AGILE. DISTINCT. RESILIENT. PREPARED FOR THE FUTURE ANNUAL REPORT 2019 KEY FIGURES I N € M I L L I O N S Revenue EBIT Adjusted EBIT Profit for the period Capital expenditure Free cash flow (FCF) Adjusted FCF EBIT as % of revenue Adjusted EBIT as % of revenue Profit in % of revenue Capital expenditure as % of revenue FCF in % of revenue Adjusted FCF in % of revenue Net leverage ratio Change (11.3) (7.9) (6.6) (24.5) (9.0) (51.7) (10.3) % change (1.2%) (6.0%) (4.4%) (23.2%) 18.9% (51.6%) (10.3%) Year ended Sept 30, 2019 951.3 124.0 142.7 80.9 (56.5) 48.5 89.9 13.0% 15.0% 8.5% 5.9% 5.1% 9.5% 1.0x 2018 962.6 131.9 149.3 105.4 (47.5) 100.2 100.2 13.7% 15.5% 10.9% 4.9% 10.4% 10.4% 1.1x REVENUE BY REGION (LOCATION OF STABILUS COMPANY) REVENUE BY MARKET 12 37 51% 37% 12% 12 39 27 51 35 61 Europe NAFTA Asia / Pacific and RoW 26 Automotive Business Automotive Gas Spring Automotive Powerise® Industrial Business Industrial / Capital Goods Vibration & Velocity Control 61% 35% 26% 39% 27% 12% As one of the world’s leading providers of gas springs, dampers and electromechanical drives, we have been showing our expertise for eight decades – in the automobile industry, mechanical engineering, shipping, aviation, renewable energies and a host of other sectors such as the furniture segment and building services engineering. With our gas springs, dampers and electromechanical Powerise drives, we optimize opening, closing, lifting, lowering and adjusting actions from deep sea to outer space. 2 S T A B I L U S T O O U R S H A R E H O L D E R S OUR GLOBAL FOOTPRINT Mexico Ramos Arizpe USA Farmington Hills, MI USA Gastonia, NC USA Lynnwood, WA USA Miamisburg, OH USA Schaumburg, IL USA Sterling Heights, MI USA Stoughton, MA N A F T A S T A B I L U S T O O U R S H A R E H O L D E R S 3 France Poissy Germany Aichwald Germany Büttelborn Germany Eschbach Germany Koblenz Germany Langenfeld Italy Pinerolo Luxembourg Luxembourg Romania Brasov Russia Moscow Spain Derio Turkey Bursa UK Banbury UK Haydock E U R 0 P E Argentina Buenos Aires Australia Dingley Brazil Itajubá China Changzhou China Pinghu China Shanghai Japan Yokohama New Zealand Auckland Singapore Singapore South Korea Busan South Korea Suwon A S I A P A C I F I C & R O W 4 S T A B I L U S C O N T E N T S CONTENTS A B TO OUR SHAREHOLDERS Letter from the CEO 6 8 Report of the Supervisory Board 10 14 Interview with CEO Dr. Michael Büchsner Stabilus Share C COMBINED MANAGEMENT REPORT 19 General 19 Strategy 21 Business and General Environment 24 Results of Operations 28 30 32 35 Development of Operating Segments Financial Position Liquidity Statutory Results of Operations and Financial Position of Stabilus S.A. 35 Risks and Opportunities 42 Corporate Governance 44 Subsequent Events 44 Outlook CONSOLIDATED FINANCIAL STATEMENTS 47 Consolidated Statement of Comprehensive Income 48 Consolidated Statement of Financial Position 50 Consolidated Statement of Changes in Equity 51 Consolidated Statement of Cash Flows 52 Notes to the Consolidated Financial Statements 122 Responsibility Statement 123 Management Board of Stabilus S.A. 124 Supervisory Board of Stabilus S.A. 125 Independent Auditor’s Report D E ANNUAL ACCOUNTS 132 Balance Sheet 134 Profit and Loss Account 135 Notes to the Annual Accounts 145 Independent Auditor’s Report ADDITIONAL INFORMATION 150 Financial Calendar 150 Disclaimer 151 Table Directory 153 Information Resources TO OUR SHARE- HOLDERS PAGE 6 – 16 6 LETTER FROM THE CEO » As the new Chief Executive Officer, I am looking forward to the task of realizing our STAR 2025 strategy and expanding Stabilus’ position as the leading provider in the field of motion control. Dr. Michael Büchsner CEO STABILUSTO OUR SHAREHOLDERS S T A B I L U S T O O U R S H A R E H O L D E R S 7 DEAR SHAREHOLDERS, CUSTOMERS, BUSINESS PARTNERS, EMPLOYEES, LADIES AND GENTLEMEN In Asia in particular, where demand in the past fiscal year was especially weak, we made a point of continuing to invest rather than scaling back our capacities. In terms of earnings, Stabilus generated adjusted EBIT of €142.7 million in the 2019 fiscal year after €149.3 million in the previous year. Net profit amounted to €80.9 million in the period under review after €105.4 million in the previ- ous year, while it is noteworthy that the prior-year figure included a non- Stabilus experienced relatively stable performance in the 2019 fiscal year recurring positive tax effect of €11.1 million. We want our shareholders to in a challenging market environment. Revenues of €951.3 million (– 1.2% participate in the company’s success once again this year and will propose a y/y) were essentially on the prior year’s level, while the adjusted EBIT mar- dividend of €1.10 per share to the Annual General Meeting, which is an gin amounted to 15.0%. Thus we have met our outlook for the 2019 fiscal increase of 10% vs last year’s dividend payment of €1.00 per share. year. The megatrends driving our long-term growth remain intact: Demo- graphic change, higher standards of living and greater demand for conven- Assuming the year-on-year constant USD/EUR exchange rate of 1.13 and the ience as well as rising health and safety requirements will continue to current forecast for global vehicle production of 88.3 million units in the 2020 shape societies around the world and their consumer and purchase deci- fiscal year, we are anticipating revenue growth of around 2 – 4% to between sions in the future. We will benefit disproportionately from these trends €970 million and €990 million in the 2020 fiscal year, accompanied by an thanks to our motion-control solutions for a wide range of industries. We adjusted EBIT margin of around 15.0%. therefore already expect to return to our growth path in the 2020 fiscal year and confirm the STAR 2025 long-term forecast from 2017. We are also confirming the STAR 2025 long-term forecast from 2017, which sets out a target of average annual organic revenue growth of 6% As the new Chief Executive Officer, I am looking forward to the task of between now and the 2025 fiscal year. This will require the current expec- realizing our STAR 2025 strategy and expanding Stabilus’ position as the tations in terms of average global GDP growth of 2.8% to 3.0% for the leading provider in the field of motion control. Our company has everything calendar years 2021 to 2025 to realize and global vehicle production to it needs to achieve this goal: a highly motivated workforce, a strong inter- recover to the current forecast level of 91.8 million vehicles in the 2021 national management team, proven innovation and implementation calendar year and increase further to 101.7 million vehicles by the 2025 strength, and an absolute focus on the customer. The strength of the diver- calendar year. sification across our industrial and automotive business was demonstrated in the 2019 fiscal year, with revenue growth of 5.1% to €369.9 million in On behalf of the entire management team, I would like to take this oppor- the industrial business largely offsetting the downturn of (4.8)% to €581.4 tunity to thank our shareholders for the confidence they have shown in million in the more cyclical automotive business. While the automotive Stabilus. I would also like to thank our employees for their consistently segment mainly suffered from weak automotive production in Europe and hard work and their excellent team spirit, which sustainably shapes the China, the industrial segment saw growth in the areas of solar dampers, culture at all of Stabilus’ locations. Last but by no means least, thanks are production and construction technology in particular. In terms of the due to our customers for their confidence and loyalty, and to our business regions we serve, revenues in Europe declined by (1.9)% to €482.1 million, partners for the strong and successful cooperation we enjoy. My Manage- revenues in the NAFTA region rose by 2.6% to €357.3 million on the back ment Board colleagues and I are looking forward to working with you to of USD/EUR exchange rate effects, and revenues in Asia / Pacific and the continue to develop Stabilus in the 2020 fiscal year. On a personal level, Rest of the World (RoW) fell by (9.1)% to €111.9 million. I would like to take this Annual Report as an opportunity to introduce myself in greater detail in the interview on pages 10 to 13. In the period under review, we continued to invest in our future growth: The total capital expenditure in fiscal year 2019 amounted to €56.5 mil- Yours sincerely, lion, which was 18.9% above the prior year’s level. In particular, we have invested in production machinery and equipment in China, Mexico and Romania. In addition to that, we have acquired a new building for HAHN Gasfedern gas spring production in Germany and started construction of a new Powerise production facility in Pinghu, China. DR. MICHAEL BÜCHSNER CEO 8 REPORT OF THE SUPERVISORY BOARD » The Supervisory Board advised the Management Board in regard to strategic and operational decisions as well as governance topics... Dr. Stephan Kessel Chairman of the Supervisory Board STABILUSTO OUR SHAREHOLDERS 9 DEAR SHAREHOLDERS, 2019), Dr. Stephan Kessel (member and chairman from August 1, 2019 on) and Dr. Ralf-Michael Fuchs. Remuneration, nomination and general Board The past year saw major changes in the governance of the Stabilus S.A. To matters were discussed by the Committee. The Committee prepared Super- fill the gap since the former CEO decided to move on, I was appointed as visory Board decisions regarding the appointment of Dr. Michael Büchsner interim CEO until July 31, 2019. This appointment resulted in the tempo- as Company’s Chief Executive Officer. In addition, the Committee devel- rary suspension of my functions in the Supervisory Board. oped the remuneration policy and the remuneration report in accordance with the Luxembourg law of August 1, 2019, the Second Shareholders’ Mr. Udo Stark, who had been Chairman of the Supervisory Board until Rights Directive (“SRD II”, Directive (EU) 2017/828). The remuneration 2018 agreed to temporary come back and took over the chair of the board. policy contains the remuneration scheme which was already approved by He retired from his functions on July 31, 2019. the Annual General Meeting on February 13, 2019. In the fiscal year 2019, the Remuneration and Nomination Committee held thirteen meetings via In the fiscal year 2019, the Supervisory Board of Stabilus S.A. performed its phone and in person and one meeting was held since the beginning of the tasks and monitored the Management Board in accordance with legal 2020 fiscal year. In all meetings, all members of the Remuneration and requirements and the Articles of Association of Stabilus S. A. The Manage- Nomination Committee were present. ment Board and the Supervisory Board maintained close and regular con- tact. The Supervisory Board advised the Management Board in regard to Supervisory Board examined the Company’s annual accounts, the consoli- strategic and operational decisions as well as governance topics and dated financial statements and the management report for the fiscal year decided on matters requiring Supervisory Board approval. In the fiscal year 2019. Representatives of the auditor KPMG Luxembourg attended the 2019, the members of the Supervisory Board were Mr. Udo Stark (member meetings of the Audit Committee on November 13, 2019, and on Decem- and chairman until July 31, 2019), Dr. Stephan Kessel (member and chair- ber 12, 2019, at which the financial statements were examined. The repre- man from August 1, 2019 on), Dr. Joachim Rauhut, Dr. Ralf-Michael Fuchs sentatives of the auditor reported extensively on their findings, provided a and Dr. Dirk Linzmeier. written presentation and were available to give additional explanations and opinions. The Supervisory Board did not raise objections to the Com- The Supervisory Board held in total twelve meetings during the fiscal year pany’s annual accounts or to the consolidated financial statements drawn 2019 and so far three in the fiscal year 2020. Except for one meeting during up by the Management Board for the 2019 fiscal year and to the auditors’ the 2019 fiscal year in which one Supervisory Board member could not par- presentation. The Supervisory Board agreed to the proposal of the Man- ticipate, all of the Supervisory Board members were present in all meetings. agement Board, recommended by the Audit Committee, and approved the On two occasions a member joined the meeting via phone. Ongoing subjects Company’s annual accounts and the consolidated financial statements for in the meetings were the current status and performance of the Stabilus fiscal year 2019. The auditor issued unqualified audit opinions on Decem- Group, including its commercial position as well as its relevant financial data. ber 12, 2019. The discussions were based on regular and extensive reports in verbal and written form by the Management Board. Other activities included strategy On behalf of the Supervisory Board, I would like to thank the Stabilus Man- presentations and a strategy workshop, as well as the organizational devel- agement for excellent achievements throughout the last fiscal year and for opment and potential acquisitions to enhance the profitable growth of the the open and effective collaboration. I want to thank the Stabilus employ- Stabilus Group. ees for their remarkable contributions to the Company’s success as well as our shareholders for the highly valued trust which they place in Stabilus. During the reporting period, the members of the Audit Committee were Let me extend my sincere gratitude to Udo Stark, too. He was asked on Dr. Joachim Rauhut (Chairman), Mr. Udo Stark (until July 31, 2019) and short notice to help out and did respond in a truly exemplary way. The Dr. Stephan Kessel (from August 1, 2019 on). Material questions concern- Management Board as well as the Supervisory Board are grateful for the ing auditing, accounting, risk management, compliance and respective service offered and his passionate leadership during a turbulent year for controls and systems were subject to the monitoring duties of the Audit Stabilus S.A. Committee. The Audit Committee discussed in particular the Quarterly Reports, the relationship with investors and the audit assignment to KPMG Luxembourg, December 12, 2019 Luxembourg including the focus areas of the audit. In the fiscal year 2019, On behalf of the Supervisory Board of Stabilus S. A. the Committee held five meetings and two meetings were held since the beginning of the 2020 fiscal year. In the meetings, all members were pres- Yours sincerely, ent, once a member joined via phone. During the reporting period, the members of the Remuneration and Nomi- nation Committee were Mr. Udo Stark (member and chairman until July 31, DR. STEPHAN KESSEL CHAIRMAN OF THE SUPERVISORY BOARD STABILUSTO OUR SHAREHOLDERS 10 INTERVIEW WITH CEO DR. MICHAEL BÜCHSNER » In the short and medium term, one of the focal points of my work will be to expand Stabilus’ position as a leading partner for motion- control solutions on a cross-sector basis. Dr. Michael Büchsner CEO STABILUSTO OUR SHAREHOLDERS 11 » Stabilus has a very broad product range and cus- tomer base, giving it the ideal conditions for con- tinued profitable growth... Your background is primarily in the automotive industry. What can you contribute in terms of developing the industrial sector? Dr. Büchsner, you took up your position as Chief Executive Although I have focused on the automotive industry to date, in the Officer of Stabilus in early October 2019. Why did you first ten years of my career I was responsible for plant engineering and choose Stabilus? maintenance. Back then I was already a good customer of the Stabilus sub- BÜCHSNER: I had already encountered Stabilus on numerous occa- sidiaries ACE and Hahn. In other words, I have got to know our business sions during my career and knew that it was synonymous with innovative from a customer perspective over the years and have seen for myself how products and the very highest quality across a wide range of industries. robust and reliable our products are. The automotive supply industry is As an engineer, I was deeply impressed by the products. As a manager, the famous for its exacting standards when it comes to quality, innovation, company’s strong growth prospects and the diversity of the markets and durability, efficiency, and service. When it comes to developing the indus- tasks involved were key factors in my decision. The breadth of the product trial sector, I can contribute this awareness and the necessary attention to range for industrial and automotive applications also excited me. detail. Stabilus has a very broad product range and customer base, giving What are your responsibilities as Chief Executive Officer? and industries – both organically and through targeted acquisitions. it the ideal conditions for continued profitable growth across all regions As Chief Executive Officer, I am responsible for the strategic, long- term orientation of the company, as well as supporting our teams in the operational implementation of strategic initiatives. In the short and medium term, one of the focal points of my work will be to expand Stabilus’ position as a partner of choice for motion-control solutions on a cross-sector basis. Many people still see Stabilus as an automotive sup- plier, even though we already generate around 40 percent of our revenues in industries such as agriculture, medical technology, mechanical engineer- ing, renewable energies, and aviation. I want to change this incomplete understanding of our company on the market. What relevant experience do you bring to the role? In addition to a well-founded technical and business background, I have international experience in all phases of the economic cycle, a good instinct for team leadership, and a very high degree of customer orienta- tion. In my previous role, where I was responsible for 40,000 employees, my team and I increased annual revenues from around €2 billion to around €4 billion in four years. STABILUSTO OUR SHAREHOLDERS 12 S T A B I L U S T O O U R S H A R E H O L D E R S How do you see Stabilus’ strategic positioning and what are your goals for the company? Stabilus is extremely well positioned in terms of its product portfo- lio and geographical footprint. We want to be the preferred supplier for motion-control solutions across all industries and regions. In order to achieve this, we have defined a clear process that is set out in our STAR 2025 strategy and firmly enshrined at all levels of our company. So you stand behind the STAR 2025 strategy? Yes, I am fully committed to STAR 2025. The STAR strategy was developed at the heart of the company and provides clear targets and ori- entation for all employees. We very much intend to carry it on and expand » Yes, I am fully committed to STAR 2025. it. However, a groundbreaking, long-term strategic process like this cannot What is Stabilus’ aim for the coming years in terms of the afford to be rigid and inflexible. In the future, we will continue to review it revenue breakdown between automotive and industrial at least twice a year and adjust it to reflect new focal points in our product business? portfolio, for example. We intend to expand the share of industrial business from its cur- rent level of around 40 percent, not only organically by developing new STAR 2025 sets out a target of average annual organic customers, industries, and regions, but also through targeted acquisitions. revenue growth of six percent between now and 2025. Generally speaking, we are anticipating growth in both the industrial and Do you still consider this to be achievable in light of the automotive sectors between now and 2025. 2018 and 2019 fiscal years? We have carefully examined the targets together with our interna- What are the synergies between automotive and industrial tional management teams. If the current expectations for the development business? of the industries in which we are active prove to be correct, this will be an The differences between automotive and industrial business are not ambitious but realistic target. so much about the products, but the ways in which these products are uti- STAR 2025 also involves planned acquisitions. know that every one of the products they use has been employed similarly Which regions and industries is Stabilus looking at? millions of times over the years, in the automotive industry and in many lized. This is what makes us so successful in industrial business: Customers At Stabilus, we have the advantage that we can continue to invest other sectors besides. in a targeted manner. Our M&A team is examining interesting options as part of a structured process, with a particular focus on motion control for How does Stabilus reach new customers and how does it industrial applications. Geographically, we are looking more closely at the develop existing customer relationships? Asian region, but we would also take advantage of attractive opportunities This is where our customer-oriented solutions expertise comes into in other regions. In light of the highly volatile environment in the automo- play. It is not uncommon for customers from all kinds of industries to con- tive market, I am not ruling out acquisitions in this sector either. Our aim is tact us with their own highly specific motion-control requirements and to to ensure a diversified presence and acquisitions are a part of this strategy. ask for a solution that we develop together with them. At the same time, What is your strategy for integrating purchased cases, alternative motion-control solutions using our products. We see companies? great potential in actively addressing existing and new customers. we also actively approach companies and propose efficient and, in some You always have to ask yourself what the right amount of integra- tion is. In the case of strong brands with a reputation for quality, synergies What are the current challenges and how is Stabilus primarily result from the joint use of sales networks and our global loca- responding to them? tions. It can make sense to retain high-profile brand names under the In terms of world politics, there are currently a number of unre- umbrella of the Stabilus Group. Ultimately, though, decisions are always solved issues affecting a number of industries: global trade disputes, the taken on a case-by-case basis. conflict in the Middle East, and Brexit, to name just a few. The automotive Will the current dividend policy be maintained? market is dominated by topics like Dieselgate, CO2 emissions, electric mobility, and the fundamental question of the future of mobility. We need Yes. As previously, we intend to distribute between 20 and to take the right decisions in order to prepare our product strategy and our 40 percent of our consolidated net profit to our shareholders every year. business model for the future. Our STAR process represents a good plan for S T A B I L U S T O O U R S H A R E H O L D E R S 13 addressing these challenges. Motion control is a broad field that will allow us to continue to develop in the automotive and industrial sectors alike. The megatrends of demographic change, the desire for comfort in all areas of life, and more stringent health and safety standards offer considerable potential for us, both now and in the future. What is important to you in the first 100 days in your new role? Communication. Being open to people and understanding them. If you fail to do this in the first 100 days, you will never get another oppor- tunity. Another priority in my first few months is to press ahead with inno- vation processes. As such, I have undertaken to talk to all employees in central functions – that means more than 100 individual meetings. I will also be meeting with employee representatives and making visits to ten suppliers and ten customers. I have already worked on each of the three production shifts and stood on the production line to familiarize myself with our products to an even greater extent, but also to talk to employees. Trips to the USA and China are planned for the coming months in order to get to know the local teams and understand the issues there. » Motion control is a broad field that will allow us to continue to develop in the automotive and industrial sectors alike. 14 STABILUS SHARE Stabilus share data Ticker symbol Bloomberg ticker symbol Reuters ticker symbol ISIN German security identification number (WKN) Number of shares outstanding (Sept 30, 2019) Type of shares STM STM:GR STAB.DE LU1066226637 A113Q5 24,700,000 Dematerialized shares with a nominal value of €0.01 Capital stock (Sept 30, 2019) €247,000 Stabilus share price impacted by challeng- ing markets in Europe and China Over the course of the fiscal year 2019, Stabilus’ share price decreased by thirty-seven percent from €71.60 to €44.90. During the same period SDAX dropped by six percent, DAXsector All Automobile and DAXsector Industral each by almost ten percent. From the beginning of October 2018 until end of January 2019, Stabilus shares mostly followed the trend in the European automotive and indus- trial sectors. Weaker market data from China, reduced growth rates in the automotive business and following changes in company’s FY2019 outlook, however, caused the Stabilus share price to fall behind its peer indices in February and then once more in May 2019. Nevertheless, until the end of fiscal year 2019, it was able to make up for some of the lost ground and to reduce the gap to its peer indices DAXsubsector Industrial Machinery and DAXsubsector All Auto Parts + Equipment. Shareholder structure According to the voting rights notifications received until September 30, 2019, Marathon Asset Management LLP, London, UK , Allianz Global Investors GmbH, Frankfurt am Main, Germany and Ameriprise Financial, Inc., Minneapolis, MN, USA each hold more than 5% of Stabilus shares. Stabilus management, i.e. members of the Management Board and of the Supervisory Board, hold 0.3% of the total shares. The aforementioned and all other voting-right notifications are published on our website www.ir.stabilus.com. STABILUSTO OUR SHAREHOLDERS SHARE PRICE DEVELOPMENT 10% 0% Opening price Oct 1, 2018 €71.60 – 10% – 20% – 30% – 40% – 50% – 60% 15 Closing price Sept 30, 2019 €44.90 Oct Dec Feb Apr June Aug Stabilus SDAX (Price index) DAXsector All Automobile (Price index) DAXsector Industrial (Price index) DAXsubsector All Auto Parts + Equipment (Price index) DAXsubsector Industrial Machinery (Price index) SHAREHOLDER STRUCTURE IN % AS OF SEPTEMBER 30, 2019 Annual General Meeting 7.1 5.2 5.1 0.3 Approximately 56% of equity capital was represented at our Annual General Meeting which was held on February 13, 2019, in Luxembourg. Each resolution proposed by the company’s management was approved by a large majority of shareholders. Among other things, the shareholders approved a new remuneration scheme, the amended directors’ term of office and the new authorized capital. All of the documents and infor mation regarding the Annual General Meeting can be found at www.ir.stabilus.com. 82.3 Dividend proposal of €1.10 per share Marathon Asset Management LLP, London, UK Allianz Global Investors GmbH, Frankfurt am Main, Germany The Management Board and the Supervisory Board have resolved to pro- pose a dividend distribution of €1.10 per share (PY: €1.00 per share) to the Annual General Meeting to be held in Luxembourg on February 12, 2020. It corresponds to a total dividend of €27.2 million (PY: €24.7 mil- lion) and the distribution ratio of 33.7% (PY: 23.4%) of the consolidated profit attributable to the Stabilus shareholders. Ameriprise Financial, Inc., Minneapolis, MN, USA Management Other institutional and private investors 7.1% 5.2% 5.1% 0.3% 82.3% STABILUSTO OUR SHAREHOLDERS 16 S T A B I L U S T O O U R S H A R E H O L D E R S DEVELOPMENT OF STABILUS SHARE PRICE SINCE IPO €100 €90 €80 €70 €60 €50 €40 €30 €20 €10 €0 Closing price Sept 30, 2019 €44.90 First trading day May 23, 2014 €22.75 May 2014 Nov May 2015 Nov May 2016 Nov May 2017 Nov May 2018 Nov May 2019 Regular dialog with investors and analysts In fiscal year 2019 we continued to pursue our goal of providing all The following equity analysts publish regular assessments and recom- market participants with relevant and reliable information. We conducted mendations on Stabilus stock: ten roadshows in Europe’s major financial centers, hosted twenty-two site visits and participated in the following international conferences: Berenberg Milan Seminar, Milan Credit Suisse Paris Auto Show Conference, Paris Research coverage Berenberg Commerzbank Hauck & Aufhäuser Berenberg European Corporate Conference, Pennyhill Park, Surrey J.P. Morgan Kepler Cheuvreux MainFirst Pareto Securities Quirin Societe Generale UBS Warburg Research • • • • • • ODDO BHF Forum, Lyon Commerzbank German Investment Seminar, New York Kepler Cheuvreux 18th German Corporate Conference, Frankfurt am Main • 13th ODDO BHF German Conference, Frankfurt am Main • HSBC Luxembourg Day, Luxembourg • • • Bankhaus Lampe Deutschlandkonferenz, Baden-Baden UBS Pan European Small and Mid-Cap Conference, London Commerzbank Northern European Conference, New York and Boston • Berenberg Conference USA, Tarrytown • • • • • Societe Generale Nice Conference, Nice J.P. Morgan 7th Annual Auto Conference, London Warburg Highlights Conference, Hamburg Commerzbank Sector Conference, Frankfurt am Main Berenberg and Goldman Sachs Eighth German Corporate Conference, Munich • Baader Investment Conference, Munich Philippe Lorrain Yasmin Steilen Christian Glowa Jose M Asumendi, Akshat Kacker Hans-Joachim Heimbürger Alexander Wahl Stefan Augustin Daniel Kukalj Stephen Reitman Sabrina Reeh Marc-René Tonn COMBINED COMBINED COMBINED MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT REPORT REPORT REPORT PAGE 18 – 44 18 COMBINED MANAGEMENT REPORT as of and for the fiscal year ended September 30, 2019 19 GENERAL 19 STRATEGY 21 BUSINESS AND GENERAL ENVIRONMENT 24 RESULTS OF OPERATIONS 28 DEVELOPMENT OF OPERATING SEGMENTS 32 LIQUIDITY 35 STATUTORY RESULTS OF OPERATIONS AND FINANCIAL POSITION OF STABILUS S. A. 35 RISKS AND OPPORTUNITIES 42 CORPORATE GOVERNANCE 44 SUBSEQUENT EVENTS 30 FINANCIAL POSITION 44 OUTLOOK STABILUSCOMBINED MANAGEMENT REPORT 19 GENERAL benefit from megatrends, such as increased standard of living, increasing comfort requirements and aging population, (iii) focus on innovative gas spring solutions, especially in the industrial Stabilus S. A., Luxembourg, hereafter also referred to as “Stabilus” business through new applications and selected add-on acquisi- or the “Company” is a public limited liability company (Société tions and (iv) maintain and strengthen the Company’s cost and Anonyme) incorporated in Luxembourg and governed by Luxem- quality leadership. bourg law. The registered office is 2, rue Albert Borschette, L-1246 Luxembourg, Grand Duchy of Luxembourg. D R I V E P R O F I TA B L E A N D C A S H G E N E R AT I N G G R O W T H I N A L L R E G I O N A L S E G M E N T S A N D Stabilus S. A. is the parent company of the Stabilus Group. The A C R O S S E N D M A R K E T S Group is organized and managed primarily on a regional level. The three reportable operating segments of the Group are Europe, The Stabilus Management aims to continue to increase revenue, NAFTA as well as Asia / Pacific including Rest of World (RoW). profits and cash flows across all business segments by further Stabilus’ fiscal year is a twelve-month period from October 1 until focusing on regions and sectors where the Stabilus Group has September 30 of the following year. room to grow, by entering new markets and by strengthening the Group with selected add-on acquisitions. The Stabilus Group is a leading manufacturer of gas springs, damp- ers, vibration isolation products as well as electromechanical tail- Automotive Gas Spring & Powerise®: Focus on rapidly gate opening systems (motion control solutions). The products are growing regions and increased comfort demand used in a wide range of applications in the automotive and the Stabilus intends to continue to further expand its international industrial and domestic sector. Typically the products are used to presence in rapidly growing markets, in particular in Asia, which aid the lifting and lowering or dampening of movements. As world has become a significant growth driver for the automotive sector market leader for gas springs, the Group manufactures for all key and where the Company’s market share still lags behind the market vehicle producers, a broad spectrum of industrial customers diver- share in Europe and NAFTA. Management seeks to increase reve- sify the Group’s customer base. Almost 40% of the Group’s reve- nue from Asian OEMs in the automotive business, supported by nue in fiscal year 2019 were achieved with industrial customers. targeted investments in additional production capacity in this STRATEGY region. To achieve this goal, management has implemented a tar- geted sales strategy and is further strengthening application engineering capabilities in China, which has already secured orders from several local Chinese OEMs, both for Gas Spring and Powerise®. Stabilus´s market share with European and US car manufactures has long since been strong. The Stabilus Group is a leading supplier of gas springs to auto- motive and industrial customers. In addition, the Company has Increased demand for boxy car designs like crossover, hatchback and successfully expanded into the production and sale of automatic estate body type, as well as family van and SUV will provide a strong opening and closing systems, primarily used for vehicle tailgates. foundation for increased sales. Powerise®, our automatic opening With the acquisition of Hahn Gasfedern, ACE, Fabreeka and Tech and closing system for vehicle tailgates fulfills increased comfort Products in fiscal year 2016 and the acquisition of General Aero- requirements of end customers across all regions. The Company is in space (Germany), Piston (Turkey) and Clevers (Argentina) in fiscal the process of setting up a dedicated Powerise® production building year 2019, the Group expanded its product offering and regional in Pinghu, China, besides existing Powerise® plants in Mexico and presence. The Company offers a broad range of solutions for Romania. motion control including damping vibration insulation solutions. Stabilus’ strategic aim is to further extend its leadership positions Industrial: Increase regional coverage in this product range. The key focus areas of its strategy process While Stabilus has a large industrial market share in some Euro- STAR are to: (i) drive profitable and cash-generating growth, (ii) pean countries in which the Company has a strong commercial STABILUSCOMBINED MANAGEMENT REPORT 20 presence, the Group believes that there is still potential to increase F O C U S O N I N N O VAT I V E C O M P O N E N T S A N D market share in Asia and North America, where the Company’s S YS T E M S TO TA K E A D VA N TA G E O F G L O B A L market coverage is comparatively less strong. Management has I N D U S T RY T R E N D S identified regions and countries in which the Company has the opportunity to repeat the successful strategies from markets where The products of Stabilus are at the forefront of innovation in motion Stabilus has a high share, by improving market coverage with the control. The Company employs 405 people (PY: 352 people) in R&D objective of strengthening the local sales footprint. In addition, across its three regional segments as of September 30, 2019. Stabilus Stabilus is duplicating its production, application engineering and is focused on designing and manufacturing highly-engineered sales know-how from Europe and NAFTA to the Asia / Pacific components, modules and system solutions that address key global region, to strengthen the Group’s footprint there. The Company has trends in the automotive and industrial sectors. The Company aims increased its product offering in Asia, especially China. Stabilus to adapt to these trends by continuously improving its existing has extended its Chinese production capabilities and set up local technology, in particular the requirement for ergonomic solutions application engineering, sales and project management teams. as well as automated opening and closing systems. Management The Stabilus management believes that a strong local presence in believes that actively addressing these key trends reinforces the China will further strengthen the Group’s position in the Company’s ability to maintain its market share and profitability. Asia / Pacific region. In the industrial sector, the Company continues to develop products In fiscal year 2019 Stabilus acquired General Aerospace (Germany), for enhanced safety and comfort. For example, it is selling a seat Piston (Turkey) and Clevers (Argentina) to strengthen the industrial application based on the Bloc-O-Lift® system for use in airplane business in all regions and in specific end markets. One important seats. In addition, dampers manufactured by Stabilus are increas- end market is the aerospace business. The rationale is to expand ingly used in suntracking solar parks. Our dampers protect the the motion control product portfolio in the aviation industry and to modules by reducing wind induced vibration. Management expects further develop the aircraft aftermarket and the retrofit business. that the recent and ongoing growth of our customer base for Powerise® solutions due to the superior technology features of the B E N E F I T F R O M M E G AT R E N D S, S U C H A S Company’s products will be a key growth driver for Stabilus. While I N C R E A S I N G C O M F O R T R E Q U I R E M E N T S A N D Powerise® systems were in the past deployed only in the luxury and A G I N G P O P U L AT I O N SUV car segments, Powerise® has successfully gained market shares with mid-class vehicles such as the VW Passat and Ford Stabilus continues to adapt its product offerings towards meg- Mondeo. The Company is working on and investing in improving atrends, such as comfort requirements. The Powerise® solution and further developing its current spindle drive technology to enhances comfort through automatically opening and closing car further reduce noise, weight and costs. In addition, Stabilus is tailgates and trunk lids. In addition, the Company’s gas springs exploring industrial applications for its Powerise® systems. offer more comfortable opening and closing solutions as well as increased comfort in commercial furniture and industrial applica- M A I N TA I N A N D S T R E N G T H E N C O S T A N D tions, such as airplane seats. Q U A L I T Y L E A D E R S H I P The share of people older than 55 years of the global population is Build on the Group’s global footprint and growing considerably faster than the population as a whole in a proximity to customers number of countries. Stabilus aims to benefit from this megatrend. Based on Stabilus guiding strategy “in the region, for the region”, It is inevitable that an aging consumer base in mature markets we have established our facilities in close proximity to the Group’s requests more movement support and more automated systems in customers and have done so continuously over the past years e.g. aspects of their daily lives and specifically in their vehicles. The the US, in China, South Korea, Mexico. It is the Company’s goal to Group intends to benefit from this megatrend as a leading system continue to provide a comprehensive product and service offering provider of automatic opening and closing systems which will con- to current and new customers globally. The Group seeks to fully tinue to experience an increasing demand. STABILUSCOMBINED MANAGEMENT REPORT 21 globalize its product portfolio and to provide an even broader range profitability. This is backed by a high level of business which has of components and systems to each customer. The companies acquired already been locked in. Due to the Company’s production know- in 2019 will benefit from the access to a broader customer base. how and long-standing client relationships backed by Stabilus’s quality leadership, management is confident that it can protect the Continue to optimize cost base Group’s market shares in gas springs in Europe and NAFTA and Stabilus continuously implements operational improvements relat- gain further market shares for gas springs in the Asia / Pacific ing to plant and overhead, which includes productivity improve- region, especially with local customers. An increasing market ments, overhead optimization and the rollout / implementation of share of Powerise® supports this positive outlook, as well as on local sourcing, to improve the Company’s operating cost strcture. expanded range of innovative products for the broad market. For the coming years, management expects to continue on this path with productivity improvements and a range of initiatives to increase BUSINESS AND GENERAL ENVIRONMENT Stabilus Group operates in automotive and in industrial markets. Macroeconomic development In the industrial markets, Stabilus supplies customers in a large number As per the latest figures published by the International of sub-industries, e.g. industrial production equipment, automation, Monetary Fund (IMF), the global GDP growth in the calen- construction machinery, transportation (aircraft, trucks and buses, dar year 2019 is projected to be 3.0% (2018: 3.6%). marine), agricultural machinery, medical applications, renewable energy Global GDP growth is projected to increase to 3.4% in the (in particular solar and wind). Hence, our revenue development in the calendar year 2020 on the back of strong growth in devel- industrial business depends to a certain degree on the macroeconomic oping economies. Advanced economies are projected to development, i.e. the growth rate of the gross domestic product (GDP) expand by 1.7% in the calendar year 2019. This is signifi- in the countries and regions we operate in. cantly lower than the 2.3% growth experienced by advanced economies in the calendar year 2018. It is pro- In the automotive market, an important driver of our revenue growth is jected that growth in advanced economies shall remain the global production volume of light vehicles (which comprise passen- roughly on prior year level at 1.7% in the calendar year ger cars and light commercial vehicles weighing less than six tons) and 2020. However, developing economies are projected to ultimately the number of vehicles sold, e.g. the registration of new continue to enjoy strong growth. The growth rate in devel- vehicles as an indicator of car sales. The average content of Stabilus oping economies is projected to be marginally lower at products per vehicle differs with the car body configurations (for 3.9% in the calendar year 2019 (2018: 4.5%) before rising instance, hatchbacks, crossovers, family vans have generally a higher up to 4.6% in 2020. Stabilus content per car). Therefore, the demand and popularity of cer- tain vehicle body configurations should be considered as an additional variable in a revenue forecast model. STABILUSCOMBINED MANAGEMENT REPORT 22 Latest growth projections for selected economies % Y E A R - O N - Y E A R C H A N G E I N T H E C A L E N D A R Y E A R World Advanced economies Euro Area United Kingdom United States Canada Japan Developing economies (emerging markets) Emerging and developing Europe Russia China Mexico Brazil Source: IMF, October 2019 World Economic Outlook. * Projections. 2018 3.6% 2.3% 1.9% 1.4% 2.9% 1.9% 0.8% 4.5% 6.4% 2.3% 6.6% 2.0% 1.1% 2019* 3.0% 1.7% 1.2% 1.2% 2.4% 1.5% 0.9% 3.9% 5.9% 1.1% 6.1% 0.4% 0.9% T_001 2020* 3.4% 1.7% 1.4% 1.4% 2.1% 1.8% 0.5% 4.6% 6.0% 1.9% 5.8% 1.3% 2.0% Development of vehicle markets Europe and around 16.3 million vehicles (– 4.2% versus 17.0 mil- lion units in 2018) in the NAFTA region. The global production of light vehicles in the last twelve months was weak. According to IHS forecasts as of October 2019, the Estimations of the German Association of the Automotive Industry global production is expected to decrease from 94.2 million units in (VDA) for the period January-August 2019 show a mixed picture calendar year 2018 to approximately 88.8 million vehicles in 2019 of new car registrations in the major car markets. New car registra- which corresponds to a growth rate of – 6.1% in calendar year 2019. tions in Germany from January to August increased by 1% while Thus, in 2019, the output of new passenger cars and light commer- total Europe new car registrations were down by – 4%. The USA cial vehicles in Asia / Pacific and RoW is forecasted to reach around showed a flat development of 0% and Japan showed an increase 51.3 million vehicles (– 7.7% versus 55.3 million units in 2018), of 1%. China showed a sharp contraction of – 12%. approximately 21.2 million vehicles (22.0 million versus 2018) in Production of light vehicles T_002 I N M I L L I O N S O F U N I T S P E R C A L E N D A R Y E A R Europe NAFTA Asia / Pacific and RoW Worldwide production of light vehicles* Source: IHS * Passenger cars and light commercial vehicles (<6t) ** IHS forecast as of October 2019 2018 22.0 17.0 55.3 94.2 2019** 2020** 2021** 2022** 2023** 2024** 21.2 16.3 51.3 88.8 21.0 16.6 51.3 88.9 21.6 16.5 53.5 91.6 21.8 16.7 55.6 94.1 21.9 16.8 58.3 97.1 22.0 17.1 60.3 99.3 STABILUSCOMBINED MANAGEMENT REPORT 23 Sport Utility Vehicles (SUVs), Multi-Purpose Vehicles (MPVs) as well as off-road vehicles continue to remain popular with customers. In Germany, the German Department of Motor Vehicles (Kraftfahrt- Alternative Performance Measures (APMs) in the annual report of fiscal year 2019 Bundesamt, KBA), a government agency administering vehicle reg- In accordance with the European Securities and Markets Authority istrations publishes monthly statistics of new passenger car regis- (ESMA) guidelines on Alternative Performance Measures the Stabilus trations, classified by car models and segment types. According to Group provides a definition, the rationale for use and a reconciliation KBA statistics, the SUV segment grew 15% for the period Janu- of APMs used. The Group uses the following APMs: organic growth, ary-September 2019, compared to the same period in 2018 while adjusted EBIT, free cash flow (FCF), adjusted free cash flow and registrations of Off-road vehicles also recorded a correspondingly net leverage ratio. The calculation of the net leverage ratio is strong increase of 14% over the same period in 2018. This is much based on net financial debt and adjusted EBITDA which are also stronger growth than that recorded by other passenger car seg- considered APMs. ments and all the more remarkable when considering that overall new car registrations have grown only by 2.5% in the same period. The APMs organic growth and adjusted FCF are used to provide According to information released by the China Association of presented because we believe it helps understanding our operating information adjusted for effects from acquisitions. These APMs are Automobile Manufacturers (CAAM) for the period January-September performance. 2019, the sale of passenger cars was down 12% compared to the same period in 2018. Sale of SUVs and MPVs declined by 9% and Organic growth is defined as growth in revenue adjusted for the 22% respectively, again reflecting relative consumer interest in SUVs. effects from material acquisitions and divestments and at constant Based on data released by IHS Markit, total sale of vehicles was down by 1.0% for the period January-September 2019 compared The definitions and required disclosures of all other APMs are with the same period in 2018. The highest market share has the provided in the relevant sections of this annual report. SUV segment, which also grew by 2.4% compared to 2018. US dollar exchange rates. STABILUSCOMBINED MANAGEMENT REPORT 24 RESULTS OF OPERATIONS The table below sets out Stabilus Group’s consolidated income statement for the fiscal year 2019 in comparison to the fiscal year 2018: 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 Income tax income / (expense) Profit / (loss) for the period Revenue Group’s total revenue developed as follows: Revenue by region I N € M I L L I O N S Europe 1) NAFTA 1) Asia / Pacific and RoW 1) Revenue 1) 1) Revenue breakdown by location of Stabilus company (i.e. “billed-from view”). Year ended Sept 30, 2019 951.3 (675.0) 276.4 (39.2) (84.2) (35.7) 8.3 (1.7) 124.0 1.3 (10.4) 114.9 (34.0) 80.9 2018 962.6 (671.4) 291.2 (42.0) (81.3) (38.5) 3.9 (1.3) 131.9 6.7 (12.1) 126.5 (21.1) 105.4 T _ 003 Change % change (11.3) (3.6) (14.8) 2.8 (2.9) 2.8 4.4 (0.4) (7.9) (5.4) 1.7 (11.6) (12.9) (24.5) (1.2)% 0.5% (5.1)% (6.7)% 3.6% (7.3)% >100.0% 30.8% (6.0)% (80.6)% (14.0)% (9.2)% 61.1% (23.2)% T _ 004 Year ended Sept 30, 2019 482.1 357.3 111.9 951.3 2018 491.3 348.1 123.1 962.6 Change % change (9.2) 9.2 (11.2) (11.3) (1.9%) 2.6% (9.1%) (1.2%) STABILUSCOMBINED MANAGEMENT REPORT 25 Total revenue of €951.3 million in fiscal year 2019 decreased by The decrease in Group revenue in fiscal year 2019 primarily occurred €(11.3) million or 1.2% compared to the fiscal year 2018. The in our entities in Europe (€(9.2) million or (1.9)%, organic growth acquired entities, i.e. General Aerospace GmbH, Clevers S.A. and (3.9)%) and Asia / Pacific and RoW (€(11.2) million or (9.1)%, Piston Amortisör Sanayi ve Ticaret A.Ş, contributed €10.4 million in organic growth (9.4)%). fiscal year 2019. The contribution reflects only the revenue earned after the acquisition date, i.e. between April and September (General Revenue from our NAFTA entities increased by €9.2 million or Aerospace) and between July and September (Clevers and Piston). 2.6%. The entities which are located in the NAFTA region were The Group`s organic growth in fiscal year 2019 was €(40.4) million positively impacted by the relatively stronger US dollar (average or (4.3)%. Revenue by market I N € M I L L I O N S Automotive Gas Spring Automotive Powerise® Automotive business Industrial / Capital Goods 1) Vibration & Velocity Control Industrial business Revenue rate per €1: $1.13 in FY2019 versus $1.19 FY2018). The currency translation effect amounted to €18.8 million, i.e. NAFTA´s organic revenue growth was (2.7)%. Year ended Sept 30, 2019 331.4 250.0 581.4 259.1 110.8 369.9 951.3 2018 342.3 268.3 610.6 250.4 101.6 352.0 962.6 T _ 005 Change % change (10.9) (18.3) (29.2) 8.7 9.2 17.9 (11.3) (3.2%) (6.8%) (4.8%) 3.5% 9.1% 5.1% (1.2%) 1) As of October 1, 2018, our Commercial Furniture business was integrated into the Industrial / Capital Goods business. The presentation of prior year figures was changed accordingly. The revenue of our Automotive business decreased by €(29.2) mil- in fiscal year 2019. General Aerospace has been consolidated since lion or (4.8)% from €610.6 million in fiscal year 2018 to €581.4 mil- the beginning of April 2019 and contributed €8.7 million in reve- lion in fiscal year 2019. This is particularly due to the generally nue to the Industrial business. The acquired entities Clevers S.A. weaker global automotive industry, especially in Europe and China. and Piston Amortisör Sanayi ve Ticaret A. Ş, contributed €1.7 mil- The global light vehicle production in fiscal year 2019 declined by lion in revenues since July 2019. (5.8)% compared to prior year (fiscal year 2018: 95.6 million units, fiscal year 2019: 90.1 million units). This effects both, our Automo- Industrial / Capital Goods revenue increased by €8.7 million or tive Powerise® business which decreased by €(18.3) million or 3.5%, organic growth €3.3 million or 1.3%. Our global Vibration & (6.8)% from €268.3 million to €250.0 million and our Automotive Velocity business increased by €9.2 million or 9.1% and organi- Gas Spring business which decreased by €(10.9) million or (3.2)% cally decreased by €(1.7) million or (1.6)%. The industrial business from €342.3 million to €331.4 million. Organically the Automotive in fiscal year 2019 resulted in a moderate organic increase by business decreased by €(42.0) million or (6.9)% (Automotive 0.5% and is due to ongoing market uncertainties together with Powerise® (9.4)%) and Automotive Gas Spring business (4.9)%). the current macroeconomic situation and the volatility in the global markets. Our broad customer portfolio helps to mitigate The revenue of our Industrial business increased by €17.9 million the impact of this weaker demand. In addition we benefit from the or 5.1% from €352.0 million in fiscal year 2018 to €369.9 million growth in the segments solar dampers and construction machinery. STABILUSCOMBINED MANAGEMENT REPORT 26 Cost of sales and overhead expenses OT H E R I N C O M E A N D E X P E N S E C O S T O F S A L E S Other income increased from €3.9 million in fiscal year 2018 by €4.4 million to €8.3 million in fiscal year 2019. This increase is Cost of sales increased from €(671.4) million in fiscal year 2018 by due to a non-recurring effect of €3.3 million from a purchase price 0.5% to €(675.0) million in fiscal year 2019. This increase reflects adjustment related to the acquisition of General Aerospace GmbH. a weaker fixed cost absorption as certain fixed cost elements were Furthermore, the increase is due to the foreign currency translation not reduced in line with revenue. Consequently, the cost of sales as gains from the operating business. a percentage of revenue increased by 130 basis points to 71.0% (PY: 69.7%) and the gross profit margin declined to 29.1% (PY: 30.3%). Other expense increased from €(1.3) million in fiscal year 2018 by R & D E X P E N S E S €0.4 million to €(1.7) million in fiscal year 2019. F I N A N C E I N C O M E A N D C O S T S R&D expenses (net of R&D cost capitalization) decreased by (6.7)% from €(42.0) million in fiscal year 2018 to €(39.2) million in fiscal Finance income decreased from €6.7 million in fiscal year 2018 to 2019. This reflects non-recurring impairment charges of €1.7 mil- €1.3 million in fiscal year 2019. In the prior year this reflects the lion in fiscal year 2018 compared to €0.4 million in fiscal year extension of the maturity date of our term-loan facility by one year 2019, as well as capitalization of costs related to specific customer (€3.4 million), a further decrease in the margin in February 2018 projects in the current fiscal year. As a percentage of revenue, R&D (€1.3 million) and changed assumptions regarding voluntary pre- expenses decreased by 30 basis points to 4.1% (PY: 4.4%). The payments (€1.7 million). capitalization of R&D expenses increased from €(9.1) million in fis- cal year 2018 to €(14.3) million in fiscal year 2019, due to the Finance costs decreased from €(12.1) million in fiscal year 2018 to application specific development of door actuators and Powerise® €(10.4) million in fiscal year 2019. Finance costs in fiscal year systems for new customers. S E L L I N G E X P E N S E S 2019 were primarily due to ongoing interest expense of €(9.7) mil- lion (PY: €(8.5) million) especially related to the term-loan facility. Thereof, an amount of €(3.6) million (PY: €(3.8) million) is cash interest. In addition, an amount of €(6.1) million (PY: €(4.7) mil- Selling expenses increased from €(81.3) million in fiscal year 2018 lion) is due to the amortization of debt issuance cost and the by 3.6% to €(84.2) million in fiscal year 2019. This increase is amortization of the adjustment of the carrying value by using the mainly due to €1.8 million selling expenses from acquired entities. effective interest rate method. Thereof €(1.1) million relates to a This increase is mainly due to €1.8 million selling expenses from voluntary prepayment of the term-loan facility which led to a acquired entities. As a percentage of revenue, selling expenses derecognition of unamortized debt issuance costs and unamortized increased by 50 basis points to 8.9% (PY: 8.4%). adjustments of the carrying value. A D M I N I S T R AT I V E E X P E N S E S Administrative expenses decreased from €(38.5) million in fiscal year 2018 by (7.3)% to €(35.7) million in fiscal year 2019. This includes €0.7 million advisory costs which are directly related to the acquisition of General Aerospace, Clevers and Piston. Further- more, this decrease is due to an decreased headcount and decreased personnel-related provisions. As a percentage of reve- nue, administrative expenses decreased slightly by 20 basis points to 3.8% (PY: 4.0%). STABILUSCOMBINED MANAGEMENT REPORT 27 I N C O M E TA X E X P E N S E changed financing and legal structure of our US operations. As a consequence a non-recurring net tax benefit amounting to €7.2 The tax expense increased from €(21.1) million in fiscal year 2018 million was recognized in fiscal year 2018 reflecting the release of to €(34.0) million in fiscal year 2019. The Group´s effective tax rate deferred tax liabilities for unrealized foreign exchange gains and in fiscal year 2019 is 29.6% (PY: 16.7%). the recoverability of interest expense from prior years. In fiscal year 2019 income tax expenses were negatively influenced R E C O N C I L I AT I O N O F E B I T TO A D J U S T E D E B I T by tax charges on intra-group dividend payments. The lower tax rate in the prior year was due to the non-recurring positive effect The following table shows a reconciliation of EBIT (earnings before from the remeasurement of the deferred tax positions following the interest and taxes) to adjusted EBIT for the fiscal years 2019 US tax reform signed in December 2017 with an amount of €3.9 and 2018: million. In addition, prior year was also positively influenced by the Reconciliation of EBIT to adjusted EBIT I N € M I L L I O N S Profit from operating activities (EBIT) PPA adjustments – depreciation and amortization Environmental protection measures Advisory Purchase price adjustment Adjusted EBIT Year ended Sept 30, 2019 124.0 19.8 1.5 0.7 (3.3) 142.7 2018 131.9 17.4 – – – 149.3 Change (7.9) 2.4 1.5 0.7 (3.3) (6.6) T _ 006 % change (6.0)% 13.8% n/a n/a n/a (4.4)% Adjusted EBIT represents EBIT, adjusted for exceptional non-recur- The PPA adjustments amounting to €19.8 million in the current ring items (e.g. restructuring or one-time advisory costs) and depre- year contain €9.3 million (PY: €9.3 million) related to the April ciation / amortization of fair value adjustments from purchase price 2010 PPA and €8.4 million (PY: €8.2 million) related to the June allocations (PPAs). 2016 PPA. €2.1 million relate to the acquisition of General Aero- space, Piston and Clevers, thereof €0.7 million stem from an Adjusted EBIT is presented because we believe it helps understand- inventory step-up. ing our operating performance. The adjustments for advisory amounting to €0.7 million occurred in price adjustment from the acquisition of General Aerospace. The adjustment amounting to €3.3 million relates to a purchase the first nine months of fiscal year 2019 and relate to transaction cost for the acquisition of General Aerospace, Clevers and Piston. The adjustment for environmental protection measures relates to an increase of the remediation provision for the former Stabilus site located in Colmar. STABILUSCOMBINED MANAGEMENT REPORT 28 DEVELOPMENT OF OPERATING SEGMENTS Stabilus Group is organized and managed primarily on a regional The table below sets out the development of our operating level. The three reportable operating segments of the Group are segments for the fiscal years 2019 and 2018. Europe, NAFTA, Asia / Pacific and RoW. Operating segments I N € M I L L I O N S Europe External revenue1) Intersegment revenue1) Total revenue1) Adjusted EBIT as % of total revenue as % of external revenue NAFTA External revenue1) Intersegment revenue1) Total revenue1) Adjusted EBIT as % of total revenue as % of external revenue Asia / Pacific and RoW External revenue1) Intersegment revenue1) Total revenue1) Adjusted EBIT as % of total revenue as % of external revenue 1) Revenue breakdown by location of Stabilus company (i.e. “billed-from view”). Year ended Sept 30, 2019 2018 Change % change T _ 007 482.1 28.6 510.7 68.4 13.4% 14.2% 357.3 24.7 382.0 60.0 15.7% 16.8% 111.9 0.1 112.0 14.3 12.8% 12.8% 491.3 32.3 523.6 77.4 14.8% 15.8% 348.1 26.1 374.2 51.9 13.8% 14.9% 123.1 0.1 123.2 20.0 16.2% 16.2% (9.2) (3.7) (12.9) (9.0) 9.2 (1.4) 7.8 8.1 (11.2) 0.0 (11.2) (5.7) (1.9)% (11.5)% (2.5)% (11.6)% 2.6% (5.4)% 2.1% 15.6% (9.1)% 0.0% (9.1)% (28.5)% STABILUSCOMBINED MANAGEMENT REPORT 29 The external revenue generated by our European companies lation effect from measuring NAFTAS´s revenue at constant US decreased from €491.3 million in fiscal year 2018 by (1.9)% to dollar rates (average rate per €1: $1.13 in FY2019 versus $1.19 €482.1 million in fiscal year 2019. The organic growth of our Euro- in FY2018) amounted to €18.8 million and leads to an organic pean companies was (3.9)%. The decrease is driven by our Auto- growth rate of (2.8)%. Organic growth of the Automotive business motive business. The continuing soft vehicle production in Europe was (4.7)% (Automotive Gas Spring (0.4)% and Powerise® busi- with weak demand in fiscal year 2019 resulted in reduced revenue. ness (8.0)%). Organic growth of the Industrial business was 1.9% The Automotive Powerise® business decreased by €(10.9) million or (Industrial Capital / Goods 3.4% and Vibration & Velocity business (10.0)% and the Automotive Gas Spring business by €(9.5) million (1.0)%). Adjusted EBIT of the NAFTA segment increased by or (6.1)%. The decrease was partly offset by our Vibration & Veloc- 15.6% or €8.1 million and the adjusted EBIT margin increased in ity Control business which grew by €8.2 million or 14.8% in total fiscal year 2019 by 190 basis points to 16.8% (PY: 14.9%). but which decreased by (0.9)% organically. In addition the Indus- trial / Capital Goods business grew by €2.9 million or 1.7%. The The external revenue of our companies located in the Asia / Pacific organic growth of the Industrial / Capital Goods business was and RoW region decreased from €123.1 million in fiscal year 2018 0.9%. The adjusted EBIT of the European segment decreased by by (9.1)% to €111.9 million in fiscal year 2019. This decrease was (11.6)% or €(9.0) million and the adjusted EBIT margin, i.e. mainly driven by the Automotive business by €(10.2) million or adjusted EBIT in percent of external revenue, decreased in fiscal (9.9)%, (Powerise® business (15.2)% and Automotive Gas Spring year 2019 by 160 basis points to 14.2% (PY: 15.8%). business (8.4)%). This development reflects the relatively weaker light vehicle sales due to the overall uncertainties regarding the The external revenue of our companies located in the NAFTA economic development, especially in China. The Industrial business region increased from €348.1 million in fiscal year 2018 by 2.6% decreased from €20.0 million by (5.1)% to €19.0 million. The to €357.3 million in fiscal year 2019. The Automotive Gas Spring organic growth of the Industrial business was (6.7)%. The adjusted business contributed €5.3 million and our Industrial business EBIT of the Asia / Pacific and RoW segment decreased by €(5.7) contributed €6.1 million to NAFTA´s development which was off- million or (28.5)% and the adjusted EBIT margin decreased in fis- set by €(3.9) million from Powerise® business. The currency trans- cal year 2019 by 340 basis points to 12.8% (PY: 16.2%). STABILUSCOMBINED MANAGEMENT REPORT 30 FINANCIAL POSITION Balance sheet I N € M I L L I O N S Assets Non-current assets Current assets Total assets Equity and liabilities Total equity Non-current liabilities Current liabilities Total liabilities T _ 008 2019 2018 Change % change 706.0 393.2 640.7 369.8 1,099.2 1,010.4 499.6 428.2 171.4 599.6 426.5 422.9 161.0 583.9 65.3 23.4 88.8 73.1 5.3 10.4 15.7 88.8 10.2% 6.3% 8.8% 17.1% 1.3% 6.5% 2.7% 8.8% Total equity and liabilities 1,099.2 1,010.4 TOTA L A S S E T S C U R R E N T A S S E T S The Group’s balance sheet total increased from €1,010.4 million as Current assets increased from €369.8 million as of September 30, of September 30, 2018, by 8.8% to €1,099.2 million as of Septem- 2018, by 6.3% or €23.4 million to €393.2 million as of September ber 30, 2019. 30, 2019. This was driven by an increase in trade accounts receiva- ble amounting to €19.1 million and in inventories amounting N O N - C U R R E N T A S S E T S to €9.6 million, thereof €6.2 million and €5.8 million respectively due to the newly acquired entities. This increase was offset by a Our non-current assets increased from €640.7 million as of Sep- decrease of the cash balance (€(4.0) million) primarily due to the tember 30, 2018, by 10.2% or €65.3 million to €706.0 million payment of the consideration for the acquisitions in April and July as of September 30, 2019. This is primarily due to identifiable non- amounting to €(41.4) million and the dividend payment amounting current assets amounting to €44.1 million and goodwill amounting to €(24.7) million in February 2019 as well as a voluntary prepay- to €15.7 million from business combinations (i.e. acquisitions of ment of the term-loan facility amounting to €(21.1) million in General Aerospace, Piston and Clevers). In addition property, plant September 2019. These payments are substantially covered by the and equipment increased by €20.7 million. This reflects additions strong free cash flow of the Group. of €41.4 million for ongoing capacity expansion projects, thereof €4.2 million for the acquisition of a production building near Hahn Gasfedern site, partly offset by depreciation. In addition, non- current assets were further reduced by the ongoing amortization of other intangible assets from the purchase price allocations amounting to €(19.1) million. STABILUSCOMBINED MANAGEMENT REPORT 31 E Q U I T Y C U R R E N T L I A B I L I T I E S The Group’s equity increased from €426.5 million as of September Current liabilities increased from €161.0 million as of September 30, 30, 2018, by €73.1 million to €499.6 million as of September 30, 2018, by €10.4 million or 6.5% to €171.4 million as of September 2019. This increase results from the profit of €80.9 million that 30, 2019. This is due to the increase of trade accounts payables by was generated in fiscal year 2019 and from other comprehensive €7.8 million or 9.4%, of which €2.0 million stem from the newly income of €5.3 million. Other comprehensive income comprises acquired entities. Current tax liabilities decreased by €(3.3) million, unrealized actuarial losses on pensions (net of tax) amounting to this decrease was partly offset by an increase in provisions, e.g. war- €(6.4) million and unrealized gains from foreign currency transla- ranty provisions, by €3.2 million, thereof €1.1 million from the newly tion amounting to €11.8 million. In addition, retained earnings acquired entities. increased by €0.8 million from the first-time application of IFRS 9. In the second quarter of fiscal year 2019 dividends amounting to €(24.7) million were paid to our shareholders. Non-controlling interests increased by €9.4 million mainly due to the acquisitions of General Aerospace, Piston and Clevers. N O N - C U R R E N T L I A B I L I T I E S Non-current liabilities increased from €422.9 million as of Septem- ber 30, 2018, by 1.3% or €5.3 million to €428.2 million as of September 30, 2019. This was due to the increase of deferred tax liabilities by €12.3 million from business combinations which were partly offset by the amortization of the purchase price allocations. The net pension liability increased by €7.7 million as a conse- quence of the decreased discount rate (September 30, 2019: 0.93% versus September 30, 2018: 2.00%). The financial liabilities decreased by a voluntary prepayment of the term-loan facility amounting to €21.1 million. This was partly offset by €4.9 million bank loans recognized as part of the business combinations. The amortization of debt issuance costs and the amortization of the adjustment of the carrying value using the effective interest rate method resulted in a further increase of €5.7 million. STABILUSCOMBINED MANAGEMENT REPORT 32 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 was basically flat, i.e. decreased The cash outflow from financing activities increased from €(25.5) slightly from €145.5 million in fiscal year 2018 by €(0.1) million to million in fiscal year 2018 by €(28.7) million to €(54.2) million in €145.4 million in fiscal year 2019. fiscal year 2019. This was primarily due to increased dividends of €(24.7) million (PY: €(19.8) million) paid to our shareholders in 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 February 2019 and a voluntary prepayment of the term-loan facility The cash outflow for investing activities increased from €(45.3) was €(0.2) million lower compared to fiscal year 2018. In addition million in fiscal year 2018 by €(51.6) million to €(96.9) million in we repaid financial liabilities amounting to €(3.7) million in fiscal fiscal year 2019. This increase is largely attributable to the acquisi- year 2019 (PY: €0.6 million). amounting to €21.1 million. The cash interest in fiscal year 2019 tions of General Aerospace, Piston and Clevers for a total consider- ation of €41.4 million (net cash acquired). In addition, the increase is due to higher capital expenditure in property, plant and equip- ment of €4.8 million, including an investment in a new production building amounting to €4.2 million. Furthermore, the cash outflow for intangible assets increased by €4.2 million to €15.1 million. Cash flows I N € M I L L I O N S Cash flow from operating activities Cash flow from investing activities Cash flow 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, 2019 145.4 (96.9) (54.2) (5.7) 1.7 143.0 139.0 2018 145.5 (45.3) (25.5) 74.7 0.2 68.1 143.0 T _ 009 Change % change (0.1) (51.6) (28.7) (0.1%) >100.0% >100.0% (80.4) <(100.0)% 1.5 74.9 (4.0) >100.0% >100.0% (2.8%) STABILUSCOMBINED MANAGEMENT REPORT 33 F R E E C A S H F L O W ( F C F ) Free cash flow (FCF) is defined as the total of cash flow from ation of the Group´s ability to generate cash which can be used operating and investing activities. The Group considers FCF as an for further investments. The following table sets out the composi- essential alternative performance measure as it aids in the evalu- tion of FCF: Free cash flow T _ 010 I N € M I L L I O N S Cash flow from operating activities Cash flow from investing activities Free cash flow ADJUSTED FREE CASH FLOW Year ended Sept 30, 2019 145.4 (96.9) 48.5 2018 145.5 (45.3) 100.2 Change % change (0.1) (51.6) (51.7) (0.1)% >100.0% (51.6)% Adjusted free cash flow is defined as the total of cash flow from adjusted free cash flow decreased from €100.2 million in fiscal operating and investing activities before acquisitions. The year 2018 to €89.9 million in fiscal year 2019. Adjusted free cash flow T _ 011 I N € M I L L I O N S Cash flow from operating activities Cash flow from investing activities before acquisitions Adjusted FCF Year ended Sept 30, 2019 145.4 (55.5) 89.9 2018 145.5 (45.3) 100.2 Change % change (0.1) (10.2) (10.3) (0.1)% 22,5% (10.3)% STABILUSCOMBINED MANAGEMENT REPORT 34 N E T L E V E R A G E R AT I O depreciation / amortization and before exceptional non-recurring The net leverage ratio is defined as net financial debt divided by adjusted EBITDA. items (e.g. restructuring or one-time advisory costs). The net leverage ratio is presented because we believe it is a useful indicator to evaluate the Group’s debt leverage and financing Net financial debt is the nominal amount of financial debt, i.e. structure. current and non-current financial liabilities, less cash and cash equivalents. Adjusted EBITDA is defined as adjusted EBIT before The net leverage ratio decreased from 1.1x in fiscal year 2018 to 1.0x in fiscal year 2019. See the following table: Net leverage ratio I N € M I L L I O N S Financial debt Cash and cash equivalents Net financial debt Adjusted EBITDA Net leverage ratio Financial debt I N € M I L L I O N S Financial liabilities (non-current) Financial liabilities (current) Adjustment carrying value Financial debt Adjusted EBITDA I N € M I L L I O N S Profit from operating activities (EBIT) Depreciation Amortization EBITDA Advisory Environmental protection measures PPA adjustments – inventory step-up Purchase price adjustment Adjusted EBITDA Year ended Sept 30, 2019 328.1 (139.0) 189.1 183.2 1.0x 2018 342.2 (143.0) 199.2 189.7 1.1x Change (14.1) 4.0 (10.1) (6.5) T _ 012 % change (4.1%) (2.8%) (5.1%) (3.4%) Year ended Sept 30, 2019 308.8 2.8 16.5 328.1 Change (7.9) 1.3 0.5 (6.1) – – – – 2018 131.9 25.5 32.3 189.7 – – – – Year ended Sept 30, 2019 124.0 26.8 32.8 183.6 0.7 1.5 0.7 (3.3) 183.2 T_013 2018 318.9 1.1 22.2 342.2 T _ 014 % change (6.0)% 5.1% 1.5% (3.2)% n/a n/a n/a n/a 189.7 (6.5) (3.4)% STABILUSCOMBINED MANAGEMENT REPORT 35 STATUTORY RESULTS OF OPERATIONS AND FINANCIAL POSITION OF STABILUS S. A. RISKS AND OPPORTUNITIES Risk management and control over financial reporting in the Stabilus Group For the statutory annual accounts of Stabilus S. A., please refer The Company considers Risk Management (RM) to be a key part of to Chapter D. Results of operations effective management and internal control. The Company strives for effective RM and financial navigation to safeguard the assets of the Company and to proactively support the Company’s strategic and compliance initiatives. The goal of RM is to help the Company The Company’s income results from services that are provided to to operate more effectively in a dynamic environment by providing other Stabilus Group entities based on service level agreements a framework for a systematic approach to risk management and amounting to €3.9 million (PY: €4.2 million). exploring opportunities with an acceptable level of risk. The Super- Other external expenses decreased slightly from €3.2 million in operational and financial results as well as the related risks. visory Board and the Management Board regularly discuss the fiscal year 2018 to €2.9 million in fiscal year 2019 basically related to reduced consulting fees. Risk management covers financial, strategic, compliance as well as operational aspects. Operational risk is the risk of direct or indi- The loss for fiscal year 2019 amounted to €(1.1) million (PY: €1.7 rect loss arising from a wide variety of causes associated with the million). Financial position Group’s processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behavior. These opera- Total assets decreased from €605.1 million as of September 30, tional risks arise from all of the Group’s operations. The Group’s 2018, to €577.9 million as of September 30, 2019. objective is to manage operational risk in a way to balance the avoidance of financial losses and damage to the Group’s reputa- Fixed assets essentially comprise shares in affiliated undertakings tion with overall cost effectiveness, as well as avoiding control which decreased from €574.4 million as of September 30, 2018, to procedures that restrict initiative and creativity. The Company’s pol- €553.4 million as of September 30, 2019. The Company decreased icy on managing financial risks seeks to ensure effective liquidity its investment in Stable II S. à r. l. by distributing €21,000 thousand and cash flow management and protection of Group equity capi- in August 2019 out of the share premium account of Stable II S. à r. l. tal against financial risks. As part of its evolution, the Company implements continuous improvements in its risk management and Current assets decreased from €30.4 million as of September 30, internal control systems. 2018, to €24.2 million as of September 30, 2019. This driven by a decrease in the cash balance by €5.3 million which reflects the Our accounting control system is designed to ensure all business dividend payment of €24.7 million which was partly offset by the transactions are correctly and promptly accounted for and that distribution from affiliated companies. reliable data on the Company’s financial situation is available. It ensures compliance with legal stipulations, accounting standards The Company’s capital and reserves decreased from €601.8 million and accounting rules. By separating financial functions and through as of September 30, 2018, to €576.1 million as of September 30, ongoing review, we ensure that potential errors are identified on 2019, due to the dividend payment to our shareholders of €24.7 a timely basis and accounting standards are complied with. million. This was partly offset by losses for the fiscal year amount- ing to €(1.1) million. STABILUSCOMBINED MANAGEMENT REPORT 36 Our internal control system is an integral component of the risk Stabilus manages these risks and opportunities by operating in management. The purpose of our internal control system for account- different regions and markets for local and global customers. ing and reporting is to ensure its compliance with legal stipulations, the principles of proper accounting, the rules on the International W E O P E R AT E I N C Y C L I C A L I N D U S T R I E S Financial Reporting Standards as adopted by the EU and with Group standards. In addition, we perform assessments to help identify and Our business is characterized by high fixed costs. Should our facilities minimize any risk with a direct influence on our financial reporting. be underutilized, this could result in idle capacity costs, write-offs We monitor changes in accounting standards and enlist the advice of inventories and losses on products due to falling average sales of external experts to reduce the risk of accounting misstatements prices. Furthermore, falling production volumes cause declines in in complex issues. revenue and earnings. On the other hand, our facilities might have insufficient capacity to meet customer demand if the markets in The Company and individual entity financial statements are subject which we are active grow faster than we have anticipated. to external audits which act as an independent check and monitor- ing mechanism of the accounting system and its output. The princi- Our automotive business, from which we generated 61% of our rev- pal risks that could have a material impact on the Group are set enue in the fiscal year ended September 30, 2019, sells its products out in the Note 33 of the Consolidated Financial Statements and primarily to automotive original equipment manufacturers (“OEMs”) are summarized below. Risks and opportunities related to the markets in which we operate in the automotive industry. These sales are cyclical and depend, among other things, on general economic conditions as well as on consumer spending and preferences, which can be affected by a number of factors, including employment, consumer confidence and income, energy costs, interest rate levels and the availability of con- sumer financing. Given the variety of such economic parameters influ- We are exposed to risks and opportunities associated with the encing the global automotive demand, the volume of automotive pro- performance of the global economy and the performance of the duction has historically been, and will continue to be, characterized economy in the jurisdictions in which we operate. by a high level of fluctuation, making it difficult for us to accurately predict demand levels for our products aimed at automotive OEMs. Due to our global presence, we are exposed to substantial risks and opportunities associated with the performance of the global We generated, in the aggregate, 39% of our revenue in the fiscal economy. In general, demand for our products is dependent on the year ended September 30, 2019, from sales to our industrial custom- demand for automotive products as well as for commercial vehicles, ers. We sell our products to customers in diverse industries, including agricultural machinery, medical equipment, renewable energy (in agricultural machines, renewable energy (in particular solar, wind), particular solar, wind), aerospace, marine and furniture components, railway, aircraft applications, commercial vehicles, marine applica- which in turn is directly related to the strength of the global econ- tions, furniture, health care and production equipment. These sales omy. Therefore, our financial performance has been influenced, and depend on the industrial production level in general as well as on the will continue to be influenced, to a significant extent, by the general development of new products and technologies by our customers, state and the performance of the global economy. which include our products as component parts. Stabilus manages these opportunities and risks by operating in different regions and Although the global economy has recovered a lot from the severe markets for the local and global customers. downturn in 2008 and 2009, the recent volatility of the financial markets and also the slower than expected economic growth in The business environment in which we operate is characterized by Asia show that there can be no assurance that any recovery is sus- strong competition, which affects some of our products and markets, tainable or that there will be no recurrence of the global financial which could reduce our revenue or put continued pressure on our and economic crisis or similar adverse market conditions. sales prices. STABILUSCOMBINED MANAGEMENT REPORT 37 The markets in which we operate are competitive and have been social unrest or acts of sabotage or terrorism. As personnel costs characterized by changes in market penetration, increased price have a significant effect on our business, we are also exposed to the competition, the development and introduction of new products, risks of labor cost inflation and limited employment contract flexi- product designs and technologies by significant existing and new bility in the countries in which our production facilities are located competitors. The majority of gas springs and electromechanical lift- and where we have sales personnel. Any of these risks could have a ing and closing systems manufactured globally are used for either material adverse effect on our business, financial condition and automotive, industrial or commercial furniture applications, which results of operations. are core markets for us. Our competitors are typically regional com- panies and our competition with them is generally on a regional W E A R E E X P O S E D TO O P P O R T U N I T I E S A N D R I S K S scale. We compete primarily on the basis of price, quality, timeliness A S S O C I AT E D W I T H M A R K E T T R E N D S A N D D E V E L- of delivery and design as well as the ability to provide engineering O P M E N T S support and services on a global basis. Should we fail to secure the quality of our products and the reliability of our supply in the There can be no assurance that (i) we will be successful in develop- future, then more and more of our customers could decide to pro- ing new products or systems or in bringing them to market in a cure products from our competitors. timely manner, or at all; (ii) products or technologies developed by others will not render our offerings obsolete or non-competitive; Our efforts to expand in certain markets are subject to a variety of (iii) our customers will not substitute our products with competing business, economic, legal and political risks. products or alternate technologies (such as third arm systems, hydraulic drives or hinge / direct drives); (iv) the market will accept We manufacture our products in several countries and we market our innovations; (v) our competitors will not be able to produce our and sell our products worldwide. We are actively operating and non-patented products at lower costs than we can; and (vi) we will expanding our operations in various markets, with a focus on the be able to fully adjust our cost structure in the event of contraction rapidly growing and emerging markets in the Asia / Pacific region, of demand. where we have production plants in China and South Korea, operate a wide network of representative sales offices and employ our own The Company develops appropriate strategies as a response to sales force and distribution network. We plan to expand our Asian these or similar market trends and to enhance existing products, production capacities to meet growth expectations and supplement develop new products or keep pace with developing technologies, demand with our other regional production plants as needed. to counter loss of growth opportunities, pressure on margins or the loss of existing customers. We devote resources to the pursuit Potential social, political, legal, and economic instability may pose of new technologies and products. In addition, technological significant risks to our ability to conduct our business and expand advances and wider market acceptance of our Powerise® automatic our activities in certain markets. Inherent in our international opera- drive systems (or the development and wider market acceptance tions is the risk that any number of the following circumstances of similar automatic lid drive systems by our competitors) could could affect our operations: underdeveloped infrastructure; lack of result in cannibalization of our gas spring applications. qualified management or adequately trained personnel; currency exchange controls, exchange rate fluctuations and devaluations; changes in local economic conditions; governmental restrictions on foreign investment, transfer or repatriation of funds; protectionist trade measures, such as anti-dumping measures, duties, tariffs Risks and opportunities related to our business or embargoes; prohibitions or restrictions on acquisitions or joint We are exposed to fluctuations in prices of prefabricated materials ventures; changes in laws or regulations and unpredictable or and components. unlawful government actions; the difficulty of enforcing agreements and collecting receivables through foreign legal systems; variations in We procure large quantities of prefabricated materials and compo- protection of intellectual property and other legal rights; potential nents from third-party suppliers. The prices of prefabricated materi- nationalization of enterprises or other expropriations; and political or als, components and manufacturing services we purchase from our STABILUSCOMBINED MANAGEMENT REPORT 38 suppliers depend on a number of factors, including to a limited from breaches of contracts (like delivery delays), recall actions or extent the development of prices of raw materials used in these fines imposed by government or regulatory authorities in relation products, such as steel, copper, rubber and water, as well as energy, to our products. Any such lawsuits, proceedings and other claims which have been volatile in the past. could result in increased costs for us. Additionally, authorities could prohibit the future sale of our products, particularly in cases of safety So far, this has not resulted in a general increase in the cost of pre- concerns. The aforementioned scenarios could result in loss of market fabricated materials and components we procure for the manufac- acceptance, loss of revenue and loss of customers, in particular ture of our products. However, it cannot be excluded that this vola- against the background that many of our products are components tility may result in a cost increase in the future. If we are not able which often have a major impact on the overall safety, durability and to compensate for or pass on our cost increases to customers, such performance of our customers’ end-product. price increases could have a material adverse impact on our financial results. Even to the extent that we are successful in compensating The risks arising from such warranty and product liability lawsuits, for or passing on our increased costs to our customers by increasing proceedings and other claims are insured as we consider economi- prices on new products, the positive effects of such price increases cally reasonable, but the insurance coverage could prove insufficient may not occur in the periods in which the additional expenses have in individual cases. Any major defect in one of our products could been incurred, but in later periods. If costs of raw materials and also have a material adverse effect on our reputation and market energy rise, and if we are not able to undertake cost saving meas- perception, which in turn could have a significant adverse effect on ures elsewhere in our operations or increase to an adequate level our revenue and results of operations. the selling prices of our products, we will not be able to compen- sate such cost increases, which could have a material adverse effect In addition, vehicle manufacturers are increasingly requiring a contri- on our business, financial condition and results of operations. The bution from, or indemnity by, their suppliers for potential product long-term increase of our costs (and resultant increase in the price liability, warranty and recall claims and we have been subject to of our products) may also negatively impact demand for our products. continuing efforts by our customers to change contract terms and conditions concerning warranty and recall participation. Our future business success depends on our ability to maintain the high quality of our products and processes. For customers, one of Furthermore, we manufacture many products pursuant to OEM the determining factors in purchasing our components and systems customer specifications and quality requirements. If the products is the high quality of our products and manufacturing processes. manufactured and delivered by us are deemed not to be fit for use A decrease in the actual and perceived quality of these products by our OEM customers at the agreed date of delivery, production of and processes could damage our image and reputation as well as the relevant products is generally discontinued until the cause of the those of our products. Any errors or delays caused by mistakes or product defect has been identified and remedied. Furthermore, our miscalculations in our project management could negatively affect OEM customers could potentially bring claims for damages on the our customers’ own production processes, resulting in reputational basis of breach of contract, even if the cause of the defect is remedied damage to us as supplier as well as to the affected customer as at a later point in time. In addition, failure to perform with respect to manufacturer. In addition, defective products could result in loss of quality requirements could negatively affect the market acceptance sales, loss of customers and loss of market acceptance. of our other products and our market reputation in various market L E G A L , TA X AT I O N A N D E N V I R O N M E N TA L R I S K S segments. A N D O P P O R T U N I T I E S We are and may become party to certain disadvantageous contracts pursuant to which we are required to sell certain products at a loss We are exposed to warranty and product liability claims. or to agree to broad indemnities. For example, we may enter into a con- tract at an agreed price and production costs may end up exceeding As a manufacturer, we are subject to product liability lawsuits and what was assumed in the development phase. If the assumptions on other proceedings alleging violations of due care, violations of war- which we rely in contract negotiations turn out to be inaccurate, this ranty obligations, treatment errors, safety provisions and claims arising could have an adverse effect on our revenue and results of operations. STABILUSCOMBINED MANAGEMENT REPORT 39 We are exposed to certain risks and opportunities with regards to We are involved in a number of legal and administrative proceed- our intellectual property, its validity and the intellectual property of ings related to products, patents and other matters incidental to third parties. our business and could become involved in additional legal, admin- istrative and arbitration proceedings in the future. These proceed- Our products and services are highly dependent upon our technolo- ings or potential proceedings could involve, in particular in the gical know-how and the scope and limitations of our proprietary United States, substantial claims for damages or other payments. rights therein. We have obtained or have applied for a number of Based on a judgment or a settlement agreement, we could be intellectual property rights, which can be difficult, lengthy and expen- obligated to pay substantial damages. Our litigation costs and sive to procure. Furthermore, patents may not provide us with mean- those of third parties could also be significant. ingful protection or a commercial advantage. In addition, where we incorporate an individual customer’s input to create a product that Due to our high market share, we may be exposed to legal risks responds to a particular need, we face the risk that such customer regarding anti-competition fines and related damage claims. will claim ownership rights in the associated intellectual property. Our market share in most of the markets in which we operate is Our competitors, suppliers, customers and other third parties also high, which may induce competition authorities to initiate proceed- submit a large number of intellectual property protection applica- ings or third parties to file claims against us alleging violation of tions. Such other parties could hold effective and enforceable intel- competition laws. A successful anti-competition challenge could lectual property rights to certain processes, methods or applications adversely affect us in a variety of ways. For example, it could result in and consequently could assert infringement claims (including illegiti- the imposition of fines by one or more authorities and / or in third mate ones) against us. parties (such as competitors or customers) initiating civil litigation claiming damages caused by anti-competitive practices. In addition, A major part of our know-how is not patented and cannot be pro- anti-competitive behavior may give rise to reputational risk to us. tected through intellectual property rights. Consequently, there is a The realization of this risk could have a material effect on our busi- risk that third parties, in particular competitors, may utilize our ness, financial condition and results of operations. know-how without incurring any expenses of their own. Our intel- lectual property is often discovered by and during the course of Interest carry-forwards may be forfeited in part or in full as a result our employees’ employment. As a result, there is a risk that we of subsequent share sales. have failed or will fail to properly utilize inventions of our employ- ees. Present or former employees who made or make employee Some Stabilus subsidiaries have significant interest carry-forwards as inventions might continue to be the owners of the valuable rights to a result of the application of the statutory interest ceiling rules that inventions if we fail to claim the invention in a timely manner. limit the deduction of net interest expenses for tax purposes. The interest carry-forward may be deducted to the extent that in subse- The realization of any of these risks could give rise to intellectual quent assessment periods the then current interest expenses do not property claims against us. Such claims, if successful, could require us reach the interest ceiling applicable to the relevant assessment to cease manufacturing, using or marketing the relevant technolo- period, and, thus, reduce the tax payable by the relevant subsidiary. gies or products in certain countries or be forced to make changes to manufacturing processes or products. In addition, we could be liable However, the interest carry-forward will be forfeited on a pro rata to pay compensation or damages for infringements or could be basis or in full if more than a defined percentage of the shares in forced to purchase licenses to make use of technology from third entities are directly or indirectly transferred to a new shareholder, parties. This could have a material adverse effect on our business, persons related to such shareholder or a group of shareholders act- financial condition and results of operations. ing in the same interest, or in case of similar transactions (such as a We are subject to risks from legal, administrative and arbitration Such forfeiture would increase the tax payable by the relevant sub- proceedings. sidiary if without the forfeiture the interest carry-forward could have capital increase) that result in a change of the shareholder structure. been used in part or in full. STABILUSCOMBINED MANAGEMENT REPORT 40 We could be held liable for soil, water or groundwater contamination or for risks related to hazardous materials. Risks and opportunities related to our capital structure Many of the sites at which we operate have been used for industrial Due to our high level of debt we face potential liquidity risks. purposes for many years, leading to risks of contamination and the resulting site restoration obligations. In addition, we could be held Our cash from operating activities, current cash resources and responsible for the remediation of areas adjacent to our sites if these existing sources of external financing could be insufficient to meet areas were potentially contaminated due to our activities. Ground- our further capital needs, especially if our sales decrease signifi- water contamination was discovered at a site in Colmar, Pennsylva- cantly. Disruptions in the financial markets, including the bank- nia operated by us from 1979 to 1998. In June 2012, the U.S. Envi- ruptcy, insolvency or restructuring of a number of financial institu- ronmental Protection Agency (“EPA”) issued an administrative order tions, and restricted availability of liquidity could adversely impact against our U.S. subsidiary and determined requirements in respect the availability and cost of additional financing for us and could of the remedy and the remedy cost. Our subsidiary, together with the adversely affect the availability of financing already arranged or other responsible parties, is requested to reimburse the EPA for past committed. Our liquidity could also be adversely impacted if our and current expenses and to bear the remediation costs. If additional suppliers tighten terms of payment as the result of any decline in contamination is discovered in the future, the competent authorities our financial condition or if our customers were to extend their could assert further claims against us, as the owner or tenant of the normal payment terms. affected plots, for the examination or remediation of such soil or groundwater contamination, or order us to dispose of or treat con- Stabilus has set an appropriate liquidity risk management frame- taminated soil excavated in the course of construction. We could also work for the management of the Group’s short, medium and long- be required to indemnify the owners of plots leased by us or of other term funding and liquidity requirements. The Group manages properties, if the authorities were to pursue claims against the liquidity risk by regular reviews, maintaining certain cash reserves, relevant owner of the property and if we caused the contamina- as well as open credit lines. tion. Costs typically incurred in connection with such claims are gen- erally difficult to predict. Also, if any contamination were to become We are exposed to risks and opportunities associated with changes the subject of a more intense public discussion, there is a risk that in currency exchange rates. our reputation or relations with our customers could be harmed. We operate worldwide and are therefore exposed to financial risks Furthermore, at some of the sites at which we operate, or at which that arise from changes in exchange rates. Currency exchange fluc- we operated in the past, small quantities of hazardous materials tuations could cause losses if assets denominated in currencies were used in the past, such as asbestos-containing building materi- with a falling exchange rate lose value, while at the same time als used for heat insulation. While we consider it unlikely, it cannot liabilities denominated in currencies with a rising exchange rate be ruled out that the health and safety of third parties (such as for- appreciate. In addition, fluctuations in foreign exchange rates could mer employees) may have been affected due to the use of such enhance or minimize fluctuations in the prices of materials, since hazardous materials or that other claims may be asserted and we we purchase a considerable part of the prefabricated materials could therefore be exposed to related claims for damages in the which we source from foreign currencies. As a result of these fac- future. Even if we have contractually excluded or limited our liabil- tors, fluctuations in exchange rates could affect our results of oper- ity in connection with the sale of such properties, we could be held ations. External and internal transactions involving the delivery of responsible for currently unknown contamination on properties products and services to and / or by third parties result in cash which we previously owned or used. inflows and outflows which are denominated in currencies other The in-house legal department monitors these risks continuously and Among other factors, we are particularly exposed to fluctuations of reports regularly to Group management and the Supervisory Board. net inflows in U.S. dollar (surplus) and net outflows in Romanian than the functional currency of our respective Group member. STABILUSCOMBINED MANAGEMENT REPORT 41 leu (demand). To the extent that cash outflows are not offset by cash inflows resulting from operational business in such currency, the remaining net foreign currency exposure is not hedged as of September 30, 2019. Although we may enter into certain hedging arrangements in the future, there can be no assurance that hedging will be available or continue to be available on commercially reasonable terms. In addition, if we were to use any hedging transactions in the future in the form of derivative financial instruments, such transactions may result in mark-to-market losses. In addition, we are exposed to foreign exchange risks arising from internal loan agreements, which result from cash inflows and outflows in currencies other than the functional currency of our respective Group member. As of Septem- ber 30, 2019, these foreign exchange risks are not hedged against by using derivative financial instruments. Our net foreign invest- ments are generally not hedged against exchange rate fluctuations. In addition, a number of our consolidated companies report their results in currencies other than the Euro, which requires us to con- vert the relevant items into Euro when preparing our consolidated financial statements. Translation risks are generally not hedged. Risks and opportunities: Overall assessment The Management Board does not see any individual or aggregate risk that could endanger the future of Stabilus in any material way. STABILUSCOMBINED MANAGEMENT REPORT 42 CORPORATE GOVERNANCE the Supervisory Board are described in the section “Management and Supervisory Board of Stabilus S. A.”. As a Luxembourg société anonyme, the Company is subject to the The Annual General Meeting shall be held at such time as specified corporate governance regime as set forth in particular in the law of by the Management Board and the Supervisory Board in the con- August 10, 1915, on commercial companies. As a Company whose vening notice. The Management Board and Supervisory Board may shares are listed on a regulated market, the Company is further convene extraordinary general meetings as often as the Company’s subject to the law of May 24, 2011, on the exercise of certain share- interests so require. An extraordinary general shareholders’ meet- holder rights in listed companies. ing must be convened upon the request of one or more sharehold- ers who together represent at least one tenth of the Company’s As a Luxembourg société anonyme whose shares are exclusively share capital. listed on a regulated market in Germany, the Company is not required to adhere to the Luxembourg corporate governance Each share entitles the holder to one vote. The right of a shareholder regime applicable to companies that are traded in Luxembourg or to participate in a General Meeting and to exercise the voting to the German corporate governance regime applicable to stock rights attached to his shares are determined with respect to the corporations organized in Germany. The Company has decided to shares held by such shareholder the 14th day before the General set up own corporate governance rules as described in the follow- Meeting. Each shareholder can exercise his voting rights in person, ing paragraphs rather than to confirm such corporate governance through a proxyholder or in writing (if provided for in the relevant regimes in order to build up a corporate governance structure convening notice). which meets the specific needs and interests of the Company. From fiscal year 2018 on, Stabilus is obliged by the European direc- on takeover bids which has been implemented by Article 11 of the tive and Luxembourg law to report on non-financial and diversity Luxembourg Law on Takeovers of May 19, 2006, (the “Law on information. Stabilus’ Non-Financial Report will be published with Takeovers”) is set forth here below under “Disclosure Regarding this Annual Report, i.e. on December 13, 2019. Article 11 of the Law on Takeovers of May 19, 2006”. The information required by Article 10.1 of Directive 2004 / 25 / EC The internal control systems and risk management for the estab- D I S C L O S U R E S P U R S U A N T TO A R T I C L E 1 1 lishment of financial information is described in the section O F T H E L U X E M B O U R G L A W O N TA K E O V E R S “Risk management and control over financial reporting in the O F M AY 1 9 , 2 0 0 6 Stabilus Group”. A) For information regarding the structure of capital, reference is According to the Articles of Incorporation of the Company, the made to Note 22 of the Consolidated Financial Statements. Management Board must be composed of at least two Management B) The Articles of Incorporation of the Company do not contain any Board members, and the Supervisory Board must be composed of restrictions on the transfer of shares of the Company. at least three Supervisory Board members. The Supervisory Board C) According to the voting rights notifications received in fiscal year has set up the following committees in accordance with the Articles 2019, the following shareholders held more than 5% of total vot- of Incorporation: Audit Committee and Remuneration Committee. ing rights attached to Stabilus shares as of September 30, 2019: The Audit Committee is responsible for the consideration and eval- Marathon Asset Management LLP, London, UK (direct: 1,745,599 uation of the auditing and accounting policies and its financial con- voting rights attached to shares or 7.07% of total voting rights, trols and systems. The Remuneration Committee is responsible for indirect: 1,459,614 voting rights attached to shares or 5.91% of making recommendations to the Supervisory Board and the Manage- total voting rights), Allianz Global Investors GmbH, Frankfurt am ment Board on the terms of appointment and the benefits of the Main, Germany (indirect: 1,291,376 voting rights attached to managers of the Company. Further details on the composition and shares or 5.23% of total voting rights) and Ameriprise Financial, purpose of these committees and of the Management Board and Inc., Minneapolis, MN, USA (indirect: 1,271,128 voting rights attached to shares or 5.15% of total voting rights). STABILUSCOMBINED MANAGEMENT REPORT 43 D) The control rights of any shares issued in connection with – All powers not expressly reserved by the Luxembourg Com- employee share schemes are exercised directly by the respective panies Act or by the Articles of Incorporation to the General employee. Meeting or the Supervisory Board fall within the authority E) The Articles of Incorporation of the Company do not contain any of the Management Board. restrictions on voting rights. – Certain transactions and measures are subject to the prior F) There are no agreements with shareholders which are known approval of the Supervisory Board on the terms set out in to the Company and may result in restrictions on the transfer the Articles of Incorporation. of securities or voting rights within the meaning of Directive – The Management Board may appoint one or more persons, 2004 / 109 / EC (Transparency Directive). who may be a shareholder or not, or who may be a member G) Rules governing the appointment and replacement of Manage- of the Management Board or not, to the exclusion of any ment Board members and the amendment of the Articles of member of the Supervisory Board, who shall have full Incorporation: authority to act on behalf of the Company in all matters – The Management Board members are appointed by the pertaining to the daily management and affairs of the Supervisory Board by the majority of the votes of the mem- Company. bers present or represented (abstention or non-participation – The Management Board is also authorized to appoint a per- being taken into account as a vote against the appoint- son, either a director or not, to the exclusion of any member ment), or in the case of a vacancy, by way of a decision of of the Supervisory Board, for the purposes of performing the remaining Management Board members for the period specific functions at every level within the Company. until the next Supervisory Board Meeting. – The Management Board may also appoint committees and – Management Board members serve for the following terms: sub-committees in order to deal with specific tasks, to Chief Executive Officer up to four years, and for any other advise the Management Board or to make recommendations Board members up to three years. Management Board mem- to the Management Board and / or, as the case may be, the bers are eligible for re-appointment. General Meeting, the members of which may be selected – Management Board members may be removed at any time either from among the members of the Management Board with or without cause by the Supervisory Board by a simple or not, to the exclusion of any member of the Supervisory Board. majority of the votes. – The Management Board does not have currently any author- – Resolutions to amend the Articles of Incorporation may be ity to issue shares in the Company under the Articles of adopted by a majority of two thirds of the votes validly cast, Incorporation. without counting the abstentions, if the quorum of half of – The Management Board does not have currently any author- the share capital is met. If the quorum requirement of half ity to buy back shares under the Articles of Incorporation or of the share capital of the Company is not met at the a buy-back program. Annual General Meeting, then the shareholders may be I) There are no significant agreements to which the Company is re-convened to a second General Meeting. No quorum is party and which take effect, alter or terminate upon a change of required in respect of such second General Meeting and the control of the Company following a takeover bid. resolutions are adopted by a supermajority of two-thirds of J) There are agreements between the Company and its Manage- the votes validly cast, without counting the abstentions. ment Board members or employees providing for compensation H) Powers of the Management Board: if they resign or are made redundant without valid reason or if – The Company is managed by a Management Board under their employment ceases because of a takeover bid. the supervision of the Supervisory Board. – The Management Board is vested with the broadest powers to perform or cause to be performed any actions necessary or useful in connection with the purpose of the Company. STABILUSCOMBINED MANAGEMENT REPORT 44 S T A B I L U S C O M B I N E D M A N A G E M E N T R E P O R T SUBSEQUENT EVENTS As of December 12, 2019, there were no further events or develop- ments that could have materially affected the measurement and pres- entation of the Group’s assets and liabilities as of September 30, 2019. OUTLOOK For fiscal year 2020, Stabilus expects revenue growth of around 2% to 4% to approximately €970 million to €990 million (y / y con- stant currency rate of 1.13 $ / € in fiscal year 2020). This expecta- tion is based on a currently expected global light vehicle produc- tion of 88.3 million units in fiscal year 2020. The Stabilus Group also confirms its STAR 2025 long-term forecast, published in 2017, which expects organic annual revenue growth of an average of 6 percent until fiscal 2025. From the point of view of the Management Board and Supervisory Board, the forecast is achievable despite the unexpectedly weak markets in 2018 and 2019 based on the following: Realization of the current expectations for global GDP growth of an average of 2.8 percent to 3.0 percent in calendar years 2021 to 2025 and the recovery of the global light vehicle production to a currently expected level of 91.8 million vehicles in calendar year 2021, increasing to a level of 101.7 mil- lion vehicles in calendar year 2025. CONSOLIDATED CONSOLIDATED CONSOLIDATED CONSOLIDATED CONSOLIDATED FINANCIAL FINANCIAL FINANCIAL FINANCIAL STATEMENTS STATEMENTS STATEMENTS STATEMENTS STATEMENTS PAGE 46 – 130 46 CONSOLIDATED FINANCIAL STATEMENTS for the fiscal year ended September 30, 2019 47 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 48 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 50 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 51 CONSOLIDATED STATEMENT OF CASH FLOWS 52 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 52 1 General Information 53 2 Basis for presentation 63 3 Accounting policies 71 4 Business combination 73 5 Revenue 74 6 Cost of sales, research and development, selling and administrative expenses 75 7 Other income 76 8 Other expenses 76 9 Finance income 77 10 Finance costs 78 11 Income tax expense 81 12 Earnings per share 82 13 Property, plant and equipment 83 14 Goodwill 85 15 Other intangible assets 86 16 Other financial assets 87 17 Other assets 87 18 Inventories 88 19 Trade accounts receivable 89 20 Current tax assets 89 21 Cash and cash equivalents 90 22 Equity 91 23 Financial liabilities 92 24 Other financial liabilities 93 25 Provisions 95 26 Pension plans and similar obligations 98 27 Trade accounts payable 98 28 Current tax liabilities 99 29 Other liabilities 99 30 Leasing 101 31 Contingent liabilities and other financial commitments 102 32 Financial instruments 104 33 Risk reporting 108 34 Capital management 109 35 Notes to the consolidated statement of cash flows 110 36 Segment reporting 112 37 Share-based payments 119 38 Auditor’s fees 120 39 Related party relationships 120 40 Remuneration of key management personnel 121 41 Subsequent events 122 RESPONSIBILITY STATEMENT 123 MANAGEMENT BOARD OF STABILUS S. A. 124 SUPERVISORY BOARD OF STABILUS S. A. 125 INDEPENDENT AUDITOR’S REPORT STABILUSCONSOLIDATED FINANCIAL STATEMENTS 47 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the fiscal year ended September 30, 2019 Consolidated statement of comprehensive income T _ 015 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 1) Unrealized actuarial gains and losses 2) 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 Year ended Sept 30, N OT E 2019 2018 5 6 6 6 6 7 8 9 10 11 22 22 12 12 951,339 962,564 (674,955) (671,407) 276,384 (39,150) (84,191) (35,655) 8,294 (1,667) 291,157 (42,031) (81,330) (38,504) 3,886 (1,296) 124,015 131,882 1,254 (10,417) 114,852 (33,953) 80,899 273 80,626 11,753 (6,424) 5,329 86,228 273 85,955 6,704 (12,084) 126,502 (21,147) 105,355 (55) 105,410 4,115 471 4,586 109,941 (55) 109,996 3.26 3.26 4.27 4.27 1) Item that may be reclassified (‘recycled’) to profit and loss at a future point in time when specific conditions are met. 2) Item that will not be reclassified to profit and loss. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 48 CONSOLIDATED STATEMENT OF FINANCIAL POSITION as of September 30, 2019 Consolidated statement of financial position T _ 016 I N € T H O U S A N D S Assets Property, plant and equipment Goodwill Other intangible 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 N OT E Sept 30, 2019 Sept 30, 2018 13 14 15 17 11 18 19 20 16 17 21 199,946 214,821 276,159 1,711 13,371 706,008 100,339 130,328 4,987 4,743 13,814 139,020 393,231 179,225 195,231 247,181 3,951 15,088 640,676 90,763 111,271 5,292 3,407 16,033 143,000 369,766 1,099,239 1,010,442 STABILUSCONSOLIDATED FINANCIAL STATEMENTS 49 Consolidated statement of financial position T _ 016 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 The accompanying Notes form an integral part of these Consolidated Financial Statements. N OT E Sept 30, 2019 Sept 30, 2018 22 22 22 22 23 24 25 26 11 27 23 24 28 25 29 247 225,848 283,423 (19,283) 490,235 9,382 499,617 308,761 83 3,565 59,893 55,933 247 225,848 225,090 (24,612) 426,573 (50) 426,523 318,921 520 3,402 52,180 47,847 428,235 422,870 90,992 2,824 10,096 13,088 38,144 16,243 171,387 599,622 83,171 1,100 10,867 16,366 34,920 14,625 161,049 583,919 1,099,239 1,010,442 STABILUSCONSOLIDATED FINANCIAL STATEMENTS 50 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the fiscal year ended September 30, 2019 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 Balance as of Sept 30, 2017 247 225,848 139,440 (29,198) 105,410 – Profit / (loss) for the period Other comprehensive income / (expense) Total comprehensive income for the period Dividends Capital increase 22 – – – – – – – – – – Equity attributable to shareholders of Stabilus Non- controlling interests T _ 017 Total equity 336,337 105,410 43 (55) 336,380 105,355 – 4,586 4,586 – 4,586 105,410 4,586 (19,760) – – – 109,996 (19,760) – (55) (38) – 109,941 (19,798) – Balance as of Sept 30, 2018 247 225,848 225,090 (24,612) 426,573 (50) 426,523 Effects IFRS 9 22 – – 834 – 247 225,848 225,924 (24,612) 80,626 – 834 427,407 80,626 – (50) 273 834 427,357 80,899 Balance as of Oct 1, 2018 Profit / (loss) for the period Other comprehensive income / (expense) Total comprehensive income for the period Dividends Change in ownership interest in sub- sidiaries without a change of control Change in non-controlling interest Receipts from non-controlling interest 22 22 – – – – – – – – – – – – – – – 5,329 5,329 – 5,329 80,626 5,329 (24,700) 1,573 – – – – – – 85,955 (24,700) 273 (62) 86,228 (24,762) 1,573 (2,774) – – 11,415 580 (1,201) 11,415 580 Balance as of Sept 30, 2019 247 225,848 283,423 (19,283) 490,235 9,382 499,617 The accompanying Notes form an integral part of these Consolidated Financial Statements. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 51 CONSOLIDATED STATEMENT OF CASH FLOWS for the fiscal year ended September 30, 2019 Consolidated statement of cash flows I N € T H O U S A N D S Profit / (loss) for the period Income tax expense Net finance result Interest received Depreciation and amortization (incl. impairment losses) Gains / losses from the disposal of assets Changes in inventories Changes in trade accounts receivable Changes in trade accounts payable Changes in other assets and liabilities Changes in provisions Income tax payments Cash flow from operating activities Proceeds from disposal of property, plant and equipment Purchase of intangible assets Purchase of property, plant and equipment Acquisition of assets and liabilities within the business combination, net of cash acquired Cash flow from investing activities Receipts under financial liabilities Payments for redemption of financial liabilities Receipts from non-controlling interests Payments for redemption of senior facilities Payments for finance leases Dividends paid Dividends paid to non-controlling interests Payment for acquisition of non-controlling interests Payments for interest Cash flow 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 The accompanying Notes form an integral part of these Consolidated Financial Statements. T _ 018 Year ended Sept 30, N OT E 9/10 13/15 35 15 13 4 30 22 35 2019 80,899 33,953 9,163 419 59,633 (136) (4,847) (11,395) 3,661 11,497 (1,500) (35,930) 145,417 1,032 (15,108) (41,413) (41,415) (96,904) – (3,694) 580 (21,073) (443) (24,700) (62) (1,200) (3,643) (54,235) (5,722) 1,742 143,000 139,020 2018 105,355 21,147 5,380 265 57,816 (89) (5,501) (6,124) 4,098 (947) 416 (36,361) 145,455 2,243 (10,900) (36,630) – (45,287) 6,427 (563) – (6,427) (1,253) (19,760) (38) – (3,837) (25,451) 74,717 160 68,123 143,000 STABILUSCONSOLIDATED FINANCIAL STATEMENTS 52 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS as of and for the fiscal year ended September 30, 2019 1 General information Stabilus S. A., Luxembourg, hereinafter also referred to as “Stabilus” or the “Company” 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. The Company´s 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 opening and closing equipment. The products are used in a wide range in automotive and industrial applications, as well as in the furniture industry. Typically the products are used to support the lifting and lowering or dampening of movements. As 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 as large techni- cal 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 accordance with International Financial Reporting Standards (IFRS), as adopted by the EU. The consolidated financial statements were authorized for issue by the Management Board on Decem- ber 12, 2019. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 53 2 Basis for presentation P R E PA R AT I O N In the statement of financial position assets and liabilities are classified as non-current and current. They are reported as current if the remaining term is less than one year and as non-current if the remaining term is over one year. Deferred tax assets and liabilities, as well as provisions for defined benefit pension plans and similar obligations are reported as non-current. The consolidated statement of comprehensive income is presented using the cost of sales method. In relation of the first-time application of IFRS 9”Financial Instruments” and IFRS 15 “Revenue from Contracts with Customers” as of October 1, 2018. Stabilus Group has applied the modified retrospec- tive method for the transition to IFRS 9 and IFRS 15. M E A S U R E M E N T The consolidated financial statements have been prepared on historical cost basis, except for certain items, that are measured at fair value, like derivative financial instruments. The 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 The preparation of financial statements requires estimates that involve complex and subjective judg- ments and the use of assumptions for matters that are uncertain and are subject to change. Estimates can change from period to period and can have a material impact on financial positions, income and expenses. Management regularly reviews estimates and assumptions. These are updated if necessary. Impairment of non-financial assets Stabilus monitors whether there are indications that its non-financial assets may be impaired. Goodwill and development cost under construction are tested for impairment annually. 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. Trade and other receivables The allowance for doubtful accounts requires management judgment and review of individual receiva- bles based on individual customer creditworthiness, current economic trends and analysis of historical allowances. Please also refer to Note 19. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 54 Deferred tax assets The valuation of deferred tax assets is based on mid-term business plans of the entities carrying the deferred tax asset. The mid-term business plans range from three to five years and include various assumptions and estimates relating to the business development, strategic changes, cost optimization and business improvement and also general market and economic development. Deferred tax assets are recognized to the extent that sufficient taxable profit will be available for the utilization of the deductible temporary differences. Stabilus recognizes a valuation allowance for deferred tax assets when it is unlikely that sufficient future taxable profit will be available. Please also refer to Note 11. Provisions Significant estimates are required in the determination of provisions related to pensions and other obligations, contract losses, warranty costs and legal proceedings. Please also refer to Notes 25 and 26. 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 uncertain- ties. Actual results can vary from expectations due to changes in the overall economy, evolvement of price-aggressive competitors, significant price changes for raw materials and overall purchase costs. Furthermore quality issues may result in significant costs for the Group. The Group financing is based on variable interest rates and is subject to risks and uncertainties due to the development of the Euribor and the net leverage level of the Company. G O I N G C O N C E R N These consolidated financial statements have been prepared under the going concern assumption. S C O P E O F C O N S O L I DAT I O N The consolidated financial statements include the financial statements of Stabilus S. A. and all sub- sidiaries, which are directly or indirectly controlled by Stabilus. Control exists if the Company has the decision- making power over the relevant activities of an entity and it participates in positive and negative variable returns from that entity and it can affect these returns by its decision-making power. Non-controlling interests represent the portion of profit and loss and net assets not held by the Company. They are presented separately in the consolidated statement of comprehensive income and the consolidated 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 date of acquisition or until the date of disposal, as appropriate. STABILUSCONSOLIDATED FINANCIAL STATEMENTS Next to Stabilus S. A., 36 (PY: 33) subsidiaries (see following list) are included in the consolidated financial statements as of September 30, 2019. Subsidiaries N A M E O F T H E C O M PA N Y Registered office of the entity Interest and control held by Holding in % Ramos Arizpe, Mexico Stabilus GmbH 99.9998% Blitz F10-neun GmbH i. L. Koblenz, Germany Stabilus S.A. Stable II S.à r.l. Luxembourg Stabilus S.A. Stable Beteiligungs GmbH Koblenz, Germany Stable II S.à r.l. Stable HoldCo Australia Pty. Ltd. Dingley, Australia Stable II S.à r.l. Stabilus UK Ltd. Stabilus GmbH Stabilus Pty. Ltd. Stabilus Ltda. Stabilus Espana S.L. Stabilus Co. Ltd. Stabilus S.A. de C.V. Stabilus Inc. Stabilus Limited Stabilus Japan Corp. New Clevers S.A. Piston Amortisör Sanayi ve Ticaret Anonim Şirketi Banbury, United Kingdom Stable Beteiligungs GmbH Koblenz, Germany Stable Beteiligungs GmbH Dingley, Australia Stable HoldCo Australia Pty. Ltd. Itajubá, Brazil Lezama, Spain Stabilus GmbH Stabilus GmbH Busan, South Korea Stabilus GmbH Stabilus UK Ltd. Gastonia, USA Stabilus US Holding Corp. Auckland, New Zealand Stabilus GmbH Yokohama, Japan Stable Beteiligungs GmbH Buenos Aires, Argentina Stable Beteiligungs GmbH Bursa, Turkey Stable Beteiligungs GmbH Stabilus France S.à r.l. Poissy, France Stabilus GmbH Stabilus Romania S.R.L. Brasov, Romania Stable Beteiligungs GmbH Stabilus (Jiangsu) Ltd. Wujin, China Stabilus GmbH Stabilus GmbH Stabilus Mechatronics Service Ltd. Shanghai, China Stabilus (Jiangsu) Ltd. Stabilus (Zhejiang) Ltd. Pinghu, China Stable II S.à r.l. Stabilus US Holding Corp. Wilmington, USA Stable II S.à r.l. Stabilus Motion Controls GmbH Langenfeld, Germany Stable II S.à r.l. General Aerospace GmbH Eschbach, Germany Stabilus Motion Controls GmbH General Aerospace Inc. Lynnwood, USA General Aerospace GmbH Fabreeka Group Holdings, Inc. Stoughton, USA Stabilus US Holding Corp. ACE Controls Inc. Farmington Hills, USA Stabilus US Holding Corp. ACE Controls International Inc. Farmington Hills, USA Stabilus US Holding Corp. Fabreeka International Holdings Inc. Stoughton, USA Fabreeka Group Holdings Inc. Fabreeka International Inc. Stoughton, USA Fabreeka International Holdings Inc. Tech Products Corporation Miamisburg, USA Fabreeka International Holdings Inc. Fabreeka GmbH Deutschland Büttelborn, Germany Fabreeka International Holdings Inc. ACE Controls Japan L.L.C. Farmington Hills, USA ACE Controls Inc. ACE Stoßdämpfer GmbH Langenfeld, Germany Stabilus Motion Controls GmbH HAHN-Gasfedern GmbH Aichwald, Germany Stabilus Motion Controls GmbH Stabilus Actio GmbH Langenfeld, Germany Stabilus Motion Controls GmbH Stable II S.à r.l. 55 T _ 019 Consolidation method 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 Full Full Full Full Full Full Full Full Full Full 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 0.0002% 100.00% 80.00% 100.00% 60.00% 53.00% 100.00% 3.01% 96.99% 100.00% 100.00% 100.00% 100.00% 100.00% 90.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 94.90% 5.10% 100.00% 70.00% STABILUSCONSOLIDATED FINANCIAL STATEMENTS 56 The decrease of subsidiaries is due to the ongoing simplification of the legal structure of the Stabilus Group. In fiscal year 2019, one subsidiary was liquidated and another one was merged into another Group company. Four additional subsidiaries were acquired in 2019. Furthermore, one entity was founded in fiscal year 2019. This had no material effect on the Group’s consolidated financial statements. 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 domestic and foreign entities included in the consolidated financial state- ments are accounted for in accordance with the uniform accounting policies of the Stabilus Group. Receivables and liabilities or provisions between the consolidated entities are eliminated. Intragroup revenue and other intragroup income and the corresponding cost and expenses are eliminated. Inter- company gains and losses on intragroup delivery and service transactions are eliminated through profit or loss, unless they are immaterial. 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 obtained by the Group. Goodwill is measured 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 liabilities assumed. The consideration transferred does not include amounts related to the settlement of transactions existing before the business combination. 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 connection with the business combination are expensed as incurred. Non-controlling interests in the net assets of consolidated subsidiaries consist of the value of those interests at the date of the original business combination and their share of changes in equity since that date. 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 (€). For each entity in the Group its functional currency is determined, which is the currency of the primary economic environment in which the entity operates. Items included in the financial statements of each entity are measured using the functional currency. Transactions in foreign currencies are initially trans- lated into the functional currency using the exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currency are translated into the functional currency using the exchange rate at the balance sheet date. The resulting foreign currency exchange gains or losses are recognized in profit and loss. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 57 Non-monetary items in a foreign currency that are measured at historical cost are translated using the exchange rates as of the date of the initial transaction. Non-monetary items in foreign currency meas- ured at fair value are translated using the exchange rate at the date when the fair value is determined. Assets and liabilities of foreign subsidiaries with a functional currency other than euro (€) are trans- lated using the exchange rates as at the balance sheet date, while their income and expenses are translated using the average exchange rates during the period. Foreign currency exchange gains and losses on operating activities are included in other operating income and expense. Foreign currency gains and losses on financial receivables and debts are included in interest income and expense. Translation adjustments arising from exchange rate differences are recognized directly in shareholder’s equity and are presented as a separate component of equity. On disposal of a foreign entity, the trans- lation adjustment relating to that particular foreign operation is recognized in profit or loss. Exchange differences from foreign currency loans that are part of a net investment in a foreign opera- tion are recognized directly in equity. 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 _ 020 C O U N T RY I S O C O D E Australia Argentina Brazil China South Korea Mexico Romania Turkey USA AUD ARS BRL CNY KRW MXN RON TRY USD Closing rate Sept 30, Average rate for the year ended Sept 30, 2019 1.6126 2018 1.6048 2019 1.6029 2018 1.5657 62.4212 46.1252 47.9888 27.4630 4.5288 7.7784 4.6535 7.9662 4.3604 7.7569 4.1775 7.7818 1,304.8300 1,285.7500 1,300.9884 1,303.1971 21.4522 21.7800 21.8837 22.6385 4.7496 6.1491 1.0889 4.6638 6.9650 1.1576 4.7189 6.3238 1.1281 4.6439 5.2487 1.1906 STABILUSCONSOLIDATED FINANCIAL STATEMENTS 58 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 / N E W S TA N DA R D S I S S U E D The accounting policies applied in the consolidated financial statements comply with the IFRSs required to be applied in the EU as of September 30, 2019. In financial year 2019, the following new and revised standards and interpretations had to be applied for the first time in the Stabilus Group’s financial statements: New standards, interpretations and amendments in the financial year T _ 021 S TA N D A R D / I N T E R P R E TAT I O N IFRS 9 IFRS 15 Financial Instruments (issued on July 24, 2014) Revenue from Contracts with Customers (issued on May 28, 2014) including amendments to IFRS 15: Effective date of IFRS 15 (issued on September 11, 2015) Effective date stipulated by IASB Effective date stipulated by EU January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 Clarifications to IFRS 15 Revenue from Contracts with Customers (issued on April 12, 2016) January 1, 2018 January 1, 2018 Impact on Stabilus financial statements Reference is made to the descriptions below Reference is made to the descriptions below Reference is made to the descriptions below Amendments to IFRS 2 Amendments to IFRS 4 Classification and Measurement of Share- based Payment Transactions (issued on June 20, 2016) Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (issued on September 12, 2016) January 1, 2018 January 1, 2018 No impact January 1, 2018 January 1, 2018 No impact Amendments to IAS 40 Transfers of Investment Property (issued on December 8, 2016) January 1, 2018 January 1, 2018 No impact Annual Improvements Annual Improvements to IFRSs 2014 – 2016 Cycle (issued on December 8, 2016) January 1, 2018 (IFRS 1 and IAS 28) January 1, 2018 (IFRS 1 and IAS 28) No impact IFRIC 22 Foreign Currency Transactions and Advance Consideration (issued on December 8, 2016) January 1, 2018 January 1, 2018 No impact The effective date presented above is the date of mandatory application in annual periods beginning on or after that date. In the financial year 2019 the Stabilus Group applied the new standards IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers for the first time. The cumulative effect of initially applying IFRS 9 amounting to €0.8 million was recorded as an adjustment to the opening balance of retained earnings as of October 1, 2018. In compliance with the transitional provisions, comparative information was not restated. Nonetheless, this does not significantly impact overall comparability with previous year figures. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 59 I F R S 9 F I N A N C I A L I N S T R U M E N T S The initial application of IFRS 9 Financial Instruments in financial year 2019 has no material impact on the net assets, financial position, and results of operations of the Stabilus Group. IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, fair value through other comprehensive income and fair value through profit or loss. The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. IFRS 9 eliminates the previous IAS 39 categories of held to matu- rity, loans and receivables and available for sale. The new provisions for classifying financial assets did not result in any changes to measurement or recognition. The financial assets are allocated to the measurement category “at amortized cost” in accordance with IFRS 9. The initial application of IFRS 9 had no impact on the measurement or recognition of financial liabilities. IFRS 9 contains an expected loss impairment model for financial assets measured at amortized cost. In the future, expected losses are to be recognized when the financial asset is booked (expected credit loss model). Previously, IAS 39 stipulated that impairment was to be reported if there were objective indications, for example in the event of a receivable that was already past due (incurred loss model). This means that impairments were recognized at a later period under IAS 39 than under IFRS 9. For trade accounts receivables the Stabilus Group elects to use the simplified approach based on expected credit losses over relevant terms. Default rates are based on historical losses and forward-looking expectations under consideration of the relevant economic environment to determine regional risks. Trade accounts receivables impaired due to insolvency or other similar situations or significantly over- due shall be written off on a case by case basis. For other financial assets, cash and cash equivalents the effect from the first-time application of the general approach of the new impairment model of IFRS 9 was insignificant. As the Stabilus Group does not currently apply the hedge accounting provisions in accordance with IAS 39, the changes to hedge accounting do not result in any changes in the transition from IAS 39 to IFRS 9. However, the new accounting standard creates new opportunities for the recognition of hedges as hedging relationships in the balance sheet in future. Changes in accounting policies resulting from the adoption of IFRS 9 have been applied retrospec- tively. The Group has used an exemption not to restate comparative information for prior periods. Any adjustments would be recognized in retained earnings and reserves as at October 1, 2018. The initial application of IFRS 9 in financial year 2019 has not resulted in any material impact on the net assets, financial position, and results of operations of the Stabilus Group. Nonetheless, depending on future agreements and transactions, IFRS 9 could have a material impact on the presentation of the net assets, financial position, and results of operations. Furthermore, the initial application of IFRS 9 increased disclosure obligations in the notes to the consolidated financial statements. Based on our assessment the overall effect of the required adjustments for all portfolios is €0.8 million. The follow- ing table sets out classification and measurement of the first-time application of IFRS 9: STABILUSCONSOLIDATED FINANCIAL STATEMENTS 60 Reconciliation IFRS 9 classification and measurement I N € T H O U S A N D S Assets Trade accounts receivable Other financial assets Cash and cash equivalents Liabilities Financial liabilities – non-current Other financial liabilities – non-current Trade accounts payable – current Financial liabilities – current Other financial liabilities – current Measurement category acc. to IAS 39 as of Sept 30, 2018 Effects IFRS 9 first-time application Measurement category acc. to IFRS 9 as of Oct 1, 2018 Carrying amount LaR LaR LaR FLAC – FLAC FLAC FLAC 111,271 3,407 143,000 318,921 520 83,171 1,100 10,867 834 – – – – – – – AC AC AC FLAC – FLAC FLAC FLAC Allowance for doubtful accounts I N € T H O U S A N D S Allowance for doubtful accounts as of Sept 30, 2018 (IAS 39) Effect IFRS 9 first-time application Allowance for doubtful accounts as of Oct 1, 2018 (IFRS 9) T_022 Carrying amount 112,105 3,407 143,000 318,921 520 83,171 1,100 10,867 T_023 Impairment on trade receivables (2,578) 834 (1,744) I F R S 1 5 R E V E N U E F R O M C O N T R A C T S W I T H C U S TO M E R S IFRS 15 Revenue from Contracts with Customers provides a single, principles-based five-step model for the determination and recognition of revenue to be applied to all contracts with customers. The new standard replaces the existing guidance on revenue recognition, including IAS 18 Revenue, IAS 11 Construction Contracts and the relevant interpretations (IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC 13 Jointly Controlled Entities). The core principle of IFRS 15 is that revenue will be recognized in an amount that corresponds to the consideration that the entity expects to receive. A so-called “5-step model” is used to determine at which point in time or over which period of time revenues are to be recognized and in what amount. Furthermore, the standard includes detailed guidance and extended disclosure requirements. IFRS 15 Revenue from Contracts with Customers has been applied for the first time in the Stabilus Group´s financial year 2019 beginning on October 1, 2018. The effects of IFRS 15 were analyzed as part of a Group-wide project on implementing the new standard. As the previously applied accounting policies of Stabilus Group regarding revenue recognition essentially correspond to the provisions in IFRS 15, the first-time application of IFRS 15 had no material impact. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 61 New standards, interpretations and amendments issued and endorsed by the EU (not yet adopted) T _ 024 S TA N D A R D / I N T E R P R E TAT I O N IFRS 16 Leases (issued on January 13, 2016) Effective date stipulated by IASB Effective date stipulated by EU January 1, 2019 January 1, 2019 Impact on Stabilus financial statements Reference is made to the descriptions below Annual Improvements Amendments to IFRS 9 Annual Improvements to IFRSs 2015 – 2017 Cycle (issued on December 12, 2017) Prepayment Features with Negative Compensation (issued on October 12, 2017) January 1, 2019 January 1, 2019 No impact January 1, 2019 January 1, 2019 No impact Amendments to IAS 19 Plan Amendment, Curtailment or Settlement (issued on February 7, 2018) January 1, 2019 January 1, 2019 Reference is made to the descriptions below Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures (issued on 12 October 2017) January 1, 2019 January 1, 2019 No impact IFRIC 23 Uncertainty over Income Tax Treatments (issued on June 7, 2017) January 1, 2019 January 1, 2019 Reference is made to the descriptions below The effective date presented above is the date of mandatory application in annual periods beginning on or after that date. The IASB issued new standards and amendments which have been endorsed by the EU and whose application accordingly is not yet compulsory in financial year 2019. The Stabilus Group is not planning an early application of these standards, amendments and interpretations. I F R S 1 6 L E A S E S IFRS 16 Leases changes the regulations for the recognition, measurement, presentation and disclosure of leases. IFRS 16 supersedes the previous standard for lease accounting (IAS 17 Leases) and the relat- ing interpretations (IFRIC 4 Lease Arrangement, SIC-15 Operating Leases – Incentives and SIC-27 Eval- uation of Lease Transactions). The objective of the new leasing standard is to recognize all leases and their associated contractual rights and obligations on the balance sheet. Therefore, the previous dis- tinction between finance and operating lease is eliminated from the perspective of a lessee. Apart from short-term and low-value leases, IFRS 16 introduces a methodology for all lease contracts similar to that previously applied for finance leases, i.e. alongside a right-of-use asset a corresponding lease lia- bility is also recognized upon initial recognition. Both items are updated as appropriate. When account- ing for leases, lessors are still required to perform a review to classify leases as operating or finance leases. IFRS 16 will basically make it necessary to recognize all leases in the balance sheet in future financial years. For the consolidated financial statements of the Stabilus Group, this relates in particu- lar to those rental agreements previously classified as operating leases, which are disclosed as finan- cial commitments in the notes to the consolidated financial statements (see Note 30). As a result, non-current assets and financial liabilities will both increase in future financial years. Furthermore, such changes will also effect the income statement. To date, rental payments in connection with operating lease agreements were mainly recorded as operating expenses. In future financial years, these expenses will be replaced into depreciation and interest expenses and recognized accordingly. Looking at the consolidated statement of cash flows, the lease payments from previous operating leases will reduce cash flow from financing activities in the future financial years beginning October 1, 2019, as opposed to cash flow from operating activity. In the future, the interest portion of lease payments will STABILUSCONSOLIDATED FINANCIAL STATEMENTS 62 also be reported in cash flow from financing activities. In the Stabilus Group, IFRS 16 is applied for the first time in the annual reporting period beginning on October 1, 2019 (the Stabilus Group´s financial year 2020). The effects of IFRS 16 were analyzed as part of a Group-wide project on implementing the new stand- ard. As part of its business transactions, the Stabilus Group is the lessee of property, plant and equip- ment (e.g. IT hardware, cars, and other machinery and equipment). The Stabilus Group used the modi- fied retrospective transition method for the first-time application of IFRS 16. The Stabilus Group is currently finalizing the data analysis for the determination of the quantitative effects resulting from the implementation and the systems changes. Based on our assessment the main impact of the transition to IFRS 16 will be from the assessing of the lease term options from real estate and from vehicles (e.g. car, forklift). As of October 1, 2019, the initial use of the right-of-use model resulted in an increase in the Stabilus Group’s balance sheet total due to the recognition of additional lease liabilities and the corresponding right-of-use assets of approximately €43.7 million. Based on the lease agreements as of October 1, 2019, the increase of the depreciation on the right-of-use assets for financial year 2020 amounts to approximately €7.7 million and corresponding interest expense on lease liabilities amounts to approximately €1.5 million. Furthermore, the initial application of IFRS 16 also increases disclosure obligations in the notes to the consolidated financial statements for the financial year 2020. Based on the available documentation, the first-time application of IFRS 16 will not have a material impact on Stabilus´ consolidated financial statements. A M E N D M E N T S TO I A S 1 9 : P L A N A M E N D M E N T, C U RTA I L M E N T O R S E T T L E M E N T The amendments to IAS 19 address the accounting when a plan amendment, curtailment or settlement occurs during a reporting period. The amendments specify that when a plan amendment, curtailment or settlement occurs during the annual reporting period, an entity is required to: • Determine current service cost for the remainder of the period after the plan amendment, curtail- ment or settlement, using the actuarial assumptions used to remeasure the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event; • Determine net interest for the remainder of the period after the plan amendment, curtailment or settlement using the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event and the discount rate used to remeasure that net defined benefit liability (asset). The amendments also clarify that an entity first determines any past service cost, or a gain or loss on settlement, without considering the effect of the asset ceiling. This amount is recognized in profit or loss. An entity then determines the effect of the asset ceiling after the plan amendment, curtailment or settlement. Any change in that effect, excluding amounts included in the net interest, is recognized in other comprehensive income. The amendments apply to plan amendments, curtailments, or settlements occurring on or after the beginning of the first annual reporting period that begins on or after January 1, 2019 (Stabilus Group´s financial year 2020). These amendments will apply only to any future plan amendments, curtailments, or settlements of Stabilus Group. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 63 I F R I C 2 3 U N C E R TA I N T Y O V E R I N C O M E TA X T R E AT M E N T S In June 2017 the IASB issued IFRIC 23 Uncertainty over Income Tax Treatments. IFRIC 23 is applicable to financial years beginning on or after January 1, 2019. The interpretation supplements the provisions of IAS 12 Income Taxes on accounting for effective and deferred taxes with regard to uncertainties over the treatment of particular circumstances and transactions by the tax authorities and courts per- taining to income tax. Based on our current assessments, this clarification does not have a significant impact on the consolidated financial statements of the Stabilus Group. Besides IFRS 16, IFRIC 23 and the Amendments to IAS 19, the other in the table above mentioned new and revised standards, interpretations and amendments will probably have no material impact on the Stabilus Group´s consolidated financial statements. New standards, interpretations and amendments issued but not yet endorsed by the EU T_025 IFRS 17 Amendments to IFRS 3 Insurance Contracts (issued May 18, 2017) Business Combinations (issued on October 22, 2018) Amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate Benchmark Reform (issued on September 26, 2019) Amendments to IAS 1 and IAS 8 Definition of Material (issued on October 31, 2018) Conceptual Framework for Financial Reporting Amendments to References to the Conceptual Framework in IFRS Standards (issued on March 29, 2018) Effective date stipulated by IASB Effective date stipulated by EU Impact on Stabilus financial statements January 1, 2021 Pending No impact January 1, 2020 Pending Evaluating January 1, 2020 Pending Evaluating January 1, 2020 Pending Evaluating January 1, 2020 Pending No impact The effective date presented above is the date of mandatory application in annual periods beginning on or after that date. The new and revised standards and amendments issued but not yet endorsed by the EU mentioned in the table above are currently evaluated. Based on our current assessments, the new and revised standards and interpretations mentioned in the table above will probably have no material impact on the Stabilus Group’s consolidated financial statements 3 Accounting policies R E V E N U E Revenue is recognized when or as the control over distinct goods or services is transferred to the customer and when 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 consideration received, excluding discounts, rebates, and other sales taxes or duty. Revenue from the sale of goods is recognized when significant risks and rewards of ownership have been transferred to the customer, a price is agreed or can be determined and when the pay- ment is probable. Revenue from a contract to provide services is recognized according to the stage of comple- tion, if the amount of the revenue can be measured reliably and it is probable that the economic benefits will flow to the Group. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 64 C O S T O F S A L E S Cost of sales comprises costs for the production of goods and for merchandise sold. In addition to directly attributable material and production costs, indirect production-related overheads like production and purchase management, warranty expenses, depreciation on production plants and amortization of intangible assets are included. Cost of sales also includes write-downs on inventories to the lower net realizable value. 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 as incurred. S E L L I N G E X P E N S E S Selling expenses include costs for sales personnel and other sales-related costs such as marketing and travelling. Shipping and handling costs are expensed within selling expenses as incurred. Fees charged to customers are shown as sales. Advertising costs (expenses for advertising, sales promotion and other sales-related activities) are expensed within selling expenses as incurred. 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, construction 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 The interest income and expense include the interest expenses from liabilities and the interest income from the investment of cash. The interest components from defined benefit pension plans and similar obligations are reported within 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 income and expenses from financial transactions that are not included in the interest income and expense. I N C O M E TA X E S Income tax expense comprises current and deferred tax. Current tax comprises the expected tax payable or receivable for the year and any adjustment related to previous years and is measured using tax rates enacted or substantively enacted at the reporting date. Current tax assets and liabilities are offset only if certain criteria are met. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 65 Deferred tax is recognized on temporary differences between the carrying value of assets and liabilities under IFRS and their tax base, except for temporary differences arising from goodwill or from the initial recognition, other than in a business combination, of assets and liabilities in a transaction that affects neither taxable nor accounting profit. Deferred tax assets are recognized for deductible temporary differences, tax loss carry-forwards and tax credits to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date to determine whether it is probable that the related tax benefit will be realized. The carrying value is adjusted accordingly. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on tax rates enacted or substantively enacted at the reporting date. The measurement of deferred tax reflects the tax consequences that would follow from the manner in which Stabilus expects to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset only if certain criteria are met. G O O D W I L L Goodwill is measured at cost less any accumulated impairment losses and is not amortized. It is tested for impairment at least annually and if an indication for impairment exists. The Group tests goodwill for impairment by comparing its recoverable amount with its carrying amount. For this purpose goodwill is allocated to the cash-generating units (CGU) that are expected to benefit from the business combination at the acquisition date. Goodwill is tested for impairment at the lowest level within the Group at which goodwill is being monitored. An impairment loss on goodwill is recognized if the recoverable amount of the cash-generating unit is below its carrying amount. Impairment losses are recognized in profit or loss. Impairment losses on goodwill are not reversed. OT H E R I N TA N G I B L E A S S E T S Purchased intangible assets are measured at acquisition cost and internally generated intangible assets at production cost less any accumulated amortization and impairment losses. Internally gener- ated intangible assets are only recognized when the criteria in accordance with IAS 38 are met. Intangible assets with finite useful lives are amortized on a straight-line basis over their useful eco- nomic life and tested for impairment if there is an indication that the intangible asset may be impaired. The estimated useful life and the amortization method are reviewed at the end of each reporting period. The effect of changes in the estimate is being accounted for on a prospective basis. Intangible assets with indefinite useful lives are not amortized and are tested for impairment at least annually and if an indication for impairment exists. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 66 The following useful lives are used in the calculation of amortization: Software (3 to 5 years), patented technology (16 years), customer relationships (20 – 24 years), unpatented technology (6 to 10 years) and trade names (7 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 Development costs are capitalized when the criteria in accordance with IAS 38 are met, otherwise expensed as incurred. To meet the recognition criteria of IAS 38, Stabilus has to demonstrate the following: (1) the technical feasibility 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. Capitalized development costs comprise all costs directly attributable to the development process and 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 measured at cost less accumulated depreciation and impairment losses. Cost for property, plant and equipment include the purchase price, costs directly attributable to bringing the asset to the location and condition necessary to be capable of operating in the manner intended. This also applies for self-constructed plant and equipment taking into account the cost of production. Subsequent costs are capitalized only if they increase the future economic benefits embodied in the specific asset to which they relate. Depreciation on property, plant and equipment is recognized on a straight-line basis over the estimated useful lives of the assets. The residual values, depreciation methods and useful lives are reviewed annually and adjusted, if necessary. 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). Stabilus recognizes government grants when there is reasonable assurance that the conditions attached to the grants are complied with and the grants will be received. Government grants related to the pur- chase or the production of fixed assets are generally offset against the acquisition or production costs of the respective assets so that the grant is recognized in profit or loss over the life of the asset through reduced depreciation expense. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 67 L E A S I N G Leases are all arrangements that transfer the right to use a specified asset for a stated period of time in return for a payment. Leases that transfer substantially all risks and rewards associated with the ownership to Stabilus are classified as finance leases. The leased asset and a corresponding liability is initially measured 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 the shorter term of the lease. Lease payments resulting from finance leases are divided into repayments of the principal and interest payments. Other leases are classified as operating leases. The corresponding lease payments are recognized as an expense in profit or loss on a straight-line basis over the lease term. 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 is an indication that an asset may be impaired. If such indication exists Stabilus estimates the recoverable amount of the asset. Goodwill and intangi- ble assets under construction are tested annually for impairment. The recoverable amount is determined for individual assets, unless an asset does not generate cash inflows that are 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 costs of disposal and its value in use. Stabilus determines the recoverable amount as fair value less costs of disposal and compares this with the car- rying amounts (including goodwill). The fair value less costs of disposal 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 costs of disposal cannot be determined or is lower than the carrying amount, the fair value less costs of disposal is calculated. If the carrying amount exceeds the recoverable amount an impairment loss has to be recognized. The calculation of the value in use and the fair value less costs of disposal 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 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. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 68 At each reporting date an assessment is made to determine whether there is any indication that impairment losses recognized in earlier periods no longer exist. In this case, Stabilus recognizes a reversal of the impairment loss. Impairment losses on goodwill are not reversed. I N V E N TO R I E S Inventories are measured at the lower of cost and net realizable value using the average cost method. Production costs include all direct costs of material and labor and an appropriate portion of fixed and variable overhead expenses. Net realizable value is the estimated selling price less all estimated costs of completion and costs necessary to make the sale. Borrowing costs for the production 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 payable, cash and cash equivalents and other financial assets or liabilities. A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not measured at fair value through profit and loss, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price. The financial instruments are allocated to one of the categories defined in IFRS 9 “Financial Instru- ments”. The measurement categories relevant for Stabilus are financial assets at amortized costs and financial liabilities measured at amortized costs. F I N A N C I A L A S S E T S IFRS 9 contains three categories for classifying financial assets: “measured at amortized cost,” “measured at fair value through profit or loss” and “measured at fair value through other comprehen- sive income.” The classification of financial assets whose cash flows are comprised entirely of interest and redemption payments is then dictated by the business model. Financial instruments held so as to collect contractual cash flows are recognized at amortized cost. With the exception of derivative financial instruments, all financial assets fulfill these criteria and are recognized at amortized cost. F I N A N C I A L A S S E T S M E A S U R E D AT A M O R T I Z E D C O S T S A financial asset measured at amortized costs includes trade accounts receivable, assets related to the sale of trade accounts receivable, cash and cash equivalents and loans originated by the Group. After initial recognition, the assets are subsequently carried at amortized cost using the effective interest rate method less impairment losses. Gains and losses are recognized in profit or loss when the assets are derecognized or impaired. Interest from using the effective interest rate method is similarly recog- STABILUSCONSOLIDATED FINANCIAL STATEMENTS 69 nized in profit or loss. Assets bearing no or lower interest rates compared to market rates with a matu- rity of more than one year are discounted. Dividends are recognized in profit or loss when legal entitle- ment to the payment arises. 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 Under IFRS 9, valuation allowances for expected credit losses (“expected loss model”) must be recog- nized for all financial assets measured at amortized cost and for all debt instruments measured at fair value through other comprehensive income. IFRS 9 provides a three-level method for this purpose. Risk provisions are accrued on the basis either of the 12 months expected losses (level 1), or of the lifetime expected losses if the credit risk has increased significantly since initial recognition (level 2), or if the credit rating has been downgraded significantly (level 3). The simplified approach is adopted for trade accounts receivable with no material financing component. As such, the expected credit losses are always determined for the lifetime expected losses of the financial instruments. F I N A N C I A L A S S E T S M E A S U R E D AT A M O R T I Z E D C O S T S For trade accounts receivables the Stabilus Group elects to use the simplified approach based on expected credit losses over relevant terms. Default rates are based on historical losses and for- ward-looking expectations under consideration of the relevant economic environment to determine regional risks. Trade accounts receivables impaired due to insolvency or other similar situations or sig- nificantly overdue shall be written off on a case by case basis. 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 recog- nized impairment loss is reversed, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. Impaired debts are derecognized when they are assessed as uncol- lectible. Cash and cash equivalents are measured using the general impairment approach. 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 As of September 30, 2019 and September 30, 2018, the Stabilus Group does not have derivative financial instruments. When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value is recognized in other comprehensive income and the ineffective portion is recognized in profit and loss. The amount recognized in other comprehensive income is reclassified when the hedged transaction occurs. 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. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 70 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 deduct- ing all of its liabilities. Equity instruments are recorded at the proceeds received, net of transaction costs. F I N A N C I A L L I A B I L I T I E S The first-time application of IFRS 9 had no significant impact on the Group’s accounting policies for financial liabilities and derivative financial instruments. IFRS 9 largely retains the existing requirements of IAS 39 for the classification of financial liabilities. Financial liabilities primarily include a term loan, trade accounts payable and other financial liabilities. Financial liabilities measured at amortized cost Financial liabilities measured at amortized cost include a term loan. 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 through the amortiza- tion process or when the liabilities are derecognized. 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 eco- nomic benefits arising from the services provided by the employees in exchange for employee benefits. For defined benefit pension plans the projected unit credit method is used to determine the present value of a defined benefit obligation. 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. 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 the balance 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. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 71 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 expenditure 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. 4 Business combination On April 1, 2019, Stabilus acquired 80% of voting shares of General Aerospace GmbH, Germany, from its respective founders. The agreed purchase price for 80% of the shares amounts to €40.0 million (net of cash). The purchase price adjustment, i.e. effective date adjustment, will be based on the final clos- ing accounts. Of the consideration of €32.7 million an amount of €37.0 million was paid in cash. The remaining 20% of the shares were planned to be acquired until 2023. The purchase price is subject to certain earn out elements based on the achievement of an ambitious business plan in the years. The Group recognized the purchase price receivable of €4.3 million. In the further course of the fiscal year 2019, one of the respective founders sold his remaining 10% of the shares which led to a reduction of the purchase price receivable, which is detailed in Notes 7 and 16. General Aerospace is a recognized supplier of motion control solutions for the aerospace industry. The acquisition of General Aerospace will strengthen Stabilus´ market presence and position in the aviation sector. The acquisition has been accounted for using the acquisition method. The fair values of the identifiable assets and liabilities of the acquired entities at the date of acquisition according to IFRS 3.16 were set out in table T_026. On June 12, 2019, Stabilus acquired 60% of voting shares of Clevers S.R.L., Argentina, from its respective founders. The agreed purchase price for 60% of the shares amounts to $1.7 million (net of cash). The pur- chase price adjustment, i.e. effective date adjustment, will be based on the final closing accounts. Of the consideration of €1.4 million an amount of €0.6 million was paid in cash. The purchase price is subject to certain earn out elements based on the achievement of the communicated business plan. For the acquisi- tion of the remaining shares the parties agreed on call / put mechanisms. The Group recognized the remaining purchase price obligation of €0.8 million as financial liabilities and can be found in Note 23. Clevers is a manufacturer of gas springs and dampers with a focus on industrial clients, e.g. from the agricultural, engineering and transport sectors. The acquisition of Clevers will strengthen Stabilus footprint in South America and increase its offering to local customers. The acquisition has been accounted for using the acquisition method. The fair values of the identifiable assets and liabilities of the acquired entity at the date of acquisition according to IFRS 3.16 were set out in table T_026. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 72 On June 17, 2019, Stabilus acquired 53% of voting shares of Piston Amortisör Sanayi ve Ticaret Anonim, Turkey from its respective founders. The agreed purchase price for 53% of the shares amounts to €5.0 million (net of cash). The purchase price adjustment, i.e. effective date adjustment, will be based on the final closing accounts. Of the consideration of €5.5 million an amount of €3.8 million was paid in cash. The Group recognized the remaining purchase price obligation of €1.7 million as financial liabilities and can be found in Note 23. Piston is a manufacturer of gas springs and dampers with a focus on industrial clients, e.g. from the dampers, gas spring and transport sectors. The acquisition of Piston will strengthen Stabilus´ market presence in Turkey and increase its offering to local customers. The acquisition has been accounted for using the acquisition method. The fair values of the identifiable assets and liabilities of the acquired entity at the date of acquisition according to IFRS 3.16 were set out in table T_026. Business combination T _ 026 I N € T H O U S A N D S Assets Property, plant and equipment Other intangible assets Other assets Deferred tax assets Total non-current assets Inventories Trade accounts receivable Other assets Cash and cash equivalents Total current assets Total assets Liabilities Financial liabilities Provisions Deferred tax liabilities Total non-current liabilities Trade accounts payable Financial liabilities Current tax liabilities Provisions Other liabilities Total current liabilities Total liabilities Total identifiable net assets at fair value Non-controlling interest measured at fair value Goodwill arising on acquisition Purchase consideration transferred General Aerospace Clevers Piston April 2, 2019 June 12, 2019 June 17, 2019 2,805 41,338 787 1,042 45,972 3,853 5,306 1,024 115 10,298 56,270 5,566 16 11,658 17,240 2,770 2,082 – 3,122 426 8,400 25,640 30,630 (5,664) 7,729 32,695 230 1,113 2 – 1,345 173 98 26 29 326 1,671 – – 326 326 407 2 – – 34 443 769 902 (965) 1,510 1,447 482 1,642 – – 2,124 704 1,424 149 1,252 3,529 5,653 – – 356 356 983 93 284 – 129 1,489 1,845 3,808 (4,844) 6,499 5,463 STABILUSCONSOLIDATED FINANCIAL STATEMENTS The fair value of other intangible assets as of April 1, 2019 amounting to €44.1 million essentially comprised €39.7 million for customer relationships, €1.6 million for patents, €1.1 million for trade names and €1.7 mil- lion for other intangible assets. At the date of the acquisition, the fair value of the trade receivables amounted to €6.8 million. The goodwill is attributable mainly to the expected sales synergies arising from the acqui- sition as well as to the skills and technical talent of acquired entity workforce. Transaction costs of €0.7 mil- lion have been expensed and are included in administrative expenses in the Consolidated Statement of Comprehensive Income and are part of operating cash flow in the Consolidated Statement of Cash Flows. The results of the acquired entity are recognized starting from the date of acquisition. From that date on rev- enue of €10.4 million has been recognized. If the acquisition had occurred on October 1, 2018, estimated consolidated revenue would have been €975.7 million, and consolidated profit for the year ended Septem- ber 30, 2019, would have been €78.7 million. In determining these amounts the assumption was made that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition had occurred on October 1, 2018. 5 Revenue The Group’s revenue developed as follows: Revenue by region I N € T H O U S A N D S Europe NAFTA Asia / Pacific and RoW Revenue Revenue by market I N € T H O U S A N D S Automotive Gas Spring Automotive Powerise Automotive business Industrial / Capital Goods 1) Vibration & Velocity Control Industrial business Revenue 73 T _ 027 Year ended Sept 30, 2019 482,099 357,345 111,895 951,339 2018 491,323 348,127 123,114 962,564 T _ 028 Year ended Sept 30, 2019 331,423 249,996 581,419 259,139 110,781 369,920 951,339 2018 342,253 268,349 610,602 250,382 101,580 351,962 962,564 1) As of October 1, 2018, our Commercial Furniture business was integrated into the Industrial / Capital Goods business. The presentation of prior year figures was changed accordingly. Group revenue results from the sales of goods. Stabilus operates in automotive and industrial markets. The Automotive Gas Spring and Automotive Powerise® units service our automotive customers, whereas STABILUSCONSOLIDATED FINANCIAL STATEMENTS 74 the Industrial / Capital Goods and the Vibration & Velocity Control units supply our industrial customers. As of October 1, 2018, our Commercial Furniture business unit was integrated into our Industrial / Capital Goods business unit to better reflect customer demand for a broad product portfolio and to further increase overhead efficiency. The presentation of prior year figures was changed accordingly. 6 Cost of sales, research and development, selling and administrative expenses Expenses by function 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, 2019 Cost of sales – (176,500) (443,308) (31,022) (24,125) Research & development expenses 14,319 (25,656) (7,416) (12,608) (7,789) Selling expenses – (32,875) (12,247) (13,084) (25,985) T _ 029 Total 14,319 Adminis- trative expenses – (29,908) (264,939) (5,342) (2,919) 2,514 (468,313) (59,633) (55,385) (674,955) (39,150) (84,191) (35,655) (833,951) Year ended Sept 30, 2018 Cost of sales – (165,755) (443,639) (29,828) (32,185) Research & development expenses 9,083 (22,448) (6,339) (13,413) (8,914) Selling expenses – (30,740) (12,146) (11,850) (26,594) Adminis- trative expenses – Total 9,083 (39,102) (258,045) (4,786) (2,725) 8,109 (466,910) (57,816) (59,584) (671,407) (42,031) (81,330) (38,504) (833,272) In fiscal year 2019 Stabilus changed the allocation of certain personnel-related costs, which were in fiscal year 2018 recognized in administration expenses and reallocated via other expenses. These are now directly recognized in the various functional areas. For comparison purposes, without the afore- mentioned change personnel-related costs in administration expenses would have been higher by approximately €7 million and personnel expenses within cost of sales would have been lower by the same amount. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 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 The following table shows the Group’s average number of employees. Average number of employees Wage earners Salaried staff Trainees and apprentices Average number of employees 7 Other income Other income increased from €3.9 million in fiscal year 2018 by €4.4 million to €8.3 million in fiscal year 2019. This increase is due to a non-recurring effect of €3.3 million from a purchase price adjust- ment related to the acquisition of General Aerospace. Furthermore, the increase is due to the foreign currency translation gains from the operating business. Other income I N € T H O U S A N D S Net foreign currency translation gains Gains on sale / disposal of assets Income from the release of other accruals Miscellaneous other income Other income 75 T _ 030 Year ended Sept 30, 2019 2018 (187,613) (184,795) (55,788) (14,938) (6,600) (46,729) (15,399) (11,122) (264,939) (258,045) T _ 031 2018 4,874 1,461 108 6,443 Year ended Sept 30, 2019 4,823 1,549 116 6,488 T _ 032 2018 18 434 322 3,112 3,886 Year ended Sept 30, 2019 1,636 207 475 5,976 8,294 STABILUSCONSOLIDATED FINANCIAL STATEMENTS 76 8 Other expenses Other expenses I N € T H O U S A N D S Losses on sale / disposal of tangible assets Miscellaneous other expenses Other expenses 9 Finance income Finance income I N € T H O U S A N D S Interest income on loans and financial receivables not measured at fair value through profit and loss Net foreign exchange gain Gains from changes in carrying amount of financial liabilities Other interest income Finance income Finance income decreased from €6.7 million in fiscal year 2018 to €1.3 million in fiscal year 2019. In the prior year this reflects the extension of the maturity date of our term-loan facility by one year (€3.4 million), a further decrease in the margin in February 2018 (€1.3 million) and changed assumptions regarding voluntary prepayments (€1.7 million). T _ 033 Year ended Sept 30, 2019 (71) (1,596) (1,667) 2018 (345) (951) (1,296) T _ 034 2018 238 – 6,439 27 6,704 Year ended Sept 30, 2019 374 835 – 45 1,254 STABILUSCONSOLIDATED FINANCIAL STATEMENTS 77 T _ 035 Year ended Sept 30, 2019 (9,663) – (2) (752) 2018 (8,522) (2,624) (29) (909) (10,417) (12,084) 10 Finance costs Finance costs I N € T H O U S A N D S Interest expense on financial liabilities not measured at fair value through profit and loss Net foreign exchange loss Interest expenses finance lease Other interest expenses Finance costs Finance costs decreased from €(12.1) million in fiscal year 2018 to €(10.4) million in fiscal year 2019. Finance costs in fiscal year 2019 were primarily due to ongoing interest expense of €(9.7) million (PY: €(8.5) million) especially related to the term-loan facility. Thereof, an amount of €(3.6) million (PY: €(3.8) million) is cash interest. In addition, an amount of €(6.1) million (PY: €(4.7) million) is due to the amortization of debt issuance cost and the amortization of the adjustment of the carrying value by using the effective interest rate method. Thereof €(1.1) million relates to a voluntary prepayment of the term-loan facility which lead to a derecognition of unamortized debt issuance costs and unamo- rtized adjustments of the carrying value. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 78 11 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 calculation of deferred taxes. Deferred taxes are recognized as deferred tax expenses or income in the statement of comprehensive income, either through profit or loss or other comprehensive income, depending on the underlying transaction. Income tax expense I N € T H O U S A N D S Current income taxes Deferred taxes Income tax expense The respective local rates have been used to calculate the deferred taxes. The current income taxes comprise prior year taxes amounting to €(1,535) thousand (PY: €6,282 thousand). The actual income tax expense of €(33,953) thousand is €5,309 thousand higher than the expected income tax expense of €(28,644) that results from applying the Company’s combined income tax rate of 24.9% to the Group’s consolidated profit before income tax. The individual items that reconcile the expected income tax expense to the actual income tax expense are disclosed in the table below. Tax expense reconciliation (expected to actual) I N € T H O U S A N D S Profit / (loss) before income tax Expected income tax expense Foreign tax rate differential Tax-free income Non-deductible expenses Prior year taxes Change of the valuation allowance on deferred tax assets Tax rate changes Other Actual income tax expense Effective tax rate T _ 036 Year ended Sept 30, 2019 (33,078) (875) (33,953) 2018 (36,560) 15,413 (21,147) T _ 037 Year ended Sept 30, 2019 114,852 (28,644) (1,839) 4,504 (6,727) (1,535) 10 (32) 310 2018 126,502 (37,950) 7,440 1,802 (3,776) 6,282 904 3,445 706 (33,953) (21,147) 29.6% 16.7% STABILUSCONSOLIDATED FINANCIAL STATEMENTS 79 T _ 038 Total (58,696) (6,189) 3,137 702 (70) 14,384 13,973 The tax effect reported as a foreign tax rate differential reflects the difference between the combined income tax rate of 24.9% that is pertinent to Stabilus S.A. and the combined income tax rates applica- ble to the individual subsidiaries in varying countries. The combined statutory income tax rate that is applicable to Stabilus S.A. has been reduced to 24.9% in the fiscal year 2019 from about 30.0% in the prior year. This change results in a reduction of the expected income tax expense of about €5,812 thousand and a corresponding increase of the foreign tax rate differential. The lower tax rate in the prior year was due to the non-recurring positive effect from the remeasurement of the deferred tax positions following the US tax reform signed in December 2017 with an amount of €3.9 million. In addition, prior year was also positively influenced by the changed financing and legal structure of our US operations. As a consequence a non-recurring net tax benefit amounting to €7.2 million was recog- nized in fiscal year 2018 reflecting the release of deferred tax liabilities for unrealized foreign exchange gains and the recoverability of interest expense from prior years. The tax effect of non-de- ductible expenses consists primarily of expenses that are non-deductible in the determination of the taxable profits in Germany. The tax effect of non-capitalized deferred taxes on domestic losses is calcu- lated with the local tax rates on the basis of the negative earnings before taxes (EBTs) of the respec- tive 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, 2019 Sept 30, 2018 I N € T H O U S A N D S Intangible assets Property, plant & equipment Inventories Receivables Other assets Provisions and liabilities Tax and interest losses Subtotal Netting Total DTA 426 6,545 3,593 427 16 18,887 7,027 36,921 DTL (69,303) (9,233) (144) (12) (176) (615) – Total (68,877) (2,688) 3,449 415 (160) 18,272 7,027 (79,483) (42,562) DTA 227 2,599 3,260 773 215 14,951 13,973 35,998 DTL (58,923) (8,788) (123) (71) (285) (567) – (23,550) 23,550 – (20,910) 20,910 – 13,371 (55,933) (42,562) 15,088 (47,847) (32,759) (68,757) (32,759) The movement in deferred income tax assets and liabilities in fiscal year 2019 was €(9.8) million and relates to acquisitions of subsidiaries (€(12.3) million), taxes charged to the other comprehensive income (€2.8 million), deferred tax expenses (€(0.9) million) and from foreign exchange rate differ- ences (€0.6 million). 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. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 80 The following table provides a detailed overview of the tax loss and interest carry-forwards and the expiration dates. Tax loss and interest carry-forwards T _ 039 I N € T H O U S A N D S Germany Spain USA Brazil Total I N € T H O U S A N D S Germany Spain USA Brazil Total Year ended Sept 30, 2019 Tax loss and interest carry-forward Tax rate Deferred tax asset (gross) Valuation allowance Deferred tax asset (net) 23,377 27.0 – 31.0% 5,229 28.0% 5,393 22.0 – 35.0% 238 34,237 34.0% 6,355 1,464 597 81 (6) (1,464) – – 8,497 (1,470) Expiration date Indefinite Indefinite 6,349 – 597 Within 20 years 81 7,027 Indefinite Year ended Sept 30, 2018 Tax loss and interest carry-forward Tax rate Deferred tax asset (gross) Valuation allowance Deferred tax asset (net) 31,511 27.0 – 31.0% 5,221 28.0% 15,835 22.0 – 35.0% 319 52,886 30.0% 8,495 1,462 5,400 96 (18) (1,462) – – Expiration date Indefinite Indefinite 8,477 – 5,400 Within 20 years 96 Indefinite 15,453 (1,480) 13,973 As of September 30, 2019, the Group has unused tax loss carry-forwards (including German and US interest loss carry-forwards) of €34,237 thousand (PY: €52,886 thousand). The interest carry-forward comes from our German entities with an amount of €20,910 thousand and a gross deferred tax asset of €5,614 thousand and unused tax loss carry-forward from our entities in USA, Spain, Germany and Brazil relating to corporate tax and trade tax with an amount of €13,327 thousand and a gross deferred tax asset of €2,883 thousand. The amount recognized as a deferred tax asset is calculated under consideration of the actual corporate planning and its utilization within the planning period. Uncertainties exists regarding to the recognized tax losses carried forward from the US restructuring. Tax loss carry-forwards in Luxembourg are not considered, as it is not likely that these carry-forwards will be utilized. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 81 12 Earnings per share The weighted average number of shares used for the calculation of earnings per share in the fiscal years ended September 30, 2019 and 2018, is set out in the following table: Number of days Transaction Change Total shares T _ 040 Total shares (time-weighted) Weighted average number of shares D AT E September 30, 2017 October 1, 2017 September 30, 2018 October 1, 2018 September 30, 2019 365 365 The earnings per share for the fiscal years ended September 30, 2019 and 2018, 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 shareholders of the Company by the weighted average number of shares outstanding. 24,700,000 24,700,000 24,700,000 24,700,000 24,700,000 24,700,000 24,700,000 24,700,000 24,700,000 24,700,000 T _ 041 Year ended Sept 30, 2019 80,626 2018 105,410 24,700,000 24,700,000 3.26 4.27 STABILUSCONSOLIDATED FINANCIAL STATEMENTS 82 13 Property, plant and equipment Property, plant and equipment are presented in the following table. 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 pro- gress T _ 042 Total Balance as of Sept 30, 2017 15,043 49,048 189,739 48,475 16,192 318,497 Additions from business combination Foreign currency difference Additions Disposals Reclassifications Balance as of Sept 30, 2018 Additions from business combination Foreign currency difference Additions Disposals Reclassifications – 2 – – – 15,045 2,088 (3) 609 – – – 95 1,030 (10) 748 – (254) 8,705 (3,246) 10,374 – 165 4,234 (530) 3,443 50,911 205,318 55,787 11 888 6,128 (823) 3,628 929 3,903 9,362 (2,035) 10,385 481 1,488 5,043 (6,025) 5,161 61,935 Balance as of Sept 30, 2019 17,739 60,743 227,862 Accumulated depreciation Balance as of Sept 30, 2017 Foreign currency difference Depreciation expense Thereof impairment loss Disposal Reclassifications Balance as of Sept 30, 2018 Foreign currency difference Depreciation expense Thereof impairment loss Disposal Reclassifications Balance as of Sept 30, 2019 Carrying amount Balance as of Sept 30, 2018 Balance as of Sept 30, 2019 – – – – – – – – – – – – – (13,121) (102,611) (33,106) (49) (15) (2,570) (15,710) – – – – 2,776 – (188) (7,240) – 445 – (15,740) (115,560) (40,089) (532) (2,541) (3,134) (15,817) – 798 – – 1,467 – (1,230) (7,839) – 5,962 – (18,608) (132,451) (43,196) 15,045 17,739 35,171 42,135 89,758 95,411 15,698 18,739 23,553 25,922 179,225 199,946 – – 21,926 – (14,565) 23,553 8 87 21,448 – (19,174) 25,922 – – – – – – – – – – – – – – 8 35,895 (3,786) – 350,614 3,517 6,363 42,590 (8,883) – 394,201 (148,838) (252) (25,520) – 3,221 – (171,389) (4,303) (26,790) – 8,227 – (194,255) STABILUSCONSOLIDATED FINANCIAL STATEMENTS 83 Property, plant and equipment include assets resulting from a finance lease contract in Romania with a carrying amount of €1,184 thousand (PY: €1,610 thousand). In fiscal year 2019 and 2018, no government grants were received by any of the Group entities. In fiscal year 2015 the Stabilus Group received government grants amounting to €805 thousand which are linked to the installation of our third Powerise® production line in Romania. For the entitlement to this grant Stabilus Romania S.R.L. has to meet certain thresholds (headcount and quantity of products) over a five-year period. If such thresholds were not met, the grant would have to be paid back. Contractual commitments for the acquisition of property, plant and equipment amount to €4,033 thousand (PY: €11,520 thousand). The Group did not recognize impairment losses on property, plant and equipment in the actual year (PY: €0 thousand). 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 _ 043 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, 2019 2018 (23,323) (22,564) (1,388) (540) (1,539) (882) (587) (1,487) (26,790) (25,520) Prepayments by the Stabilus Group for property, plant and equipment and intangible assets of €66 thousand (PY: €1,242 thousand) are included in other non-current assets. Larger prepayments are typi- cally secured by a bank guarantee or an in-depth check of the relevant supplier. 14 Goodwill The first-time consolidation of Stable II S.à r. l., Luxembourg as of April 8, 2010, resulted in goodwill of €51.1 million and the first-time consolidation of a Romanian entity resulted in goodwill of €0.4 mil- lion. The first-time consolidation of ACE, Hahn Gasfedern and Fabreeka / Tech Products as of June 30, 2016, resulted in goodwill of €146.9 million. The acquisition of a small niche business in New Zealand resulted in goodwill of €0.2 million. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 84 The first-time consolidations of the acquired entities General Aerospace as of April 1, 2019, resulted in goodwill of €7.7 million, Clevers as of June 12, 2019, resulted in goodwill of €1.5 million and Piston as of June 17, 2019, resulted in goodwill of €6.5 million. These acquisitions resulted in total goodwill of €214.8 million (PY: €195.2 million). On the relevant acquisition date goodwill is allocated to the operating segments (CGUs) based on their relative fair values. As such €126.6 million have been allocated to Europe, €74.4 million to NAFTA and €13.8 mil- lion to Asia / Pacific and Rest of World (RoW). The foreign currency difference in fiscal year 2019 on goodwill is €3.9 million. In prior years the foreign currency difference was €(3.4) million. The fair value less cost of disposal for each cash-generating unit as the smallest identifiable group of assets that generates 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 contin- uing use of the unit and was based on the following key assumptions: the underlying cash flow fore- casts are based on the five-year medium term plan (“MTP”) approved by the Management Board and Supervisory Board. The cash flow planning takes into account price agreements based on experience and anticipated efficiency enhancements (e.g. relocation from high cost to low cost countries, higher automation, etc.) as well as average total sales growth of approximately 4.0% (PY: 4.0%) for Europe, 4.3% (PY: 3.9%) for NAFTA and 20.1% (PY: 15.4%) for Asia / Pacific and RoW on compound average based on the strategic outlook leading to an average higher growth rate for the free cash flow. The higher free cash flow growth rate is also impacted by the product mix effects and the assumed stable gross margins and improved fixed costs absorption. While the overall economic outlook is very volatile, the Group believes that its market-orientated approach 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 expected consumer price inflation for the countries included in the respective cash generating units, adjusted for expected technological progress and efficiency gains in the overall economy. The discount rate applied to cash flow projections is 7.1% (PY: 8.5%) for Europe, 7.2% (PY: 8.5%) for NAFTA and 7.3% (PY: 8.6%) for Asia / Pacific and RoW. The following table shows the input data to selected key figures required for the respective recoverable amounts to equal the carrying amount. In management’s view this change is not reasonably possible. Goodwill sensitivity analysis I N P E R C E N T Discount rate Budgeted gross margin reduction to plan Sept 30, 2019 Input data required for carrying amount to equal recoverable amount Europe 11.0 6.4 NAFTA 24.6 11.3 T _ 044 RoW 14.7 6.3 STABILUSCONSOLIDATED FINANCIAL STATEMENTS 85 15 Other intangible assets Other intangible assets are presented in the following table: Intangible assets T _ 045 Develop- ment cost under construc- tion 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, 2017 84,562 15,180 11,080 1,310 204,122 69,248 16,774 402,276 (47) 864 96 736 Foreign currency difference Additions Disposals 432 969 1 41 7,700 2,080 (17,445) – Reclassifications 10,021 (10,577) (4) 22 – (308) 697 155 – – – – – – 16 – – – 1,338 10,771 (17,492) – 78,539 12,304 14,018 1,020 204,819 69,403 16,790 396,893 Balance as of Sept 30, 2018 Additions from business combination Foreign currency difference Additions Disposals 190 1,401 2,366 187 59 11,801 Reclassifications 4,631 (5,319) 688 (11,182) – (1,311) 1,499 1,603 39,551 1 52 – – 2,706 – – – – 503 – – – 1,063 44,093 (58) – – – 4,708 14,955 (12,493) – Balance as of Sept 30, 2019 75,945 19,032 15,726 2,676 247,076 69,906 17,795 448,156 Accumulated amortization Balance as of Sept 30, 2017 (42,452) Foreign currency difference (249) Amortization expense (12,340) Thereof impairment loss Disposals Reclassifications (1,671) 16,362 – Balance as of Sept 30, 2018 (38,679) Foreign currency difference (854) Amortization expense (10,888) Thereof impairment loss Disposals Reclassifications (398) 10,804 – Balance as of Sept 30, 2019 (39,617) Carrying amount – – – – – – – – – – – – – (7,012) (1,145) (35,129) (41,478) (6,149) (133,365) (38) (2,184) – 28 4 (131) (21) (6) (441) (63) (10,647) (5,823) (1,239) (32,296) – – – – – – – – – – – (1,671) 16,390 – (297) 297 (9,503) (907) (45,907) (47,322) (7,394) (149,712) (119) (2,840) – 1,310 – (1) (488) (71) (23) (1,556) (126) (11,828) (5,845) (1,316) (32,843) – – – – – – – – – – – – (398) 12,114 – (11,152) (1,034) (58,223) (53,238) (8,733) (171,997) Balance as of Sept 30, 2018 39,860 12,304 Balance as of Sept 30, 2019 36,328 19,032 4,515 4,574 113 158,912 22,081 1,642 188,853 16,668 9,396 9,062 247,181 276,159 STABILUSCONSOLIDATED FINANCIAL STATEMENTS 86 Additions to intangible assets in the fiscal year 2019 amounting to €59,048 thousand (PY: €10,771 thousand), thereof €44,093 thousand relating to the three business combinations in fiscal year 2019, and from capitalized development cost amounting to €14,167 thousand (PY: €8,669 thousand) (less related customer contributions). Amortization of capitalized internal development projects amounted to €10,888 thousand (PY: €12,339 thousand). The borrowing costs capitalized during the period amounted to €155 thousand (PY: €129 thousand). A capitalization rate was used to determine the amount of borrowing costs. The capitalization rate used in the fiscal year 2019 was 1.05% (PY: 1.05%). The total amortization expense and impairment loss for intangible assets is included in the consolidated 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 T _ 046 Year ended Sept 30, 2019 (7,699) (11,220) (12,544) (1,380) 2018 (7,264) (12,531) (11,263) (1,238) Amortization expense (incl. impairment losses) (32,843) (32,296) Amortization expenses on development costs include impairment losses of €398 thousand (PY: €1,671 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 €718 thousand (PY: €1,538 thousand). 16 Other financial assets Other financial assets Sept 30, 2019 Sept 30, 2018 I N € T H O U S A N D S Other miscellaneous Other financial assets Current Non-current 4,743 4,743 – – Total 4,743 4,743 Current Non-current 3,407 3,407 – – T _ 047 Total 3,407 3,407 STABILUSCONSOLIDATED FINANCIAL STATEMENTS 87 T _ 048 Total 5,941 4,541 4,737 4,765 19,984 T _ 049 OT H E R M I S C E L L A N E O U S Other miscellaneous financial assets in the fiscal year 2019 mainly comprise assets related to the sale of trade accounts receivable (€22.6 million (PY: €23.9 million)) amounting to €2,900 thousand (PY: €3,407 thousand). In addition €1,843 thousand relates to the contingent consideration from the busi- ness combination with General Aerospace GmbH. 17 Other assets Other assets I N € T H O U S A N D S VAT Prepayments Deferred charges Other miscellaneous Other assets Sept 30, 2019 Sept 30, 2018 Current Non-current Current Non-current 4,071 2,438 5,394 1,911 13,814 – 66 – 1,645 1,711 Total 4,071 2,504 5,394 3,556 5,941 3,299 4,737 2,056 15,525 16,033 – 1,242 – 2,709 3,951 Non-current prepayments comprise prepayments on property, plant and equipment. 18 Inventories Inventories I N € T H O U S A N D S Raw materials and supplies Finished products Work in progress Merchandise Inventories Inventories that are expected to be turned over within twelve months amounted to €100,339 thou- sand (PY: €90,763 thousand). Write-downs on inventories to net realizable value amounted to €(12,509) thousand (PY: €(11,147) thousand). In the reporting period raw materials, consumables and changes in finished goods and work in progress recognized as cost of sales amounted to €(443,308) thousand (PY: €(443,639) thousand). The Stabilus Group’s prepayments for inventories amounting to €1,212 thousand (PY: €1,695 thou- sand) are included in prepayments in other current assets. Sept 30, 2019 Sept 30, 2018 48,548 23,726 15,361 12,704 100,339 42,536 23,469 14,439 10,319 90,763 STABILUSCONSOLIDATED FINANCIAL STATEMENTS 88 19 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 _ 050 Sept 30, 2019 Sept 30, 2018 132,225 (1,897) 130,328 113,849 (2,578) 111,271 Trade accounts receivable increased in the fiscal year ended September 30, 2019, mainly due to the higher sales in the fourth quarter of fiscal year 2019. The Group uses an allowance matrix to measure the lifetime ECLs of trade accounts receivables seg- mented by geographic region (Europe, NAFTA and Asia / Pacific and RoW). Loss rates are based on actual credit loss experience over the past years. These rates take into accounts the current conditions and the Group’s view of economic conditions over the expected lives of the receivables. The Group con- siders a financial asset to be in default when the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realizing security (if any is held); or the financial asset is more than 360 days past due. The gross carrying amount of a trade account receivable is written off when the Group has no reasona- ble expectations of recovering a financial asset in its entirety or a portion thereof. The following table provides information about the exposure to credit risk and ECLs for trade receivables as at September 30, 2019: Exposure to credit risk and ECLs T _ 051 I N € T H O U S A N D S Region Europe NAFTA Asia / Pacific and RoW Total Weighted average loss rate Gross carrying amount Loss allowance Sept 30, 2019 0.66% 0.56% 0.70% 40,652 65,120 26,453 132,225 270 367 186 823 Individual loss allowance of € 1,897 thousand were recognized as of the reporting date. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 89 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 receiv- ables. The Group established an allowance for doubtful accounts based on historically observed default rates adjusted for forward-looking estimates to accrue for expected credit losses. The allowances for doubtful accounts developed as follows: Allowance for doubtful accounts T _ 052 I N € T H O U S A N D S Sept 30, 2019 Sept 30, 2018 Allowance for doubtful accounts as of Sept 30, 2018 (IAS 39) Effect IFRS 9 first-time application Allowance for doubtful accounts as of Oct 1, 2018 (IFRS 9) Additions from business combination Foreign currency differences Increase in the allowance Decrease in the allowance (2,578) 834 (1,744) – (35) (232) 114 (2,546) – (2,546) – 3 (261) 226 Allowance for doubtful accounts as of Sept 30, 2019 (IFRS 9) (1,897) (2,578) 20 Current tax assets Current tax assets amounted to €4,987 thousand (PY: €5,292 thousand) and 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. 21 Cash and cash equivalents Cash and cash equivalents include cash on hand and in banks, i.e. liquid funds and demand deposits. As of September 30, 2019, it amounted to €139,020 thousand (PY: €143,000 thousand). Cash in banks earned marginal interest at floating rates based on daily bank deposit rates. The cash and cash equivalents are held with bank and financial institution counterparties, which are investment grade rated. Impairment on cash and cash equivalents has been measured on a 12-month expected loss basis and reflects the short maturities of the exposures. Stabilus considers that its cash and cash equivalents have low credit risk based on the external credit ratings of the counterparties and impairments were insignificant. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 90 22 Equity The development of the equity is presented in the statement of changes in equity. On February 13, 2019, the Management Board of Stabilus S.A., with the approval of the Supervisory Board, resolved to reduce the existing authorized capital of the Company from €315,000 by €68,000 to €247,000. In addition, it was decided to replace the present authorization for a capital increase by a new authorization for a period of 5 years from the date of the present meeting, with however a reduced authorization amount of €24,000 (representing 2.4 million shares). Following this issuance, the new total number of authorized shares amounts 27.1 million. Issued capital Issued capital as of September 30, 2019, amounted to €247 thousand (PY: €247 thousand) and was fully paid in. It is divided into 24,700,000 shares each with a nominal value of €0.01. The authorized capital of the Company is set at €271 thousand represented by a maximum of 27.1 million shares, each with nominal value of €0.01. Capital reserves Capital reserves as of September 30, 2019, amounted to €225,848 thousand (PY: €225,848 thou- sand). Retained earnings Retained earnings as of September 30, 2019, amounted to €283,424 thousand (PY: €225,090 thou- sand) and included the Group’s net result in the fiscal year 2019 amounting to €80,626 thousand. The first-time application of IFRS 9 resulted in a decrease of the allowance for doubtful accounts as set out in more detail in Note 19. The effect was an increase in retained earnings amounting to €834 thou- sand that was recognized directly in the equity (by using the modified retrospective method). Dividends In the second quarter of fiscal 2019, a dividend amounting to €24.70 million (PY: €19.76 million) was paid to our shareholders and a dividend amounting to €62 thousand (PY: €38 thousand) was paid to non-controlling shareholders of a Stabilus subsidiary. The Management Board and the Supervisory Board resolved to propose a dividend distribution of €1.10 per share (PY: €1.00 per share) to the Annual General Meeting to be held in Luxembourg on February 12, 2020. The total dividend will thus amount to €27.17 million (PY: €24.70 million) and the distribution ratio will be 33.6% of the consolidated profit attributable to the shareholders of Stabilus S.A. As this dividend is subject to shareholder approval at the Annual General Meeting, no liability has been recognized in the consolidated financial statements as of September 30, 2019. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 91 T_053 Total (29,198) 4,793 (207) 4,586 – Unrealized gains / (losses) from foreign currency translation Unrealized actuarial gains and losses (18,297) (10,901) 4,115 – 4,115 – (14,182) 11,753 – 11,753 – (2,429) 678 (207) 471 – (10,430) (24,612) (9,211) 2,787 (6,424) – 2,542 2,787 5,329 – (16,854) (19,283) 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. 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 Balance as of Sept 30, 2017 Before tax Tax (expense) / benefit Other comprehensive income / (expense), net of taxes Non-controlling interest Balance as of Sept 30, 2018 Before tax Tax (expense) / benefit Other comprehensive income / (expense), net of taxes Non-controlling interest Balance as of Sept 30, 2019 23 Financial liabilities The financial liabilities comprise following items: Financial liabilities I N € T H O U S A N D S Senior facilities Other facilities Financial liabilities T _ 054 Sept 30, 2019 Sept 30, 2018 Current Non-current Total Current Non-current Total – 2,824 2,824 298,501 10,260 308,761 298,501 13,084 311,585 – 313,846 313,846 1,100 1,100 5,075 6,175 318,921 320,021 On June 7, 2016, Stabilus entered into a €640.0 million senior facilities agreement with, among others, Commerzbank Aktiengesellschaft, Crédit Agricole Corporate and Investment Bank, Landesbank Hessen- Thüringen Girozentrale and UniCredit Bank AG as mandated lead arrangers and UniCredit Luxembourg S.A. as facility and security agent. The agreement comprises a term loan facility of €455.0 million, an equity bridge facility of €115.0 million and a revolving credit facility of €70.0 million. The term loan facil- STABILUSCONSOLIDATED FINANCIAL STATEMENTS 92 ity and the revolving credit facility originally mature on June 29, 2021. The duration of the major portion of the senior facilities (other than the equity bridge facility) has been extended to June 28, 2023. The term loan facility has to be repaid in June 29, 2022 with an amount of €48.1 million and in June 28, 2023 with an amount of €266.9 million. Stabilus repaid €50.0 million on August 31, 2016, €10.0 million on December 31, 2016, €2.5 million on March 31, €50.0 million on September 30, 2017, €6.4 million on March 28, 2018 and €21.1 million on September 27, 2019 and reduced the outstanding nominal amount to €315.0 million as at September 30, 2019. The Group´s liability under the senior facility agreement (the remaining €315.0 million term loan) is measured at amortized cost under consideration of transaction costs and the adjustment of the carrying value using the effective interest rate method. The adjustment of the carrying value of the term loan facil- ity reflects the change in estimated future cash flows discounted with the original effective interest rate due to a decreased margin based on the improved net leverage ratio of the Group. In the financial year 2018, Stabilus US entered into a $7.8 million loan agreement which requires monthly installments. The effective interest rate for this loan is 3.95% and it matures on January 15, 2025. The outstanding nominal amount as at September 30, 2019, is $6.1 million. Furthermore, as part of the busi- ness combination, the group entered in several bank loans amounting to €4.9 million, the effective inter- est rates are between 1.25% and 2.50%. The maturities of these loan agreements are between March 20, 2020 and September 30, 2023. In addition the Group recognized purchase price obligations amount- ing to €2.5 million for the newly acquired entities Piston and Clevers. As at September 30, 2019, the Group had no liability under the committed €70.0 million revolving credit facility. The Group utilized €1.1 million out of the €70.0 million revolving credit facility to secure existing guarantees. 24 Other financial liabilities Other financial liabilities Sept 30, 2019 Sept 30, 2018 I N € T H O U S A N D S Current Non-current Liabilities to employees Social security contribution Finance lease obligation Other financial liabilities 6,550 3,105 441 10,096 – – 83 83 Total 6,550 3,105 524 7,557 2,920 390 10,179 10,867 – – 520 520 Current Non-current The finance lease obligation relates to leasing contracts for land and buildings for the production facility in Romania. T _ 055 Total 7,557 2,920 910 11,387 STABILUSCONSOLIDATED FINANCIAL STATEMENTS 93 T _ 056 Total 146 2,805 13,574 1,099 1,727 94 14,030 4,847 38,322 T _ 057 Total 3,771 (589) 13 (357) – 564 3,402 16 – 74 (615) (100) 788 3,565 25 Provisions Provisions Sept 30, 2019 Sept 30, 2018 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 33 1,037 11,332 827 3,008 97 16,806 5,004 38,144 153 1,946 – 1,130 – – – 336 3,565 Total 186 2,983 11,332 1,957 3,008 97 16,806 5,340 41,709 Current Non-current 17 1,020 13,574 – 1,727 94 14,030 4,458 34,920 129 1,785 – 1,099 – – – 389 3,402 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, 2017 Reclassifications Foreign currency differences Costs paid Release to income Additions Balance as of Sept 30, 2018 Additions from business combination Reclassifications Foreign currency differences Costs paid Release to income Additions Balance as of Sept 30, 2019 Anniversary benefits Early retirement EPA provision Other miscellaneous 105 – 1 – – 23 129 – – 4 (1) – 21 153 1,851 (589) – – – 523 1,785 – – – – – 161 1,946 1,421 – 9 (331) – – 1,099 – – 54 (614) – 591 1,130 394 – 3 (26) – 18 389 16 – 16 – (100) 15 336 The discount rate used for the calculation of non-current provisions as of September 30, 2019, was 0.0% (PY: 0.0%). STABILUSCONSOLIDATED FINANCIAL STATEMENTS 94 The development of current provisions is set out in the table below: Changes of current provisions T _ 058 I N € T H O U S A N D S Employee- related costs Balance as of Sept 30, 2017 12,099 Foreign currency differences Reclassifications Costs paid Release to income Additions Balance as of Sept 30, 2018 Additions from business combination Foreign currency differences Reclassifications Costs paid Release to income Additions (1) – (9,096) (527) 11,099 13,574 90 160 – (11,500) (2) 9,010 Balance as of Sept 30, 2019 11,332 Environ- mental protec- tion measures 48 (1) – Other risks 2,868 (11) 122 (47) (1,412) – – – – 30 – – – 797 827 (1,201) 1,361 1,727 – 16 – (1,643) – 2,908 3,008 Legal and litigation costs Anniver- sary benefits Early retire- ment Warran- ties Other miscella- neous Total 111 (22) – – – 5 94 – 3 – – – – 97 29 1 – 811 12,984 4,111 33,061 – 589 (90) – (20) (122) (144) 589 (24) (380) (12,481) (2,952) (26,392) (272) (118) (2,118) – 11 17 – 1 – (5) – 20 33 – – 13,889 1,020 14,030 – – – 1,106 341 – 3,559 4,458 1,926 20 – 29,924 34,920 3,122 571 – (480) (5,382) (4,317) (23,327) – (34) 497 6,745 1,037 16,806 (12) 2,929 5,004 (48) 22,906 38,144 The provision for employee-related expenses comprises employee bonuses and termination benefits. 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 environ- mental remediation. In 2011, the EPA contacted seven companies in the North Penn Area 5 as poten- tial responsible parties for cost sharing, Stabilus being one of them. The Group is currently unable 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 an EPA reimbursement has been reflected in the balance sheet as of September 30, 2019. For the cor- responding ongoing long-term bioremediation a current provision of €827 thousand (PY: €0 thousand) and a non-current provision of €1,130 thousand (PY: €1,099 thousand) has been recorded as of Sep- tember 30, 2019. The provision for other risks from purchase and sales commitments represents expected sales dis- counts, 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. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 95 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. This also comprises accruals that are calculated for individual cases. Insurance reimbursements related to individual cases are presented in other financial assets if the recognition criteria are met. 26 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 _ 059 I N € T H O U S A N D S Principal pension plan Deferred compensation Pension plans and similar obligations Sept 30, 2019 Sept 30, 2018 59,595 298 59,893 50,887 1,293 52,180 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 Stabilus Group granted post-employment pension benefits to employees in Germany. The level of post-employment benefits is generally based on eligible compensation levels and / or ranking within the Group hierarchy and years of service. In order to mitigate future liquidity risk, the Group’s pension policies for one major plan granted to employees who joined the Group prior to January 1, 2006 were amended as of December 21, 2010 and the title earned in the former defined benefit plan was frozen. Going forward no additional defined bene- fit titles can be earned except for certain older employees. At the same time, the Group introduced a defined contribution plan in which direct payments to an external insurer are made. Liabilities for principal pension plans amounting to €59,595 thousand (PY: €50,887thousand) result from unfunded accumulated benefit obligations. The weighted average duration of the defined benefit obligations in the fiscal year 2019 is 16.9 years (PY: 15.4 years). Deferred compensation The 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. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 96 The total deferred compensation as of September 30, 2019, amounts to €298 thousand (PY: €1,293 thousand). The unfunded status is as follows: Unfunded status I N € T H O U S A N D S Present value of defined benefit obligations Less: Fair value of plan assets Unfunded status T _ 060 Year ended Sept 30, 2019 61,015 (1,122) 59,893 2018 52,180 – 52,180 The present value of the net pension liability developed as follows: Present value of the net pension liability obligations T _ 061 I N € T H O U S A N D S Present value of net pension liability as of beginning of fiscal year Contribution to plan assets Service cost Interest cost Effect of change in financial assumptions Effect of change in demographic assumptions Experience assumptions Actuarial (gains) / losses Pension benefits paid Present value of net pension liability as of fiscal year-end 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 Year ended Sept 30, 2019 52,180 (1,122) 347 1,005 9,816 – (605) 9,211 (1,728) 59,893 2018 53,236 – 313 980 (1,104) 533 (107) (678) (1,671) 52,180 T _ 062 2018 313 980 1,293 Year ended Sept 30, 2019 347 1,005 1,352 STABILUSCONSOLIDATED FINANCIAL STATEMENTS 97 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, 2015 Sept 30, 2016 Sept 30, 2017 Sept 30, 2018 Sept 30, 2019 T _ 063 Change in demographic assumptions – – – 533 Defined benefit obligation Experience adjustments 47,989 58,738 53,236 52,180 59,893 (205) (1,055) 234 (107) (605) Generally, the measurement date for the Group’s pension obligations is September 30. The measurement date for the Group’s net periodic pension cost generally is the beginning of the period. Assumed dis- count rates, pension 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 I N % P. A . Discount rate Pension increases Turnover rate Biometric assumptions Year ended Sept 30, 2019 0.93% 1.50% 4.00% T _ 064 2018 2.00% 1.50% 4.00% Heubeck Mortality Table 2018G Heubeck Mortality Table 2018G The discount rates for the pension plans are determined annually as of September 30, 2019, on the basis of first-rate, fixed-interest industrial bonds with maturities and values matching those of the pension payments. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 98 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 €5,062 thousand lower or €5,802 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 esti- mated €1,670 thousand higher or €1,605 thousand lower. The reduction / increase of the mortality rates by 1 year results in an increase / decrease of life expectancy depending on the individual age of each beneficiary. The effects on the defined benefit obligation (the “DBO”) as of September 30, 2019, due to a 1 year decrease / increase of the life expectancy would result in an increase of €2,635 thou- sand or a decrease of €2,588 thousand. When calculating the sensitivity of the DBO to significant actuarial assumptions the same method (present value of the DBO calculated with the projected unit credit method) has been applied as when calculating the post-employment benefit obligation recognized in the Consolidated Statement of Financial Position. Increases and decreases in the discount rate or the rate of pension progression which are used in determining the DBO do not have a symmetrical effect on the DBO due to the com- pound 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. Expected pension benefit payments for the fiscal year 2020 will amount to €1,909 thousand (PY: €1,956 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 The expenses incurred under defined contribution plans are primarily related to government-run pension plans. Expenses for these plans in the reporting period amounted to €13,711 thousand (PY: €14,183 thousand). 27 Trade accounts payable Trade accounts payable amount to €90,992 thousand (PY: €83,171 thousand) as of the end of the fiscal year. The full amount is due within one year. The liabilities are measured at amortized cost. For information on liquidity and exchange rate risks for trade accounts payable, please see Note 33. 28 Current tax liabilities The current tax liabilities amounted to €13,088 thousand (PY: 16,366 thousand) and relate to income and trade. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 99 T _ 065 Total 1,436 3,437 6,771 2,668 313 14,625 29 Other liabilities The following table sets out the breakdown of Group’s other current and non-current liabilities: Other liabilities Sept 30, 2019 Sept 30, 2018 I N € T H O U S A N D S Current Non-current Advanced payments received Vacation expenses Other personnel-related expenses Outstanding costs Miscellaneous Other liabilities 2,278 4,066 6,611 2,908 380 16,243 – – – – – – 30 Leasing O P E R AT I N G L E A S E Current Non-current Total 2,278 4,066 6,611 2,908 380 1,436 3,437 6,771 2,668 313 16,243 14,625 – – – – – – The Group entered into non-cancellable operating leases for IT hardware, cars and other machinery and equipment with lease terms of 2 to 6 years. The non-cancellable future minimum lease payments during the basic rental period are as follows: 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 _ 066 Minimum lease payments in the year ended Sept 30, 2019 8,976 21,318 2,452 32,746 2018 7,764 15,202 117 23,083 The increase in total minimum lease payments that are maturing within one year is primarily due to the expansion of the rented production facilities in China and Mexico as well as a warehouse facility in Germany. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 100 The increase of the payments that mature after one year but not more than five years is due to the general expansion of the Group and from the business combinations in fiscal year 2019. Total operat- ing rental expenses for the current period were €9,789 thousand (PY: €9,050 thousand). F I N A N C E L E A S E As of September 30, 2019, there were two real estate rental contracts for a production facility in Romania that were accounted for as a finance lease. Finance lease T _ 067 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, 2019 Sept 30, 2018 Minimum lease payments (MLP) Present value of MLP Minimum lease payments (MLP) Present value of MLP 441 1,390 0 1,831 430 1,356 0 1,786 438 1,831 0 2,269 427 1,625 0 2,052 Production facility: Stabilus Romania S.R.L. entered into a real estate lease agreement which was classified as a finance lease starting March 1, 2015. On July 1, 2016, Stabilus Romania S.R.L. renewed the real estate lease agreement to extend the existing production facility for the production of gas springs and dampers. The underlying interest rate amounts to 4.75% (PY: 4.75%). The net carrying amount of the finance lease obligation at the balance sheet date was €524 thousand (PY: €910 thousand). The contract has an initial duration of 75 months and can be extended. The payments for finance leases in the fiscal year ended September 30, 2019, amounted to €443 thou- sand (PY: €1,253 thousand). No contingent rents have been recognized as an expense during the period. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 101 31 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 possible obligations whose existence has yet to be confirmed by the occur- rence or non-occurrence of uncertain future events that are not wholly within the control of the entity. If the outcome is probable and estimable, the liability is shown in the statement of financial position. Further information regarding actual and contingent obligations imposed by the US EPA for the former Stabilus site in Colmar can be found in Note 25. 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. The initial rental agree- ment had a contract period of seven years which has been extended. STAB Dritte Holding GmbH, Koblenz, which has merged into Stable Beteiligungs GmbH, Koblenz, a wholly owned subsidiary of the Company, issued a bank guarantee of €600 thousand (PY: €600 thousand), for 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. 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 28,951 square meters of land and 5,881 square meters of construction buildings in Ramos Arizpe, State of Coahuila, Mexico. The lease agreement had an initial a contract period of ten years and has already been extended. Stabilus GmbH, Koblenz, issued a letter of support for the event that STMX will be unable to pay. On June 7, 2016, the Group entered into a senior facilities agreement. Certain material subsidiaries of the Group are guarantors, as defined in the senior facilities agreement, and gave a credit guarantee in favor of the financing 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 jurisdic- tion-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. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 102 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, 2019, amounted to €37,496 thousand (PY: €36,141 thousand). 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 fixed 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 fixed and other intangible assets Obligations under rental and leasing agreements Total Sept 30, 2019 Less than 1 year 1 to 5 years More than 5 years 4,750 8,976 13,726 – 21,318 21,318 – 2,452 2,452 Sept 30, 2018 Less than 1 year 1 to 5 years More than 5 years 13,058 7,764 20,822 – 15,202 15,202 – 117 117 T _ 068 Total 4,750 32,746 37,496 Total 13,058 23,083 36,141 32 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. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 103 T _ 069 Sept 30, 2019 Sept 30, 2018 Carrying amount 130,328 139,020 4,743 274,091 Fair value M E A S U R E M E N T C AT E G O RY A C C. TO I A S 3 9 LaR LaR LaR – – – – 311,585 330,918 FLAC 90,992 524 – FLAC 1,786 – Carrying amount 111,271 143,000 3,407 257,678 320,021 83,171 910 Fair value 111,271 143,000 3,407 257,678 312,858 83,171 2,052 Financial instruments I N € T H O U S A N D S Trade accounts receivables Cash Other financial assets Total financial assets Financial liabilities Trade accounts payable Finance lease liabilities M E A S U R E M E N T C AT E G O RY A C C. TO I F R S 9 AC AC AC FLAC FLAC – Total financial liabilities 403,101 332,704 404,102 398,081 Aggregated according to categories in IFRS 9: Financial assets measured at amortized cost (AC) Financial liabilities measured at amortized cost (FLAC) Aggregated according to categories in IAS 39: 274,091 Loans and receivables (LaR) – 257,678 257,678 402,577 330,918 Financial liabilities measured at amortized cost (FLAC) 403,192 396,029 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). Financial instruments T _ 070 I N € T H O U S A N D S Financial liabilities Senior facilities Other facilities Finance lease liabilities Sept 30, 2019 Sept 30, 2018 Total Level 11) Level 22) Level 33) Total Level 11) Level 22) Level 33) 317,834 13,084 1,786 – – – 317,834 13,084 – – – 1,786 306,683 6,175 2,052 – – – 306,683 6,175 – – – 2,052 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 a liability in an orderly transaction between market participants at the measurement date. The following methods and assumptions were used to estimate the fair values in the previous fiscal year: STABILUSCONSOLIDATED FINANCIAL STATEMENTS 104 • 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 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 payments. The expected payments are determined by considering contractual redemption payments and interest payments with the currently agreed interest rate. Significant unobservable inputs are the risk- adjusted discount rates of 4.75% and the forecasted interest payments. Therefore, the fair value would change if the risk-adjusted discount rate or the interest rate changed. The finance lease contracts include fixed-interest rates. Therefore, the fair value of finance lease liabilities (categorized as Level 3 in the fair value hierarchy table) is not exposed to interest risk through fluctuation. The carrying amounts of trade accounts receivables, cash, other financial assets and trade accounts payable closely approximated their fair value due to their predominantly short-term nature. The net gains and losses on financial instruments result in the fiscal year ended September 30, 2019, from the currency translation and changes in the estimate of future cash flows of financial assets measured at amortized cost and financial liabilities measured at amortized cost, as well as gains from changes in fair value of derivative instruments. They are set out in Notes 9 and 10. The net foreign exchange gain amounted to €835 thousand (PY: loss €2,624 thousand). Total interest income and expense from financial instruments are reported in Notes 9 and 10. 33 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 of the accounts receivable balance. Based on the results of this initial assessment further evaluations are frequently conducted for individ- ual companies if deemed appropriate. Customer behavior is ascertained and analyzed continuously and the information obtained from this serves as an early warning indicator for possible changes in demand patterns. In addition, significant KPIs (order intake, sales and EBIT, 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, coordinates 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). STABILUSCONSOLIDATED FINANCIAL STATEMENTS 105 The Group seeks to minimize the effects of financial risks by using derivative financial instruments to hedge these exposures wherever considered economically reasonable. The use of financial derivatives is governed by the Group’s policies 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 have any derivative financial instruments as of September 30, 2019. C R E D I T R I S K S Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of dealing only with creditworthy counter- parties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. As of the reporting date, Stabilus has no collateral. The Group’s exposure and the credit ratings of its counterparties are monitored and the aggregate value of transactions con- cluded 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 are taken into account when determining the maximum volume of the credit lines granted to each customer. The maximum exposure to credit risk is reflected by the carrying amounts of the following financial assets: Credit risks included in financial assets T _ 071 Sept 30, 2019 Neither past due nor impaired < 30 days 30 – 60 days 60 – 90 days 90 – 360 days > 360 days Total I N € T H O U S A N D S Financial assets Trade accounts receivable 117,632 9,250 1,308 790 1,566 (218) 130,328 Other miscellaneous Cash and cash equivalents Total 4,743 139,020 261,395 – – – – – – – – – – 4,743 139,020 9,250 1,308 790 1,566 (218) 274,091 Neither past due nor impaired < 30 days 30 – 60 days 60 – 90 days 90 – 360 days > 360 days Total Sept 30, 2018 I N € T H O U S A N D S Financial assets Trade accounts receivable 100,664 7,946 Other miscellaneous 3,407 – Total 104,071 7,946 870 – 870 692 – 692 908 – 908 191 – 191 111,271 3,407 114,678 STABILUSCONSOLIDATED FINANCIAL STATEMENTS 106 Credit risk resulting from other financial assets, which comprise cash and cash equivalents and miscel- laneous financial assets, arises from a possible 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 are also typically lenders to the Group. Therefore, the credit quality of financial assets which are neither past due nor impaired is considered to be high. In fiscal year 2019, the Group had one customer which accounted for at least 11% of total external revenue and two customers which accounted for at least 8% of total external revenue. The revenue with these customers was €107,792 thousand (PY: €113,706 thousand), €87,511 thousand (PY: €96,882 thousand) and €74,294 thousand (PY: €75,568 thousand), respectively. In fiscal year 2019 and 2018, such revenue was generated in all three operating segments. 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 and 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, 2019, will influence its liquidity position. 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 Note 23. Liquidity outflows for liabilities I N € T H O U S A N D S Senior facility Other facilities Finance lease 2020 2021 2022 2023 2024 After 2024 Total 2,993 2,993 50,955 268,825 – – 325,766 2,751 2,083 1,169 1,169 1,169 390 8,731 Trade accounts payable 90,992 – – – – – T _ 072 Total 97,177 5,771 52,819 269,994 1,169 390 441 695 695 – – – 1,831 90,992 427,320 STABILUSCONSOLIDATED FINANCIAL STATEMENTS 107 The senior facilities give planning stability over the next years. At the balance sheet date, the Group has undrawn committed facilities of €70.0 million (PY: €70.0 million) to reduce liquidity 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, 2019, the Group has not entered into any derivative financial instruments. The Group monitors closely its exposure to interest rate risk and foreign currency risk and regularly checks the opportunities of entering 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 denominated in currencies other than the functional currency and loans denominated in foreign currencies. In order to mitigate the impact of currency exchange rate fluctuations for the operating business, the Group continually assesses its exposure 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. Stabilus main exposure to currency risk is $62 million as of the reporting date. A 1% increase / decrease in the value of the US dollar compared to the Euro would lead to an increase / decrease of EBIT of approximately €0.5 million. Hyperinflation The Group has one entity which is located in Argentina where the inflation has been high for several years. After Argentina’s cumulative inflation rate over a three year period has exceeded 100% and as the qualita- tive indicators of hyperinflation are, to varying degrees, also present, we consider Argentina to be a hyperin- flationary economy. Accordingly, IAS 29 has to be applied which requires that the financial statements of subsidiaries reporting in the currencies of hyperinflationary economies are restated by applying a suitable general price index. This requirement generally applies to our newly acquired subsidiary New CLEVERS S.R.L. as well. However, as the revenues generated by our Argentine operations account for less than 1% of total group revenue, the standard has not been applied by the Stabilus Group on the grounds of materiality. Based on our evaluation the application of IAS 29 will not have a material impact on Stabilus Group´s consolidated financial statements. We are continuously monitoring the development of our Argentine operations and might apply IAS 29 in subsequent periods if our operations in Argentina will experience significant growth. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 108 Interest rate risk The Group is exposed to interest rate risks, which mainly relate to debt obligations, as the Group financing is based on Euribor-related credit agreements. The interest rate risk is monitored by analyzing the cash flow sensitivity of the Group’s cash flows due to floating interest loans. Stabilus exposure to interest rate risk includes variable-rate liabilities with a notional amount of €315 million. A 1% increase of floating interest rates (Euribor) would lead to an increase of financial expense of approximately €3.6 million. As the Euribor is below 0% as of September 30, 2019, a decrease has no effect on financial expenses. 34 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 taking into account the positive effects of the debt tax shield and the additional costs of financial distress that result from increased leverage. 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. The equity ratio as of September 30, 2019, is calculated as follows: Equity ratio I N € T H O U S A N D S Equity Total assets Equity ratio T _ 073 Year ended Sept 30, 2019 2018 499,617 426,523 1,099,239 1,010,442 45.5% 42.2% STABILUSCONSOLIDATED FINANCIAL STATEMENTS 109 The Stabilus Group is not subject to externally imposed capital requirements. The ratio of net debt to adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), which is also used as a covenant in the senior facilities agreement, is an important financial ratio (debt ratio) used in the Stabilus Group. The objective is to improve the debt ratio in future. The Company does not expect a breach of this covenant. 35 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 activities. 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 €3,643 thousand (PY: €3,837 thousand) are reflected in cash outflows from financing activities. Income tax payments of €35,930 thousand (PY: €36,361 thousand) are recognized in cash flows from operating activities. The table below shows the details of changes in the Group´s liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows will be classified in the Group´s consolidated statement of cash flows as cash flows from financing activities. Reconciliation financing activities I N € T H O U S A N D S Balance as of Sept 30, 2018 Cash receipts Cash payments Changes from financing cash flows Effect of changes in foreign exchange rates Other changes Balance as of Sept 30, 2019 Senior facility agreement 313,846 – (21,073) (21,073) – 5,728 298,501 Other facilities 6,175 – (1,594) (1,594) 357 5,566 10,504 T _ 074 Finance leases 910 – (443) (443) 57 – 524 STABILUSCONSOLIDATED FINANCIAL STATEMENTS 110 36 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 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 EBIT”. Adjusted EBIT represents EBIT, adjusted for exceptional non-recurring items (e.g. restructuring or one-time advisory costs) and deprecia- tion / amortization of fair value adjustments resulting from purchase price allocations (PPAs). Segment information for the fiscal years ended September 30, 2019 and 2018 is as follows: Segment reporting T _ 075 I N € T H O U S A N D S External revenue1) Intersegment revenue1) Total revenue1) Depreciation and amortization (incl. impairment losses) EBIT Adjusted EBIT Europe NAFTA Asia / Pacific and RoW Year ended Sept 30, Year ended Sept 30, Year ended Sept 30, 2019 482,099 28,598 510,697 2018 491,323 32,248 523,571 2019 357,345 24,692 382,037 2018 348,127 26,075 374,202 2019 2018 111,895 123,114 114 138 112,009 123,252 (31,066) (30,239) (13,363) (12,357) 63,951 68,439 72,435 77,378 55,261 60,029 48,848 51,941 (5,924) 14,083 14,277 (5,940) 19,879 20,029 Total segments Other / Consolidation Stabilus Group Year ended Sept 30, Year ended Sept 30, Year ended Sept 30, I N € T H O U S A N D S External revenue1) Intersegment revenue1) 2019 951,339 53,404 2018 962,564 58,461 Total revenue1) 1,004,743 1,021,025 Depreciation and amortization (incl. impairment losses) EBIT Adjusted EBIT (50,353) 133,295 142,745 (48,536) 141,162 149,348 2019 – (53,404) (53,404) (9,280) (9,280) – 2018 – (58,461) (58,461) (9,280) (9,280) – 2019 2018 951,339 962,564 – – 951,339 962,564 (59,633) 124,015 142,745 (57,816) 131,882 149,348 1) Revenue breakdown by location of Stabilus company (i.e. “billed-from view”). The column “Other / Consolidation” includes among others the effects from the purchase price alloca- tion for the April 2010 business combination. The effects from the purchase price allocation for the June 2016 and April 2019 business combination are included in the regions. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 111 The EBIT of operating segment Europe in the fiscal year ended September 30, 2019, includes impair- ment losses of €(398) thousand (PY: €(1,671) 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. The following table sets out the reconciliation of the total segments’ profit (adjusted EBIT) to profit before income tax. Reconciliation of the total segments’ profit to profit / (loss) before income tax T _ 076 I N € T H O U S A N D S Total segments’ profit (adjusted EBIT) Other / consolidation Group adjusted EBIT Adjustments to EBIT Profit from operating activities (EBIT) Finance income Finance costs Profit / (loss) before income tax 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 UK Turkey Europe Mexico USA NAFTA China South Korea Brazil Australia Japan New Zealand Argentina Year ended Sept 30, 2019 2018 142,745 149,348 – 142,745 (18,730) 124,015 1,254 (10,417) 114,852 – 149,348 (17,466) 131,882 6,704 (12,084) 126,502 T _ 077 Year ended Sept 30, 2019 356,156 119,949 4,629 1,365 482,099 188,305 169,040 357,345 80,241 10,731 8,315 2,817 7,538 1,925 328 2018 356,540 130,146 4,637 – 491,323 190,180 157,947 348,127 91,855 11,075 7,632 4,479 5,882 2,191 – Asia / Pacific and RoW Revenue 111,895 951,339 123,114 962,564 STABILUSCONSOLIDATED FINANCIAL STATEMENTS 112 Geographical information: Non-current assets by country T _ 078 Year ended Sept 30, I N € T H O U S A N D S Germany Romania Spain Luxembourg UK Switzerland France Turkey Goodwill Europe USA Mexico Goodwill NAFTA China South Korea Brazil Australia Japan New Zealand Argentina Goodwill Asia / Pacific and RoW Total 2019 270,383 28,815 790 413 5,468 0 4 2,225 126,557 434,655 85,810 34,432 74,388 194,630 35,822 7,689 1,761 856 1,385 270 1,119 13,876 62,778 2018 249,109 28,192 854 589 5,905 0 10 – 111,876 396,535 99,648 29,563 70,767 199,978 39,687 8,567 1,575 966 1,304 410 – 12,588 65,097 692,063 661,610 The non-current assets above exclude financial instruments, deferred tax assets, post-employment benefit assets and rights arising under insurance contracts. 37 Share-based payments The Group established share-based payment arrangements for members of the Management Board (Matching Stock Program) and for senior management employees (Phantom Stock Program). M AT C H I N G S TO C K P R O G R A M The variable compensation for the members of the Management Board includes a matching stock pro- gram. The matching stock program (the “MSP”) provides for four annual tranches granted each year during the financial year ending September 30, 2014, until September 30, 2017. The program “MSP A” was extended by one year to September 30, 2018. 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. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 113 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 Supervisory Board (Remuneration Committee) annually in a range between 1.0 and 1.7 times for a certain tranche. Thus, if a Management Board member were to buy 1,000 shares under the MSP A 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 (Remuneration Committee) annually which will be in a range between 0.0 and 0.3 times for a certain tranche. Thus, if a Management Board member were to be holding 1,000 shares under the MSP B in the Company, he would receive 0 to 300 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 sub- sequent two-year exercise period. The options may only be exercised if the stock price of the Company exceeds a set threshold for the relevant tranche, which the Supervisory Board will determine at the time of granting the options, 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 fictitious options are transformed into a gross amount equaling the difference between the option price and the relevant stock price multi- plied by the number of exercised options. The Company plans a cash settlement. The maximum gross amounts resulting from the exercise of the fictitious options of one tranche in general is limited in amount to 50% of the base price. Reinvestment of IPO proceeds from previous equity programs is not taken into account for MSP A. P H A N TO M S TO C K P R O G R A M The Group initiated for 2015 and 2016 a Phantom Stock Program for ten senior management employees excluding Stabilus S. A. directors. To participate in the program, the employees have to invest a certain amount in Stabilus shares. The employee receives options in a ratio of two for each self-investment, capped at an investment level of €10,000 per program year. 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 exercise is triggered by the sale of the underlying shares. The payout price is triggered by the price of the share sales in the exercise period. The payout is capped at 500% of the invested amount. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 114 M E A S U R E M E N T O F FA I R VA L U E S The fair value of the share-based payments of the MSP has been measured by using a binomial simulation. The inputs used in the measurement of the fair values at the grant date and the measurement date of the MSP include market conditions and were as follows. The expected volatility has been based on the historical volatility of the 3-year period ending September 30, 2019. Input parameters for fair value measurement of MSP T_079 Sept 30, 2019 Sept 30, 2018 Sept 30, 2017 Sept 30, 2016 VA L UAT I O N D AT E MSP A/B (2015) Fair value Share price Expected annual volatility Expected annual dividend yield Expected remaining duration (timing of exercise) Risk-free annual interest rate Exercise price MSP A/B (2016) Fair value Share price Expected annual volatility Expected annual dividend yield Expected remaining duration (timing of exercise) Risk-free annual interest rate Exercise price MSP A (2017) Fair value Share price Expected annual volatility Expected annual dividend yield Expected remaining duration (timing of exercise) Risk-free annual interest rate Exercise price MSP A (2018) Fair value Share price Expected annual volatility Expected annual dividend yield Expected remaining duration (timing of exercise) Risk-free annual interest rate Exercise price €13.82 €44.90 – – – – €31.08 €6.99 €44.90 43.0% 2.00% 1.0 year (0.73)% €48.64 €3.14 €44.90 35.0% 2.00% €15.22 €71.70 27.0% 1.00% 1.0 year (0.62)% €31.08 €14.99 €71.70 27.0% 1.00% €10.03 €71.10 30.0% 1.00% 2.0 years 3.0 years (0.80)% €74.74 (0.40)% €74.74 €3.25 €44.90 33.0% 2.00% 3.0 years (0.82)% €74.22 – – – – – – – €14.14 €76.79 32.0% 1.00% €7.83 €50.10 33.0% 1.00% 2.0 years 3.0 years (0.73)% €31.08 (0.72)% €31.08 €14.12 €76.79 34.0% 1.00% 2.0 years 3.0 years (0.54)% €48.64 (0.63)% €48.64 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – STABILUSCONSOLIDATED FINANCIAL STATEMENTS 115 P E R F O R M A N C E S H A R E P L A N In fiscal year 2019, eligible Management Board members of Stabilus S.A. received allocations under the Performance Share Plan (the “PSP”) in the form of virtual shares. The virtual shares of the Performance Share Plan are based on an annual target amount granted at the beginning of a three-year performance period as a future entitlement. In order to determine the target number of virtual shares granted, the annual target amount is divided by the Start Share Price, whereby the Start Share Price refers to the arithmetic mean of the company’s share closing price during the last 60 trading days prior to the respective performance period start date. The performance factor which determines the final number of virtual shares is calculated at the end of the three-year performance period via the relative Total Shareholder Return (weighted with 70%) and the EBIT margin (weighted with 30%). The target achievement for the relative TSR is based on a comparison with the constituents of the MDAX index. In order to determine the relative TSR, firstly, the absolute TSR values of Stabilus as well as each index constituent of the MDAX over the respective performance period are calculated. The absolute TSR value of each company equals the theoretical growth in value of a share holding over the performance period, assuming that (gross) dividends are directly re-invested. Secondly, the calculated absolute TSR values of Stabilus and each index constituent are ranked by size in order to calculate the target achievement. The target achievement for EBIT margin is based on a comparison with a strategic target. To determine the percentage of target achievement, the actual EBIT margin at the end of the respective performance period is compared with the strategic EBIT margin defined for the respective performance period. The final number of virtual shares is determined by multiplying the overall target achievement with the target number of virtual shares granted. The final number of virtual shares is capped at 150% of the target number of virtual shares granted. The payout of the respective tranche of the Performance Share Plan is calculated by multiplying the final number of virtual shares with the relevant End Share Price including any dividends paid during the performance period. The End Share Price refers to the arithme- tic mean of the company’s share closing price during the last 60 trading days prior to the respective performance period end date. The payout amount is limited to a maximum of 250% of the target amount (payout cap). The Performance Share Plan is paid out in cash at the end of the performance period. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 116 In the fiscal year 2019 options for the MSP A were issued. Number of share options T_080 MSP B (2014) MSP A/B (2015) MSP A/B (2016) MSP A (2017) MSP A (2018) Number of options Exercise price Number of options Exercise price Number of options Exercise price Number of options Exercise price Number of options Exercise price Outstanding as at October 1, 2014 – – Granted during the year 19,721 €24.82 Forfeited during the year Exercised during the year – – – – Outstanding as at September 30, 2015 19,721 €24.82 Exercisable as at September 30, 2015 – – Outstanding as at October 1, 2015 19,721 €24.82 – – – – – – – – – – – – – – Granted during the year – – 36,035 €31.08 Forfeited during the year 133 €24.82 916 €31.08 Exercised during the year – – – – Outstanding as at September 30, 2016 19,588 €24.82 35,119 €31.08 Exercisable as at September 30, 2016 – – – – Outstanding as at October 1, 2016 19,588 €24.82 35,119 €31.08 – – – – – – – – – – – – – – – – – – – – – – – – – – Granted during the year Forfeited during the year Exercised during the year – – – – – – – – – – – – 27,449 €48.64 – – – – Outstanding as at September 30, 2017 19,588 €24.82 35,119 €31.08 27,449 €48.64 Exercisable as at September 30, 2017 – – – – – – Outstanding as at October 1, 2017 19,588 €24.82 35,119 €31.08 27,449 €48.64 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Granted during the year Forfeited during the year Exercised during the year – – – – – – – 4,884 – – – – – 7,320 – – – – 24,190 €74.74 16,952 – – – Outstanding as at September 30, 2018 19,588 €24.82 30,235 €31.08 20,129 €48.64 7,238 €74.74 Exercisable as at September 30, 2018 19,588 €24.82 – – – – – – Outstanding as at October 1, 2018 19,588 €24.82 30,235 €31.08 20,129 €48.64 7,238 €74.74 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Granted during the year Forfeited during the year – – – – – 9,652 Exercised during the year 19,588 €24.82 – – – – – – – – – – – – – – – – 10,423 €74.22 – – – – Outstanding as at September 30, 2019 Exercisable as at September 30, 2019 – – – – 20,583 €31.08 20,129 €48.64 7,238 €74.74 10,423 €74.22 20,583 €31.08 – – – – – – STABILUSCONSOLIDATED FINANCIAL STATEMENTS 117 The Phantom Stock Program is measured by using a binomial stimulation and accrued over the vesting time. Input parameters for fair value measurement of PSP T_081 VA L UAT I O N D AT E Sept 30, 2019 Sept 30, 2018 Sept 30, 2017 Sept 30, 2016 Sept 30, 2015 Phantom Stock Program 2014/15 Fair value Share price Expected annual dividend yield Exercise price Phantom Stock Program 2015/16 Fair value Share price Expected annual dividend yield Exercise price €44.90 €44.90 – – €44.90 €44.90 – – €71.10 €71.10 1.00% – €70.63 €71.10 1.00% – €76.28 €76.79 1.00% – €75.52 €76.79 1.00% – €49.27 €50.10 1.00% – €48.78 €50.10 1.00% – €32.25 €32.25 – – €32.25 €32.25 – – STABILUSCONSOLIDATED FINANCIAL STATEMENTS 118 Phantom Stock Program options T_082 Phantom Stock Program 2014/15 Phantom Stock Program 2015/16 Number of options Exercise price Number of options Exercise price Outstanding as at October 1, 2014 Granted during the year Forfeited during the year Exercised during the year Outstanding as at September 30, 2015 Exercisable as at September 30, 2015 Outstanding as at October 1, 2015 Granted during the year Forfeited during the year Exercised during the year Outstanding as at September 30, 2016 Exercisable as at September 30, 2016 Outstanding as at October 1, 2016 Granted during the year Forfeited during the year Exercised during the year Outstanding as at September 30, 2017 Exercisable as at September 30, 2017 Outstanding as at October 1, 2017 Granted during the year Forfeited during the year Exercised during the year Outstanding as at September 30, 2018 Exercisable as at September 30, 2018 Outstanding as at October 1, 2018 Granted during the year Forfeited during the year Exercised during the year Outstanding as at September 30, 2019 Exercisable as at September 30, 2019 – 5,642 – – 5,642 – 5,642 – – – 5,642 – 5,642 – – – 5,642 5,642 – 1,209 – 4,433 4,433 4,433 – – – 4,433 4,433 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 3,217 – – 3,217 – 3,217 – – – 3,217 – 3,217 – – – 3,217 3,217 – 644 – 2,573 – 2,573 – – – 2,573 2,573 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – STABILUSCONSOLIDATED FINANCIAL STATEMENTS Performance Share Plan 2019 VA L UAT I O N D AT E Performance period Price of the Stabilus share “Initial Price” Stabilus share Expected annual dividend yield Remaining duration of granted Performance Shares Risk-free annual interest rate (duration 2.0 years) Expected target achievment for internal target EBIT Cap per performance share used in the valuation 119 T_083 Sept 30, 2019 Oct 1, 2018 – Sept 30, 2021 €44.90 €73.74 2.00% 2.0 years (0.80)% 100% 250% x €73.74 Number of share options T_084 Outstanding as at October 01, 2018 Granted during the year Forfeited during the year Exercised during the year Outstanding as at September 30, 2019 Exercisable as at September 30, 2019 PSP (2019) Number of options Fair value – 8,056 – – 8,056 – – €30.65 – – €30.65 – E X P E N S E R E C O G N I Z E D I N P R O F I T O R L O S S An amount of €(108) thousand (PY: €373 thousand) was recognized in the related employee benefit expenses and an amount of €1,268 thousand (PY: €1,376 thousand) in provisions for employee- related expenses. 38 Auditor’s fees For all financial statements since fiscal year 2014 (year of Initial Public Offering in SDAX of the Frank- furt Stock Exchange) KPMG has been Stabilus’ auditor. The Independent Auditor’s Report on the con- solidated financial statements for fiscal year 2019 was signed by Thomas Feld. He is the responsible audit partner and signed the Independent Auditor’s Report for the first time for the year ended Sep- tember 30, 2017. For fiscal year ended September 30, 2019, a global fee (excluding VAT) of €902 thousand (PY: €790 thousand) was agreed with the Group auditors for the audit of the consolidated and annual financial statements of the Stabilus entities. These fees are included in the Group’s administrative expenses. STABILUSCONSOLIDATED FINANCIAL STATEMENTS T _ 085 2018 790 52 6 331 – Year ended Sept 30, 2019 902 30 127 60 – 1,089 1,127 120 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 Thereof for the prior year Audit-related fees Tax fees Other fees Total In addition, KPMG Luxembourg, and other member firms of the KPMG network, billed audit-related fees amounting to €127 thousand (PY: €6 thousand) and tax service fees amounting to €60 thousand (PY: €331 thousand) to the Stabilus Group. Tax services comprise the preparation of tax filings and the provision of tax advice. 39 Related party relationships According to IAS 24 the reporting entity has to disclose specific information of transactions between the Group and other related parties. Balances and transactions between the Company and its fully consolidated subsidiaries, which constitute related parties within the meaning of IAS 24, have been eliminated in the course of consolidation and are therefore not commented on in this note. As to our knowledge no individual shareholder of Stabilus S.A. can exercise significant influence over the Company or the Group. The consolidated financial statements do not include any associated companies that are accounted for using the equity method and none of the group entities can exercise significant influence over entities that are not included in the scope of consolidation. Related parties of the Stabilus Group primarily comprise the Stabilus Group’s management which also holds an investment in the Company. The remuneration of and other transactions with key managers of the Company constitute related party transactions pursuant to IAS 24. For related party transactions with members of the Executive Board and the Supervisory Board, please refer to the notes “Share- based payment” and “Remuneration of key management personnel”. 40 Remuneration of key management personnel The key management personnel are the members of the Management Board Mark Wilhelms (CFO), Markus Schädlich (Head of Asia / Pacific and Rest of World (RoW) region), Andreas Schröder (Group Financial Reporting Director), Andreas Sievers (Director Group Accounting and Strategic Finance Pro- jects) and Dr. Stephan Kessel (Interim CEO until July 31, 2019). Dr. Michael Büchsner is appointed as new CEO of Stabilus per October 1, 2019. The total remuneration paid to key management personnel of the Group is calculated as the amount of remuneration paid in cash, benefits in kind and expenses for share-based payments. Benefits in kind primarily comprise the provision of company cars and pensions. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 121 The total remuneration of the above-mentioned key management personnel at the various key Stabilus Group affiliates during the reporting period amounted to €2,157 thousand (PY: €3,676 thousand), thereof €2,182 thousand (PY: €3,294 thousand) is classified as short-term employee benefits, €(25) thousand (PY: €382 thousand) is classified as expenses for share-based remuneration. An amount of €101 thousand (PY: -) is classified as share-based payments. For a former member of the Management Board the Stabilus Group paid €660 thousand short-term employee benefits and €127 thousand share-based payments. The compensation of the Management Board members for fiscal year 2019 was split in a fixed com- pensation of €1,699 thousand (PY: €1,590 thousand) and a variable compensation of €458 thousand (PY: €2,086 thousand). The total remuneration for the members of the Supervisory Board amounts to €439 thousand (PY: €472 thousand). Members of the Management and Supervisory Board have a direct interest in Stabilus S. A. of about jointly 0.3% of the total shares. 41 Subsequent events As of December 12, 2019, there were no further events or developments that could have materially affected the measurement and presentation of the Group’s assets and liabilities as of September 30, 2019. Luxembourg, December 12, 2019 Stabilus S. A. Management Board STABILUSCONSOLIDATED FINANCIAL STATEMENTS 122 RESPONSIBILITY STATEMENT We, Dr. Michael Büchsner (Chief Executive Officer), Mark Wilhelms (Chief Financial Officer), Markus Schädlich (Head of the Asia / Pacific and Rest of World), Andreas Schröder (Director Group Financial Reporting) and Andreas Sievers (Director Group Accounting and Strategic Finance Projects), 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 combined manage- ment report includes a fair review of the development and performance of the business and the posi- tion 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, December 12, 2019 Dr. Michael Büchsner Mark Wilhelms Andreas Schröder Andreas Sievers Markus Schädlich Management Board STABILUSCONSOLIDATED FINANCIAL STATEMENTS 123 MANAGEMENT BOARD OF STABILUS S. A. The Management Board comprises five members: ment of global companies, strategy implementation and M&A pro- jects. During this time, he held board member positions of various Dr. Michael Büchsner (Chairman) is the Chief Executive Officer. global players in Asia (Karmann, Magna, Jungbunzlauer, IAV, Saf- Over the past 20 years, he held a number of senior positions at com- eray, etc.). His career began in 1995 at Webasto, where, from 1998 ponents supplier TRW in Austria, Germany and the USA, and, follow- onwards, he oversaw the setting up of the Thermo Systems unit in ing its takeover of TRW, at ZF Friedrichshafen AG. Most recently, he Japan and Korea, subsequently moving on from there to Jost. was global head of the Passive Safety Systems division. The main He studied Production Technology at the Technical University of focus of his activities were strategy, finances, investments, and cus- Munich. Until 2018 he was Representative Director of Jungbun- tomer relations. Dr. Michael Büchsner holds a degree in chemical zlauer Japan Co. Ltd. Currently he is Representative Director of engineering from the Technical University of Graz, at which he later Lamilux Japan Co. Ltd. Mr. Schädlich was appointed to the Man- completed a doctorate, and an Executive MBA awarded by the St. agement Board in 2018. Gallen Institute. Andreas Schröder is the Group Financial Reporting Director and Mark Wilhelms is the Chief Financial Officer and was appointed was appointed to the Management Board in 2014. Mr. Schröder to the Management Board in 2014. With 25 years of experience in joined Stabilus in 2010. Prior to that, he worked for several years the automotive industry, Mr. Wilhelms joined Stabilus in 2009 from in assurance and advisory business services at Ernst & Young. He FTE Automotive, where he served as Chief Financial Officer for six holds a degree in business administration. Mr. Schröder also holds years. From 2007, he was also head of the NAFTA region at FTE. further management positions within the Stabilus Group. Prior to that, he held various management positions in finance, plant and marketing at various locations over his 17-year career at Andreas Sievers is the Director Group Accounting and Strategic Ford. He holds a degree in process engineering as well as a degree Finance Projects of the Stabilus Group. Mr. Sievers joined Stabilus in economics. Since August 29, 2018, he has been member of the in 2016. From 2010 to 2015 he worked for the Schaeffler Group Supervisory Board of NORMA Group SE. Mr. Wilhelms also holds as Vice President Accounting Excellence and External Reporting further management positions within the Stabilus Group. and Vice President Accounting Projects. Prior to that he served as a German and U.S. Certified Public Accountant including positions at Markus Schädlich is the Head of the Asia / Pacific and Rest of PricewaterhouseCoopers AG and Deloitte GmbH. He holds a World region. In recent seven years, he directed the development degree in business administration and passed exams as a U.S. and of Jost Werke AG in Japan / Asia. The main focus of his activities German Certified Public Accountant in 2002 and 2004, respec- was the fostering of growth and integration of the Company’s Asia tively. Mr. Sievers also holds further management positions within the activities into the overall corporate strategy and to prepare Asia for Stabilus Group. the IPO in 2017. Prior to that, he spent several years working for a Japan-based management consultancy, specializing in the manage- STABILUSCONSOLIDATED FINANCIAL STATEMENTS 124 SUPERVISORY BOARD OF STABILUS S. A. The Supervisory Board comprises four members: Dr. Stephan Kessel has served as member of the Supervisory Dr. Ralf-Michael Fuchs has served as a member of the Supervi- Board since 2014 and as the Chairman of the Supervisory Board sory Board since 2015. He was member of the Dürr Senior Execu- since 2018. From August 2018 to July 2019, he led Stabilus as tive Board and Chief Executive of Division Measuring and Process Interim CEO and then returned to the position as Chairman of the Systems until 2017. He served as Chairman of the board of various Supervisory Board. For many years, he was a member of the man- Dürr companies and as Chairman of the management board of Carl aging board at Continental AG, and the company’s CEO until 2002. SCHENCK AG. Before he joined Dürr AG in 2000, he held various Since then Dr. Kessel has taken up a number of board positions at leading positions at IWKA AG and AGIV AG. From 2004 until 2018 European companies including Stabilus. From 2008 through 2010, he was member of the Board of Directors of Nagahama Seisakusho Dr. Kessel was Chairman of the Board of the former holding com- Ltd., Japan. pany of the operating Stabilus Group and acted as Stabilus’ CEO for a certain period. In addition to his position at Stabilus, he Dr. Dirk Linzmeier has served as a member of the Supervisory currently serves as Chairman of the Advisory Boards of Novem Board since 2018. He is CEO of the Osram Continental GmbH. Beteiligungs GmbH and Dayco Products L.L.C. From 2006 to 2017 he held several leading positions in the devel- Dr. Joachim Rauhut has served as a member of the Supervisory Robert Bosch GmbH. From 2014 to 2017 he served as Vice Presi- Board since May 12, 2015. He was a member of the Executive dent and Managing Director of an Automotive Electronics Business Board of Wacker Chemie AG until October 31, 2015. He joined the Unit and as Vice President of Corporate Start-up Management. Management Board of Wacker Chemie GmbH in 2001 and sup- Prior to that, he worked as a development engineer in Advanced opment of driver assistance systems and automotive electronics at ported Wacker Chemie’s initial public offering in 2006. Previously, Development at DaimlerChrysler AG. he served in various leading corporate positions, including posts at Mannesmann AG and Krauss-Maffei AG. He is a member of the Udo Stark served as a Chairman of the Supervisory Board of Supervisory Board of MTU Aero Engines AG, B. Braun Melsungen Stabilus S.A. from 2014 until the company’s AGM in February 2018. AG and creditshelf AG, as well as member of the Advisory Counsel Mr. Stark was reappointed Chairman of the Supervisory Board in of J. Heinrich Kramer Holding GmbH. July 2018 for the period until July 2019. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 125 INDEPENDENT AUDITOR’S REPORT 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 A U D I T O F 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 Opinion We have audited the consolidated financial statements of Stabilus S.A. and its subsidiaries (the “Group”), which comprise the consolidated statement of financial position as at 30 September 2019, and the consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of signifi- cant accounting policies. In our opinion, the accompanying consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 30 September 2019, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Basis for opinion We conducted our audit in accordance with the EU Regulation N° 537/2014, the Law of 23 July 2016 on the audit profession (the “Law of 23 July 2016”) and with International Standards on Auditing (ISAs) as adopted for Luxembourg by the “Commission de Surveillance du Secteur Financier” (the “CSSF”). Our responsibilities under the EU Regulation N° 537/2014, the Law of 23 July 2016 and ISAs are further described in the « Responsibilities of “Réviseur d’Entreprises agréé” for the audit of the consolidated financial statements » section of our report. We are also independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Profes- sional Accountants (the “IESBA Code”) as adopted for Luxembourg by the CSSF together with the ethi- cal requirements that are relevant to our audit of the consolidated financial statements, and have ful- filled our other ethical responsibilities under those ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of the audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 126 Goodwill a) Why the matter was considered to be one of most significance in our audit of the consolidated financial statements of the current period? As at 30 September 2019, the Group's goodwill represents EUR 214,8 million or 19,5% of the Group's total assets. The Group conducted an impairment assessment of the goodwill on all its cash-generating units (“CGUs”) to identify if the recoverable amount is less than the carrying amount. The Group determined the recoverable amount of CGUs using the “fair value less cost of disposal” model based on discounted cash flow approach considering a business plan with five-year projections and a terminal value. Due to the inherent uncertainty of forecasting, derivation of the discount rate and respective assumptions, e.g. beta factor or market risk premium, the fair value derivation underlies a significant area of judgment and is typically focused by capital market participants. For CGUs where the difference between fair value less cost of disposal and the carrying amount is rela- tively small, the risk of a goodwill impairment is generally higher. The risk of a goodwill impairment depends on the CGUs’ fair value which is most sensitive to estimates of future cash flows and other key assumptions. Therefore, a risk exists that information disclosed in connection with the goodwill impairment test (e.g. pre-tax WACC, sensitivity calculations) would not be appropriate. b) How the matter was addressed in our audit Our procedures included the assessment of the Group’s Goodwill impairment-testing process, key con- trols and the assumptions and financial and capital market data used. We tested key assumptions forming the Group’s fair value less cost of disposal calculations, the cash flow projections and discount rates. We reconciled the managements’ future cash flow forecasts to the financial budget approved by the Supervisory Board. We evaluated the reasonableness of cash flow projections and compared key inputs, such as the dis- count rates and growth rates, to externally available financial, economic and industry data, and the Group’s performance history and accuracy of the forecasting figures retrospectively. With the assistance of our own valuation specialists, we critically assessed the underlying assumptions and methodologies used to determine the fair values less cost of disposal for those CGUs where signif- icant goodwill was found to be sensitive to changes in those assumptions. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 127 Additionally, we also reconciled the aggregate fair value less cost of disposal of the CGUs determined by the Group to its market capitalization. We considered whether the Group’s disclosures of the application of judgment in estimating key assumptions and the sensitivity of the results of those estimates adequately reflect the risk associated with goodwill impairment. Other information The Management Board is responsible for the other information. The other information comprises the information stated in the annual report including the management report and the Corporate Govern- ance Statement but does not include the consolidated financial statements and our report of “Réviseur d’Entreprises agréé” thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information we are required to report this fact. We have noth- ing to report in this regard. Responsibilities of the Management Board and Those Charged with Governance for the consolidated financial statements The Management Board is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs 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. In preparing the consolidated financial statements, the Management Board is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Management Board either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 128 Responsibilities of the Réviseur d’Entreprises agréé for the audit of the consolidated financial statements The objectives of our audit are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a report of “Réviseur d’Entreprises agréé” that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the EU Regulation N° 537/2014, the Law of 23 July 2016 and with ISAs as adopted for Luxembourg by the CSSF will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influ- ence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with the EU Regulation N° 537/2014, the Law of 23 July 2016 and with ISAs as adopted for Luxembourg by the CSSF, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the over- ride of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit proce- dures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Management Board. • Conclude on the appropriateness of Management Board’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw atten- tion in our report of the “Réviseur d’Entreprises agréé” to the related disclosures in the consoli- dated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclu- sions are based on the audit evidence obtained up to the date of our report of the “Réviseur d’Entreprises agréé”. However, future events or conditions may cause the Group to cease to con- tinue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underly- ing transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities and business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 129 We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our report unless law or regula- tion precludes public disclosure about the matter. 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 We have been appointed as “Réviseur d’Entreprises agréé” by the General Meeting of the Sharehold- ers on 13 February 2019 and the duration of our uninterrupted engagement after the initial public offering, including previous renewals and reappointments, is six years. The consolidated management report is consistent with the consolidated financial statements and has been prepared in accordance with applicable legal requirements. The Corporate Governance Statement is included in the consolidated management report. The informa- tion required by Article 68ter paragraph (1) letters c) and d) of the law of 19 December 2002(4) on the commercial and companies register and on the accounting records and annual accounts of undertak- ings, as amended, is consistent with the consolidated financial statements and has been prepared in accordance with applicable legal requirements. We confirm that the audit opinion is consistent with the additional report to the audit committee or equivalent. We confirm that the prohibited non-audit services referred to in the EU Regulation No 537/2014 were not provided and that we remained independent of the Group in conducting the audit. STABILUSCONSOLIDATED FINANCIAL STATEMENTS 130 S T A B I L U S 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 OT H E R M AT T E R The Corporate Governance Statement includes, when applicable, information required by Article 68ter paragraph (1) points a), b), e), f) and g) of the law of 19 December 2002 on the commercial and companies register and on the accounting records and annual accounts of undertakings, as amended. Luxembourg, December 12, 2019 KPMG Luxembourg Société coopérative Cabinet de révision agréé T. Feld ANNUAL ANNUAL ANNUAL ACCOUNTS ACCOUNTS ACCOUNTS ACCOUNTS PAGE 132 – 148 132 BALANCE SHEET as of September 30, 2019 Balance sheet I N € T H O U S A N D S Assets Fixed assets Intangible assets Concessions, patents, licenses, trade marks and similar rights and assets, if they were acquired for valuable consideration and need not be shown under C.I.3 Tangible assets Other fixtures and fittings, tools and equipment Financial assets Shares in affiliated undertakings Current assets Debtors Amounts owed by affiliated undertakings becoming due and payable within one year Other debtors becoming due and payable within one year Cash at bank and in hand Prepayments Total assets T_086 N OT E Sept 30, 2019 Sept 30, 2018 3 553,444 574,444 – – – – 553,444 574,444 24,179 1,200 30,381 2,091 712 484 488 22,979 268 1,607 28,290 309 577,891 605,134 4 5 6 STABILUSANNUAL ACCOUNTS 133 T_086 N OT E Sept 30, 2019 Sept 30, 2018 7 576,065 601,842 247 247 419,801 419,801 1,597 4,835 150,662 (1,077) – – 1,514 4,835 173,778 1,667 10 10 1,826 3,282 1,040 908 8 3 13 1,224 11 770 1,139 577,891 605,134 Balance sheet I N € T H O U S A N D S Liabilities Capital and reserves Subscribed capital Share premium account Reserves Legal reserve Other reserves, including the fair value reserve Profit or loss brought forward Profit or loss for the financial year Provisions Provisions for taxation Creditors Trade creditors becoming due and payable within one year Amounts owed to affiliated undertakings becoming due and payable within one year Other creditors Social security authorities Other creditors becoming due and payable within one year Total liabilities STABILUSANNUAL ACCOUNTS 134 PROFIT AND LOSS ACCOUNT for the fiscal year ended September 30, 2019 Profit and loss account I N € T H O U S A N D S Other operating income Raw materials and consumables and other external expenses Other external expenses Staff costs Wages and salaries Social security on salaries and wages Value adjustments in respect of formation expenses and tangible and intangible fixed assets Other operating expenses Income from participating interests derived from affiliated undertakings Other interest receivable and similar income derived from affiliated undertakings Value adjustments and fair value adjustments on financial current assets Interest payable and similar expenses concerning affiliated undertakings Other interest and similar financial expenses Tax on profit or loss Profit or loss after taxation N OT E 9 10 11 3 12 T_087 Year ended Sept 30, 2019 3,951 (2,939) (2,939) (1,310) (1,248) (62) – – (547) – – 0 0 – (16) – (16) (216) (1,077) 2018 4,227 (3,179) (3,179) (1,190) (1,128) (62) (7) (7) (573) 2,532 2,532 0 0 – (6) – (6) (137) 1,667 STABILUSANNUAL ACCOUNTS 135 NOTES TO THE ANNUAL ACCOUNTS for the year ended September 30, 2019 1 General Stabilus S.A., Luxembourg, hereafter also referred to as “Stabilus” or the “Company” is a public limited liability company (Société Anonyme) incorporated in Luxembourg and governed by Luxembourg law. The registered office of the Company is 2, rue Albert Borschette, L-1246 Luxembourg, Grand Duchy of Luxem- bourg. The trade register number is B151589. The Company was founded under the name of Servus HoldCo S. à r. l. on February 26, 2010. The Company is managed by a Management Board under the supervision of the Supervisory Board. The Company is formed for an unlimited duration. The purpose of the Company is (i) the acquisition, holding and disposal, in any form, by any means, whether directly or indirectly, of participations, rights and interests in, and obligations of, Luxembourg and foreign companies, including but not limited to any entities forming part of the Stabilus Group, (ii) the acquisition by purchase, subscription, or in any other manner, as well as the transfer by sale, exchange or in any other manner of stock, bonds, debentures, notes and other securities or financial instruments of any kind (including notes or parts or units issued by Luxembourg or foreign mutual funds or similar undertakings) and receivables, claims or loans or other credit facilities and agreements or contracts relat- ing thereto, and (iii) the ownership, administration, development and management of a portfolio of assets (including, among other things, the assets referred to in (i) and (ii) above). The Company’s financial year starts on October 1 and ends on September 30 each year. The Company has no parent company which prepares consolidated financial statements including the Company as a subsidiary. The Company prepares consolidated financial statements in accordance with EU regulation 1606/2002. The copies of the consolidated financial statements are available at the registered office of the Company at 2, rue Albert Borschette, L-1246 Luxembourg or on www.stabilus.com. STABILUSANNUAL ACCOUNTS 136 2 Summary of significant valuation and accounting policies B A S I S O F P R E S E N TAT I O N The annual accounts are prepared in accordance with Luxembourg company law and generally accepted accounting principles applicable in Luxembourg. The accounting policies and valuation princi- ples are, apart from those enforced by law, determined by the Management Board. The annual accounts have been prepared on a going concern basis and in accordance with current legal requirements and generally accepted accounting principles in the Grand Duchy of Luxembourg. 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 Company maintains its books and records in euro (€). The balance sheet and the profit and loss account are expressed in this currency. Formation expenses, intangible, tangible and financial fixed assets denominated in currencies other than euro translated at the historical exchange rates. Cash at bank denominated in currencies other than euro are translated at the exchange rates prevail- ing at the date of the balance sheet. Current assets and liabilities denominated in currencies other than euro (having an economic link and simi- lar characteristics) are recorded globally at the exchange rates prevailing at the date of the balance sheet. Long term debts denominated in currencies other than euro having an economic link with receivables recorded in financial assets (and having similar characteristics) are translated at the historical exchange rates (loans “back to back”). As a result, realized exchange gains and losses and unrealized exchange losses are recorded in the profit and loss account. Unrealized exchange gains are not recognized. I N TA N G I B L E A N D TA N G I B L E A S S E T S Intangible and tangible assets are used for business purposes and are measured at cost less accumu- lated value adjustments. Depreciation on intangible and tangible assets is recorded on a straight-line basis in accordance with its utilization and based on the useful life of the asset. The residual value, depreciation methods and useful life are reviewed annually and adjusted, if necessary. STABILUSANNUAL ACCOUNTS 137 F I N A N C I A L A S S E T S Shares in affiliated undertakings, participating interests and securities held as fixed assets are stated at acquisition cost. Write-downs are recorded if a permanent reduction in the fair value is expected. The impairment analysis is done individually for each investment. Loans to affiliated undertakings are recorded at their nominal value. Loans are written down to their recoverable amount if there is a permanent impairment. These value adjustments may not be continued if the reasons for which the value adjustments were recognized have ceased to exist. D E B TO R S Current receivables are recorded at their nominal value. Current receivables are written down to their recoverable amount if there is a permanent impairment. These value adjustments may not be continued if the reasons for which the value adjustments were recognized have ceased to exist. P R O V I S I O N S Provisions are intended to cover losses or debts, the nature of which is clearly defined and which, at the date of the balance sheet, are either likely to be incurred or certain to be incurred but uncertain as to their amount or the date on which they will arise. C R E D I TO R S Debts are recorded at their reimbursement value. Where the amount repayable on account is exceeds the amount received, the difference is shown as an asset and is written off over the period of the debt. STABILUSANNUAL ACCOUNTS 138 3 Movements in fixed assets Fixed assets schedule I N € T H O U S A N D S Gross value Balance as of Sept 30, 2018 Additions Decrease Balance as of Sept 30, 2019 Accumulated value adjustments Balance as of Sept 30, 2018 Additions Disposals Balance as of Sept 30, 2019 Carrying amount Balance as of Sept 30, 2018 Balance as of Sept 30, 2019 4 Financial assets Intangible assets Tangible assets Shares in affiliated undertakings T_088 Total 22 – – 22 (22) – – (22) (0) (0) 44 – – 44 (44) – – (44) (0) (0) 574,444 574,510 – (21,000) 553,444 – (21,000) 553,510 – – – – (66) – – (66) 574,444 553,444 574,444 553,444 Shares in affiliated undertakings T_089 I N € T H O U S A N D S Blitz F10 neun GmbH, i. L. Wallersheimer Weg 100, 56070 Koblenz, Germany Stable II S.à r. l., 2, rue Albert Borschette, 1246 Luxembourg, Luxembourg Total Proportion of capital held Year-end date Shares in affiliated undertakings as at Sept 30, 2019 Equity as at year-end (including result) Profit or loss for the year ended 100% 31.12.2018 28 3 (2,545) 100% 30.09.2018 553,416 553,444 455,167 (1,543) The Company decreased its investment in Stable II S. à r. l. by distributing €21,000 thousand in August 2019 out of the share premium account of Stable II S. à r. l. STABILUSANNUAL ACCOUNTS 139 5 Debtors 5 . 1 A M O U N T S O W E D B Y A F F I L I AT E D U N D E R TA K I N G S The amount of €712 thousand (PY: €484 thousand) is a receivable of €287 thousand from affiliated undertakings for providing management services (PY: €484 thousand) as well as €425 thousand out of cash pooling (PY: €0 thousand). 5 . 2 OT H E R D E B TO R S The amount mainly consists of a tax receivable amounting to €329 thousand (PY: €924 thousand). In financial year 2019 the Company received a VAT refund of €469 thousand for prior years. 6 Prepayments Prepayments mainly relate to insurance contracts. 7 Capital and reserves Issued capital as of September 30, 2019 amounted to €247 thousand (PY: €247 thousand) and was fully paid in. On February 13, 2019, the Management Board of Stabilus S.A., with the approval of the Supervisory Board, resolved to reduce the existing authorized capital of the Company from €315 thou- sand by €68 thousand to €247 thousand. In addition, it was decided to replace the present authoriza- tion for a capital increase by a new authorization for a period of 5 years from the date of the present meeting with however a reduced authorization amount of €24,000 (representing 2.4 million shares). Following this issuance the new total number of authorized shares amounts 27.1 million. The Annual General Meeting on February 13, 2019, resolved to allocate 5% of the profit of €1,667 thousand (i.e. an amount of €83 thousand) to the legal reserve, in accordance with Article 461-1 of the Luxembourg act on commercial companies dated 10 August 1915, as amended. Furthermore, the AGM approved the distribution of a dividend amounting to €1 per share resulting in an aggregate dividend distribution amounting to €24,700 thousand out of the remaining profit which amounted to €1,583 thousand and the profits carried forward in an amount of €23,117 thousand and to carry forward the resulting balance of profits in an aggregate amount of €150,661 thousand to the next financial year. 8 Amounts owed to affiliated undertakings The amount of €3 thousand (PY: €1,224 thousand) consists of a trade liability owed to affiliated undertakings. STABILUSANNUAL ACCOUNTS 140 9 Other operating income The other operating income mainly includes reimbursements for management services provided by Stabilus S. A. to other Stabilus Group companies amounting to €3,764 thousand (PY: €4,156 thousand). 10 Other external expenses Other external expenses I N € T H O U S A N D S Administration fees Consulting fees Audit fees Group insurance Legal and professional fees Bank charges Total 11 Staff costs The Company employs 8 employees as of September 30, 2019 (PY: 8). The average number of employ- ees in the financial year 2019 was 8 (PY: 8). 12 Income from participating interests There was no income from participating interests in financial year 2019 (PY: €2,532 thousand). 13 Taxation The Company is subject to Luxembourg company tax law. 14 Related parties The remuneration of the members of the Management Board amounts to €1,444 thousand (PY: €563 thousand). The remuneration of the members of the Supervisory Board amounts to €439 thousand (PY: €472 thousand). As of September 30, 2019, members of the Management and Supervisory Board held about 0.3% of the total shares in Stabilus S. A. T_090 2018 273 2,048 291 180 351 36 Year ended Sept 30, 2019 267 1,716 412 189 312 43 2,939 3,179 STABILUSANNUAL ACCOUNTS 141 15 Share-based payments The variable compensation for the members of the Management Board includes a matching stock pro- gram. The matching stock program (the “MSP”) provides for four annual tranches granted each year during the financial year ending September 30, 2014 until September 30, 2017. The program “MSP A” was extended by one year to September 30, 2018. Participation in the matching stock program requires Management Board members to invest in shares of the Company. The investment has gener- ally to be held for the lock-up period. 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 match- ing stock program. The amount of stock options received depends upon a factor to be set by the Super- visory Board (Remuneration Committee) annually in a range between 1.0 time and 1.7 times for a cer- tain tranche. Thus, if a Management Board member were to buy 1,000 shares under the MSP A 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 Supervi- sory Board (Remuneration Committee) annually which will be in a range between 0.0 and 0.3 times for a certain tranche. Thus, if a Management Board member were to be holding 1,000 shares under the MSP B in the Company, he would receive 0 to 300 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 relevant tranche, which the Supervisory Board will determine at the time of granting the options, 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 fictitious 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 options. The Company plans a cash settlement. The maximum gross amounts resulting from the exercise of the fictitious options of one tranche in gen- eral is limited in amount 50% of the base price. Reinvestment of IPO proceeds from previous equity programs are not taken into account for MSP A. P E R F O R M A N C E S H A R E P L A N In fiscal year 2019, eligible Management Board members of Stabilus S.A. received allocations under the Performance Share Plan (the “PSP”) in the form of virtual shares. The virtual shares of the Perfor- mance Share Plan are based on an annual target amount granted at the beginning of a three-year performance period as a future entitlement. In order to determine the target number of virtual shares granted, the annual target amount is divided by the Start Share Price, whereby the Start Share Price STABILUSANNUAL ACCOUNTS 142 refers to the arithmetic mean of the company’s share closing price during the last 60 trading days prior to the respective performance period start date. The performance factor which determines the final number of virtual shares is calculated at the end of the three-year performance period via the relative Total Shareholder Return (weighted with 70%) and the EBIT margin (weighted with 30%). The target achievement for the relative TSR is based on a comparison with the constituents of the MDAX index. In order to determine the relative TSR, firstly, the absolute TSR values of Stabilus as well as each index constituent of the MDAX over the respective performance period are calculated. The absolute TSR value of each company equals the theoretical growth in value of a share holding over the performance period, assuming that (gross) dividends are directly reinvested. Secondly, the calculated absolute TSR values of Stabilus and each index constituent are ranked by size in order to calculate the target achievement. The target achievement for EBIT margin is based on a comparison with a strategic target. To determine the percentage of target achievement, the actual EBIT margin at the end of the respective performance period is compared with the strategic EBIT margin defined for the respective performance period. The final number of virtual shares is determined by multiplying the overall target achievement with the target number of virtual shares granted. The final number of virtual shares is capped at 150% of the target number of virtual shares granted. The payout of the respective tranche of the Performance Share Plan is calculated by multiplying the final number of virtual shares with the relevant End Share Price including any dividends paid during the performance period. The End Share Price refers to the arithme- tic mean of the company’s share closing price during the last 60 trading days prior to the respective performance period end date. The payout amount is limited to a maximum of 250% of the target amount (payout cap). The Performance Share Plan is paid out in cash at the end of the performance period. In fiscal year 2019, the number of MSP A and MSP B share options developed as follows: Number of share options T_091 MSP B (2014) MSP A/B (2015) MSP A/B (2016) MSP A (2017) MSP A (2018) No. of options Exercise price No. of options Exercise price No. of options Exercise price No. of options Exercise price No. of options Exercise price Outstanding as at October 1, 2018 19,588 €24.82 30,235 €31.08 20,129 €48.64 6,498 €74.74 – – Granted during the year Forfeited during the year – – – – – 9,652 Exercised during the year 19,588 €24.82 – – – – – – – – – – – – – – – – 10,423 €74.22 – – – – Outstanding as at September 30, 2019 Exercisable as at September 30, 2019 – – – – 20,583 €31.08 20,129 €48.64 6,498 €74.74 10,423 €74.22 20,583 €31.08 – – – – – – STABILUSANNUAL ACCOUNTS Performance Share Plan 2019 VA L UAT I O N D AT E Performance period Price of the Stabilus share “Initial Price” Stabilus share Expected annual dividend yield Remaining duration of granted Performance Shares Risk-free annual interest rate (duration 2.0 years) Expected target achievment for internal target EBIT Cap per performance share used in the valuation 143 T_092 Sept 30, 2019 Oct 1, 2018 – Sept 30, 2021 €44.90 €73.74 2.00% 2.0 years ( 0.80)% 100% 250% x €73.74 Number of share options T_093 Outstanding as at October 01, 2018 Granted during the year Forfeited during the year Exercised during the year Outstanding as at September 30, 2019 Exercisable as at September 30, 2019 PSP (2019) Number of options Fair value – 3,662 – – 3,662 – – €30.65 – – €30.65 – 16 Commitments, contingencies and pledges In fiscal year 2016, the Company and other affiliated companies entered into a senior term loan facility with a total amount of €640,000 thousand made up of a €455,000 thousand senior A facility, an equity bridge facility commitment of €115,000 thousand and a €70,000 thousand revolving facility. The equity bridge facility commitment had already been repaid per September 30, 2016. The original term of the senior term loan was June 29, 2021 and was extended to June 28, 2023 in August 2018. The Company is guarantor of the senior term loan facility. 17 Subsequent events There were no events or developments that could have materially affected the measurement and pres- entation of the Company’s assets and liabilities as of September 30, 2019. Luxembourg, December 12, 2019 Stabilus S.A. Management Board STABILUSANNUAL ACCOUNTS 144 RESPONSIBILITY STATEMENT We, Dr. Michael Büchsner (Chief Executive Officer), Mark Wilhelms (Chief Financial Officer), Markus Schädlich (Head of the Asia / Pacific and Rest of World), Andreas Schröder (Group Financial Reporting Director) and Andreas Sievers (Director Group Accounting and Strategic Finance Projects), confirm, to the best of our knowledge, that the annual accounts which have been prepared in accordance with the legal requirements and generally accepted accounting principles applicable in the Grand Duchy of Luxembourg, give a true and fair view of the assets, liabilities, financial position and profit and loss of Stabilus S.A. and that the combined management report includes a fair review of the development and performance of the business and the position of Stabilus S.A., together with a description of the principal risks and uncertainties that they face. Luxembourg, December 12, 2019 Dr. Michael Büchsner Mark Wilhelms Andreas Schröder Andreas Sievers Markus Schädlich Management Board STABILUSANNUAL ACCOUNTS 145 INDEPENDENT AUDITOR’S REPORT 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 A U D I T O F T H E A N N U A L A C C O U N T S Opinion We have audited the annual accounts of Stabilus S.A. (the “Company”), which comprise the balance sheet as at 30 September 2019, and the profit and loss account for the year then ended, and notes to the annual accounts, including a summary of significant accounting policies. In our opinion, the accompanying annual accounts give a true and fair view of the financial position of the Company as at 30 September 2019, and of the results of its operations for the year then ended in accordance with Luxembourg legal and regulatory requirements relating to the preparation and pres- entation of the annual accounts. Basis for Opinion We conducted our audit in accordance with the EU Regulation N° 537/2014, the Law of 23 July 2016 on the audit profession (“Law of 23 July 2016”) and with International Standards on Auditing (“ISAs”) as adopted for Luxembourg by the “Commission de Surveillance du Secteur Financier” (“CSSF”). Our responsibilities under the EU Regulation N° 537/2014, the Law of 23 July 2016 and ISAs are further described in the « Responsibilities of “Réviseur d’Entreprises agréé” for the audit of the annual accounts » section of our report. We are also independent of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”) as adopted for Luxembourg by the CSSF together with the ethical requirements that are relevant to our audit of the annual accounts, and have fulfilled our other ethical responsibilities under those ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the annual accounts of the current period. These matters were addressed in the context of the audit of the annual accounts as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined that there are no key audit matters to communicate in our report. STABILUSANNUAL ACCOUNTS 146 Other information The Management Board is responsible for the other information. The other information comprises the information stated in the annual report including the management report (on consolidated level) and the Corporate Governance Statement but does not include the annual accounts and our report of “Réviseur d’Entreprises agréé” thereon. Our opinion on the annual accounts does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the annual accounts, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the annual accounts or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information we are required to report this fact. We have nothing to report in this regard. Responsibilities of the Management Board and Those Charged with Governance for the annual accounts The Management Board is responsible for the preparation and fair presentation of the annual accounts in accordance with Luxembourg legal and regulatory requirements relating to the preparation and presenta- tion of the annual accounts, and for such internal control as the Management Board determines is neces- sary to enable the preparation of annual accounts that are free from material misstatement, whether due to fraud or error. In preparing the annual accounts, the Management Board is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Management Board either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. Responsibilities of the Réviseur d’Entreprises agréé for the audit of the annual accounts The objectives of our audit are to obtain reasonable assurance about whether the annual accounts as a whole are free from material misstatement, whether due to fraud or error, and to issue a report of “Réviseur d’Entreprises agréé” that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the EU Regulation N° 537/2014, the Law of 23 July 2016 and with ISAs as adopted for Luxembourg by the CSSF will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these annual accounts. STABILUSANNUAL ACCOUNTS 147 As part of an audit in accordance with the EU Regulation N° 537/2014, the Law of 23 July 2016 and with ISAs as adopted for Luxembourg by the CSSF, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the annual accounts, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit proce- dures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Management Board. • Conclude on the appropriateness of Management Board`s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our report of the “Réviseur d’Entreprises agréé” to the related disclosures in the annual accounts or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our report of the “Réviseur d’Entreprises agréé”. However, future events or conditions may cause the Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the annual accounts, including the disclosures, and whether the annual accounts represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the annual accounts of the current period and are therefore the key audit matters. We describe these matters in our report unless law or regulation precludes pub- lic disclosure about the matter. STABILUSANNUAL ACCOUNTS 148 S T A B I L U S A N N U A L A C C O U N T S 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 We have been appointed as “Réviseur d’Entreprises agréé” by the General Meeting of the Shareholders on 13 February 2019 and the duration of our uninterrupted engagement, after the initial public offer- ing, including previous renewals and reappointments, is six years. The management report is consistent with the annual accounts and has been prepared in accordance with applicable legal requirements. The Corporate Governance Statement is included in the management report. The information required by Article 68ter paragraph (1) letters c) and d) of the law of 19 December 2002 on the commercial and companies register and on the accounting records and annual accounts of undertakings, as amended, is consistent with the annual accounts and has been prepared in accordance with applicable legal requirements. We confirm that the audit opinion is consistent with the additional report to the audit committee or equivalent. We confirm that the prohibited non-audit services referred to in the EU Regulation No 537/2014 were not provided and that we remained independent of the Company in conducting the audit. OT H E R M AT T E R The Corporate Governance Statement includes, when applicable, information required by Article 68ter paragraph (1) points a), b), e), f) and g) of the law of 19 December 2002 on the commercial and companies register and on the accounting records and annual accounts of undertakings, as amended. Luxembourg, December 12, 2019 KPMG Luxembourg Société coopérative Cabinet de révision agréé T. Feld ADDITIONAL ADDITIONAL ADDITIONAL INFORMATION INFORMATION INFORMATION INFORMATION PAGE 150 – 153 150 FINANCIAL CALENDAR Financial calendar D AT E 1 ) 2 ) November 15, 2019 December 13, 2019 February 3, 2020 February 12, 2020 May 4, 2020 August 3, 2020 November 13, 2020 December 11, 2020 T _ 094 P U B L I C AT I O N / E V E N T Publication of preliminary financial results for fiscal year 2019 Publication of full year results for fiscal year 2019 (Annual Report 2019) Publication of the first-quarter results for fiscal year 2020 (Quarterly Statement Q1 FY20) Annual General Meeting Publication of the second-quarter results for fiscal year 2020 (Interim Report Q2 FY20) Publication of the third-quarter results for fiscal year 2020 (Quarterly Statement Q3 FY20) Publication of preliminary financial results for fiscal year 2020 Publication of full year results for fiscal year 2020 (Annual Report 2020) 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 to September 30 of the following calendar year. E.g. the fiscal year 2020 comprises a year ended September 30, 2020. DISCLAIMER 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 take into account only 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 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 combined manage- ment report. However, other factors could also have an adverse effect on our business performance and results. Stabilus S.A. neither intends to nor assumes any separate obli- gation 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 combined management report were calculated using the underlying data in millions of euros to one decimal place (€ millions). STABILUSADDITIONAL INFORMATION TABLE DIRECTORY D E S C R I P T I O N Latest growth projections for selected economies Production of light vehicles Income statement Revenue by region Revenue by market Reconciliation of EBIT to adjusted EBIT Operating segments Balance sheet Cash flows Free cash flow Adjusted free cash flow Net leverage ratio Financial debt Adjusted EBITDA Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Subsidiaries Exchange rates New standards, interpretations and amendments in the financial year Reconciliation IFRS 9 classification and measurement Allowance for doubtful accounts New standards, interpretations and amendments issued and endorsed by the EU (not yet adopted) New standards, interpretations and amendments issued but not yet endorsed by the EU Business combination Revenue by region Revenue by market Expenses by function Personnel expenses Average number of employees Other income Other expenses Finance income Finance costs Income tax expense Tax expense reconciliation (expected to actual) Deferred tax assets and liabilities Tax loss and interest carry-forwards Weighted average number of shares Earnings per share Property, plant and equipment Depreciation expense for property, plant and equipment Goodwill sensitivity analysis Intangible assets Amortization expense for intangible assets Other financial assets 151 N U M B E R PA G E 001 002 003 004 005 006 007 008 009 010 011 012 013 014 015 016 017 018 019 020 021 022 023 024 025 026 027 028 029 030 031 032 033 034 035 036 037 038 039 040 041 042 043 044 045 046 047 22 22 24 24 25 27 28 30 32 33 33 34 34 34 47 48 50 51 55 57 58 60 60 61 63 72 73 73 74 75 75 75 76 76 77 78 78 79 80 81 81 82 83 84 85 86 86 STABILUSADDITIONAL INFORMATION 152 D E S C R I P T I O N Other assets Inventories Trade accounts receivable Exposure to credit risk and ECLs Allowance for doubtful accounts Other comprehensive income / (expense) Financial liabilities Other financial liabilities Provisions Changes of non-current provisions Changes of current provisions Pension plans and similar obligations Unfunded status Present value of the net pension liability obligations Pension cost for defined benefit plans Present value of the defined benefit obligation and the experience adjustments on the plan liabilities Significant factors for the calculation of pension obligations Other liabilities Operating lease Finance lease Financial commitments Financial instruments Financial instruments Credit risks included in financial assets Liquidity outflows for liabilities Equity ratio Reconciliation financing activities Segment reporting Reconciliation of the total segments’ profit to profit / (loss) before income tax Geographical information: Revenue by country Geographical information: Non-current assets by country Input parameters for fair value measurement of MSP Number of share options Input parameters for fair value measurement of PSP Phantom Stock Program options Performance Share Plan 2019 Number of share options Auditor’s fees Balance sheet Profit and loss account Fixed assets schedule Shares in affiliated undertakings Other external expenses Number of share options Performance Share Plan 2019 Number of share options Financial calendar N U M B E R PA G E 048 049 050 051 052 053 054 055 056 057 058 059 060 061 062 063 064 065 066 067 068 069 070 071 072 073 074 075 076 077 078 079 080 081 082 083 084 085 086 087 088 089 090 091 092 093 094 87 87 88 88 89 91 91 92 93 93 94 95 96 96 96 97 97 99 99 100 102 103 103 105 106 108 109 110 111 111 112 114 116 117 118 119 119 120 132 134 138 138 140 142 143 143 150 STABILUSADDITIONAL INFORMATION 153 INFORMATION RESOURCES Further information including news, reports and publications can be found in the investor relations section of our website at www.ir.stabilus.com. Investor Relations Phone: +352 286 770 21 Fax: +352 286 770 99 Email: investors@stabilus.com STABILUSADDITIONAL INFORMATION 2 , R U E A L B E R T B O R S C H E T T E , L - 1 2 4 6 L U X E M B O U R G G R A N D D U C H Y O F L U X E M B O U R G W W W . S T A B I L U S . C O M