E M E N T O F F I N A N C I A L P O S I T I O N as of September 30, 2014 Consolidated statement of financial position T _ 012 N OT E Sept 30, 2014 Sept 30, 20131) Oct 1, 20121) 12 13 14 15 16 10 17 18 19 15 16 20 119,642 51,458 170,971 – 1,102 7,919 116,276 51,458 175,763 77,134 1,024 7,353 120,115 51,458 180,907 2,679 1,170 5,061 351,092 429,008 361,390 49,540 56,497 2,403 18,304 8,972 33,494 169,210 520,302 46,063 67,776 397 10,845 13,380 21,819 160,280 589,288 49,974 58,950 3,567 – 15,046 41,638 169,175 530,565 I N € T H O U S A N D S Assets Property, plant and equipment Goodwill Other intangible assets Other financial assets Other assets Deferred tax assets Total non-current assets Inventories Trade accounts receivable Current tax assets Other financial assets Other assets Cash and cash equivalents Total current assets Total assets 46 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS Fi nanci al Position Consolidated statement of financial position T _ 012 N OT E Sept 30, 2014 Sept 30, 20131) Oct 1, 20121) I N € T H O U S A N D S Equity and liabilities Issued capital Capital reserves Retained earnings Other reserves Equity attributable to shareholders of Stabilus Non-controlling interests Total equity Financial liabilities Other financial liabilities Provisions Pension plans and similar obligations Deferred tax liabilities Total non-current liabilities Trade accounts payable Financial liabilities Other financial liabilities Current tax liabilities Provisions Other liabilities Total current liabilities Total liabilities Total equity and liabilities 21 21 21 21 21 22 23 24 25 10 26 22 23 27 24 28 207 73,091 7,920 (5,128) 76,090 33 76,123 256,556 960 4,060 48,353 43,765 353,694 53,724 5,789 6,360 5,082 8,551 10,979 90,485 444,179 520,302 5,013 74,403 (991) 1,737 80,162 169 80,331 315,097 1,472 7,037 39,123 58,334 421,063 44,977 7,663 8,886 1,587 13,908 10,873 87,894 508,957 589,288 1) Information related to the adjustment of the prior-year figures according to IAS 19 (revised) is disclosed in Note 2. The accompanying Notes form an integral part of these Consolidated Financial Statements. 5,013 30,550 20,588 (736) 55,415 319 55,734 285,466 2,342 10,406 38,067 56,102 392,383 42,898 – 7,396 560 17,565 14,029 82,448 474,831 530,565 47 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND Changes in Equit y C O N S O L I DAT E D S TAT E M E N T O F C H A N G E S I N E Q U I T Y for the fiscal year ended September 30, 2014 Consolidated statement of changes in equity I N € T H O U S A N D S N OT E Issued capital Capital reserves Retained earnings Other reserves T _ 013 Equity attributable to shareholders of Stabilus Non- controlling interests Total Equity Balance as of Oct 1, 2012 5,013 30,550 20,588 899 57,050 319 57,369 – – – – – – (1,635) (1,635) – (1,635) 5,013 30,550 20,588 (736) (15,938) – – 2,474 55,415 (15,938) 2,474 319 (73) – 55,734 (16,011) 2,474 (15,938) 2,474 (13,464) (73) (13,537) 44,003 – – (5,641) (150) – – – – 44,003 (5,641) (150) – – (77) 44,003 (5,641) (227) 5,013 74,403 (991) 1,737 80,162 169 80,331 10,086 – – (6,866) 10,086 (6,866) (136) 9,950 – (6,866) 10,086 (6,866) 3,220 (136) 3,084 Effects from first-time adoption of IAS 19R1) Balance as of Oct 1, 2012 adjusted1) Profit / (loss) for the period Other comprehensive income1) Total comprehensive income for the period Contributions by owners Distribution of shareholder loan Dividends Balance as of Sept 30, 2013 adjusted1) Profit / (loss) for the period Other comprehensive income Total comprehensive income for the period Reduction of issued capital Proceeds from capital increase Contributions by owners IPO costs directly recognized in equity, net of tax Dividends 2 21 21 21 21 21 21 21 21 21 21 21 21 – – – – – – – – – – – – – – – (4,836) 4,836 30 64,970 10,020 – – – – (1,175) (81,137) – – – – – – – 65,000 10,020 (1,175) (81,137) 76,090 – – – – – – 65,000 10,020 (1,175) (81,137) 33 76,123 Balance as of Sept 30, 2014 207 73,091 7,920 (5,128) 1) Information related to the adjustment of the prior-year figures according to IAS 19 (revised) is disclosed in Note 2. The accompanying Notes form an integral part of these Consolidated Financial Statements. 48 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS Cash Fl ows C O N S O L I DAT E D S TAT E M E N T O F C A S H F L O W S for the fiscal year ended September 30, 2014 Consolidated statement of cash flows I N € T H O U S A N D S Profit/ (loss) for the period Current income tax Deferred income tax Net finance result Depreciation and amortization Other non-cash income and expenses Changes in inventories Changes in trade accounts receivable Changes in trade accounts payable Changes in other assets and liabilities Changes in restricted cash Changes in provisions Changes in deferred tax assets and liabilities Income tax payments Cash flows from operating activities Proceeds from disposal of property, plant and equipment Purchase of intangible assets Purchase of property, plant and equipment Cash flows from disposals and acquisitions of tangible and intangible assets Payments for upstream shareholder loan Cash flows from changes in non-current financial assets Cash flows from investing activities Receipts from contributions of equity Receipts from issuance of senior secured notes Receipts under revolving credit facility Payments under revolving credit facility Payments for redemption of financial liabilities Payments for redemption of other financial liabilities Payments for finance leases Payments of transaction costs Dividends paid Dividends paid to non-controlling interests Payments for interest Cash flows from financing activities Net increase / (decrease) in cash and cash equivalents Effect of movements in exchange rates on cash held Cash and cash equivalents as of beginning of the period Cash and cash equivalents as of end of the period N OT E 10 10 8/9 5 34 14 12 15 21 22 22 23 29 21 21 34 1) Information related to the adjustment of the prior-year figures according to IAS 19 (revised) is disclosed in Note 2. The accompanying Notes form an integral part of these Consolidated Financial Statements. T _ 014 Year ended Sept 30, 2014 9,950 10,522 (10,600) 21,325 40,110 (10,222) (3,477) 11,279 8,747 5,705 – 896 10,600 (7,065) 87,770 48 (14,394) (21,246) (35,592) – – (35,592) 65,000 – 8,000 (8,000) 20131) (16,011) 10,373 (228) 41,063 40,661 (5,544) 3,911 (8,826) 2,079 5,040 2,679 (6,930) 228 (5,663) 62,832 1,277 (14,179) (20,211) (33,113) (80,014) (80,014) (113,127) 44,003 315,000 – – (58,877) (303,806) (1,661) (1,191) (14,362) – – (30,113) (41,204) 10,974 701 21,819 33,494 – (1,792) (12,658) (150) (77) (9,177) 31,343 (18,952) (867) 41,638 21,819 49 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND N OT E S TO C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S as of and for the fiscal year ended September 30, 2014 1 General Information Stabilus S.A. , Luxembourg, hereinafter also referred to as "Stabilus" or the "Company" (former Servus HoldCo S.à r.l., hereinafter also referred to as “Servus HoldCo”) is a public limited liability company (société anonyme) incorporated in Luxembourg and governed by Luxembourg law. The Company is registered with the Luxembourg Trade and Companies Register (Registre de Commerce et des Sociétés Luxembourg) under No. B151589 and its registered office is located at 2, rue Albert Borschette, L-1246 Luxembourg, Grand Duchy of Luxembourg. The Company was founded under the name Servus HoldCo S.à r.l. on February 26, 2010. Following the shareholder resolution dated May 5, 2014, the corporate form and the name of the Company were changed from “Servus HoldCo S.à r.l.”, private limited liability company (société à responsabilité limitée), to “Stabilus S.A.”, a public limited liability company (société anonyme). The fiscal year is from October 1 to September 30 of the following year (twelve-month period). The consolidated financial statements of Stabilus S.A. include Stabilus and its subsidiaries (hereafter also referred to as “Stabilus Group” or the “Group”). The Stabilus Group is a leading manufacturer of gas springs and dampers, as well as electric tailgate lifting and closing equipment. The products are used in a wide range of applications in automotive and industrial applications, as well as in the furniture industry. Typically the products are used to aid the lifting and lowering or dampening of movements. As a world market leader for gas springs, the Group ships to all key vehicle manufacturers. Various Tier 1 suppliers of the global car industry as well large technical focused distributors further diversify the Group’s customer base. The consolidated financial statements are prepared in euro (€) rounded to the nearest thousand. Due to rounding, numbers presented may not add up precisely to totals provided. The consolidated financial statements of Stabilus and its subsidiaries have been prepared in accor- dance with International Financial Reporting Standards (IFRS), as adopted by the EU. The consolidated financial statements were authorized for issue by the Management Board on Novem- ber 28, 2014. 50 ANNUAL REPORT 2014Notes CONSOLIDATED FINANCIAL STATEMENTS 2 Basis for presentation P R E PA R AT I O N Applying IAS 1, items of the statement of financial position are differentiated between non-current and current assets and liabilities. Assets and liabilities are classified as current if they have a remaining term of less than one year. Accordingly, assets and liabilities are classified as non-current if they remain in the Group for more than one year. Deferred tax assets and deferred tax liabilities, as well as assets and provisions from defined benefit pension plans and similar obligations are reported as non-current items. The consolidated statement of comprehensive income is presented using the cost of sales method. M E A S U R E M E N T The consolidated financial statements have been prepared on the historical cost basis, with the excep- tion of certain items, such as derivative financial instruments or hedged transactions and pensions and similar obligations. The measurement methods applied to these exceptions are described below. U S E O F E S T I M AT E S A N D J U D G M E N T S Certain of the accounting policies require critical accounting estimates that involve complex and sub- jective judgments and the use of assumptions, some of which may be for matters that are inherently uncertain and susceptible to change. Such critical accounting estimates could change from period to period and have a material impact on the financial position or results of operations. Critical accounting estimates could also involve estimates where management could reasonably have used a different esti- mate in the current accounting period. Management wishes to point out that future events often vary from forecasts and that estimates routinely require adjustment. Impairment of non-financial assets: Stabilus assesses at every reporting date whether there are indications that its non-financial assets may be impaired. Goodwill and development cost under construction are tested annually for impair- ment. Further tests are carried out if there are indications for impairment. Other non-financial assets are tested for impairment if there are indications that the carrying amount may not be recoverable. If the fair value less costs of disposal is calculated, management must estimate the expected future cash flows from the asset or the cash-generating unit and select an appropriate discount rate in order to determine the present value of this cash flow. Trade and other receivables: The allowance for doubtful accounts involves significant management judgment and review of individ- ual receivables based on individual customer creditworthiness, current economic trends and analysis of historical allowances. We refer also to Note 18. 51 ANNUAL REPORT 2014 NotesCONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND Deferred tax assets: The valuation of deferred tax assets is based on mid-term business plans of the respective entities which recorded deferred tax assets. These mid-term business plans range from three to five years and include several underlying assumptions and estimates in respect of the business development, strategic changes, cost optimization and business improvement and also general market and economic develop- ment. Deferred tax assets are recognized to the extent that sufficient taxable profit at the level of the relevant tax authority will be available for the utilization of the deductible temporary differences. Stabi- lus recognizes a valuation allowance for deferred tax assets when it is unlikely that sufficient future taxable profit will be available. We refer also to Note 10. Provisions: Significant estimates are involved in the determination of provisions related to pensions and other obligations, contract losses, warranty costs and legal proceedings. We refer also to Note 24 and 25. R I S K S A N D U N C E R TA I N T I E S The Group’s net assets, financial position and results of operations are subject to risks and uncertainties. Factors that could affect the future net assets, financial position and results of operations and there- fore cause actual results to vary from the expectations include sales volume changes due to changes in the overall economy, evolvement of price-aggressive competitors, significant price changes for raw materials and overall purchase costs. Quality issues may result in significant costs for the Group, in spite of a benchmarked insurance cover. The Group financing with its long-term fixed-interest rates that have a duration until June 2018 play a key role for the long-term stability of the Group. G O I N G C O N C E R N These consolidated financial statements are prepared based on the going concern assumption. S C O P E O F C O N S O L I DAT I O N All entities over which Stabilus can exercise control are included in the scope of consolidation. Control means the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The subsidiaries are included in the scope of consolidation as of the date Stabilus obtains control. Non-controlling interests represent the portion of profit and loss and net assets not held by the Group and are presented separately in the consolidated statement of comprehensive income and the consoli- dated statement of financial position. The results of subsidiaries acquired or disposed of during the period are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate. Inclusion in the consolidated financial statements ends as soon as the Com- pany no longer has control. 52 ANNUAL REPORT 2014Notes CONSOLIDATED FINANCIAL STATEMENTS In addition to Stabilus, altogether 27 subsidiaries (see following list), are included in the consolidated financial statements as of September 30, 2014. Subsidiaries N A M E O F T H E C O M PA N Y Servus Sub S.à r.l. Servus Luxembourg S.à r.l. Servus III (Gibraltar) Limited Registered office of the entity Luxembourg Luxembourg Gibraltar Stabilus S.A. Stabilus S.A. Stabilus S.A. Interest and control held by Holding in % T _ 015 Consolidation method 100.00% 100.00% 100.00% 99.9968% 0.0032% 100.00% 94.90% 94.90% 5.10% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 99.99% 100.00% 100.00% 100.00% Servus Luxembourg Holding S.C.A. Luxembourg Servus Sub S.à r.l. Servus Luxembourg S.à r.l. Blitz F10-neun GmbH Frankfurt, Germany Stabilus S.A. Blitz F10-acht-drei-drei GmbH & Co KG Frankfurt, Germany Servus III (Gibraltar) Limited Stable II S.à r.l. Luxembourg Servus Luxembourg Holding S.C.A. Blitz F10-acht-drei-drei GmbH & Co KG Stable Beteiligungs GmbH Koblenz, Germany Stable II S.à r.l. Stable HoldCo Inc. Wilmington, USA Stable Beteiligungs GmbH Stable HoldCo Australia Pty. Ltd. Dingley, Australia Stable II S.à r.l. LinRot Holding AG Zurich, Switzerland Stable II S.à r.l. Stabilus UK HoldCo Ltd. Banbury, United Kingdom Stable Beteiligungs GmbH Stabilus GmbH Koblenz, Germany Stable Beteiligungs GmbH Stabilus Powerise GmbH Melle, Germany LinRot Holding AG Stabilus Pty. Ltd. Stabilus Ltda. Stabilus Espana S.L. Stabilus Ltd. Stabilus Co. Ltd. Dingley, Australia Stable HoldCo Australia Pty. Ltd. Itajubá, Brazil Lezama, Spain Stabilus GmbH Stabilus GmbH Banbury, United Kingdom Stabilus UK HoldCo Ltd. Busan, South Korea Stabilus GmbH Stabilus S.A. de C.V. Ramos Arizpe, Mexico Stabilus GmbH 99.9998% Stabilus Inc. Stabilus Limited Stabilus Japan Corp. Stabilus France S.à r.l. Stabilus Ltd. Gastonia, USA Stable HoldCo Inc. Auckland, New Zealand Stabilus GmbH Yokohama, Japan Stable Beteiligungs GmbH Poissy, France Stabilus GmbH Stabilus Romania S.R.L. Brasov, Romania Stable Beteiligungs GmbH Stabilus (Jiangsu) Ltd. Wujin, China Stabilus GmbH Stabilus GmbH Orion Rent Imobiliare S.R.L. Brasov, Romania Stable Beteiligungs GmbH Stabilus Ltd. 0.0002% 100.00% 80.00% 100.00% 100.00% 3.01% 96.99% 100.00% 98.00% 2.00% Full Full Full Full Full Full Full Full Full Full Full Full Full Full Full Full Full Full Full Full Full Full Full Full Full Full 53 ANNUAL REPORT 2014 NotesCONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND Compared to the previous fiscal year two holding companies, Stable Romania S.R.L, Romania and Sta- bilus US HoldCo Inc., Wilmington, USA, are no longer separately included in the scope of consolidation as these two companies have been merged with other group entities. In the third quarter of the fiscal year 2014, 90% of the interest in the company Servus II (Gibraltar) Limited was distributed as a dividend to the shareholder Servus Group HoldCo II S.à r.l., the remaining partizipation of 10% was sold. The company Servus III (Gibraltar) Limited was founded in 2014 and included in consolidation for the first time. P R I N C I P L E S O F C O N S O L I DAT I O N The assets and liabilities of the domestic and foreign entities included in consolidation are recognized in accordance with the uniform accounting policies of the Stabilus Group. Receivables and liabilities or provisions between the consolidated companies are offset. Intragroup revenue and other intragroup income and the corresponding expenses are eliminated. Intercompany gains and losses on intragroup delivery and service transactions are eliminated through profit or loss, unless they are immaterial. Deferred taxes, which reflect the average income tax charge on the recipient group entity, are recog- nized on consolidation adjustments affecting profit or loss. B U S I N E S S C O M B I N AT I O N Business combinations are accounted for using the acquisition method as of the acquisition date, which is the date on which control is transferred to the Group. Goodwill is measured at the acquisition date as: • • • the fair value of the consideration transferred, plus the recognized amount of any non-controlling interests in the acquiree, less the net recognized amount (generally the fair value) of the identifiable assets acquired and liabili- ties assumed. The consideration transferred does not include amounts related to the settlement of pre-existing rela- tionships. Such amounts are generally recognized in profit or loss. Costs related to the acquisition, other than those associated with the issue of debt or equity securities that the Group incurs in connec- tion with the business combination are expensed as incurred. Non-controlling interests in the net assets (excluding goodwill) of consolidated subsidiaries consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Effective January 30, 2014, the remaining 2% shares in Orion Rent Imobiliare S.R.L., Brasov, Romania, were acquired for €4.64. F O R E I G N C U R R E N C Y T R A N S L AT I O N The consolidated financial statements are presented in euro, as the Group’s functional and presentation currency. Each entity in the Group determines its own functional currency, which is the currency of its primary economic environment in which the entity operates. Items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are 54 ANNUAL REPORT 2014Notes CONSOLIDATED FINANCIAL STATEMENTS initially recorded at the functional currency rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rate of exchange at the balance sheet date. All differences are taken to profit or loss. Non-monetary items that are meas- ured in terms of historical cost in a foreign currency are translated using the exchange rates as of the date of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign opera- tion and translated at the historic rate. Assets and liabilities of foreign subsidiaries where the functional currency is other than euro (€) are translated using the financial period-end exchange rates, while their income and expenses are trans- lated using the average exchange rates during the period. Foreign currency transaction gains and losses on operating activities are included in other operating income and expenses. Foreign currency gains and losses on financial receivables and debts are included in interest income and expenses. Translation adjustments arising from exchange rate differences are included in a separate component of shareholder’s equity in amounts recognized directly in equity. On disposal of a foreign entity, the deferred cumulative amount recognized in equity relating to that particular foreign operation is recog- nized in profit or loss. The exchange rates of the significant currencies of non-euro countries used in the preparation of the consolidated financial statements were as follows: Exchange rates T _ 016 C O U N T RY Australia Brazil China South Korea Mexico Romania USA Closing rate Sept 30, Average rate for the year ended Sept 30, 2014 1.4539 3.0926 7.8098 2013 1.4498 3.0181 8.3055 2014 1.4753 3.1070 8.3414 2013 1.3229 2.7669 8.1884 1,338.6700 1,454.2100 1,424.7400 1,451.4900 17.0692 17.5791 17.7724 16.7285 4.4114 1.2687 4.4604 1.3510 4.4525 1.3575 4.4422 1.3123 I S O C O D E AUD BRL CNY KRW MXP ROL USD 55 ANNUAL REPORT 2014 NotesCONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND C H A N G E S I N A C C O U N T I N G P O L I C I E S O N A C C O U N T O F N E W S TA N DA R D S The following table shows the changes in accounting policies regarding IAS 8.28: New standards and interpretations T _ 017 S TA N D A R D / I N T E R P R E TAT I O N Amendment to IFRS 1 Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters Amendment to IFRS 1 Government Loans Amendments to IFRS 7 Disclosures – Offsetting Financial Assets and Financial Liabilities Effective date stipulated by IASB Effective date stipulated by EU July 1, 2011 January 1, 2013 January 1, 2013 January 1, 2013 January 1, 2013 January 1, 2013 IFRS 13 Fair Value Measurement January 1, 2013 January 1, 2013 Amendment to IAS 12 Deferred Taxes: Recovery of Underlying Assets January 1, 2012 January 1, 2013 IAS 19 Employee Benefits (Revised 2011) January 1, 2013 January 1, 2013 Improvements to IFRSs (2011) Collection of Amendments to International Financial Reporting Standards January 1, 2013 January 1, 2013 IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine January 1, 2013 January 1, 2013 The effective date presented above is the date of mandatory application in annual periods beginning on or after that date. Amendment to IFRS 1: Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters: If a first-time adopter has a functional currency that was, or is the currency of a hyperinflationary economy, then it should determine whether it was subject to severe hyperinflation before the date of transition to IFRSs. When an entity’s date of transition to IFRSs is on, or after, the functional currency normaliza- tion date, the entity may elect to measure assets and liabilities held before the functional currency nor- malization date at fair value on the date of transition to IFRSs and use that fair value as the deemed cost of those assets and liabilities in the opening IFRS statement of financial position. Any adjustments should be recognized directly in the retained earnings or, if appropriate, another component of equity. As the Group is no first-time adopter of IFRS the amendment has no impact on the Consolidated Financial Statements of the Stabilus Group as the Group has no entities in hyperinflationary countries. Amendment to IFRS 1: Government Loans The amendment adds a new exception to the retrospective application of IFRS whereas a first-time adopter of IFRS now applies the measurement requirements of the financial instrument standards (IAS 39 and IFRS 9) to a government loan with a below-market rate of interest at fair value prospectively from the date of transition to IFRS. Alternatively, a first-time adopter may elect to apply the measure- ment requirements retrospectively to a government loan, if the information needed was obtained when it first accounted for that loan. This election is available on a loan-by-loan basis. If a first-time adopter applies the measurement prospectively, then it uses the previous GAAP carrying amount of a govern- ment loan as the carrying amount of the loan in its opening IFRS statement of financial position. Sub- sequently, the loan has to be measured at amortized cost, using an effective interest rate calculated at 56 ANNUAL REPORT 2014Notes CONSOLIDATED FINANCIAL STATEMENTS the date of transition. As the Group is no first-time adopter of IFRS the amendment has no impact on the Consolidated Financial Statements of the Stabilus Group as the Group has no government loans. Amendment to IFRS 7: Disclosures – Offsetting Financial Assets and Financial Liabilities This amendment to IFRS 7 requires more extensive disclosures about offsetting (also known as netting) of financial instruments. The new rules require companies to identify and disclose not only the financial assets and liabilities that have been offset in the statement of financial position but also those assets and liabilities that would be offset if future events (e.g. bankruptcy or termination of contracts) were to arise. The amendment has no impact on the Consolidated Financial Statements of the Stabilus Group. IFRS 13: Fair Value Measurement IFRS 13 provides a revised and standardized definition of fair value and related application guidance as well as an extensive disclosure framework. It replaces fair value measurement guidance that was previously dispersed throughout IFRSs. However, the measurement and disclosure requirements set out under IFRS 13 do not apply to IFRS 2 and IAS 17. Fair value is defined as an exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market partici- pants at the measurement date. The standard includes a fair value hierarchy already included in IFRS 7 that prioritizes the inputs to valuation techniques used to measure fair value in relation to observable prices in active markets. However, the revised definition has no material effect on the valuation of assets and liabilities in the Consolidated Financial Statements of the Stabilus Group. Additional disclo- sures required by application of IFRS 13 are provided in the relevant Notes. Amendment to IAS 12: Deferred Taxes: Recovery of Underlying Assets The amendment provides an exception to the general measurement principle of deferred tax assets and liabilities in respect of investment property measured using the fair value model in accordance with IAS 40. Under the exception, the measurement of deferred tax assets and liabilities is based on a rebuttable presumption that the carrying amount of the investment property will be recovered entirely through sale. The presumption can be rebutted only if the investment property is depreciable and held within a business model whose objective is to consume substantially all the asset’s economic benefits over the life of the asset. Therefore, the presumption cannot be rebutted in respect of the land component of investment property as it is a non-depreciable asset. The amendment has no impact on the Consoli- dated Financial Statements of the Stabilus Group. IAS 19: Employee Benefits (Revised 2011) The first-time adoption of IAS 19 (revised 2011), Employee Benefits, had a material effect in the reporting period. The Group has previously used the corridor method, which is no longer permitted under the revised IAS 19. As a result, actuarial gains and losses have a direct effect on the Consoli- dated Statement of Financial Position and lead to an increase in provision for pensions and similar obligations and a reduction in equity. Going forward, the Group’s profit for the period will remain free from the effects of actuarial gains and losses, which will be recognized directly in other comprehensive income. The amendments to IAS 19, Employee Benefits, must be applied retrospectively in financial statements for annual periods beginning on or after January 1, 2013. The Group has adjusted the fig- ures for the comparative period as well as for the opening balance of the comparative balance for effects arising from application of the revised version of IAS 19. The following table sets out the effects of the application of IAS 19 on the line items of the Consolidated Statement of Financial Position as of 57 ANNUAL REPORT 2014 NotesCONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND September 30, 2014, September 30, 2013 and October 1, 2012. The effects on the Consolidated State- ment of Comprehensive Income, i.e. the effects on other comprehensive income, for the fiscal year 2014 and 2013 are disclosed in the Note 21 below. IAS 19 (revised) effects on the consolidated statement of financial position T _ 018 I N € T H O U S A N D S Other reserves Total equity Pension plans and similar obligations Deferred tax liabilities Total liabilities Sept 30, 2014 Sept 30, 2013 Oct 1, 2012 (8,752) (8,752) 12,503 (3,751) 8,752 (2,307) (2,307) 3,296 (989) 2,307 (1,635) (1,635) 2,336 (701) 1,635 Improvements to IFRSs (2011): Collection of Amendments to International Financial Reporting Standards As part of the Annual Improvement Project, amendments to five IFRSs were made. With the adaptation of the wording of individual IFRS a clarification of existing regulations is to be achieved. In addition, there are changes that affect the accounting, the recognition, valuation and the notes. Affected are the standards IAS 1, IAS 16, IAS 32, IAS 34 and IFRS 1. The amendments have no material impact on the Consolidated Financial Statements of the Stabilus Group. IFRIC 20: Stripping Costs in the Production Phase of a Surface Mine In surface mining operations, entities may find it necessary to remove mine waste materials to gain access to mineral ore deposits. This waste removal activity is known as ‘stripping’. There can be two benefits accruing to the entity from the stripping activity: Usable ore that can be used to produce inventory and improved access to further quantities of material that will be mined in future periods. IFRIC 20 considers when and how to account separately for these two benefits arising from the strip- ping activity, as well as how to measure these benefits both initially and subsequently. IFRIC 20 only deals with waste removal costs that are incurred in surface mining activity during the production phase of the mine (‘production stripping costs’). IFRIC 20 has no impact on the consolidated financial state- ments of the Stabilus Group. 58 ANNUAL REPORT 2014Notes CONSOLIDATED FINANCIAL STATEMENTS S TA N DA R D S A N D I N T E R P R E TAT I O N S I S S U E D B U T N OT Y E T A D O P T E D Standards and interpretations issued and endorsed by the EU T _ 019 IFRSs issued but not yet adopted: S TA N D A R D / I N T E R P R E TAT I O N IFRS 10 IFRS 11 IFRS 12 Consolidated Financial Statements Joint Arrangements Disclosure of Interests in Other Entities Amendments to IFRS 10, 11, 12 Transition Guidance Separate Financial Statements IAS 27 (2011) IAS 28 (2011) Effective date Effective date stipulated by IASB stipulated by EU January 1, 2013 January 1, 2014 January 1, 2013 January 1, 2014 January 1, 2013 January 1, 2014 January 1, 2013 January 1, 2014 January 1, 2013 January 1, 2014 Investments in Associates and Joint Ventures January 1, 2013 January 1, 2014 Amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities January 1, 2014 January 1, 2014 Amendment to IAS 32 Offsetting Financial Assets and Liabilities January 1, 2014 January 1, 2014 Amendment to IAS 36 Recoverable Amount Disclosures for Non-Financial Assets January 1, 2014 January 1, 2014 Amendment to IAS 39 Novation of Derivatives and Continuation of Hedge Accounting January 1, 2014 January 1, 2014 IFRIC 21 Levies January 1, 2014 June 17, 2014 The effective date presented above is the date of mandatory application in annual periods beginning on or after that date. IFRS 10: Consolidated Financial Statements, Amendments to IAS 27 Separate Financial Statements IFRS 10 replaces the portion of IAS 27 that addresses the accounting for consolidated financial state- ments and the issues raised in SIC 12 resulting in SIC 12 being withdrawn. It does not change consoli- dation procedures, but creates a new and broader definition of control than under the current IAS 27. The new standard defines that an entity controls an investee when it has power over the investee, is exposed to variable returns from its involvement and also has the ability to use its power over the investee to affect the amount of the investor’s returns. IFRS 10 will not have any impact on future financial statements of the Stabilus Group. IFRS 11: Joint Arrangements, Amendments to IAS 28 Investments in Associates and Joint Ventures IFRS 11 replaces IAS 31 and SIC 13 and changes the accounting for joint arrangements by moving from three categories under IAS 31 to the two categories: joint operation and joint venture. According to this new classification, the structure of the joint arrangement is not the only factor to be considered when classifying a joint arrangement. Under the new standard, it is also required to consider whether a separate vehicle exists and, if so, the legal form of the separate vehicle, the contractual terms and conditions, other facts and circumstances. IAS 28 was amended to include the application of the equity method to investments in joint ventures. IFRS 11 and the amendments to IAS 28 will not have any impact on future financial statements of the Stabilus Group. 59 ANNUAL REPORT 2014 NotesCONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND IFRS 12: Disclosure of Interests in Other Entities The new standard contains more extensive qualitative and quantitative disclosure requirements, which include disclosure of e.g. (a) summarized financial information for each subsidiary with a material non-controlling interest, for each individually material joint venture and associate, (b) significant judg- ments used by management in determining control, joint control, significant influence, and the type of joint arrangement, and (c) nature of the risks associated with an entity’s interests in unconsolidated structured entities, and changes to those risks. Given the group structure of today, IFRS 12 will lead to extended disclosures in future financial statements of the Stabilus Group. Amendments to IFRS 10, 11, 12: Transition Guidance IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities are effective for annual periods beginning on or after January 1, 2014. The standards are based on a general principle of retrospective application on adoption. Depending on the extent of comparative information provided in the financial statements, the amendments simplify the transition and provide additional relief from disclosures that could have been onerous. As the Stan- dards IFRS 10 – 12 will not have any impact on future financial statements of the Stabilus Group, the amendments to these standards will also not have any impact. IAS 27 (2011): Separate financial statements The Standard includes the provisions on separate financial statements that are left after the control provisions of IAS 27 have been included in the new IFRS 10. The Standard contains accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. The Standard requires an entity preparing separate financial statements to account for those investments at cost or in accordance with IFRS 9 Financial Instru- ments. Considering the current circumstances of the Group, IAS 27 will not have any impact on future financial statements of the Stabilus Group. IAS 28 (2011): Investments in Associates and Joint Ventures In the future, accounting for joint ventures and the mandatory application of the equity method for joint ventures will be in line with the provisions of the renamed IAS 28 (revised in 2011). Given the group structure of today, the Standard will not have any impact on future financial statements of the Stabilus Group as there are no joint ventures within the Group. Amendments to IFRS 10, 12 and IAS 27: Investment Entities The amendments apply to investments in subsidiaries, joint ventures and associates held by a reporting entity that meets the definition of an investment entity. The key amendments include: • “Investment entity” is defined in IFRS 10; • An investment entity must meet three elements of the definition and consider four typical charac- teristics in order to qualify as an investment entity; • An entity must consider all facts and circumstances, including its purpose and design, in making its assessment; • An investment entity must measure its investment in another controlled investment entity at fair value; • A non-investment entity parent of an investment entity is not permitted to retain the fair value accounting that the investment entity subsidiary applies to its controlled investees. 60 ANNUAL REPORT 2014Notes CONSOLIDATED FINANCIAL STATEMENTS The Amendments to the Standards will not have any impact on future financial statements of the Stabilus Group. Amendment to IAS 32: Offsetting Financial Assets and Financial Liabilities The amendments to IAS 32 clarify that an entity has a legally enforceable right to set-off if that right is not contingent on a future event and enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the entity and all counterparties. It further states that gross settlement is equivalent to net settlement if and only if the gross settlement mechanism has fea- tures that eliminate or result in insignificant credit and liquidity risk and process receivables and payables in a single settlement process or cycle. The amendments are to be applied retrospectively. The amend- ments to IAS 32 will not have any impact on future financial statements of the Stabilus Group. Amendments to IAS 36: Recoverable Amount Disclosures for Non-Financial Assets The amendments clarify the disclosure requirements in respect of fair value less costs of disposal. IAS 36 Impairment of Assets required disclosure of information about recoverable amount of impaired assets if that amount was based on fair value less costs to sell. Accordingly, an entity was required to disclose the recoverable amount for each cash-generating unit for which the carrying amount of good- will and intangible assets with indefinite useful lives allocated to that unit was significant, compared to the entity’s total carrying amount of goodwill and intangible assets with indefinite useful lives. This requirement has been deleted by the amendment. In addition, two disclosure requirements were added: • Additional information about the fair value measurement of impaired assets when the recoverable amount is based on fair value less costs of disposal. • Information about the discount rates that have been used when the recoverable amount is based on fair value less costs of disposal using a present value technique. The Group is currently evaluating the impact of these amendments on its consolidated financial statements. Amendments to IAS 39: Novation of Derivatives and Continuation of Hedge Accounting The amendments provide exceptions to the requirement to discontinue hedge accounting in certain circumstances in which there is a change in counterparty to a hedging instrument in order to achieve clearing for that instrument. The amendment covers novations that arise as a consequence of laws or regulations, or the introduction of laws or regulations where the parties to the hedging instrument agree that one or more clearing counterparties replace the original counterparty to become the new counterparty to each of the parties that did not result in changes to the terms of the original derivative other than changes directly attributable to the change in counterparty to achieve clearing. All of the above criteria must be met to continue hedge accounting under this exception. For novations that do not meet the criteria for the exception, entities have to assess the changes to the hedging instrument against the derecognition criteria for financial instruments and the general conditions for continuation of hedge accounting. The amendment has no impact on the Consolidated Financial Statements of the Stabilus Group. 61 ANNUAL REPORT 2014 NotesCONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND IFRIC 21: Levies Levies are defined as outflows of resources embodying economic benefits by government on entities in accordance with legislation. The interpretation clarifies that an entity recognizes a liability for a levy when the activity that triggers payment occurs. The levy liability is accrued progressively only if the activity that triggers payment occurs over a period of time. For a levy that is triggered upon reaching a minimum threshold, no liability is recognized before the specified minimum threshold is reached. IFRIC 21 will not have any impact on future financial statements of the Group. 3 Accounting policies R E V E N U E Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be measured reliably. Revenue is measured at the fair value of the consid- eration received, excluding discounts, rebates, and other sales taxes or duty. Revenue from the sale of goods is recognized when the significant risks and rewards of ownership of goods have passed to the customer, a price is agreed upon or can be determined and when the payment is probable. Revenue from a contract to provide services is recognized according to the stage of completion, if the amount of the revenue can be measured reliably and it is probable that the economic benefits from the business will flow to the Group. C O S T O F S A L E S Cost of sales comprises the cost of the conversion of products sold as well as the purchase costs of sold merchandise. In addition to the directly attributable material and production costs, it also includes indirect production-related overheads like production and purchase management, including deprecia- tion on production plants and amortization of intangible assets. Cost of sales also includes write- downs on inventories to the lower net realizable value. Provisions for estimated costs related to prod- uct warranties are accrued at the time the related sale is recorded. R E S E A R C H E X P E N S E S A N D N O N - C A P I TA L I Z E D D E V E L O P M E N T E X P E N S E S Research expenses and non-capitalized development expenses are recognized in profit or loss when incurred. S E L L I N G E X P E N S E S Selling expenses include sales personnel costs and operating sales costs such as for marketing. Ship- ping and handling costs are expensed within selling expenses when incurred. Fees charged to custom- ers are shown as sales. Advertising costs (expenses for advertising, sales promotion and other sales- related activities) are expensed within selling expenses when incurred. 62 ANNUAL REPORT 2014Notes CONSOLIDATED FINANCIAL STATEMENTS B O R R O W I N G C O S T S Borrowing costs are expensed as incurred, unless they are directly attributable to the acquisition, con- struction or production of a qualifying asset and therefore form part of the cost of that asset. I N T E R E S T I N C O M E A N D E X P E N S E S The interest income and expenses include the interest expense from liabilities and the interest income from the investment of cash. The interest components from defined benefit pension plans and similar obligations are reported under the personnel expenses. OT H E R F I N A N C I A L I N C O M E A N D E X P E N S E The other financial result includes all remaining expenses and income from financial transactions that are not included in the interest result. I N C O M E TA X E S Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. Income tax expenses represent the sum of taxes currently payable and deferred taxes. The tax currently payable is based on taxable profit for the period. Taxable profit differs from profit as reported in the consolidated statement of compre- hensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted by the balance sheet date. In accordance with IAS 12 deferred taxes are recognized on temporary differences between the carry- ing amounts and the corresponding tax base of assets and liabilities used in the computation of taxable income. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible tempo- rary differences can be utilized. Deferred tax assets and deferred tax liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business com- bination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax assets on tax loss carry-forwards are only recognized if there is sufficient probability that the tax reductions resulting from them will actually occur. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recov- ered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabili- ties. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. 63 ANNUAL REPORT 2014 NotesCONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND G O O D W I L L Goodwill is determined to have an indefinite useful life. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. In accordance with IAS 36, the Group tests the good- will for impairment by comparing its recoverable amount with its carrying amount annually, and when- ever there is an indication that goodwill may be impaired. For the purpose of impairment testing good- will acquired in a business combination is allocated at the acqusition date to the cash generating units (CGU) that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. An impairment of goodwill is rec- ognized if the recoverable amount of the cash-generating unit is below its carrying amount. Impair- ment losses are recognized in profit or loss. According to IAS 36, impairment losses recognized for goodwill are not reversed. Goodwill impairment is tested at the lowest level within the Group at which goodwill is being man- aged. In the past this impairment test took place on group level. In the current fiscal year we realigned our internal reporting structure and identified three operating segments, which are Europe, NAFTA as well as Asia / Pacific and rest of world (RoW). Goodwill was reallocated to such operating segments in order to be monitored on the level of the operating segments benefiting from the synergies of the acquisitions. As a consequence of this reallocation goodwill is now being tested for impairment at the level of our operating segments which is the lowest level at which goodwill is monitored for internal management purposes. OT H E R I N TA N G I B L E A S S E T S Purchased or internally generated intangible assets are capitalized according to IAS 38, if a future eco- nomic benefit can be expected from the use of the asset and the costs of the asset can be determined reliably. Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is fair value as of the date of acquisition. Follow- ing initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Internally generated intangible assets, excluding capitalized develop- ment costs, are not capitalized and expenditure is reflected in profit or loss in the year in which the expenditure is incurred. Intangible assets with finite useful lives are amortized on a straight-line basis over the useful eco- nomic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The estimated useful life and amortization method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a pro- spective basis. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in profit or loss when the asset is derecognized. An internally-generated intangible asset arising from development (or from the development phase of an internal project) is recognized if all of the following have been demonstrated: (1) the technical fea- 64 ANNUAL REPORT 2014Notes CONSOLIDATED FINANCIAL STATEMENTS sibility of completing the intangible asset so that it will be available for use or sale; (2) the intention to complete the intangible asset and use or sell it; (3) the ability to use or sell the intangible asset; (4) how the intangible asset will generate probable future economic benefits; (5) the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and (6) the ability to measure reliably the expenditure attributable to the intangible asset during its development. The amount initially recognized for internally-generated intangible assets is the sum of the expenditures incurred from the date when the intangible asset first meets the recog- nition criteria listed above. Where no internally-generated intangible asset can be recognized, develop- ment cost is charged to profit or loss in the period in which it is incurred. Subsequent to initial recogni- tion, internally-generated intangible assets are reported at cost less accumulated amortization and accumulated impairment losses on the same basis as intangible assets acquired separately. The following useful lives are used in the calculation of amortization: Software (3 to 5 years), patented technology (16 years), customer relationships (24 years), unpatented technology (6 to 10 years) and trade names (18 years). R E S E A R C H A N D D E V E L O P M E N T E X P E N S E S Expenditure on research activities is recognized as an expense in the period in which it is incurred. Development costs are capitalized at cost if the relevant recognition criteria according to IAS 38 are met. Capitalized development costs comprise all costs directly attributable to the development process. Capitalized development costs are amortized systematically from the start of production over the expected product cycle of three to fifteen years depending on the lifetime of the product. P R O P E R T Y, P L A N T A N D E Q U I P M E N T Property, plant and equipment is used for business purposes and is measured at cost less accumulated depreciation and accumulated impairment losses. Such cost includes the cost of replacing part of the plant and equipment when that cost is incurred, if the recognition criteria are met. The Group develops and assembles various production equipment internally; the related costs are also capitalized. Depreci- ation on property, plant and equipment is recorded on a straight-line basis in accordance with its utili- zation and based on the useful lives of the assets. The residual values, depreciation methods and useful lives are reviewed annually and adjusted, if necessary. Property in the course of construction for pro- duction, rental or administrative purposes is carried at cost, less any recognized impairment loss. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. Fixtures and equipment are stated at cost less accumulated deprecia- tion and any accumulated impairment losses. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss. Systematic depreciation is primarily based on the following useful lives: Buildings (40 years), machinery and equipment (5 to 10 years) and other equipment (5 to 8 years). 65 ANNUAL REPORT 2014 NotesCONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND L E A S I N G Leases comprise all arrangements that transfer the right to use a specified asset for a stated period of time in return for a payment, even if the right to use that asset is not explicitly described in an arrange- ment. Leases are classified as either finance or operating. In accordance with the regulations under IAS 17 on accounting for leases, economic ownership is attributed to the lessee if it bears substantially all of the risks and rewards associated with ownership (finance lease). If the criteria for a finance lease are fulfilled, assets and liabilities are recognized at the commencement of a lease term at fair value or the lower present value of the minimum lease payments. Assets are depreciated on a straight-line basis over the estimated useful life of the asset or shorter term of the lease. The discounted payment obliga- tions resulting from the future leasing instalments are recognized under other non-current liabilities. Lease payments resulting from finance leases are divided into principal payments and interest payments. Lease and rent payments resulting from operating leases are recognized as an expense in the consoli- dated statement of comprehensive income. Future burdens under operating lease relationships are disclosed under other financial obligations. Operating lease payments are recognized as an expense in profit or loss on a straight line basis over the lease term. Operating leases refer to the leasing of office equipment. I M PA I R M E N T O F N O N - F I N A N C I A L A S S E T S Stabilus assesses at each reporting date whether there are indications that an asset may be impaired. If such indications exist or if annual impairment testing is required (for instance, for goodwill and development cost unter construction), Stabilus estimates the recoverable amount of the asset. The recoverable amount is determined for each individual asset, unless an asset generates cash inflows that are not largely independent of those from other assets or groups of assets (cash-generating units). The recoverable amount is the higher of its fair value less cost of disposal and its value in use. Stabilus determines the recoverable amount as fair value less cost of disposal and compares this with the carry- ing amounts (including goodwill). The fair value is measured by discounting future cash flows using a risk-adjusted interest rate. The future cash flows are estimated on the basis of the operative planning (five-year-window). Periods not included in the business plans are taken into account by applying a residual value which considers a growth rate of 1.0%. If the fair value less cost of disposal cannot be determined or is lower than the carrying amount, the value in use is calculated. If the carrying amount exceeds the recoverable amount, an impairment loss is recognized in the amount of the difference. The calculation of the fair value less cost of disposal and the value in use is most sensitive to the fol- lowing assumptions: (1) Gross margins are based on average values achieved in the last two years adopted over the budget period for anticipated efficiency improvements. (2) Discount rates reflect the current market assessments of the risks of the cash generating unit. The rate was estimated based on the average percentage of a weighted average cost of capital for the industry. (3) Estimates regarding the raw materials price developments are obtained by published indices from countries in which the resources are mainly bought. Forecast figures (mainly in Europe and the US) and past price develop- ments have been used as an indicator for future developments. (4) Management notices that the Group’s position continues to strengthen, as customers shift their purchases to larger and more stable 66 ANNUAL REPORT 2014Notes CONSOLIDATED FINANCIAL STATEMENTS companies. Therefore there is no need for any doubt regarding the assumption of market share. (5) Revenue growth rates are estimated based on published industry research. An assessment for assets other than goodwill is made at each reporting date to determine whether there is any indication that impairment losses recognized in earlier periods no longer exist or may have decreased. In this case, Stabilus would record a partial or entire reversal of the impairment loss. I N V E N TO R I E S Inventories are valued at the lower of cost and net realizable value using the average cost method. Production costs include all direct cost of material and labor and an appropriate portion of fixed and variable overhead expenses. Net realizable value is the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale. Borrowing costs for the produc- tion period are not included. Provisions are set up on the basis of the analysis of stock moving and/or obsolete stock. F I N A N C I A L I N S T R U M E N T S A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or an equity instrument of another entity. Financial instruments recorded as financial assets or financial liabilities are generally reported separately. Financial instruments are recognized as soon as the Stabilus Group becomes a party to the contractual provisions of the financial instrument. Financial instruments comprise financial receivables or liabilities, trade accounts receivable or liabilities, cash and cash equivalents and other financial assets or liabilities. Financial instruments are initially measured at fair value. For the purpose of subsequent measurement, financial instruments are allocated to one of the categories defined in IAS 39 “Financial Instruments: Recognition and Measurement”. The measurement categories within the meaning of IAS 39 relevant for Stabilus Group are loans and receivables, financial assets at fair value through profit or loss and financial liabilities measured at amortized costs. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Examples include trade accounts receivable and loans originated by the Group. After initial recognition, loans and receivables are subsequently carried at amortized cost using the effective interest method less impairment losses. Gains and losses are recognized in the con- solidated earnings when the loans and receivables are derecognized or impaired. Interest effects from using the effective interest method are similarly recognized in profit or loss. For the accounting of pur- chase or sale of financial assets, Stabilus uses the settlement date. Loans and receivables bearing no or lower interest rates compared to market rates with a maturity of more than one year are discounted. F I N A N C I A L A S S E T S In addition to financial instruments assigned to a measurement category, financial assets also include cash and cash equivalents. Cash and cash equivalents consist primarily of cash on hand, cheques and 67 ANNUAL REPORT 2014 NotesCONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND deposits at banks. The Group considers all highly liquid investments purchased with an original matu- rity of three months or less to be cash equivalents. Cash and cash equivalents correspond with the classification in the consolidated statement of cash flows. Interest received on these financial assets is generally recognized in profit or loss applying the effective interest method. Dividends are recognized in profit or loss when legal entitlement to the payment arises. In the second quarter of fiscal 2014 the Group started a sale of receivables programm (factoring). Trade accounts receivable amounting to €20.2 million were sold to factor. I M PA I R M E N T O F F I N A N C I A L A S S E T S At each reporting date the carrying amounts of the financial assets, except those measured at fair value through profit or loss, are investigated to assess whether objective evidence of impairment (such as the debtor's inability to meet its current obligations or significant changes in the technological, eco- nomic, legal or the market environment of the debtor) exists. For equity instruments a significant or prolonged decline in fair value is considered to be objective evidence for impairment. Stabilus has defined criteria for the significance and duration of a decline in fair value. Loans and receivables If there is objective evidence that an impairment loss on assets carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced through use of an allowance account. The amount of the loss is recognized in profit or loss. 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, the previously recognized impairment loss is reversed, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. Any subsequent reversal of an impairment loss is recognized in profit or loss. In relation to trade accounts receivable, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Group will be unable to collect all of the amounts due under the original terms of the invoice. The carrying amount of the receivable is reduced through use of an allowance account. Impaired debts are derecognized when they are assessed as uncollectible. D E R I VAT I V E F I N A N C I A L I N S T R U M E N T S The Group does not have any derivative financial instruments apart from the derivatives embedded in the bond indenture which was concluded on June 7, 2013. Embedded derivatives are separated from the host contract, which is not measured at fair value through profit and loss, if the economic characteris- tics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract. Separable embedded derivatives are measured at fair value at initial recogni- tion and at each subsequent reporting date. The fair value of embedded derivatives is calculated using a standard option pricing model. For the valuation, the credit spread used is calibrated such that the model reproduces the current market price quoted on the Luxembourg Stock Exchange (Bourse de Lux- 68 ANNUAL REPORT 2014Notes CONSOLIDATED FINANCIAL STATEMENTS embourg) at the respective valuation date. Derivatives are presented as assets if their fair value is posi- tive and as liabilities if the fair value is negative. Following initial recognition, changes in the fair value of derivative financial instruments are recognized in profit and loss. F I N A N C I A L L I A B I L I T I E S A N D E Q U I T Y I N S T R U M E N T S Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement. E Q U I T Y I N S T R U M E N T S An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs. F I N A N C I A L L I A B I L I T I E S Financial liabilities primarily include notes, trade accounts payable, other financial liabilities and in the previous year also equity upside-sharing instruments (EUSIs). Financial liabilities measured at amortized cost Financial liabilities measured at amortized cost include notes as well as equity upside-sharing instru- ments (EUSIs) which comprise profit participating loans (PPLs) including a mezzanine warrant instru- ment. The naming is due to their highly subordinated nature. Nonetheless, they constitute “financial liabilities” and not “equity instruments” in the sense of IAS 32. After initial recognition the financial liabilities are subsequently measured at amortized cost applying the effective interest method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the amortization process. Financial liabilities at fair value through profit or loss As of September 30, 2014 and 2013 the Group does not measure any financial liabilities at fair value through profit or loss. P E N S I O N S A N D S I M I L A R O B L I G AT I O N S The contributions to our pension plans are recognized as an expense when the entity consumes the economic benefits arising from the services provided by the employees in exchange for employee bene- fits. For defined benefit pension plans the projected unit credit method is used to determine the pres- ent value of a defined benefit obligation, the current service cost and any past service cost. For the valuation of defined benefit plans, differences between actuarial assumptions used and actual developments as well as changes in actuarial assumptions result in actuarial gains and losses, which have a direct impact on the consolidated statement of financial position and on other comprehensive income. 69 ANNUAL REPORT 2014 NotesCONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND OT H E R P R O V I S I O N S Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable esti- mate can be made of the amount of the obligation. All cost elements that are relevant flow into the measurement of other provisions - in particular those for warranties and potential losses on pending transactions. Non-current provisions with a residual term of more than one year are recognized at bal- ance sheet date with their discounted settlement amount. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. A restructuring provision is recognized when the Group has developed a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those affected by it. The measure- ment of a restructuring provision includes only the direct expenditures arising from the restructuring, which are those amounts that are both necessarily entailed by the restructuring and not associated with the ongoing activities of the entity. Termination benefits are granted if an employee is terminated before the normal retirement age or if an employee leaves the company voluntarily in return for the payment of a termination benefit. The Group records termination benefits if it is demonstrably committed, without realistic possibility of with- drawal, to a formal detailed plan to terminate the employment of current employees or if it is demon- strably committed to pay termination benefits if employees leave the company voluntarily. Provisions for warranties are recognized at the date of sale of the relevant products, at the manage- ment’s best estimate of the expenditure required to settle the Group’s obligation. 70 ANNUAL REPORT 2014Notes CONSOLIDATED FINANCIAL STATEMENTS 4 Revenue The Group’s revenue developed as follows: Revenue by region (location of Stabilus company) I N € T H O U S A N D S Europe NAFTA Asia / Pacific and rest of world Revenue Revenue by region (location of customer) I N € T H O U S A N D S Europe NAFTA Asia / Pacific and rest of world Revenue Revenue by markets I N € T H O U S A N D S Automotive Gas spring Powerise Industrial Swivel chair Revenue Group revenue results from sales of goods. T _ 020 Year ended Sept 30, 2014 267,271 176,817 63,245 507,333 2013 244,629 157,908 57,566 460,103 T _ 021 Year ended Sept 30, 2014 250,280 166,146 90,907 507,333 2013 230,221 150,035 79,847 460,103 T _ 022 Year ended Sept 30, 2014 340,804 255,023 85,781 142,279 24,250 507,333 2013 298,068 242,728 55,340 136,856 25,179 460,103 71 ANNUAL REPORT 2014 NotesCONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND 5 Cost of sales, research and development, selling and administrative expenses Expenses by function T _ 023 I N € T H O U S A N D S Capitalized development cost Personnel expenses Material expenses Depreciation and amortization Other Total I N € T H O U S A N D S Capitalized development cost Personnel expenses Material expenses Depreciation and amortization Other Total Year ended Sept 30, 2014 Cost of sales – (107,093) (239,206) (25,012) (16,426) Research & development expenses 12,899 (12,374) (4,769) (9,750) (6,297) (387,737) (20,291) Selling expenses Administrative expenses – – Total 12,899 (12,745) (18,908) (151,120) (7,663) (3,826) (14,469) (38,703) (2,255) (1,522) (9,878) (253,893) (40,110) (47,070) (32,563) (479,294) Year ended Sept 30, 2013 Cost of sales – (100,612) (201,412) (26,182) (21,499) Research & development expenses 13,814 (11,603) (3,326) (8,780) (7,678) (349,705) (17,573) Selling expenses Administrative expenses – – Total 13,814 (11,797) (17,033) (141,045) (7,203) (3,841) (16,092) (38,933) (2,294) (1,859) (28) (214,235) (40,662) (45,297) (21,214) (427,425) Selling expenses include shipping and handling cost amounting to €18,122 thousand (PY: €18,202 thousand). Other expenses exclude recharges to other functions. Administrative personnel expenses include all Koblenz second level managers, as well as all functional heads globally. The expense items in the statement of comprehensive income include following personnel expenses. Personnel expenses I N € T H O U S A N D S Wages and salaries Compulsory social security contributions Pension cost Other social benefits Personnel expenses 72 T _ 024 Year ended Sept 30, 2014 (105,683) (28,360) (13,423) (3,654) 2013 (99,323) (27,066) (12,631) (2,025) (151,120) (141,045) ANNUAL REPORT 2014Notes CONSOLIDATED FINANCIAL STATEMENTS The Company allocated an amount of €4,259 in the prior year from compulsory social security contri- butions to pension costs resulting from changes in the set up in the ERP data collection in the German entities to show a more preciously differentiation of those items. Compulsory contributions to social pension insurance are included in the line item pension cost. The following table shows the Group’s average number of employees. Number of employees Wage earners Salaried staff Trainees and apprentices Average number of employees 6 Other income Other income I N € T H O U S A N D S Foreign currency translation gains Gains on sale / disposal of assets Income from the release of other accruals Miscellaneous other income Other income 7 Other expenses Other expenses I N € T H O U S A N D S Foreign currency translation losses Losses on sale / disposal of tangible assets Addition to other provisions Other expenses Other expenses Year ended Sept 30, 2014 3,134 836 85 4,055 Year ended Sept 30, 2014 3,360 38 10 2,604 6,012 T _ 025 2013 2,845 789 78 3,712 T _ 026 2013 2,746 617 336 2,355 6,054 T _ 027 Year ended Sept 30, 2014 (2,577) (100) (147) (31) 2013 (3,365) (60) (7) (104) (2,855) (3,536) 73 ANNUAL REPORT 2014 NotesCONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND Year ended Sept 30, 2014 35 6,034 5,714 4,576 1,092 17,451 T _ 028 2013 210 – 2,761 1,396 1,096 5,463 T _ 029 Year ended Sept 30, 2014 (31,647) – (6,720) (66) (342) 2013 (26,459) (7,154) (11,935) (233) (744) (38,775) (46,525) 8 Finance income Finance income I N € T H O U S A N D S Interest income on loans and financial receivables Net foreign exchange gain Gains from changes in carrying amount of financial assets Gains from changes in fair value of derivative instruments Other interest income Finance income 9 Finance costs Finance costs I N € T H O U S A N D S Interest expense on financial liabilities Net foreign exchange loss Loss from changes in carrying amount of EUSIs Interest expenses finance lease Other interest expenses Finance costs 10 Income tax expense Income taxes comprise current taxes on income (paid or owed) in the individual countries and deferred taxes. The tax rates which are applicable on the reporting date are used for the calculation of current taxes. Tax rates for the expected period of reversal, which are enacted or substantively enacted at the reporting date, are used for the deferred taxes. Deferred taxes are recognized as tax expenses or income in the statements of comprehensive income, unless they relate to items directly recognized in equity. In these cases the deferred taxes are also recognized directly in equity. 74 ANNUAL REPORT 2014Notes CONSOLIDATED FINANCIAL STATEMENTS Income tax expense I N € T H O U S A N D S Current income taxes Deferred taxes Tax income / (expense) The respective local rates have been used to calculate the deferred taxes. A tax rate of 30% has been used for group purposes. The current income taxes comprise prior year taxes amounting to €495 thou- sand (PY: €(2,849) thousand). The actual tax income of €78 thousand deviates in the amount of €3,040 thousand from the expected tax expense of €(2,962) thousand that results from applying the group income tax rate 30% to the annual earnings of the Group before income taxes. Tax expense reconciliation (expected to actual) I N € T H O U S A N D S Income / (loss) before income tax Expected tax income / (expense): 30% Prior year taxes Tax effect of non-deductible expenses Valuation allowance interest carry-forward Tax-free income Tax audit reserve Non-capitalized deferred taxes on domestic losses Additions / deductions due to trade tax Effect of divergent tax rates Utilization of non-capitalized losses / interest carried forward Reversal of valuation allowance DTA on net operating loss Other tax effects Actual income tax income / (expense) Tax charge in % T _ 030 Year ended Sept 30, 2014 (10,522) 10,600 2013 (10,373) 228 78 (10,145) T _ 031 Year ended Sept 30, 2014 9,872 (2,962) 495 (2,317) 6,952 – (460) 44 (663) (833) – (504) 325 78 2013 (5,866) 1,760 (2,849) (2,227) (6,711) 1,469 (460) 28 (502) (1,375) 184 480 57 (10,145) (0.8)% (172.9)% 75 ANNUAL REPORT 2014 NotesCONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND T _ 032 Total (50,586) (4,951) (755) (734) 330 3,829 1,886 DTL (50,776) (8,232) (975) (956) (3) (2,532) – (63,474) (50,981) 5,140 – (58,334) (50,981) The tax effect of non-deductible expenses mostly includes the effect of German and US non-deducti- ble expenses. The tax effect due to non-recognition of deferred tax assets includes the valuation allowance for the current tax loss carry-forwards. The tax effect of non-capitalized deferred taxes on domestic losses is calculated with the local tax rates on the basis of the negative earnings before taxes (EBTs) of the respective companies. The deferred tax assets (DTA) and deferred tax liabilities (DTL) in respect of each type of the temporary difference and each type of unused tax losses are as follows: Deferred tax assets and liabilities Sept 30, 2014 Sept 30, 2013 I N € T H O U S A N D S Intangible assets Property, plant & equipment Inventories Receivables Other assets Provisions and liabilities Tax losses Subtotal Netting Total DTA 188 3,166 329 236 39 10,130 16,176 30,264 DTL Total (50,925) (8,786) (999) (808) (134) (4,458) – (50,737) (5,620) (670) (572) (95) 5,672 16,176 (66,110) (35,846) (22,345) 22,345 – 7,919 (43,765) (35,846) DTA 190 3,281 220 222 333 6,361 1,886 12,493 (5,140) 7,353 Deferred tax assets and deferred tax liabilities have been offset if they relate to income taxes levied by the same tax authorities and if there is a right to offset current tax assets against current tax liabilities. As of September 30, 2014, the Group has unused tax loss carry-forwards of €34,545 thousand (PY: €22,839 thousand). The following table provides a detailed overview of the tax loss carry-forwards and the expiration dates. 76 ANNUAL REPORT 2014Notes CONSOLIDATED FINANCIAL STATEMENTS Tax loss carry-forwards T _ 033 I N € T H O U S A N D S Germany Spain Romania Total I N € T H O U S A N D S Germany Spain Romania Total Tax loss carry-forward 1,959 4,226 28,360 34,545 Tax loss carry-forward 1,959 9,092 11,788 22,839 Tax rate 30.2% 28.0% 16.0% Tax rate 30.2% 28.0% 16.0% Year ended Sept 30, 2014 Deferred tax asset (gross) Valuation allowance Deferred tax asset (net) Expiration date 592 1,183 4,538 6,313 (592) (1,183) – – Indefinite Indefinite – 4,538 Within 5 years (1,775) 4,538 Year ended Sept 30, 2013 Deferred tax asset (gross) Valuation allowance Deferred tax asset (net) Expiration date 592 2,546 1,886 5,023 (592) (2,546) – – Indefinite Indefinite – 1,886 Within 5 years (3,137) 1,886 The increase of the tax loss carry-forward in Romania results from the merger of the Romanian entities. The amount recognized as a deferred tax asset is calculated under consideration of the actual corpo- rate planning and its utilization within the planning period. Interest carry-forwards in Romania and USA are not considered, as it is not likely that these carry- forwards will be utilized. Interest carry-forwards in Germany amounting to €41,252 thousand are calculated under consideration of a discussed new financing structure with an interest rate at 2.5%. Deferred tax assets on interest carry-forwards are recognized in an amount of €11,000 thousand, taking into account the utilization within the next five years. 11 Earnings per share Following the shareholder resolution dated May 5,2014, the corporate form of the Company was changed from S.à r.l. (société à responsabilité limitée) to S.A. (société anonyme) and the number of shares outstanding was reduced from 501,250,001 to 17,700,000. On May 27, 2014 3,023,256 new shares were issued. The weighted average number of shares used for the calculation of earnings per share in the fiscal years ended September 30, 2014 and 2013 is set out in the following table. For the comparative period the number of shares was adjusted retrospectively according to IAS 33.64, i.e. the number of shares of the new corporate S.A. (société anonyme) was used. 77 ANNUAL REPORT 2014 NotesCONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND Weighted average number of shares D AT E October 1, 2012 September 30, 2013 October 1, 2013 May 27, 2014 September 30, 2014 Number of days Transaction Change Total shares T _ 034 Total shares (time-weighted) 365 238 17,700,000 17,700,000 17,700,000 17,700,000 17,700,000 11,541,370 127 Capital increase 3,023,256 20,723,256 7,210,558 20,723,256 18,751,927 The earnings per share for the fiscal years ended September 30, 2014 and 2013 were as follows: Earnings per share Profit / (loss) attributable to shareholders of the parent (in € thousands) Weighted average number of shares Earnings per share (in €) Basic and diluted earnings per share are calculated by dividing the profit attributable to the sharehold- ers of the Company by the weighted average number of shares outstanding. T _ 035 Year ended Sept 30, 2014 10,086 2013 (15,938) 18,751,927 17,700,000 0.54 (0.90) 78 ANNUAL REPORT 2014Notes CONSOLIDATED FINANCIAL STATEMENTS 12 Property, plant and equipment Property, plant and equipment are presented in the following table. NOTES Property, plant and equipment I N € T H O U S A N D S Gross value Land, equivalent rights to real property Buildings and land improve- ments Technical equipment and machinery Other tangible equipment Construc tion in progress Balance as of Sept 30, 2012 10,884 28,132 Foreign currency difference Additions Disposals Reclassifications Balance as of Sept 30, 2013 Foreign currency difference Additions Disposals Reclassifications (46) 52 (22) – 10,868 119 – – – (757) 2,079 (71) 290 29,673 1,094 1,459 – 245 95,584 (3,251) 3,100 (2,362) 3,688 96,759 4,138 6,222 (1,333) 13,754 Balance as of Sept 30, 2014 10,987 32,471 119,540 23,658 (926) 2,147 (999) 1,835 25,715 1,347 4,601 (2,648) 1,568 30,583 13,220 (208) 13,058 – (5,841) 20,229 228 8,950 (83) (15,602) 13,722 Notes T _ 036 Total 171,478 (5,188) 20,436 (3,454) (28) 183,244 6,926 21,232 (4,064) (35) 207,303 Accumulated depreciation Balance as of Sept 30, 2012 Foreign currency difference Depreciation expense Disposals Reclassifications Balance as of Sept 30, 2013 Foreign currency difference Depreciation expense Disposals Reclassifications Balance as of Sept 30, 2014 Carrying amount Balance as of Sept 30, 2013 Balance as of Sept 30, 2014 – – – – – – – – – – – (3,993) (35,605) (10,946) (819) (51,363) 354 2,281 (1,763) (14,888) 30 14 1,957 (184) 756 (5,094) 747 185 – – – – 3,391 (21,745) 2,734 15 (5,358) (46,439) (14,352) (819) (66,968) (423) (1,555) – – (2,911) (13,852) 1,321 – (1,069) (4,838) 2,633 – – – – – (4,403) (20,245) 3,954 – (7,336) (61,881) (17,626) (819) (87,662) 10,868 10,987 24,315 25,135 50,320 57,659 11,363 12,957 19,410 12,903 116,276 119,642 Property, plant and equipment includes assets resulting from two finance lease contracts with a carry- ing amount of €3,197 thousand as of September 30, 2014 (PY: €3,747 thousand), of which €2,059 thousand (PY: €2,543 thousand) relate to a leasing agreement concluded in 2008, and €1,138 thou- 79 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND Notes sand (PY: €1,204 thousand) relate to a real estate finance lease agreement signed in December 2010 by Orion Rent Imobiliare S.R.L., Bucharest, prior to the Stabilus Group taking the majority of the company. Contractual commitments for the acquisition of property, plant and equipment amount to €3,755 thousand (PY: €2,441 thousand). Typically these have been secured by a bank guarantee or an in-depth check of the relevant supplier. The total depreciation expense for tangible assets is included in the consolidated statement of compre- hensive income in the following line items: Depreciation expense for property, plant and equipment T _ 037 I N € T H O U S A N D S Cost of sales Research and development expenses Selling expenses Administrative expenses Depreciation expense Year ended Sept 30, 2014 (18,517) (714) (294) (720) 2013 (19,759) (713) (285) (988) (20,245) (21,745) Prepayments by the Stabilus Group for property, plant and equipment and intangible assets of €158 thousand (PY: €144 thousand) are included in other non-current assets. 13 Goodwill The first-time consolidation of Stable II S.à r. l., Luxembourg as of April 8, 2010, resulted in goodwill of €51 million and the first-time consolidation of Orion Rent Imobiliare S.R.L, Bucharest, Romania resulted in goodwill of €396 thousand. These acquisitions resulted in a total goodwill of €51,458 thou- sand (PY: €51,458 thousand). With the start of segment reporting in fiscal year 2014, goodwill was allocated to the operating segments based on their relative fair values. As such €27,787 thousand have been allocated to Europe, €13,379 thousand to NAFTA and €10,292 thousand to Asia / Pacific and rest of world (RoW). In prior years the goodwill of €51,458 thousand had been allocated to the Group, as the goodwill was monitored on group level. The value in use for each cash generating unit as the smallest identifiable group of assets that gener- ates cash inflows that are largely independent of the cash inflows from other assets or other groups of assets is measured by discounting the future cash flows generated from the continuing use of the unit and was based on the following key assumptions: The underlying cash flow forecasts are based on the five-year medium term plan (“MTP”) approved by the Management Board. The cash flow planning takes into account price agreements based on experience and anticipated efficiency enhancements as well as average sales growth of approximately 7.8% for Europe, 5.3% for NAFTA and 20.8% for Asia / Pacific and rest of world (PY: 8.1% for Group) on compound average based on the strategic outlook. While the overall economic outlook is very volatile, the Group believes that its market-orientated approach 80 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS Notes and leading edge products and services allow for some revenue growth. Cash flows after the five-year period were extrapolated by applying a 1% (PY: 1%) growth rate. This growth rate was based on the historic development of worldwide GDP as published by the WTO (2.9%), net of average inflation as published by the ECB (1.9%). The discount rate applied to cash flow projections is 8.8% for Europe, 9.3% for NAFTA and 9.2% for Asia / Pacific and rest of world (PY: 9.6% for Group). The pre-tax dis- count rates are 11.5% for Europe, 13.6% for NAFTA and 12.0% for Asia / Pacific and rest of world (PY: 13.1% for Group). Group management believes that the overall economic situation and the position of the Group have improved since the Group was acquired on April 8, 2010. The Group planning is based on the follow- ing economic assumptions: • The business plan used to determine the purchase price and the valuations in April 2010 is viewed as achievable in the current economic environment. • Since April 2010 the overall economic climate for automotive is seen more positively, which should support the Group’s revenue plan. • The significant debt reduction as a result of the refinancing and the acquisition by Servus HoldCo in fiscal year 2010 has substantially improved key customer confidence in Stabilus’ long term partner- ship concept. This has resulted in additional orders, also for products with a longer life cycle hori- zon like Powerise (electric tail gate opening system). Supplier confidence and credit insurer confi- dence have improved and will potentially have a positive effect on the Group’s cash needs in the medium term. The following table shows the required changes to selected key figures required for the respective recoverable amounts to equal it’s carrying amount. In management's view this change is not reasona- bly possible. Goodwill sensitivity analysis T _ 038 I N P E R C E N T Discount rate (post-tax) Budgeted Gross margin reduction to plan Sustainable growth rate after 5 year period Sept. 30, 2014 Change required for carrying amount to equal recoverable amount Europe 9.5 (6.0) (12.8) NAFTA 11.0 (6.6) (100.0) Asia / Pacific and RoW 8.8 (7.2) (100.0) 81 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND Notes 14 Other intangible assets Other intangible assets are presented in the following table. Intangible assets T _ 039 Develop- ment cost under construction Develop- ment cost Software Patents Customer relation- ship Tech- nology Trade name Total I N € T H O U S A N D S Gross value Balance as of Sept 30, 2012 47,465 15,111 3,606 1,271 83,683 58,132 13,246 222,514 Foreign currency difference Additions Disposals (280) 3,100 – (211) 10,714 – Reclassifications 2,641 (2,758) Balance as of Sept 30, 2013 52,926 22,856 Foreign currency difference 454 400 Additions Disposals 3,934 10,027 – – Reclassifications 11,583 (12,054) (67) 362 (109) 130 3,922 94 433 (26) 479 (6) 3 – – – – – – – – – – – – – – (564) 14,179 (109) 13 1,268 83,683 58,132 13,246 236,033 20 – – 27 – – – – – – – – – – – – 968 14,394 (26) 35 Balance as of Sept 30, 2014 68,897 21,229 4,902 1,315 83,683 58,132 13,246 251,404 Accumulated amortization Balance as of Sept 30, 2012 (14,620) Foreign currency difference Amortization expense Impairment loss Disposals 103 (6,876) (1,227) – Balance as of Sept 30, 2013 (22,620) Foreign currency difference Amortization expense Impairment loss Disposals (218) (8,280) (776) – Balance as of Sept 30, 2014 (31,894) Carrying amount – – – – – – – – – – – (1,796) (939) (8,717) (13,695) (1,840) (41,607) 35 (1,051) – 109 6 (61) – – – – – 144 (3,487) (5,478) (736) (17,689) – – – – – – (1,227) 109 (2,703) (994) (12,204) (19,173) (2,576) (60,270) (87) (1,051) – 26 (19) (57) – – – – – (324) (3,487) (5,479) (735) (19,089) – – – – – – (776) 26 (3,815) (1,070) (15,691) (24,652) (3,311) (80,433) Balance as of Sept 30, 2013 30,306 22,856 Balance as of Sept 30, 2014 37,003 21,229 1,219 1,087 274 245 71,479 38,959 10,670 175,763 67,992 33,480 9,935 170,971 During the fiscal year, costs of €13,961 thousand (PY: €13,814 thousand) were capitalized for develop- ment projects that were incurred in the product and material development areas. Systematic amortization of capitalized internal development projects amounted to €8,280 thousand (PY: €6,876 thousand). The bor- 82 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS Notes T _ 040 Year ended Sept 30, 2014 (6,495) (9,036) (3,532) (802) 2013 (6,422) (8,067) (3,555) (872) rowing costs capitalized during the period amounted to €1,062 thousand (PY: €1,065 thousand). A capitalization rate of 7.75% (PY: 7.75%) was used to determine the amount of borrowing costs. The total amortization expense and impairment loss for intangible assets is included in the consoli- dated statements of comprehensive income in the following line items: Amortization expense for intangible assets I N € T H O U S A N D S Cost of sales Research and development expenses Selling expenses Administrative expenses Amortization expense (including impairment loss) (19,865) (18,916) Amortization expenses on development costs include impairment losses of €776 thousand (PY: €1,227 thousand) due to the withdrawal of customers from the respective projects. The impairment loss is included in the research and development expenses. Contractual commitments for the acquisition of intangible assets amount to €1,388 thousand (PY: €562 thousand). 15 Other financial assets Other financial assets Sept 30, 2014 Sept 30, 2013 I N € T H O U S A N D S Current Non-current Loan to shareholder Derivative instruments Other miscellaneous Other financial assets – 15,422 2,882 18,304 – – – – Total – 15,422 2,882 18,304 Current Non-current – 77,134 10,845 – – – T _ 041 Total 77,134 10,845 – 10,845 77,134 87,979 83 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND Notes L O A N TO S H A R E H O L D E R Using the proceeds from issuance of the senior secured notes in June 2013, the Stabilus Group pro- vided a €80,014 thousand loan to its sole shareholder. According to the upstream loan agreement dated June 7, 2013 and an amendment agreement dated June 28, 2013, the upstream shareholder loan was to mature on June 7, 2018. No interest accrued or was payable on or in respect of this loan. On the maturity date, a premium of 61.051% was due and payable on outstanding principal amount of €80,014 thousand. All or part of the outstanding principal amount, including an early prepayment pre- mium specified in the agreement, could be repaid prior to the maturity date. The loan to shareholder was measured at amortized cost according to the effective interest method. The effective interest was 11.52%. As part of the IPO reorganization, the upstream shareholder loan was derecognized, following the dis- tribution of Company’s equity interest in Servus II (Gibraltar) Limited which held the upstream share- holder loan receivable. D E R I VAT I V E I N S T R U M E N T S Derivative financial instruments comprise solely fair values of early redemption options embedded in the indenture which was concluded on June 7, 2013. The increase in fair value of these embedded derivatives in the fiscal year ended September 30, 2014 amounting to €4,576 thousand (PY: €1,396 thousand) is included in the Group’s income statement as finance income, since derivatives are meas- ured at fair value through profit and loss upon initial recognition. See also Note 8. The increase (decrease) in the interest rates by 0.5% would lead to an increase (decrease) of the fair value of embedded derivatives by €1,240 thousand (€1,411 thousand). The increase (decrease) in the interest rates by 1.0% would lead to an increase (decrease) of the fair value of embedded derivatives by €2,327 thousand (€3,045 thousand). OT H E R M I S C E L L A N E O U S Other miscellaneous financial assets relate to the sale of receivables program that was started in March 2014. 84 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS Notes T _ 042 Total 6,514 1,036 1,449 5,405 Sept 30, 2014 Sept 30, 2013 Current Non-current Total Current Non-current – 158 – 944 2,643 1,333 2,679 3,419 6,514 892 1,449 4,525 – 144 – 880 2,643 1,175 2,679 2,475 8,972 1,102 10,074 13,380 1,024 14,404 16 Other assets Other assets I N € T H O U S A N D S VAT Prepayments Deferred charges Other miscellaneous Other assets Non-current prepayments comprise prepayments on property, plant and equipment. 17 Inventories Inventories I N € T H O U S A N D S Raw materials and supplies Finished products Work in progress Merchandise Inventories T _ 043 Sept 30, 2014 Sept 30, 2013 24,519 10,455 8,639 5,927 49,540 23,809 10,053 7,511 4,690 46,063 Inventories that are expected to be turned over within twelve months amount to €49,540 thousand (PY: €46,063 thousand). Write-downs on inventories to net realizable value amount to €5,705 thou- sand (PY: €3,421 thousand). In the reporting period raw materials, consumables and changes in finished goods and work in progress recognized as cost of sales amounted to €239,206 thousand (PY: €201,412 thousand). The Stabilus Group’s prepayments for inventories amounting to €1,063 thousand (PY: €675 thousand) are included in prepayments in other current assets. 85 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND Notes 18 Trade accounts receivable Trade accounts receivable include the following items: Trade accounts receivable I N € T H O U S A N D S Trade accounts receivable Allowance for doubtful accounts Trade accounts receivable T _ 044 Sept 30, 2014 Sept 30, 2013 58,068 (1,571) 56,497 69,362 (1,586) 67,776 The Group provides credit in the normal course of business and performs ongoing credit evaluations on certain customers’ financial condition, but generally does not require collateral to support such receivables. The Group establishes an allowance for doubtful accounts based upon factors such as the credit risk of specific customers, historical trends and other information. The allowances for doubtful accounts developed as follows: Allowance for doubtful accounts T _ 045 I N € T H O U S A N D S Allowance for doubtful accounts as of beginning of fiscal year Foreign currency differences Increase in the allowance Decrease in the allowance Sept 30, 2014 Sept 30, 2013 (1,586) (1,863) (38) (232) 285 73 (83) 287 Allowance for doubtful accounts as of fiscal year-end (1,571) (1,586) Trade accounts receivable decreased in the fiscal year ended September 30, 2014 mainly due to the sale of receivables to a factor. 19 Current tax assets Current tax assets are measured at the amount expected to be recovered from the taxation authorities when the amount already paid in respect of current and prior periods exceeds the amount due for those periods. 20 Cash and cash equivalents Cash and cash equivalents includes cash on hand and in banks, i.e. liquid funds and demand deposits. As of September 30, 2014, it amounted to €33,494 thousand (PY: €21,819 thousand). Cash in banks earned interest at floating rates based on daily bank deposit rates. 86 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS 21 Equity The development of the equity is presented in the statement of changes in equity. Issued capital Issued capital as of September 30, 2014 amounted to €207 thousand (Sept 30, 2013: €5,013 thou- sand) and was fully paid in. It is divided into 20,723,256 shares with a nominal value of €0.01 each. According to the shareholder resolution dated May 5, 2014, the issued capital of the Company was reduced by €4,836 thousand. The Company’s issued capital was brought from an amount of €5,013 thousand (divided into 501,250,001 shares having a nominal value of €0.01) to an amount of €177 thousand (divided into 17,700,000 shares having a nominal value of €0.01) by way of cancellation of 483,550,001 shares and allocation of an aggregate amount of €4,836 thousand to a newly created distributable reserve of the Company. On May 27, 2014, the number of shares was increased by 3,023,256 shares (having a nominal value of €0.01) leading to an increase in the issued capital by €30 thousand. The total proceeds from this capital increase amounted to €65,000 thousand; a share premium of €64,970 thousand is included in capital reserves. The authorized capital of the Company is set at €315 thousand represented by maximum of 31,500 thou- sand shares, each with a nominal value of €0.01. Capital reserves Capital reserves as of September 30, 2014 amounted to €73,091 thousand (Sept 30, 2013: €74,403 thousand) and contained premiums received for the issuance of shares of €64,970 thousand, a distrib- utable reserve of €4,836 thousand and other capital contributions by owners of €3,286 thousand. The capital reserves were presented as “additional paid-in capital” in the previous financial statements. The presentation, i.e. the name, of this balance sheet item was changed to “capital reserves” since it is more appropriate for the nature and composition of this line item. Prior to the IPO and immediately following the IPO the Group structure was reorganized (hereinafter also referred to as “IPO reorganization”). As a result, the equity upside-sharing instruments (EUSIs) and the upstream loan to the shareholder were extinguished and are no longer recognized on the Group’s balance sheet. As part of this reorganization, and following the transfer of the external EUSIs to the shareholder, the owners contributed €10,020 thousand to the capital reserves of the Group which, considering the opening balance of €74,403 thousand and a distribution of €81,137 thousand, results in a closing balance of €3,286 thousand. The Company’s equity interest in Servus II (Gibraltar) Limited which held the upstream shareholder loan receivable with a carrying amount of €81,137 thousand was distributed to the shareholder Servus Group Holdco S.à r.l., Luxembourg. This distribution resulted in a dividend per share of €3.92. In the prior year a cash dividend of €150 thousand was distributed to the shareholder which equals a divi- dend per share of €0.01. Notes 87 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND Notes Retained earnings Retained earnings as of September 30, 2014 amounted to €7,920 thousand (Sept 30, 2013: €(991) thousand) and included Group’s net result in the fiscal year 2014 amounting to €10,086 thousand and expenses for the initial public offering of €(1,175) which were recognized directly in equity. Other reserves Other reserves comprise all foreign currency differences arising from the translation of the financial statements of foreign operations and unrealized actuarial gains and losses following the first-time adoption of revised IAS 19. The following table shows the changes in other reserves recognized in equity through other comprehensive income as well as the income tax recognized in equity through other comprehensive income: Other comprehensive income / (expense) I N € T H O U S A N D S Unrealized gains / (losses) from foreign currency translation Unrealized actuarial gains / (losses) Other comprehensive income / (expense) for the period I N € T H O U S A N D S Unrealized gains / (losses) from foreign currency translation Other comprehensive income / (expense) for the period Unrealized actuarial gains / (losses) 1) Other comprehensive income / (expense) for the period adjusted 1) Effects from first-time adoption of IAS 19 (revised 2011) Year ended Sept 30, 2014 Before tax Tax (expense) benefit Net of tax Non-controlling interest (422) (9,207) – 2,763 (422) (6,444) (9,629) 2,763 (6,866) – – – Year ended Sept 30, 2013 Before tax Tax (expense) benefit Net of tax Non-controlling interest 3,145 3,145 (960) 2,185 – – 289 289 3,145 3,145 (671) 2,474 – – – – T _ 046 Total (422) (6,444) (6,866) Total 3,145 3,145 (671) 2,474 88 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS Notes 22 Financial liabilities The financial liabilities comprise following items: Financial liabilities T _ 047 Sept 30, 2014 Sept 30, 2013 I N € T H O U S A N D S Current Non-current Total Current Non-current Total Notes EUSIs 5,789 256,556 262,345 7,663 311,797 319,460 – – – – 3,300 3,300 Financial liabilities 5,789 256,556 262,345 7,663 315,097 322,760 S U P E R S E N I O R R E V O LV I N G C R E D I T FA C I L I T Y On June 7, 2013, Stabilus (former Servus HoldCo) entered into a super senior revolving credit facility agreement with, among others, J.P. Morgan Limited and Commerzbank Aktiengesellschaft as mandated lead arrangers, J.P. Morgan Europe Limited as facility agent and security agent, JP Morgan Chase Bank, and / or its affiliates and Commerzbank Aktiengesellschaft as lenders, providing for a committed multi- currency facility of €25.0 million and with an option for one or more uncommitted facilities up to €15.0 million additional facilities. The revolving facility matures on March 7, 2018, i. e. four years and nine months after the date of issuance of senior secured notes and the conclusion of the super senior revolving credit facility agreement. The initial margin interest on the loans utilized under the revolving credit facility was 3.75% per annum and from June 2014 on it is a percentage rate determined in accordance with a net leverage ratio-related margin grid (ratchet) with a range from 2.75% to 3.75% per annum. An ancillary facility can be made available under this revolving credit facility, containing e.g. overdraft facilities, guarantees, bonding, documentary or standby letter of credit facilities, short-term loan facilities, derivatives or foreign exchange facilities subject to the satisfaction of certain conditions precedent. A fronting fee of 0.125% p.a. is payable on the amount of any letter of credit or bank guarantee issued under the revolving credit facility. During the availability period on the available but unused commitments under this credit facility, a commitment fee of 30% of the applicable margin is payable in arrears on the last day of each succes- sive three-month period. The revolving credit facility is guaranteed by Stabilus (former Servus HoldCo) and other subsidiary guarantors defined in the agreement. It is secured by the same collateral that secures the senior secured notes issued on June 7, 2013. The agreement contains certain financial covenants, including a requirement of a minimum EBITDA. As of September 30, 2014, the Group has no outstanding financial liabilities under the revolving credit facility. 89 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND Notes S E N I O R S E C U R E D N OT E S On June 7, 2013, a Group entity, Servus Luxembourg Holding S.C.A., Luxembourg, issued €315 million in aggregate principal amount of senior secured notes due on June 15, 2018. The notes were issued under an indenture among, inter alios, the issuer, Servus HoldCo S.à r.l., Servus Sub, Servus Luxem- bourg S.à r.l., the issuer’s subsidiaries that guarantee the notes, Servus Group HoldCo II S.à r.l., Blitz F10-acht-drei-drei GmbH & Co. KG, Citibank, N. A., London Branch, as trustee, and J.P. Morgan Europe Limited, as security agent. Interest on the notes accrues at the rate of 7.75% per annum and will be payable semi-annually in arrears on June 15 and December 15, commencing on December 15, 2013. The redemption price at maturity will equal 100% of the principal amount of the notes redeemed. At any time prior to June 15, 2015, the Group may on any one or more occasions redeem up to 35% of the aggregate principal amount of the notes, upon not less than 30 nor more than 60 days’ notice to holders, at a redemption price equal to 107.750% of the principal amount of the notes redeemed, plus accrued and unpaid interest and additional amounts (if any) to (but not including) the date of redemption. In addition, at any time prior to June 15, 2015, the Group may on any one or more occa- sions redeem all or part of the notes, upon not less than 30 and no more than 60 days’ notice, at a redemption price equal to 100% of the principal amount of the notes redeemed, plus the applicable premium as of the date of redemption, and accrued and unpaid interest and additional amounts (if any) to the date of redemption. On or after June 15, 2015, the Group may on any one or more occa- sions redeem all or part of the notes upon not less than 30 and no more than 60 days’ notice, at the redemption price of 103.875% in 2015, 101.938% in 2016 and 100.000% in 2017 and thereafter, plus accrued and unpaid interest and additional amounts (if any) on the notes redeemed, to the appli- cable date of redemption. Early redemption options were reported as embedded derivatives in accordance with IAS 39. See also Notes 15 and 31. The principal amount of the senior secured notes as of September 30, 2014 amounted to €256,123 thousand. It decreased in the third quarter of the fiscal year 2014 from €315,000 thousand to €256,123 thousand due to early redemption of senior secured notes amounting to €58,877 thousand on June 5, 2014. The notes are secured by first-ranking liens over the collateral. The collateral package includes pledg- ing of shares in the guaranteeing subsidiaries, certain bank account balances, inventory and receivab les pledges, as well as liens on real estate and intellectual property. As of September 30, 2014, a total of €199,525 thousand (PY: €198,084 thousand) of financial assets had been pledged as collateral, excluding values for pledged shares. The notes are listed on the Official List of the Luxembourg Stock Exchange and admitted for trading on the Euro MTF Market. 90 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS Notes E Q U I T Y U P S I D E - S H A R I N G I N S T R U M E N T S ( E U S I S ) As part of the IPO reorganization, the equity upside-sharing instruments (EUSIs) were extinguished and will no longer be recognized on the Group’s balance sheet. Equity upside-sharing instruments (EUSIs) comprised profit participating loans (PPLs) and a mezzanine warrant instrument. In conjunction with the financial restructuring of the Stabilus business (closing April 8, 2010), all non-performing debt instruments, consisting of parts of the senior debt, the mezza- nine debt, equity tainted loan (ETL) and preferred equity certificates (PEC) were transferred to Servus HoldCo (predecessor of Stabilus S.A.). The purchase of these debt instruments was reimbursed to the lenders, represented by the PPL agent (JP Morgan Limited), by issuing profit participating loan instru- ments by Servus HoldCo, each with a nominal value of €1. In June 2013, the maturity of EUSIs was extended to the year 2043. The exit could be triggered by the management of Servus HoldCo. The uniform conditions of these PPL instruments were as follows: PPL conditions Principal amount Maturity Redemption amount Fixed-interest rate Variable interest Pre-mature call option €1 June 7, 2043 Outstanding principal amount plus accumulated interest 1% fixed-interest rate on the outstanding principal amount, payable at maturity The loan entitles owner of the PPL to receive all cash flows which flow to Servus HoldCo as a result of the underlying instruments, less a margin of 0.12% of each payment. Only on exit, which means (1) a change of control or (2) the sale or disposal of all or substantially all of the assets of the Group whether in a single transaction or a series of related transactions or (3) a flotation or (4) a refinancing or (5) a distribution. Senior EUR PPL: As underlying instrument, Stable II S.à r.l. as lender and Stable Beteiligungs GmbH concluded a new loan (Senior EUR loan) with a notional value of €118,374,107.19 and US$14,950,327.44 (maturity: April 8, 2043). Furthermore, Stable II S.à r.l. granted a claim, via other group entities, to Servus HoldCo in form of a profit-participating loan (senior EUR PPL) with a notional value of €1. Finally, the creditors, repre- sented by the PPL agent, received a claim to Servus HoldCo in form of a profit-participating loan (Sen- ior EUR PPL) with a notional value of €1. Senior USD PPL: As underlying instrument, Stable II S.à r.l. as lender and Stable HoldCo Inc. concluded a new loan (Sen- ior USD loan) with a notional value of €9,957,758.21 and US$25,079,622.73 (maturity: April 8, 2043). Furthermore, Stable II S.à r.l. granted a claim, via other group entities, to Servus HoldCo in form of a profit-participating loan (Senior USD PPL) with a notional value of €1. Finally, the creditors, represented T _ 048 91 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND Notes by the PPL agent received a claim to Servus HoldCo in form of a profit-participating loan (Senior USD PPL) with a notional value of €1. Mezzanine PPL: As underlying instrument, Stable II S.à r.l. as lender and Stable Beteiligungs GmbH concluded a new loan (Mezz Loan) with a principal value of €92,184,426.09 (maturity: April 8, 2043). Furthermore, Sta- ble II S.à r.l. granted a claim, via other group entities, to Servus HoldCo in form of a profit-participating loan (Mezzanine PPL) with a notional value of €1. Finally, the creditors, represented by the PPL agent, received a claim to Servus HoldCo in form of a profit-participating loan (Mezzanine PPL) with a notional value of €1. Equity tainted loan (ETL) PPL: As underlying instrument, the equity tainted loan (ETL) with a notional value of €72,433,267.00 was sold by the lenders, represented by the security trustee, to Servus HoldCo in return for the payment of €1. The original ETL was then amended by an agreement between the issuer, Stable II S.à r.l., and Servus HoldCo. In return for the purchase of the original ETL, the lenders, represented by the PPL agent, granted Servus HoldCo a profit participating loan (ETL PPL) with a notional value of €1. In June 2013, as part of the group’s refinancing, the ETL PPL receivable was contributed by the shareholder to Servus II (Gibraltar) Limited. Preferred equity certificates (PEC) PPL: As underlying instrument, the interest-free preferred equity certificates (IFPECs) with an aggregated notional value of €98,067,780.00 were sold by the lenders, represented by the security trustee, to Servus HoldCo in return for the payment of €1. The IFPECs were then converted by a contract amend- ment agreement between the issuers of the IFPECs, Stable II S.à r.l. and Servus HoldCo, to PECs. In return for the purchase of the IFPECS by Servus HoldCo, the lenders, represented by the PPL agent, received a claim from Servus HoldCo in form of a profit-participating loan (PEC PPL) with a notional value of €1. In June 2013, as part of the group’s refinancing, the PEC PPL receivable was contributed by the shareholder to Servus II (Gibraltar) Limited. Mezzanine warrant instrument: The mezzanine warrants did not have a nominal value, did not accrue interest and did not have a maturity date. Payments on the mezzanine warrants would become due upon the occurrence of an exit, which is not a result of distressed disposal, and are expressed as a percentage of the applicable exit proceeds. The mezzanine warrants were unsecured and under certain circumstances, there might have been a turnover between the mezzanine warrant and the other outstanding PPLs described above. 92 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS 23 Other financial liabilities Other financial liabilities Sept 30, 2014 Sept 30, 2013 I N € T H O U S A N D S Current Non-current Total Current Non-current Liabilities to employees Social security contribution Finance lease obligation Liabilities to related parties Other financial liabilities 4,120 1,701 536 3 6,360 – – 960 – 960 4,120 1,701 1,496 3 7,320 4,519 1,539 1,167 1,661 8,886 – – 1,472 – 1,472 Finance lease obligation, measured as present value of future minimum lease payments, relates to a lease contract for a production line in Germany and a real estate lease contract for a production facility in Romania. 24 Provisions Provisions Sept 30, 2014 Sept 30, 2013 I N € T H O U S A N D S Current Non-current Anniversary benefits Early retirement contracts Employee-related costs Environmental protection Other risks Legal and litigation costs Warranties Other miscellaneous Provisions – – 3,575 730 578 135 2,338 1,195 8,551 295 3,372 – – – – – 393 4,060 Total 295 3,372 3,575 730 578 135 2,338 1,588 12,611 Current Non-current – – 4,160 915 565 138 6,057 2,073 13,908 551 5,913 – – – – – 573 7,037 Notes T _ 049 Total 4,519 1,539 2,639 1,661 10,358 T _ 050 Total 551 5,913 4,160 915 565 138 6,057 2,646 20,945 93 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND Notes The non-current provisions developed as follows: Changes of non-current provisions I N € T H O U S A N D S Balance as of Sept 30, 2012 Foreign currency differences Costs paid Release to income Additions Balance as of Sept 30, 2013 Foreign currency differences Costs paid Release to income Additions Balance as of Sept 30, 2014 Anniversary benefits Early retirement Other Miscellaneous 767 – (241) – 25 551 1 (237) (20) – 295 9,037 (13) (3,111) – – 5,913 (3) (2,377) (161) – 3,372 602 (29) – – – 573 27 – (242) 35 393 Discount rate applied ranges from 0.75% to 1.25% (PY: 1.10% to 1.66%). The development of current provisions is set out in the table below: Changes of current provisions I N € T H O U S A N D S Balance as of Sept 30, 2012 Foreign currency differences Costs paid Release to income Additions Balance as of Sept 30, 2013 Foreign currency differences Costs paid Release to income Additions Balance as of Sept 30, 2014 Employee-re- lated costs Environmental protection measures Other risks Legal and litigation costs Warranties 4,989 26 (4,183) – 3,328 4,160 (70) 1,189 (51) (223) – – 915 43 (3,514) (228) – 2,999 3,575 – – 730 891 2 (47) (367) 87 565 30 – (17) – 578 160 (22) – – – 138 (3) – – – 135 7,591 (23) (1,328) (1,061) 878 6,057 (103) (2,241) (1,485) 110 2,338 Other Miscella- neous 2,745 12 (2,745) (12) 2,073 2,073 (35) (2,026) (14) 1,197 1,195 The provision for employee-related expenses comprises employee bonuses and termination benefits. 94 T _ 051 Total 10,406 (42) (3,352) – 25 7,037 25 (2,614) (423) 35 4,060 T _ 052 Total 17,565 (56) (8,526) (1,440) 6,366 13,908 (138) (8,009) (1,516) 4,306 8,551 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS Notes The provision for environmental protections measures relate to the 1985 vacated former Stabilus Inc US site in Colmar, PE, USA at the North Penn Area 5. In the meantime this North Penn Area 5 has been identified by the United States Environmental Protection Agency (EPA) as an area requiring envi- ronmental remediation. In 2011 the EPA has contacted seven company in the North Penn Area 5 as potential responsible parties for cost shareing, Stabilus being one of them. The Group is currently una- ble to develop a reasonable estimate of its share of the ultimate obligation as cost apportionment method of the EPA and Stabilus insurance reimbursement are unclear at this point in time. As such no liability for a EPA reimbursement has been reflected in the balance sheet as of September 30, 2014. An estimated liability for bioremediation has been recorded by the Group in the balance sheet as of September 30, 2014. The provision for other risks from purchase and sales commitments represents expected sales discounts, expected losses from pending deliveries of goods and other sales-related liabilities. The provision for legal and litigation costs represents costs of legal advice and notary charges as well as the costs of litigation. The provision for warranties represents the accrued liability for pending risks from warranties offered by the Group for their products. The Group issues various types of contractual warranties under which it generally guarantees the performance of products delivered and services rendered. The Group accrues for costs associated with product warranties at the date products are sold. Warranty accruals comprise accruals that are calculated for each individual case. 25 Pension plans and similar obligations Liabilities for the Group’s pension benefit plans and other post-employment plans comprise the following: Pension plans and similar obligations T _ 053 I N € T H O U S A N D S Principal pension plan Deferred compensation Pension plans and similar obligations 1) adjusted according to IAS 19 (revised) Sept 30, 2014 Sept 30, 20131) 47,877 476 48,353 38,671 452 39,123 95 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND Notes D E F I N E D B E N E F I T P L A N S A N D D E F E R R E D C O M P E N S AT I O N Defined benefit plan The Group granted post-employment pension benefits to all employees in Germany who joined the company prior to January 1, 2006. The level of post-employment benefits is generally based on eligible compensation levels and / or ranking within the Group hierarchy and years of service. Liabilities for principal pension plans amounting to €47,877 thousand (PY: €38,671 thousand) result from unfunded accumulated benefit obligations, which increase being primarily due to lower actuarial interest rates. As of December 21, 2010, in order to free the Group of future liquidity risks, the Group’s pension poli- cies for Germany were amended, in which the title earned in the former defined benefit plan is frozen. Going forward no additional defined benefit titles can be earned. At the same time, the Company introduced a defined contribution plan in which direct payments to an external insurer are made which disburdens the group of future cash disbursements. The weigthed average duration of the defined benefit obligations in the fiscal year 2014 is 16.8 years (PY: 16.8 years). Deferred compensation Deferred compensation included in accrued pension liabilities relates to employees of the former Atecs Mannesmann companies. Deferred compensation is a form of retirement pay which is financed by the employees, where, based on an agreement between the Group and the employees, part of their income is retained by the Group and paid to the respective employees after retirement. The total deferred com- pensation as of September 30, 2014 amounts to €476 thousand (PY: €452 thousand). The unfunded status is as follows: Unfunded status I N € T H O U S A N D S Present value of unfunded defined benefit obligations Less: Fair value of plan assets Unfunded status T _ 054 Sept 30, 2014 Sept 30, 2013 48,353 39,123 – – 48,353 39,123 96 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS The present value of the defined benefit obligation developed as follows: Present value of defined benefit obligations I N € T H O U S A N D S Present value of defined benefit obligations as of beginning of fiscal year Service cost Interest cost Demographic assumptions Financial assumptions Experience assumptions Actuarial (gains) / losses Pension benefits paid Present value of defined benefit obligations as of fiscal year-end 1) adjusted according to IAS 19 (revised) The pension cost in the consolidated statement of comprehensive income includes the following expenses for defined benefit plans: Pension cost for defined benefit plans I N € T H O U S A N D S Service cost Interest cost Pension cost for defined benefit plans The present value of the defined benefit obligation and the experience adjustments arising on the plan liabilities are as follows: Present value of the defined benefit obligation and the experience adjustments on the plan liabilities I N € T H O U S A N D S Sept 30, 2010 Sept 30, 2011 Sept 30, 2012 Sept 30, 2013 Sept 30, 2014 Notes T _ 055 Year ended Sept 30, 2014 39,123 48 1,382 – 8,292 914 9,206 (1,406) 48,353 20131) 38,066 54 1,459 – 1,232 (308) 924 (1,381) 39,123 Year ended Sept 30, 2014 48 1,382 1,430 T _ 056 2013 54 1,459 1,513 T _ 057 Defined benefit obligation Experience adjustments 38,700 33,081 38,066 39,123 48,353 (533) (357) (308) (213) 914 97 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND Notes Generally, the measurement date for Group’s pension obligations is September 30. The measurement date for Group’s net periodic pension cost generally is the beginning of the period. Assumed discount rates, salary increases and long-term return on plan assets vary according to the economic conditions in the country in which the pension plan is situated. Following assumptions (measurement factors) were used to determine the pension obligations: Significant factors for the calculation of pension obligations T _ 058 I N % P. A . Discount rate Salary increases Pension increases Turnover rate Inflation Sept 30, 2014 Sept 30, 2013 2.40% 0.00% 1.50% 4.00% 1.50% 3.60% 0.00% 1.50% 4.00% 1.50% The discount rates for the pension plans are determined annually as of September 30 on the basis of first-rate, fixed-interest industrial bonds with maturities and values matching those of the pension payments. S E N S I T I V I T Y A N A LYS I S If the discount rate were to differ by + 0.5% / – 0.5% from the interest rate used at the balance sheet date, the defined benefit obligation for pension benefits would be an estimated €3,753 thousand lower or €4,274 thousand higher. If the future pension increase used were to differ by + 0.2% / – 0.2% from management’s estimates, the defined benefit obligation for pension benefits would be an estimated €1,190 thousand higher or €1,146 thousand lower. The reduction / increase of the mortality rates by 2 years results in an increase / deduction of life expectancy depending on the individual age of each beneficiary. The effects on the DBO as of September 30, 2014 due to a 2 year reduction / increase of the live expectancy would result in a decrease of €2,020 thousand or an increase of €2,097 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 recog- nized in the Consolidated Statement of Financial Position. Increases and decreases in the discount rate or the 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 benefit. 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. 98 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS Expected pension benefit payments for the fiscal year 2015 will amount to €1,764 thousand (PY: €1,620 thousand). D E F I N E D C O N T R I B U T I O N P L A N S At Stabilus, the expenses incurred under defined contribution plans are primarily related to govern- ment-run pension plans. Expenses for these plans in the reporting period amounted to €7,325 thou- sand (PY: €6,859 thousand). 26 Trade accounts payable Trade accounts payable amount to €53,724 thousand (PY: €44,977 thousand) as of the end of fiscal year. The full amount is due within one year. The liabilities are measured at amortized cost. For infor- mation on liquidity and exchange rate risks for trade accounts payable, please see Note 32. 27 Current tax liabilities The current tax liabilities relate to income and trade taxes. 28 Other liabilities The Group’s other liabilities mature within one year. Accordingly, they are disclosed as current liabili- ties. The following table sets out the breakdown of Group’s other liabilities: Other current liabilities I N € T H O U S A N D S Advanced payments received Vacation expenses Other personnel-related expenses Outstanding costs Miscellaneous Other current liabilities 29 Leasing O P E R AT I N G L E A S E The Group entered into non-cancellable operating lease for IT hardware, cars and other machinery and equipment with lease terms of 2 to 6 years. The future minimum lease payments relating to leasing agreements during the basic rental period when they cannot be terminated are as follows: Notes T _ 059 Sept 30, 2014 Sept 30, 2013 456 2,169 5,463 2,764 127 339 2,100 4,727 3,523 184 10,979 10,873 99 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND Notes Operating lease I N € T H O U S A N D S within one year after one year but not more than five years more than five years Total T _ 060 Minimum lease payments in year ended Sept 30, 2014 4,429 11,193 205 15,827 2013 3,849 7,164 189 11,202 The increase in total minimum lease payments in the next five years is primarily due to the expansion of our rented production facilities in China. Current period expense for operating leases amounts to €5,205 thousand (PY: €4,870 thousand). F I N A N C E L E A S E One lease contract regarding a production line in Germany and one real estate lease contract regard- ing a production facility in Romania are recorded as finance lease. Production line: The Group concluded a sale and leaseback agreement dated September 25, 2008, which results in a finance lease with a term of 6 years. The agreement contains a purchase option at the end of the con- tractual period for a value of €100 thousand. The lease commenced on January 1, 2009. The sales price of the underlying asset, manufacturing equipment, amounts to €5,000 thousand. As of the balance sheet date, the carrying amount of the underlying asset amounts to €2,059 thousand (PY: €2,543 thousand). The present value is calculated using the Group’s incremental borrowing rate of 7.8% as per contract date. The future minimum lease payments and their present value relating to the leasing agreement during the basic rental period when they cannot be terminated are as follows: Finance lease of a production line T _ 061 I N € T H O U S A N D S within one year after one year but not later than five years more than five years Total Sept 30, 2014 Sept 30, 2013 Minimum lease payments (MLP) Present value of MLP Minimum lease payments (MLP) Present value of MLP 350 0 – 350 319 0 – 319 999 350 – 958 319 – 1,349 1,277 100 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS Notes Production facility: Orion Rent Imobiliare S.R.L, Brasov, entered into a non-cancellable real estate finance lease agreement on December 31, 2010 (prior to Stabilus Group taking over a controlling interest in this company) with a term of 144 months prior to the Stabilus Group becoming a controlling shareholder of Orion Rent Imobiliare S.R.L. The agreement contains a purchase option at the end of the 3 years of contract, for a purchase price amounting to the capital that remains to be paid up to the expiry of the contract less early payment fee (between 2.75% and 4.75% of the remaining capital to be paid). The net carrying amount at the balance sheet date is €1,138 thousand (PY: €1,204 thousand). The lease term started on January 1, 2011. The leasing fees are settled in euro, but payable in new Romanian lei. They include a variable component of the total funding cost with 3-month EURIBOR as the reference basis. Finance lease of a production facility T _ 062 I N € T H O U S A N D S within one year after one year but not later than five years more than five years Total Sept 30, 2014 Sept 30, 2013 Minimum lease payments (MLP) Present value of MLP Minimum lease payments (MLP) Present value of MLP 191 759 623 185 613 404 192 761 812 186 614 505 1,573 1,202 1,765 1,305 The payments for finance leases in the fiscal year ended September 30, 2014 amounted to €1,191 thousand (PY: €1,792 thousand). No contingent rents have been recognized as an expense during the period. 30 Contingent liabilities and other financial commitments C O N T I N G E N T L I A B I L I T I E S Contingent liabilities are uncertainties for which the outcome has not been determined. If the outcome is probable and estimable, the liability is shown in the statement of financial position. In regards to a potential contingent obligation in the EPA Colmar please see Note 24. G U A R A N T E E S On October 11, 2005, Stabilus Romania S.R.L., Brasov, (“STRO”) entered into a rental agreement with ICCO SRL (ICCO) for a production facility with an area of 8.400 square meters for STRO in Brasov, Romania. The initial rental agreement has a contract period of seven years which has been extended. STAB Dritte Holding GmbH, Koblenz, merged into Stable Beteiligungs GmbH, Koblenz, a wholly owned subsidiary of the company, issued a bank guarantee for €600 thousand (PY: €600 thou- sand), in the event that STRO will be unable to pay. Stabilus GmbH, Koblenz, issued a letter of support for the event that STRO will be unable to pay. 101 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND Notes On September 22, 2005, Stabilus S. A. de C. V. (“STMX”) entered into a lease agreement with Deutsche Bank Mexico, S. A., and Kimex Industrial BEN, LLC, for a production facility with an area of 28,952 square meters of land and 5,881 square meters of constructions in Ramos Arizpe, State of Coahuila, Mexico. The lease agreement has a contract period of 10 years. Stabilus GmbH, Koblenz, issued a letter of support for the event that STMX will be unable to pay. The Group entered into a revolving credit facility and a bond indenture. The credit guarantees provided in these agreements are full down-stream, up-stream and cross-stream given by the guarantors as defined in these agreements – comprising certain material subsidiaries of the Group – in favor of the finance parties. The guarantees are subject to limitations, including being limited to the extent that otherwise the guarantee would amount to unlawful financial assistance and other jurisdiction-specific tests (e.g. net assets). Given a normal course of the economic development as well as a normal course of business, manage- ment believes these guaranties should not result in a material adverse effect for the Group. OT H E R F I N A N C I A L C O M M I T M E N T S The nominal value of the other financial commitments as of September 30, 2014 amounted to €20,970 thousand (PY: €14,205 thousand). Sept 30, 2014 1 to 5 years more than 5 years – 11,193 11,193 – 205 205 Sept 30, 2013 1 to 5 years more than 5 years – 7,164 7,164 – 189 189 less than 1 year 5,143 4,429 9,572 less than 1 year 3,003 3,849 6,852 T _ 063 Total 5,143 15,827 20,970 Total 3,003 11,202 14,205 Nominal values of other financial commitments are as follows: Financial commitments I N € T H O U S A N D S Capital commitments for tangible and other intangible assets Obligations under rental and leasing agreements Total I N € T H O U S A N D S Capital commitments for tangible and other intangible assets Obligations under rental and leasing agreements Total 102 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS Notes 31 Financial instruments The following table shows the carrying amounts and fair values of the Group’s financial instruments. The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial instruments T _ 064 I N € T H O U S A N D S Trade accounts receivables Cash Loan to shareholder Derivative instruments Other miscellaneous Other financial assets Total financial assets Senior secured notes EUSIs Financial liabilities Trade accounts payable Finance lease liabilities Liabilities to related parties Other financial liabilities Total financial liabilities Sept 30, 2014 Sept 30, 2013 Measurement category acc. to IAS 39 Carrying amount Fair value Carrying amount Fair value LaR LaR LaR FAFV LaR LaR / FAFV FLAC FLAC FLAC FLAC – FLAC FLAC / – 56,497 33,494 – 15,422 2,882 18,304 108,295 262,345 – 56,497 33,494 – 15,422 2,882 18,304 108,295 273,437 – 262,345 273,437 53,724 1,496 3 1,499 53,724 1,521 3 1,524 67,776 21,819 77,134 10,845 – 87,979 177,574 319,460 3,300 322,760 44,977 2,639 1,661 4,300 67,776 21,819 81,018 10,845 – 91,863 181,458 321,624 4,568 326,192 44,977 2,582 1,661 4,243 317,568 328,685 372,037 375,412 Aggregated according to categories in IAS 39: Loans and receivables (LaR) 92,873 92,873 166,729 170,613 Financial assets at fair value through profit and loss (FAFV) Financial liabilities measured at amortized cost (FLAC) 15,422 15,422 10,845 10,845 316,072 327,164 369,398 372,830 103 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND Notes The following table provides an overview of the classification of financial instruments presented above in the fair value hierarchy, except for financial instruments with fair values corresponding to the carry- ing amounts (i.e. trade accounts receivable and payable, cash and other financial liabilities). Fair value hierarchy of financial instruments T _ 065 I N € T H O U S A N D S Financial assets Loan to shareholder Derivative instruments Financial liabilities Senior secured notes EUSIs Finance lease liabilities I N € T H O U S A N D S Financial assets Loan to shareholder Derivative instruments Financial liabilities Senior secured notes EUSIs Finance lease liabilities Sept 30, 2014 Total Level 11) Level 22) Level 33) – 15,422 – – – 15,422 273,437 273,437 – 1,521 – – – – – – – – – 1,521 Sept 30, 2013 Total Level 11) Level 22) Level 33) 81,018 10,845 – – 321,624 321,624 4,568 2,582 – – – 81,018 10,845 – – – – – 4,568 2,582 1) Fair value measurement based on quoted prices (unadjusted) in active markets for these or identical instruments. 2) Fair value measurement based on inputs that are observable on active markets either directly (i.e. as prices) or indirectly (i.e. derived from prices). 3) Fair value measurement based on inputs that are not observable market data. The fair value is the price that would be received to sell an asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date. The following methods and assumptions were used to estimate the fair values: • The fair value of the quoted senior secured notes is based on price quotations at the reporting date. • The valuation technique used for the determination of unquoted instruments, i.e. the upstream shareholder loan, the equity upside-sharing instruments (EUSIs) and the obligations under finance leases, is the discounted cash flow method. The valuation model considers the present value of expected payments, discounted using a risk-adjusted discount rate depending on the maturity of the payment. The expected payments are determined by considering contractual redemption pay- ments and interest payments with the currently agreed interest rate. Significant unobservable inputs are the risk-adjusted discount rates, which range from 7.5% to 10.1%, and the forecasted interest payments. Therefore, the fair value would change if the risk-adjusted discount rate or the interest rate changed. 104 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS • The fair value of embedded derivative instruments is calculated using a standard option pricing model. For the valuation, the credit spread used is calibrated such that the model reproduces the current market of the notes quoted on the Luxembourg Stock Exchange at the reporting date. The finance lease contracts include fixed-interest rates. Therefore, the fair value of finance lease liabili- ties (categorized as Level 3 in the fair value hierachy table) are not exposed to interest risk through fluctuation. The net gains and losses on financial instruments result in the fiscal year ended September 30, 2014 from the currency translation and changes in the estimate of future cash flows of loans and receivables and financial liabilities measured at amortized cost, as well as gains from changes in fair value of derivative instruments. They are set out in the Notes 8 and 9. The net foreign exchange gain (PY: loss) amounted to €6,034 thousand (PY: €(7,154) thousand). The gains from changes in fair value of derivative instruments amounted to €4,576 thousand (PY: €1,396 thousand). The gains from changes in carrying amount of financial assets amounted to €5,714 thousand (PY: 2,761 thousand). Total interest income and expense from financial instruments is reported in the Notes 8 and 9. The value of the embedded derivatives is effected by the interest of the comparable market instrument on each potential exercise date and will rise if the relevant interest rate declines and vice versa. 32 Risk reporting I N T E R N A L R I S K M A N A G E M E N T The Group employs within the budgeting process an integrated system for the early identification and monitoring of risks specific to the Group, in order to identify changes in the business environment and deviations from targets at an early stage and to initiate countermeasures in advance. This includes monthly short and medium-term analysis of the order intake and the sales invoicing behavior. Control impulses for the individual companies are derived from this. Customer behavior is ascertained and ana- lyzed continuously and the information obtained from this serves as an early warning indicator for pos- sible changes in demand patterns. In addition, significant KPIs (order intake, sales and EBITDA, staffing level, quality indicators) are reported monthly by all Group companies and are assessed by Group management. F I N A N C I A L R I S K S The Group’s Corporate Treasury function provides services to the business, co-ordinates access to domestic and international financial markets, and monitors and manages the financial risks relating to the operations of the Group. These risks include credit risk, liquidity risk and market risk (including cur- rency risk and fair value interest rate risk). The Group seeks to minimize the effects of financial risks by using derivative financial instruments to hedge these exposures wherever useful. The use of financial derivatives is governed by the Group’s pol- Notes 105 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND Notes icies approved by the Management Board, which provide principles on foreign currency risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. The Group does not hold any derivative financial instruments as of September 30, 2014, apart from the derivatives embedded in the bond indenture which was concluded on June 7, 2013. C R E D I T R I S K S Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counter- parties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group’s exposure and the credit ratings of its counterparties are moni- tored and the aggregate value of transactions concluded is spread amongst approved counterparties. Trade accounts receivable consist of a large number of customers, spread across diverse industries and geographical areas. Credit evaluation is performed on the financial condition of accounts receivable and, where viewed appropriate, credit guarantee insurance cover is purchased. Besides this, commer- cial considerations impact the credit lines per customer. The maximum exposure to credit risk of financial assets is the carrying amount as follows: Credit risk included in financial assets T _ 066 I N € T H O U S A N D S Financial assets Trade accounts receivable Derivative instruments Other miscellaneous Total Sept 30, 2014 Neither past due nor impaired < 30 days 30 – 60 days 60 – 90 days 90 – 360 days > 360 days Total 48,263 15,422 2,882 66,567 5,930 729 – – – – 5,930 729 – – – – 1,274 301 – – – – 1,274 301 56,497 15,422 2,882 74,801 Sept 30, 2013 I N € T H O U S A N D S Financial assets Trade accounts receivable Loan to shareholder Derivative instruments Neither past due nor impaired 59,506 77,134 10,845 < 30 days 30 – 60 days 60 – 90 days 90 – 360 days > 360 days Total 5,545 618 331 789 987 – – – – – – – – – – 67,776 77,134 10,845 Total 147,485 5,545 618 331 789 987 155,755 106 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS Notes Credit risk of other financial assets of the Group, which comprise cash and cash equivalents, and mis- cellaneous financial assets, arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. The Group does not have any critical credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The credit risk on liquid funds is limited because the coun- terparties are banks with high credit-ratings assigned by international credit-rating agencies and also typically are lenders to the Group. Therefore, credit quality of financial assets which are neither past due nor impaired is assessed to be good. L I Q U I D I T Y R I S K S The Management Board has established an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management require- ments. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by monitoring forecast cash flows at regular intervals. The following maturities summary shows how cash flows from the Group’s liabilities as of September 30, 2014 will influence its liquidity situation. The summary describes the course of the undiscounted principal and interest outflows of the financing liabilities and the undiscounted cash outflows of the trade accounts payable. The undiscounted cash outflows are subject to the following conditions: If the counterparty can request payment at different dates, the liability is included on the basis of the earliest payment date. The underlying terms and conditions are described in the Note 22. Liquidity outflows for liabililties I N € T H O U S A N D S 2015 2016 2017 2018 2019 after 2019 Total Senior secured notes Finance lease (19,850) (19,850) (19,850) (269,719) – – (541) (191) (190) (189) (189) (623) Trade accounts payable (53,724) – – – – – T _ 067 Total (74,115) (20,041) (20,040) (269,908) (189) (623) (329,269) (1,923) (53,724) (384,916) The long-term senior secured notes give planning stability over the next years. At the balance sheet date, the Group has undrawn committed facilities of €25.0 million (PY: €25.0 million) to reduce liquid- ity risks. F I N A N C E M A R K E T R I S K S The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates (see below) and interest rates (see below). As of September 30, 2014, the Group has not entered 107 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND Notes into any derivative financial instruments. The Group monitors closely its exposure to interest rate risk and foreign currency risk and regularly checks the requirement to enter into a variety of derivative financial instruments. Exchange rate risk Due to its subsidiaries, the Group has significant assets and liabilities outside the Eurozone. These assets and liabilities are denominated in local currencies. When the net asset values are converted into euro, currency fluctuations result in period-to period changes in those net asset values. The Group’s equity position reflects these changes in net asset values. The Group does not hedge against these structural currency risks. The Group also has transactional currency exposures which arise from sales or purchases in currencies other than the functional currency and loans in foreign currencies. In order to mitigate the impact of currency exchange rate fluctuations for the operating business, the Group continually assesses its expo- sure and attempts to balance sales revenue and costs in a currency to thus reduce the currency risk. Besides the balance sheet the Group’s revenue and costs are also impacted by currency fluctuations. A 1% increase / decrease in value of US dollar compared to euro would lead to an increase / decrease of EBIT of approximately €0.3 million. Interest rate risk The Group is exposed to interest rate risks, which mainly relate to debt obligations, as the Group bor- rows funds at fixed and to a minor extent at floating interest rates. The interest rate risk is monitored by using the cash flow sensitivity of the Group’s cash flows due to floating interest loans. The nominal interest rates of the Stabilus Group’s financial liabilities as of Sep- tember 30, 2014 are fixed. An increase / decrease of floating interest rates has an immaterial effect to the interest income and expense of the Group. 33 Capital management The Stabilus Group’s capital management covers both equity and liabilities. A further objective is to maintain a balanced mix of debt and equity. Due to the broad product range and the activities on global markets, the Stabilus Group generates under normal economic conditions predictable and sustainable cash flows. 108 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS The equity ratio as of September 30, 2014 is calculated as follows: Equity ratio I N € T H O U S A N D S Equity Total assets Equity ratio 1) adjusted according to IAS 19 (revised) The Stabilus Group is not subject to externally imposed capital requirements. The ratio of net debt to EBITDA (earnings before interest, taxes, depreciation and amortization), which is also used and defined in the revolving credit facility agreement, is an important financial ratio (debt ratio) used in the Stabilus Group. The objective is to reduce the debt ratio in the future. The Stabilus Group there- fore aims to increase its earnings and to generate cash flows in order to reduce its financial liabilities. 34 Notes to the consolidated statement of cash flows The statement of cash flows is prepared in compliance with IAS 7. The statement of cash flows of the Stabilus Group shows the development of the cash flows from operating, investing and financing activ- ities. Inflows and outflows from operating activities are presented in accordance with the indirect method and those from investing and financing activities by the direct method. The cash funds reported in the statement of cash flows comprise all liquid funds, cash balances and cash at banks reported in the statement of financial position. Interest payments of €30,113 thousand (PY: €9,177 thousand) are taken into account in the cash outflows from financing activities. Income tax payments of €7,065 thousand (PY: €5,663 thousand) are allocated in full to the operating activities area, since allocation to individual business areas is impracticable. Notes T _ 068 Year ended Sept 30, 2014 76,123 520,302 14.6% 20131) 80,331 589,288 13.6% 109 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND Notes 35 Segment reporting The Stabilus Group is organized and managed primarily on a regional level. The three reportable oper- ating segments of the Group are Europe, NAFTA and Asia / Pacific including the rest of world (RoW). The product portfolio is largely similar in these three regional segments. The Group measures the performance of its operating segments through a measure of segment profit or loss (key performance indicator) which is referred to as “adjusted EBITDA”. Adjusted EBITDA repre- sents EBITDA (i.e. earnings before interest, taxes, depreciation and amortization), as adjusted by man- agement primarily in relation to severance, consulting, restructuring, one-time legal disputes and other non-recurring costs, as well as interest on pension charges. Segment information for the fiscal years ended September 30, 2014 and 2013 is as follows: Segment reporting T _ 069 I N € T H O U S A N D S External revenue1) Intersegment revenue1) Total revenue1) EBITDA Depreciation and amortization Adjusted EBITDA I N € T H O U S A N D S External revenue1) Intersegment revenue1) Total revenue1) EBITDA Depreciation and amortization Adjusted EBITDA Europe NAFTA Asia / Pacific and RoW Year ended Sept 30, Year ended Sept 30, Year ended Sept 30, 2014 267,271 23,480 290,751 39,591 (19,512) 57,542 2013 2014 2013 244,629 176,817 157,908 28,680 2,519 2,364 273,309 179,336 160,272 45,931 (20,528) 54,573 20,045 (6,175) 22,813 18,520 (6,427) 20,975 2014 63,245 123 63,368 11,669 (1,971) 12,130 2013 57,566 57 57,623 11,406 (1,941) 11,497 Total segments Other / Consolidation Stabilus Group Year ended Sept 30, Year ended Sept 30, Year ended Sept 30, 2014 507,333 26,122 533,455 71,305 (27,658) 92,485 2013 460,103 31,101 491,204 75,857 2014 – (26,122) (26,122) – 2013 – (31,101) (31,101) – 2014 507,333 – 507,333 71,305 (28,896) (12,452) (11,765) (40,110) 87,045 – – 92,485 2013 460,103 – 460,103 75,857 (40,661) 87,045 1) Revenue breakdown by location of Stabilus company (i.e. “billed-from view”). The EBITDA of operating segment Europe in the fiscal year ended September 30, 2014 included an impairment loss of €776 thousand (PY: €1,227 thousand). The amounts presented in the column “Other / Consolidation” above include the elimination of transactions between the segments and cer- tain other corporate items which are related to the Stabilus Group as a whole and are not allocated to the segments, e.g. depreciation from purchase price allocations. 110 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS Notes The following table sets out the reconciliation of the total segments’ profit (adjusted EBITDA) to profit before income tax. Reconciliation of the total segments’ profit to profit / (loss) before income tax T _ 070 I N € T H O U S A N D S Total segments’ profit (adjusted EBITDA) Other / consolidation Group adjusted EBITDA Adjustments to EBITDA EBITDA Depreciation and amortization Profit from operating activities (EBIT) Finance income Finance costs Profit / (loss) before income tax The adjustments to EBITDA include IPO, bond issuance, tax audit, launch / startup and reorganization related advisory expenses and pension interest. The information about geographical areas is set out in the following tables: Geographical information: revenue by country I N € T H O U S A N D S Germany Romania Europe USA Mexico NAFTA Brazil Australia New Zealand South Korea Japan China Asia / Pacific and rest of world Revenue1) 1) Revenue breakdown by location of Stabilus company (i.e. “billed-from view”) Year ended Sept 30, 2014 92,485 – 92,485 (21,180) 71,305 (40,110) 31,196 17,451 (38,775) 9,872 2013 87,045 – 87,045 (11,188) 75,857 (40,661) 35,196 5,463 (46,525) (5,866) T _ 071 Year ended Sept 30, 2014 232,495 34,776 267,271 80,513 96,305 176,817 7,952 5,476 1,647 10,633 3,931 33,607 63,245 2013 219,564 25,065 244,629 80,222 77,687 157,908 10,242 6,563 1,437 8,921 2,841 27,562 57,566 507,333 460,103 111 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND Notes Geographical information: non-current assets by country I N € T H O U S A N D S Luxembourg Germany UK Spain France Romania Gibraltar Switzerland Goodwill Europe USA Mexico Goodwill NAFTA Brazil Australia New Zealand South Korea Japan China Goodwill Asia / Pacific and rest of world (RoW) Goodwill on group level Total Year ended Sept 30, 2014 873 T _ 072 2013 936 159,117 166,836 92 3,595 5 100 3,720 5 18,051 16,746 – 71 27,787 209,591 43,245 27,326 13,379 83,950 2,579 1,083 342 6,623 520 28,193 10,292 49,632 – – 70 – 188,413 45,079 26,093 – 71,172 2,676 1,091 360 6,024 534 22,793 – 33,478 51,458 343,173 344,521 The non-current assets above exclude financial instruments, deferred tax assets, post-employment benefit assets and rights arising under insurance contracts. As disclosed in the table above goodwill has been allocated to our operating segments in the fiscal year 2014. In the current and in the previous fiscal year, we had two customers who accounted for at least 10% of our total external revenue. The total revenue with these customers were €54,767 thousand and €52,506 thousand in the fiscal year ending September 30, 2014 (PY: €53,913 thousand and €46,503 thousand respectively). In both periods such revenue was generated in all three segments. 36 Share-based payment The variable compensation for the members of the Management Board includes a matching stock pro- gram. The matching stock program provides for four annual tranches granted each year during the fiscal year ending September 30, 2014 until September 17, 2017. Participation in the matching stock program requires Management Board members to invest in shares of the Company. The investment has generally to be held for the lock-up period. 112 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS As part of the matching stock program A (the “MSP A”) for each share the Management Board invests in the Company in the specific year (subject to general cap), the Management Board members receive a certain number of fictitious options to acquire shares in the Company for each tranche of the matching stock program. The amount of stock options received depends upon a factor to be set by the Supervi- sory Board annually which will be in a range between 1.0 time and 1.7 times for the outlined timeframe. Thus, if a Management Board member was buying 1,000 shares under the MSP in the Company, he would receive 1,000 to 1,700 fictitious options for a certain tranche. The fictitious options are subject to a lock-up period of four years and may be exercised during a subsequent two-year exercise period. As part of matching stock program B (the “MSP B”) for each share the Management Board holds in the Company in the specific year (subject to a general cap), the Management Board members receive a certain number of fictitious options to acquire shares in the Company for each tranche of the matching stock program. The amount of stock options received depends upon a factor to be set by the Supervisory Board annually which will be in a range between 0.0 times and 0.3 times for the outlined timeframe. Thus, if a Management Board member was holding 10,000 shares under the MSP in the Company, he would receive 0 to 3,000 fictitious options for a certain tranche. The fictitious options are subject to a lock-up period of four years and may be exercised during a subsequent two-year exercise period. The options may only be exercised if the stock price of the Company exceeds a set threshold for the rele- vant tranche, which the Supervisory Board will determine, and which needs to be between 10% and 50% growth over the base price, which is the share price on the grant date. If exercised, the fictizious options are transformed into a gross amount equaling the difference between the option price and the relevant stock price multiplied by the number of exercised fictitious options. The generally limited net amount resulting from the calculated gross amount is paid out to the Management Board members. Alternatively, the Company may decide to buy shares in an amount equaling the net amount in order to settle the exercised options. The maximum gross amounts resulting from the exercise of the fictitious options of one tranche in general is limited in amount. Reinvestment of IPO proceeds from previous equity programs are not taken into account for MSP A. As of the date of this report no stock options have been granted according to this program. 37 Auditor’s fees Auditor’s fees I N € T H O U S A N D S ( E X C L U D I N G VAT ) Audit fees Audit related fees Tax fees Other fees Total Notes Year ended Sept 30, 2014 618 929 – – T _ 073 2013 530 839 – – 1,547 1,369 113 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND Notes For fiscal year ended September 30, 2014, a global fee (excluding VAT) of €618 thousand (PY: 530 thou- sand) was agreed for the audit of the consolidated and annual financial statements of the Stabilus entities. These fees are included in the Group’s administrative expenses. In addition, KPMG Luxembourg S.à r.l., Luxembourg, and other member firms of the KPMG network, billed the Group audit-related fees amounting to, excluding VAT, €929 thousand (PY: €839 thousand), which relate to the initial public offering of the Stabilus shares (PY: issuance of senior secured notes). 38 Related party relationships In accordance with IAS 24, persons or entities that control or are controlled by the Stabilus Group shall be disclosed, unless they are included in consolidation as a consolidated entity. The disclosure obligation under IAS 24 furthermore extends to transactions with persons who exercise a significant influence on the financial and business policies of the Stabilus Group, including close fam- ily members or interposed entrepreneurs. A significant influence on the financial and business policies of the Stabilus Group can hereby be based on a shareholding of 20% or more in Stabilus, a seat on the management board of Stabilus or another key position. Following the IPO on May 23, 2014 the shareholder structure of Stabilus changed. Related parties of the Stabilus Group in accordance with IAS 24 primarily comprise the prior to the IPO sole shareholder Servus Group HoldCo II and the Stabilus Group management which also holds an investment in the Company. To fund working capital requirements of the Company and Stable II S.à r.l. in the previous years, the shareholder Servus Group HoldCo II provided a working capital loan amounting to €1,661 thousand as of September 30, 2013. This loan was fully redeemed in the third quarter of fiscal year 2014. As of September 30, 2014 the Group has a liability to Servus II (Gibraltar) Limited amounting to €3 thou- sand; as of September 30, 2013 Servus II (Gibraltar) Limited was part of the Stabilus Group. See also Note 23. The loan the Group has provided to the shareholder Servus Group HoldCo II in fiscal year 2013 amounting to €80,014 thousand (principal amount) was derecognized from the Group’s balance sheet following the distribution of the Company’s equity interest in Servus II (Gibraltar) Limited which was the holder of the upstream shareholder loan receivable. See also Note 15. 39 Remuneration of key management personnel The key management personnel are the members of the management board Dietmar Siemssen (CEO), Mark Wilhelms (CFO), Bernd-Dietrich Bockamp (Director Group Accounting) and Andreas Schröder (Group Financial Reporting) as well as Hans-Josef Hosan (CTO) and Ansgar Krötz (COO). The total remuneration paid to key management personnel of the Group is calculated as the amount of remuner- ation paid in cash and benefits in kind. The latter primarily comprise the provision of company cars and pension. 114 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS The total remuneration of key management personnel at the various key Stabilus Group affiliates dur- ing the reporting period amounted to €6,705 thousand (PY: €2,375 thousand) classified as short-term employee benefits and €33 thousand (PY: €33 thousand) classified as post-employment benefits. The short-term employee benefits include €3.979 thousand IPO Bonus related payments which were largely reinvested in Stabilus stock in the fiscal year 2014. Management holds interest in Stabilus S.A. directly of about 1% of the total shares. Management fur- ther holds indirect participations in Stabilus S.A. via partnerships under the German Civil Code (GbRs). In each case resulting in less than 1.5% economical interest in Stabilus S.A. Certain Supervisory board members participate as well in the partnership, in each case below 1.5% economical interest in Stabilus S.A. The management participation program is designed to carry out an exit via sale / disposal of all of the interests. For the intended exit scenario, the proceeds on disposal correspond to fair value. Since, in the exit scenario, both the acquisition and the later disposal of the interests are at fair value, the compen- sation component has no value at the time that it is granted, so that no personnel expenses are there- fore recorded in the consolidated financial statements of Stabilus S.A. The total remuneration to the members of the supervisory board amounts to €146 thousands (PY: € –). 40 Subsequent events The Group evaluates the opportunity to benefit of the current low financing cost through a new refi- nancing. As of November 28, 2014, there were no further events or developments that could have materially affected the measurement and presentation of Group’s assets and liabilities as of September 30, 2014. Luxembourg, November 28, 2014 Stabilus S.A. Management Board Notes 115 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND Respons ibility St atement R E S P O N S I B I L I T Y S TAT E M E N T We, Dietmar Siemssen (Chief Executive Officer), Mark Wilhelms (Chief Financial Officier), Bernd- Dietrich Bockamp (Director Group Accounting) and Andreas Schröder (Group Financial Reporting Director), confirm, to the best of our knowledge, that the consolidated financial statements which have been prepared in accordance with the International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of Stabilus S.A. and the undertakings included in the consolidation taken as a whole and that the Management report includes a fair review of the development and performance of the business and the position of Stabilus S.A. and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. Luxembourg, November 28, 2014 Dietmar Siemssen Mark Wilhelms Bernd-Dietrich Bockamp Andreas Schröder Management Board 116 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS Management and Supervisory Board of Stabilus S.A. M A N A G E M E N T A N D S U P E R V I S O RY B O A R D O F S TA B I L U S S. A . The Management Board comprises four members: The Supervisory Board comprises four members: Dietmar Siemssen (Chairman) is the Chief Executive Officer and Udo Stark serves as a member of the Supervisory Board since 2014 was appointed to the Management Board in 2014 as well as the chair- as well as the chairman of the Supervisory Board. He was chairman of man of the Management Board. With 20 years of experience in the the executive board of MTU Aero Engines AG until 2007. From 1991 automotive industry, Mr. Siemssen joined Stabilus in 2011 following a until 2000, Mr. Stark led the listed plant construction and machinery 19-year career in various management positions at Continental AG. group Agiv AG. Subsequently, he became chairman of the shareholder He holds a degree in mechanical engineering and business administra- committee at Messer Griesheim GmbH, chairman of the executive tion. Mr. Siemssen also holds further management positions within the board of mg technologies AG and CEO of MTU Aero Engines AG. From Stabilus Group. 2008 to 2013, Mr. Stark served as a member of the supervisory board of MTU Aero Engines AG. He is currently a member of the supervisory Mark Wilhelms is the Chief Financial Officer and was appointed to board of Bilfinger SE. the Management Board in 2014. With 25 years of experience in the automotive industry, Mr. Wilhelms joined Stabilus in 2009 from FTE Nizar Ghoussaini serves as a member of the Supervisory Board since Automotive, where he served as Chief Financial Officer for six years. 2014. He was from 1999 until 2008 the President and CEO of Benteler From 2007, he was also head of the NAFTA region at FTE. Prior to Automobiltechnik based in Paderborn, Germany. Prior to that, he was that, he held various management positions in finance, plant and mar- President of the Premium Car Division of Lear Corporation, based keting at various locations over his 17-year career at Ford. He holds in Sulzbach, Germany with responsibility for seating, interiors and a degree in Process Engineering as well as a degree in Economics. electrical / electronics business for the German and French car Mr. Wilhelms also holds further management positions within the companies worldwide. Stabilus Group. Dr. Stephan Kessel serves as a member of the Supervisory Board Bernd-Dietrich Bockamp is the Director Group Accounting and was since 2014. He was Chief Executive of Continental AG until 2002. Pre- appointed to the Management Board in 2014. Mr. Bockamp joined viously, Dr. Kessel held a variety of management positions at Continen- Stabilus in 2011. Prior to that, he led the financial projects and system tal AG, joining its management board in 1997 and becoming chief team at FTE Automotive following several years at KPMG Bayerische executive in 1999. In recent years, Dr. Kessel has taken up a number of Treuhand. He holds a degree in industrial engineering and manage- board positions at European companies including, among others, Sta- ment. Mr. Bockamp also holds further management positions within bilus. From 2008 through 2010, Dr. Kessel was Chairman of the Board the Stabilus Group. of the former holding company of the Operating Stabilus Group. Andreas Schröder is the Group Financial Reporting Director and was Andi Klein serves as a member of the Supervisory Board since 2014. appointed to the Management Board in 2014. Mr. Schröder joined He is an operating and investment partner at WestPark management Stabilus in 2010. Prior to that, he worked for several years in assurance Services Germany GmbH, which provides services exclusively to Triton and advisory business services at Ernst & Young. He holds a degree in and Triton portfolio companies. Formerly he held several executive business administration. Mr. Schröder also holds further management positions at Procter & Gamble (Executive in M&A, Restructuring & positions within the Stabilus Group. Turnaround, Portfolio & Long Term Strategy, Financial Management of diverse business units in Germany, Switzerland, Belgium and the U.S.). 117 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND In de pendent Aud itor ’s R eport I N D E P E N D E N T A U D I TO R ’ S R E P O R T To the Shareholders of Stabilus S.A. 2, rue Albert Borschette, L-1246 Luxembourg Report of the réviseur d’entreprises agréé R E P O R T O N T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Following our appointment by the Extraordinary General Meeting of the Shareholders dated May 5, 2014, we have audited the accompanying consolidated financial statements of Stabilus S.A and its subsidiaries (the “Group”), which comprise the consolidated statement of financial position as at Sep- tember 30, 2014 and the consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explan- atory information as set out on pages 45 to 115. Management Board's responsibility for the consolidated financial statements The Management Board is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union, and for such internal control as the Management Board determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Responsibility of the Réviseur d’Entreprises agréé Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing as adopted for Luxembourg by the Commission de Surveillance du Secteur Financier. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the judgement of the Réviseur d’Entreprises agréé, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the Réviseur d’Entreprises agréé considers internal control relevant to the entity’s preparation and fair presenta- tion of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Management Board, as well as evaluating the overall presentation of the consolidated financial statements. 118 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS In depen dent Au dito r’s Report We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements as set out on pages 45 to 115 give a true and fair view of the consolidated financial position of Stabilus S.A. as of September 30, 2014, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accord- ance with International Financial Reporting Standards as adopted by the European Union. R E P O R T O N OT H E R L E G A L A N D R E G U L ATO RY R E Q U I R E M E N T S The consolidated management report, including the corporate governance statement, which is the responsibility of the Management Board, is consistent with the consolidated financial statements and includes the information required by the law with respect to the corporate governance statement. Luxembourg, December 1, 2014 KPMG Luxembourg S.à r.l. Cabinet de révision agréé Ph. Meyer 119 ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSADDITIONAL INFORMATIOND A D D I T I O N A L I N F O R M A T I O N S TA B - O - M AT A D D I T I O N A L I N F O R M AT I O N Swivel Chair Gas Spring has you sitting pretty in any Position. To provide you with a targeted, fast selection, Stabilus offers the ready-to-install STAB-O-MAT standard gas spring in various installation lengths. N O I T A M R O F N I L A N O I T I D D A D A N N U A L R E P O R T 2 0 1 4 121 Financ ial Calendar F I N A N C I A L C A L E N DA R Financial calendar D AT E 1 ) 2 ) December 15, 2014 February 16, 2015 February 18, 2015 May 15, 2015 August 17, 2015 December 15, 2015 T _ 074 P U B L I C AT I O N / E V E N T Publication of full year results for fiscal year 2014 (Annual Report 2014) Publication of the first-quarter results for fiscal year 2015 (Interim Report Q1 FY15) Annual General Meeting for fiscal year 2014 Publication of the second-quarter results for fiscal year 2015 (Interim Report Q2 FY15) Publication of the third-quarter results for fiscal year 2015 (Interim Report Q3 FY15) Publication of full year results for fiscal year 2015 (Annual Report 2015) 1) We cannot rule out changes of dates. We recommend checking them on our website in the Investor Relations / Financial Calendar section (www.ir.stabilus.com). 2) Please note that our fiscal year (FY) comprises a twelve-month period from October 1 until September 30 of the following calendar year, e.g. the fiscal year 2014 comprises a year ended September 30, 2014. D I S C L A I M E R Forward-looking statements This annual report contains forward-looking statements that relate to the current plans, objectives, forecasts and estimates of the management of Stabilus S.A. These state- ments only take into account information that was available up and including the date that this annual report was prepared. The management of Stabilus S.A. makes no guar- antee that these forward-looking statements will prove to be right. The future develop- ment of the Stabilus S.A. and its subsidiaries and the results that are actually achieved are subject to a variety of risks and uncertainties which could cause actual events or results to differ significantly from those reflected in the forward-looking statements. Many of these factors are beyond the control of Stabilus S.A. and its subsidiaries and therefore cannot be precisely predicted. Such factors include, but are not limited to, changes in economic conditions and the competitive situation, changes in the law, interest rate or exchange rate fluctuations, legal disputes and investigations, and the availability of funds. These and other risks and uncertainties are set forth in the 2014 group management report. However, other factors could also have an adverse effect on our business performance and results. The Stabilus S.A. neither intends to nor assumes any separate obligation to update forward-looking statements or to change these to reflect events or developments that occur after the publication of this annual report. Rounding Certain numbers in this annual report have been rounded up or down. There may there- fore be discrepancies between the actual totals of the individual amounts in the tables and the totals shown as well as between the numbers in the tables and the numbers given in the corresponding analyses in the text of the annual report. All percentage changes and key figures in the group management report were calculated using the underlying data in millions of euros (€ millions). 122 ANNUAL REPORT 2014ADDITIONAL INFORMATION A D D I T I O N A L I N F O R M A T I O N I n f o r m a t i o n R e s o u r c e s I N F O R M AT I O N R E S O U R C E S Further information including news, reports and publications can be found in the investor relations sec- tion of our website at www.ir.stabilus.com. Investor Relations Phone: +352 286 770 21 Fax: +352 286 770 99 Email: investors@stabilus.com Media Relations Phone: + 49 261 8900 502 Email: gjonethal@stabilus.com Publisher Stabilus S.A. 2, rue Albert Borschette L-1246 Luxembourg Grand Duchy of Luxembourg Phone: +352 286 770 1 Fax: +352 286 770 99 Email: info.lu@stabilus.com Internet: www.stabilus.com ANNUAL REPORT 2014
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