Annual Report 2012/13 by Schaffner Group

Schaffner Group Annual Report

2012/13

Structure of this report This integrated report comprises the business review and financial reporting of the Schaffner Group as well as the corporate governance report, which includes the compensation report. The information on the financial position, results of operations and cash flows of the Schaffner Group is based on the requirements of the International Financial Reporting Standards (IFRS) and, where applicable, of Swiss law. In this publication the Schaffner Group reports to its stakeholder groups on its economic performance and corporate social responsibility. The scope and content of the sustainability reporting is based on the latest report filed by the Schaffner Group in its capacity as an active member of the UN Global Compact.

This English version of the Schaffner Group annual report 2012/13 is a translation from the German and is provided solely for readers‘ convenience. Only the German version is binding.

Contents 4 6 10 14 18 20 22 27 96

To our shareholders EMC division Power Magnetics division Automotive division Operations Global footprint Leadership and values Financial report and corporate governance Selected addresses of the Schaffner Group

External audit and opinion Parts of the reporting of the Schaffner Group are audited by third parties. Auditors Ernst & Young AG have audited the consolidated and parent company financial statements and issued an unqualified audit opinion. About the cover photo In the oil and gas industry, complex installations are often built and operated in remote areas. As they are located far from the grid, their power is usually supplied by large generators. The demands on power quality are especially high for operation in this so-called island mode. Schaffner’s active filters, EMC filters, and sinusoidal filters ensure a reliable supply of power and protect electrical infrastructure and motors from premature aging.

Profile 1

Energy efficiency and reliability

The Schaffner Group is a global leader in the development and production of solutions that ensure the efficient and reliable operation of power electronic systems. The companyâ&#x20AC;&#x2122;s portfolio ranges from EMC filters, power quality filters and power magnetic components to the development and implementation of customized solutions.

Renewable energy

Schaffner components are deployed in energy-efficient drive systems and electronic motor controls, in wind power and photovoltaic systems, in rail technology applications, machine tools and robotics, electrical infrastructure, as well as in power supplies for a wide range of electronic devices used in sectors such as medical technology. For the automobile industry, Schaffner develops and manufactures components for convenience and safety features in cars and, in the promising electromobility market, offers solutions used in electric drive systems and in the charging infrastructure for electric vehicles.

Energy-efficient drive systems

Schaffner provides on-site service to customers around the world through its global application centers and distribution organization, and invests heavily in research and development in order to expand its position as international market leader.

Rail technology

Automotive electronics

Electrical infrastructure

Power supplies for electronic devices

Machine tools and robotics

The EMC division develops and manufactures standard and custom components that protect power electronic equipment from line interference (thus assuring electromagnetic compatibility, or EMC) and ensure the stability of power grids. Key sÂ ales markets include energy-efficient drive systems, renewable energy, power supplies for electronic devices, and machine tools and robotics. The Power Magnetics division (PM) develops and manufactures components to ensure the reliable operation of power electronic systems, and builds customized high-performance transformers for demanding applications. Schaffner solutions deployed in solar inverters and converters in wind turbines are highly efficient and assure the best possible adaptation to electricity grids. Schaffner components are also integrated into compact, highperformance, energy-efficient locomotive drive systems and eliminate network interference from powerful motors. The Automotive division (AM) develops and manufactures components for keyless entry systems as well as solutions for the drive systems of hybrid and electric vehicles. Schaffner engineers work closely with leading automobile manufacturers and support them in the development stage of new models with specialized expertise in EMC.

Key share data 2

Number of shares (par value of CHF 32.50) Weighted average number of shares outstanding (entitled to dividend) Earnings per share (EPS) Shareholders’ equity per share Repayment of excess share premium, per share Free float Share price2 High for year Low for year At end of year Market capitalization2 High for year Low for year At end of year

2008 / 09 635,940

2009 / 10 635,940

2010 / 11 635,940

2011 / 12 635,940

2012 / 13 635,940

in CHF in CHF

606,124 – 18.04 74.39

635,131 18.87 88.04

633,266 16.03 89.52

632,990 6.17 94.87

633,859 9.92 98.30

in CHF in %

0.00 99.9

4.50 99.3

3.50 99.1

4.501 99.2

in CHF in CHF in CHF

233 118 170

220 148 219

350 216 235

271 204 235

240 203 227

in CHF million in CHF million in CHF million

148 75 108

140 94 139

223 137 149

172 130 149

153 129 144

Subject to approval by the Annual General Meeting on 14 January 2014. Period: fiscal year from 1 October to 30 September (Source: Bloomberg).

1 2

400 Share price performance 1 October 2008 to 30 September 20133

Share price performance 1 October 2012 to 30 September 20133

In CHF

400 400

300

300 300

250

200 200

200

100 100 00

08 09

150 Oct.

08 09 10 11 12 13

Nov.

Dec.

Jan.

Feb.

100 3

Source: Thomson Reuters Datastream Schaffner registered shares Swiss Performance Index (adjusted)

Trading of the Company’s securities

Ticker symbol

The registered shares of Schaffner Holding AG are traded on the SIX Swiss Exchange under Securities No. 906209.

Registered shares: SAHN

Mar.

April

May

June

July

Aug.

Sept. Oct.

Key financials of the Schaffner Group 3

In CHF '000 Net sales Net sales, EMC division Segment profit, EMC division Net sales, Power Magnetics division Segment profit/(loss), Power Magnetics division Net sales, Automotive division Segment profit/(loss), Automotive division Operating profit/(loss) [EBIT] In % of net sales Net profit/(loss) for the period In % of net sales Total assets Shareholders’ equity In % of total assets Number of employees

2009 / 10 188,939 n/a n/a n/a n/a n/a n/a 15,000 7.9 11,983 6.3 126,643 55,985 44.2 2,393

Operating profit (EBIT)

Net sales 200

2008 / 09 133,363 n/a n/a n/a n/a n/a n/a – 9,193 – 6.9 – 10,935 – 8.2 126,883 47,305 37.3 1,808

In CHF million

2010 / 111 182,603 128,932 20,174 36,046 – 331 17,625 – 395 12,810 7.0 10,150 5.6 136,822 56,929 41.6 2,702

2011 / 12 176,942 105,784 12,552 46,495 – 284 24,663 563 7,243 4.1 3,909 2.2 140,843 60,333 42.8 2,569

Net profit

In CHF million

2012 / 13 194,889 109,686 14,071 53,924 2,963 31,280 – 1,973 9,414 4.8 6,287 3.2 143,653 62,512 43.5 2,817

Free cash flow

In CHF million

150

12 8

08/09

– 6

– 9

– 12

12/13

11/12

10/11

09/10

08/09

12/13

11/12

10/11

– 3

0 09/10

12/13

– 3

11/12

12/13

11/12

10/11

09/10

08/09 1

0 10/11

09/10

08/09

100

Restated

Non-recurring restructuring costs

Net sales in 2012/13 by region

Net sales in 2012/13 by market

44% Europe

12% Machine tools and robotics

Based on customer location

41% Asia

15% North America

15% Power supplies for electronic devices 5% Electrical infrastructure 16% Automotive electronics

2% Other markets

23% Energy-efficient drive systems

18% Renewable energy 9% Rail technology

To our shareholders 4/5

Back on track for growth Definite recovery in the second half of fiscal 2012/13

Strong growth in renewable energy market in Asia-Pacific

Schaffner can look back on a satisfactory fiscal year on balance. After a difficult first six months, the Group returned to growth in the second half of 2012/13. All divisions increased their sales in the latter six-month period compared to the first half of the year. The recovery in the strategic growth markets was the mainspring of this upturn. Especially the market for renewable energy boasted very dynamic growth, thanks to the strong demand from the photovoltaic industry led by China and Japan. In the summer of 2013, a gradual recovery in the European market for industrial electronics also started to take hold. The resulting impetus should be positive for earnings in the new fiscal year 2013/14.

The Asia-Pacific region’s share of sales increased to 41% (from 35%) in fiscal year 2012/13, approaching the 44% share (prior year: 47%) contributed by Europe. Sales in North America made up 15% (prior year: 18%) of the Group total. The decrease in the US share was driven primarily by the postponement of publicly funded projects amid the political debate in Washington over the national budget. This held back results in the Power Magnetics division. The sales share represented by the strategic growth markets kept rising during the fiscal year, reaching 66% (prior year: 61%). The renewable energy market recorded the strongest growth, fueled by brisk demand from China and Japan. With its sales share of now 18% (prior year: 15%), renewable energy is the second-largest application segment for Schaffner’s products after energy-efficient drive systems at 23% (prior year: 23%).

The Schaffner Group expanded its net sales by 10.2% in fiscal year 2012/13, from CHF 176.9 million to CHF 194.9 million. The sales growth amounted to 8.6% in local currencies. New orders grew to CHF 196.8 million (prior year: CHF 180.2 million), giving the Group a positive book-to-bill ratio of 1.01. After the market environment in Europe deteriorated further in the first half-year, programs were immediately launched to trim costs. Importantly, new product development remained exempt from these measures, and this already paid off in the second half of the year when Schaffner further consolidated its strong position in the Asia-Pacific region, especially in the photovoltaic market in China and Japan. Schaffner responded to the continuously mounting production costs in Asia by raising productivity and reducing material costs, adjustments which largely made up for the higher minimum wage in Thailand in particular. The Thai government had significantly increased the minimum wage in two steps in 2012 and 2013. Although the steady sales shift to the Asia-Pacific region continued unabated – a region where the more intense competition exerts downward pressure on prices – and despite the volume-driven underutilization of the plants during much of the year, the Group’s operating margin (EBIT margin) was pushed up to 4.8% from the prior year’s 4.1%. Operating profit (EBIT) increased by 31% to CHF 9.4 million (prior year: CHF 7.2 million) and net profit for the period was up by 62% year-on-year, reaching CHF 6.3 million (prior year: CHF 3.9 million).

Positive trajectories in the divisions

The two divisions Power Magnetics and Automotive posted growth above the Group average in the year under review, narrowing the gap to the traditionally largest division, EMC, which contributed 56% (prior year: 60%) of sales. The Power Magnetics division grew from 26% to 28% of Group sales, while Automotive now accounted for 16%, up from 14%. The EMC division grew its sales to CHF 109.7 million in fiscal year 2012/13, thanks particularly to faster growth in the key markets during the second half, when sales were 18.5% higher than in the first six months. This acceleration was driven in particular by power quality filters, including the ECOsine line of harmonic filters. Although the plants were underutilized as a result of low order volume during the first six months in particular, and the sharp hike of 80% in statutory minimum wages in Thailand weighed on profitability, the EMC division pushed up its segment profit to CHF 14.1 million (prior year: CHF 12.6 million). The profit margin increased by one percentage point to 12.8% (prior year: 11.8%). Sales in the Power Magnetics division increased to CHF 53.9 million (prior year: CHF 46.5 million). The good growth of 16% was due largely to the successful establishment of a strong position in the Japanese photovoltaics market. Thanks to the opera-

From left: Daniel Hirschi and Alexander Hagemann

tional improvement measures, the PM division returned to profitability. The division’s segment profit amounted to CHF 3.0 million (prior year: loss of CHF 0.3 million), with a profit margin of 5.5% (prior year: – 0.5%). The Automotive division boosted its sales by about one-fourth during the year under review, reaching CHF 31.3 million (prior year: CHF 24.7 million). Despite this continuing growth in sales, the division registered a loss of CHF 2.0 million, compared with a profit of CHF 0.6 million in the previous year. High projectrelated costs had a negative impact here, as two large projects were developed and taken to industrial scale in the areas of electromobility and keyless access systems. Both projects will generate sales and earnings from fiscal year 2013/14. The division’s profitability was also restricted by one-time personnel expenses arising from the termination of the (French-law) employment contract of the former head of the Automotive division. After the powerful sales growth of the last several years, the focus for this division is now on a solid improvement in earnings. Sound financing structure

Schaffner was able to significantly reduce net working capital through the continuous operational improvements, to CHF 25.5 million at the 30 September 2013 year-end (30 September 2012: CHF 37.8 million). The Group generated substantial growth in free cash flow to CHF 16.0 million (prior year: CHF 1.5 million). Net debt fell to CHF 13.4 million (from CHF 25.9 million) and the gearing ratio of net debt to shareholders’ equity improved to 21% (prior year-end: 43%). With shareholders’ equity at CHF 62.5 million (prior year: CHF 60.3 million), Schaffner had an unchanged equity ratio of 43% (prior year: 43%) at the end of September 2013.

Distribution proposal

The Board of Directors of Schaffner Holding AG will propose a dividend of CHF 4.50 (prior year: CHF 3.50) at the Annual General Meeting on 14 January 2014. As a result of the robust cash flow trend and good outlook for the new fiscal year, the proposal, at 45% of net profit, surpasses the payout ratio target range of 25% to 35% of net profit. The proposed distribution will be made in the form of a tax-free repayment of capital. Outlook

All divisions achieved growth in the second half of the year under review and made a good start into the new fiscal year. The outlook in the important European market for industrial electronics improved in recent months. Schaffner intends to consolidate and expand its leading position in the EMC market as well as in attractive niche markets, through new products and superior customer service. In addition, operational excellence is to be continually enhanced. The Automotive division should return to profits now that the two major new projects are underway. For fiscal 2013/14 the management thus expects the Schaffner Group to deliver sales growth in the high single-digit range and a further improvement in operating margin. A word of thanks

At Schaffner, the year behind us was one of rapid change. The Group’s significant overall accomplishments were made possible by the trust of our customers, the strong commitment of our employees and the loyalty of our shareholders. We extend our sincerest thanks to them all.

Change in the Board of Directors

At the Annual General Meeting on 14 January 2013, Gerhard Pegam, 50, an industrial manager with strong experience in the components business, was elected to the Board of Directors as a successor to Hans Hess, who did not stand for re-election. As well, the Board elected Gerhard Pegam to the Audit Committee.

Daniel Hirschi Alexander Hagemann Chairman of the Board of Directors Chief Executive Officer

EMC division

EMC division 8

EMC division Power electronic systems must meet high standards of protection against electromagnetic interference. Schaffner’s EMC division is the world’s leading supplier of products and solutions for electromagnetic compatibility. It develops and manufactures components that ensure the immunity of power electronic systems to line interference, as well as products such as power quality filters to safeguard the stability of electricity grids. The division’s key sales markets are in energy-efficient drive systems, renewable energy, power supplies for electronic devices, and machine tools and robotics. After a sharp sales decline in the previous year, the EMC division returned to growth in fiscal year 2012/13. Sales in the first half of the reporting period were still at the low prior-year level, but business picked up significantly in the latter half, leading to an overall year-on-year rise of 3.7% in sales to CHF 109.7 million (prior year: CHF 105.8 million). This was equivalent to 56% of the Schaffner Group’s consolidated sales (prior year: 60%).

Renewable energy

Energy-efficient drive systems

The better new-order trend in the second half of 2012/13 buoyed capacity utilization – most notably in Thailand and China – from the insufficient levels of the first six months. Another important contributing factor in the positive development during the second half was the further optimization of production processes, resulting in a general reduction in manufacturing and material costs, an improvement in quality and a shortening of lead times. The EMC division’s profit (“segment profit”) improved by 12% in fiscal year 2012/13 to CHF 14.1 million (prior year: CHF 12.6 million). Its segment profit margin increased to 12.8% (prior year: 11.8%), moving closer to the target range of 16% to 20%. Solid growth in Asia, weak demand in Europe

Power supplies for electronic devices

Machine tools and robotics

Performance in the division’s main sales regions was heterogeneous. While revenue in Asia – particularly in China and Japan – continued to show considerable growth, above all in the photovoltaics market, demand in Europe remained weak. Toward the year-end, however, signs of an upturn emerged in Europe, including in the important machine tools and robotics sector. The EMC division continued to expand its leading position in 2012/13, winning additional market share. A market segment which stood

out, with strong growth in Asia, was renewable energy. In the energy-efficient drive systems space, sales in China and Germany were able to offset weak demand in the Japanese market. Demand in the machine tools and robotics segment picked up slightly toward the end of the year in Europe, while the situation in Japan deteriorated somewhat further compared with the prior-year period. China by contrast posted steady growth, with the positive performance set to continue over the next few years. Sales of power quality filters in Europe fell short of expectations due to project delays; business was better in Asian countries such as China and India. Sales of products for high-speed chargers for electric vehicles underperformed. Strategy implementation in the EMC division continued to make good headway. Thus, the reorganization of its research and development activities was successfully completed, while quality awareness and quality assurance were further reinforced and the progressive optimization of manufacturing operations continued. Continuing innovation campaign

Schaffner’s investments during the reporting period remained focused primarily on innovation and bringing new products to market. In the product segment of harmonic filters, for example, new solutions such as the ECOsine light harmonic filter and the AHF 690 V active harmonic filter were unveiled. A customer-focused service organization is also being set up for the ECOsine product family and should generate additional revenue potential in the medium term. The presentation of Schaffner’s new Power Quality Simulators (PQS) generated keen interest and the EMC division made good progress in its development of the next generation of AC/DC filters. Strategic partnerships with universities and industrial partners were also intensified during the reporting year. Cautiously optimistic outlook

With process optimization at an advanced stage, demand in Asia remaining high and sales gradually picking up in Europe, management is cautiously optimistic for the EMC division for 2013/14. The division is expected to achieve continuing sales growth and a further increase in profit margin. Positive stimulus should come mainly from Asia as well as from Europe, where the economy is beginning to bounce back from the low of the past few years.

ECOsine ®Active 690 V Active harmonic filters guarantee that the electrical infrastructure of buildings functions perfectly at all times and ensure the efficient and reliable operation of electrical and electronic devices and systems. Apart from building services, typical areas of application for the ECOsine®Active family of high-tech filters include mining, water treatment and sewage works, public transport including underground rail systems, and the production of fossil fuels.

PM division

Power Magnetics division 12

Power Magnetics division Magnetic components such as chokes and transformers are key elements in power electronics. In the Power Magnetics division, Schaffner develops and produces custom magnetic components for demanding uses in power electronics. Its products are employed in rail technology, wind power, photovoltaics, energy efficiency and electrical infrastructure applications. Schaffner solutions deployed in solar inverters and wind turbine converters are highly efficient and assure the best possible adaptation to electricity grids. In locomotives, Schaffner components are integrated into compact, high-performance, energy-efficient drive systems to eliminate interference. Revenue growth continued, with return to profitability

Power Magnetics’ sales increased by 15.9% in fiscal 2012/13, to CHF 53.9 million (prior year: CHF 46.5 million). The vigorous measures taken to boost efficiency helped the Power Magnetics division return to a segment profit of CHF 3.0 million for the fiscal year, following a loss of CHF 0.3 million in the prior year. The profit margin improved to 5.5% (prior year: – 0.5%), thus bringing it closer to the target range of 8% to 10%.

Renewable energy

Energy-efficient drive systems

Rail technology

Electrical infrastructure

Growth in the division was driven by the renewable energy and rail technology markets. In renewable energy, the Group saw strong demand in particular from the Japanese solar industry. Schaffner has greatly expanded its position in the Japanese market for solar inverters and has become an important supplier of transformers and chokes for Japan’s photovoltaic sector. This strong increase in sales to clients in Japan more than offset the drop in sales in China which was consciously accepted in order to reduce credit risk. The Schaffner Group will keep up its close monitoring of the financial situation of some Chinese customers to continue to avoid significant losses on receivables in the future. In wind turbines, the Group consolidated its position as a principal supplier to one of the world’s largest manufacturers, with headquarters in China. In addition, the Group expanded its sales with other producers of wind turbines. The demand for rail technology was also strong, especially for projects in Russia as well as in Europe and China. New rail projects have started in the United States, Japan and South Africa and should feed through to sales from fiscal 2013/14. The division had a challenging year in the USA, however. The ongoing political dispute over

High-quality magnetic components For use in drives and auxiliary systems in trains

the federal budget, which in October 2013 even led to a temporary halt in government spending, meant delays in the conversion of already-won US government contracts into orders. A leader in niche markets

The photovoltaic segment saw the shift from the European market to local manufacturers of solar inverters in China, Japan and North America continue during the year. As a global company with a strong presence in Asia-Pacific, Schaffner works together with the region’s leading producers of solar inverters and wind turbines. This proximity to the market is one of Schaffner’s strengths, and a key to unlocking rich potential for new development, which helps cement the division’s position as a leading vendor in attractive niche markets. As noted, the strong growth in the Japanese market for power magnetic components, which are used in photovoltaic converters, continued in 2012/13. In the rail technology sector, Schaffner has also strengthened its position as a preferred supplier to the international manufacturers of locomotives and trains. Operational excellence and innovation help drive success

Operational excellence and innovation are an indispensable basis for Schaffner’s long-term success. In the year under review, the company continued to improve the efficiency of its plants in China, Germany, Hungary and the United States. Processes were standardized and best practices implemented, with a focus on the ROFO principle (Responsibility, Ownership, Focus, Ontime corrective action). After its successful integration into the

Combination of transformer and inductor For compliant grid connection of photovoltaic systems

Schaffner Group, the US subsidiary Schaffner-MTC in its first year established itself in the market as a global manufacturer of power magnetic components offering attractive advantages for customers. Along with the ongoing optimization of processes, the division also invested in innovative new product developments, thus strengthening its overall competitive position. For example, Schaffner introduced new, water-cooled components and the first medium frequency transformer. As well, investment focused on novel solutions for the promising market of energy storage systems. Well-positioned to achieve medium-term targets

The Power Magnetics division is in a good position to benefit from the expansion of Russia’s railway infrastructure and a gradual recovery of the rail business in China. The trend toward regional rail networks (rapid transit, subways, etc.) also holds high potential for Schaffner’s power magnetic components. Despite a mild slowdown, the megatrend toward renewable energy such as solar and wind power is unbroken and creates a wide variety of business opportunities for Schaffner. At the same time, the persistent standardization of product components across all locations, combined with manufacturing-friendly design and designing to cost, will bring further gains in efficiency and productivity. Schaffner thus has a solid foundation for achieving the division’s target margin of 8% to 10% in the medium term.

AM division

Automotive division 16

Automotive division The Automotive division develops and manufactures components and subsystems for convenience and safety electronics in cars as well as components for drive systems in hybrid and electric vehicles. In the market segment of convenience and safety electronics, Schaffner products are used mainly in keyless entry systems. Furthermore, EMC solutions are gaining importance in the promising electromobility market.

The Automotive division consistently executed its growth strategy in fiscal 2012/13, achieving a substantial increase in sales. At the same time, the associated exceptional costs resulted in the division reporting a loss. Schaffner commands a leading position in the components market for keyless entry and start systems (keyless entry/go), and in EMC filters for the electromobility market. The division further improved its competitive position, most notably in the important North American and Asian market. Following years of very rapid growth, the focus is now shifting to profitability. In future periods the Automotive segment aims to generate profit margins in the direction of the 8 – 10% target range.

New projects promote sales growth

In fiscal year 2012/13, sales in the Automotive division grew by 26.8% to CHF 31.3 million. While sales of components for keyless entry systems continued to grow – driven largely by the launch of new projects – revenue with components for vehicles with electric and hybrid drives fell short of expectations, accounting for only 6.4% of the division’s total sales. As the market for electric vehicles is growing much less quickly than the industry had anticipated, the number of new projects and hence the demand for system components are currently also below expectations. It is apparent that automobile manufacturers need to step up their efforts and create attractive vehicle concepts if the share of electric cars in new vehicle sales is to increase substantially. Division reports operating loss

After closing fiscal year 2011/12 with a segment profit of CHF 0.6 million, the results of the Automotive division did not meet expectations in 2012/13. Customer’s forecasts had overestimated their own sales, which left the recently added extra production capacity at Schaffner’s plant in Lamphun, Thailand, underutilized in the first half of the year. In addition, the launch of major new projects that are soon to enter series production led to high development costs. These factors, coupled with one-time costs from the termination of the contract of the division’s former head, who was employed under French law, resulted in a segment loss of just under CHF 2 million for the division, equivalent to a negative segment profit margin of 6.3% (prior year: positive margin of 2.3%). Looking ahead: Double-digit growth expected Automotive electronics

For fiscal year 2013/14, Schaffner expects the Automotive division to record another rise in sales, probably in the double digits. Sev-

eral projects to build antennas for keyless entry systems as well as a large project to supply EMC filters for electric vehicles to a German auto manufacturer will help propel this growth. Schaffner also believes that project costs can be lowered in 2013/14. Profitability is additionally expected to benefit from a variety of measures to raise productivity and bring down material costs. At the same time, development processes will continue to be optimized. Against this backdrop, Schaffner plans to achieve an at least neutral segment result in the Automotive division in 2013/14.

sales in fiscal year 2013/14 to reach more than twice the level of three years ago. The aim going forward is to rebuild the profit margin and gradually raise it toward a target range of 8% to 10%. Management is aware that, in the highly competitive environment of the automotive parts industry, this is a most challenging undertaking. Profitability is to be improved by designing to cost, automating, reducing material costs and refining development processes. New head of Automotive division from 2014

Focus on improving profitability

There has been a pronounced change in the competitive environment in Schaffner’s automotive niche markets. In electromobility, management now expects much slower growth than p reviously assumed. By contrast, keyless entry systems are continuing their relentless rise to ubiquity, which has seen them go from premium option to standard equipment in ever more vehicles. In this segment, Schaffner is a leading global supplier of antennas. The high costs of business expansion and the consistent implementation of the growth strategy will now bear fruit. The division expects

Günther Werkmeister will take over as the new head of the Automotive division at the beginning of January 2014. In this position he will succeed Chief Executive Officer Alexander Hagemann, who has filled the role on an interim basis since the departure of the former division head in late 2012. Günther Werkmeister has thoroughly familiarized himself with the division in 2013 and is very well prepared to assume its leadership at the start of 2014. He has more than 30 years’ experience in the automotive industry, including over 25 years in management at international automotive suppliers.

Antennas and sensors For convenience and safety applications in automobiles

DC storage choke Developed for automotive applications, primarily for power conversion in electrical vehicles. Internal components are made from high-tech materials to withstand high operating temperatures.

Operations 18

Operational excellence Operational excellence is foundational to the systematic improvement of value-added processes through the identification and elimination of non-value-generating sub-processes. At Schaffner, operational excellence stands for a culture where internal processes are critically reviewed and optimized and employees are committed to contributing to continuous process improvement. Operational excellence is also about ensuring staff development consistent with the company’s values, and making sure we have a qualified workforce capable of anticipating future customer needs, aligning development activities and processes accordingly and thus enhancing customer satisfaction.

The key challenge faced by the Schaffner Group in fiscal 2012/13 was to cope with the need for rapid ramping up from low capacity utilization in the first half of the year to high volume production in the second half. For example, in just two months the production volume of EMC chokes more than doubled from 400,000 units a month to 900,000. The challenging task of coordinating these orders with suppliers was also successfully accomplished, with deliveries completed on time and to the full satisfaction of the customer. That this was achieved without any major difficulties was thanks in large part to the advanced level of operational excellence in Schaffner’s production organization. Systematic process optimization

Lean manufacturing processes and Schaffner’s guiding principle of ROFO (Responsibility, Ownership, Focus, On-time corrective action) were systematically furthered during the year under review, generating additional improvements in productivity. The lower production costs are strengthening Schaffner’s competitiveness in its key markets. Worth highlighting is the Group’s continuing success in the year under review in meeting the demanding quality and price expectations of customers in the automobile industry. The largely completed introduction of Schaffner’s leancell concept, a manufacturing process based on continuous improvement, allows steady productivity gains to be made at the individual sites, permits the reduction of inventory levels and throughput times, and saves factory space. Likewise, the incremental automation of individual processes helped enable the

Schaffner Group to partly offset the approximately 80% increase in minimum pay ordered by Thailand’s government and at the same time to contain the rise in payroll costs across the Group as a whole. Similarly, meeting the targets for reducing material costs allowed the Group to hold the increase in total production costs to a measured pace. Further utilization of potential

A central task of continuous process optimization in the Schaffner Group is the always ongoing review and improvement of the collaboration between research and development, sales, procurement and production. The gradual implementation of the lean-cell concept at all locations and a step-by-step increase in automation will also serve to further boost quality and productivity. High priority will continue to be given to developing, disseminating and implementing measures aimed at fostering a safety and quality culture and ensuring compliance with the associated rules and regulations. This will support the permanent effort to identify and tap further optimization potential in all operating units.

White-room automotive production in Thailand

Schaffner lean-cell concept

Raising productivity through automation

Global footprint 20

The Schaffner Group is a global company with a local presence in all key markets. Production facilities in Asia, Europe and North America as well as 18 sales and application centers ensure rapid turnaround times, relevant consulting and responsive customer-driven e ngineering. The closeness to customers accelerates both customized application development and product delivery. Comprehensive testing services based on the latest measuring systems are provided directly in the customer’s development departments or from the Schaffner laboratories. Schaffner Group e ngineers and consultants know their c ustomers personally. They understand their individual r equirements and are also at home with the cultural diversity of the world’s local markets.

Headquarters

Development and production centers

Sales and application centers

Switzerland

China Germany Thailand Hungary USA

China Germany Finland France Italy Japan Sweden

Switzerland Singapore Spain Taiwan Thailand UK USA

Leadership and values 22

Corporate governance For the Schaffner Group, corporate governance is the entirety of the principles and practices aimed at the company’s responsible direction and control for the benefit of all stakeholders. While safeguarding management’s decision-making capability and efficiency, corporate governance at Schaffner seeks the right balance of entrepreneurial action and transparent reporting.

Detailed information on the Schaffner Group’s corporate governance policy can be found in the corporate governance section of the Schaffner financial report (pages 27 to 50) and on our website at: www.schaffner.com/en/investor-relations/cor porate-governance.html

Changes since publication of the 2011/12 annual report

At the 17th Annual General Meeting of the Schaffner Group on 14 January 2013, Daniel Hirschi was re-elected to the Board of Directors for a further term of two years and the Austrian national Gerhard Pegam was elected as a new member of the Board for a two-year term. As well, the Annual General Meeting approved the shareholder proposal to transfer CHF 2,220,603 from share premium to the distributable share premium reserve and to distribute, from this newly funded reserve, CHF 3.50 per share entitled to dividends. The distribution was exempt from Swiss anticipatory tax. During the first quarter of the fiscal year, the former head of the Automotive division, JeanMichel Calleri, retired from the Executive Committee; he left the Schaffner Group at the end of June 2013. The Automotive division has since then been directed on an interim basis by the Chief Executive Officer.

Board of Directors

The Board of Directors of Schaffner Holding AG is composed of three to seven members. During the three years prior to the reporting period (fiscal 2009/10, 2010/11 and 2011/12), none of the reporting-period Board members were members of Schaffner’s Executive Committee or of the management of a subsidiary. The Board members maintain no material business relationships with the Schaffner Group. They are thus independent within the meaning of section 22 of the Swiss Code of Best Practice for corporate governance issued by economiesuisse, the Swiss business federation. Board committees

The Board of Directors of Schaffner Holding AG maintains two Board committees. Their principal purpose is to provide decision support to the Board in special subject areas. The Board committees consist solely of non-executive members of the Board. Audit Committee Members Georg Wechsler, Committee chairman Daniel Hirschi Gerhard Pegam

Tenure 2012 – 2014 2013 – 2015 2013 – 2015

Nomination & Compensation Committee Members Daniel Hirschi, Committee chairman Herbert Bächler Suzanne Thoma

Tenure 2013 – 2015 2012 – 2015 2012 – 2014

Bord of Directors

In fiscal year 2012/13 the Board of Directors of Schaffner Holding AG had the following members: Daniel Hirschi (Chairman),

Suzanne Thoma, Herbert B채chler, Gerhard Pegam und Georg Wechsler.

From left to right: Herbert B채chler, Daniel Hirschi, Suzanne Thoma, Gerhard Pegam, Georg Wechsler

Daniel Hirschi, Chairman, born 1956, Swiss citizen Degree in Engineering, Berne University of Applied Sciences, Biel Member since 2010, elected until 2015 Herbert B채chler, born 1950, Swiss citizen PhD in Technical Sciences and MSc in Electrical Engineering, Federal Institute of Technology, Zurich Member since 2009, elected until 2015 Gerhard Pegam, born 1962, Austrian citizen Degree in Electrical Engineering, Klagenfurt Technical College, Austria Member since 2013, elected until 2015

Suzanne Thoma, born 1962, Swiss citizen PhD in Technical Sciences and MSc in Chemical Engineering, Federal Institute of Technology, Zurich Member since 2012, elected until 2014 Georg Wechsler, born 1956, Swiss citizen Degree in Business Administration and Swiss Certified Accountant Member since 2012, elected until 2014

Kurt Ledermann, Chief Financial Officer of the Schaffner Group, has served as Secretary of the Board of Directors since June 2008. The Secretary is not a member of the Board.

Leadership and values 24

Executive Committee

Following the exit of the former head of the Automotive division on 9 November 2012, the divisionally structured Executive Committee, led by the Chief Executive Officer, consisted of the

CEO, Chief Financial Officer, Chief Operating Officer, and the two Executive Vice Presidents, who are the heads of the EMC and Power Magnetics divisions.

From left to right: Alexander Hagemann, Eduard Hadorn, Ah Bee Goh, Kurt Ledermann, Guido Schlegelmilch

Alexander Hagemann, born 1962, German citizen Degree in Mechanical Engineering from RWTH Aachen University Joined the Schaffner Group as Chief Executive Officer on March 1, 2007. Acting head of the Automotive division from 9 November 2012. Kurt Ledermann, born 1968, Swiss citizen MSEE Degree in Electrical Engineering, Federal Institute of Technology, Zurich; Master of Arts HSG, University of St. Gallen Joined the Schaffner Group as Chief Financial Officer on 1 June 2008. Ah Bee Goh, born 1950, Singaporean citizen HBSc Degree in Production Engineering, University of Strathclyde; MSc in Industrial Engineering, National University of S足 ingapore; MSc in Finance, University of Leicester; MBA, University of Surrey Joined the Schaffner Group on 1 July 2007. Vice President, Manufacturing, until 30 September 2011. Chief Operating Officer since 1 October 2011.

Jean-Michel Calleri, born 1956, French citizen Electrical Engineering Diploma ESIGELEC, Rouen; IESTO CNAM, Paris Joined the Schaffner Group in 1999. Executive Vice President and head of the Automotive division from 1 October 2011 until 9 November 2012. Eduard Hadorn, born 1956, Swiss citizen Degree in Business Administration Joined the Schaffner Group in 2003. Executive Vice President and head of the Power Magnetics division since 1 October 2011. Guido Schlegelmilch, born 1964, German citizen Degree in Business Engineering and PhD, Darmstadt University of Technology Joined the Schaffner Group in 2009. Executive Vice President and head of the EMC division since 1 October 2011.

Quality principles The management, employees and partners of the Schaffner Group are committed to working for the benefit of all its stakeholder groups and to the highest standard of quality. Quality policy of the Schaffner Group

At the Schaffner Group we are proudly committed to offering customers high-quality products and services. Our quality principles set us apart from competitors. We deliver products and services on time, free from defects and at competitive prices.

›› We exceed our customers’ expectations and win them over

with our products, solutions and services. Through our activities we generate added value for our customers.

›› We develop and implement stable, flexible, streamlined

processes that can be adapted quickly to changing market requirements.

›› We ensure sustained business growth through innovation, employee training and continuous improvement of our processes.

›› Our suppliers are a key link in our value chain. Together we add value for our customers.

›› We pursue environmental protection goals with great dedication and diligence.

All of Schaffner’s production plants operate in accordance with an ISO 9001 certified quality management system. Schaffner also holds the ISO/TS 16949 quality certification relevant for the automotive industry, and the plant in Shanghai is certified in the IRIS quality management system for rail applications. The plants in Shanghai and Büren are certified under EN 15085-2, which covers the welding of rail vehicles and components. The test laboratories in Luterbach are certified to Metas/SAS/STS for EMC/ONIR testing in accordance with ISO 1702. All certifications are periodically reviewed and upgraded.

Leadership and values 26

Sustainability The name Schaffner is synonymous with energy efficiency and reliability – both in innovative customer solutions and in the Group’s own activities. The Schaffner Group is known as an ethical company and is committed to maintaining this valuable reputation. Our operating principle is to treat shareholders, customers, partners, suppliers, competitors and government agencies with professionalism and honesty. UN Global Compact

Schaffner is a member of the UN Global Compact and undertakes to implement the Compact’s ten principles in the areas of human rights, labor, environment and anti-corruption (www. unglobalcompact.org). Schaffner seeks to continuously reduce its carbon footprint by optimizing material flows and strives to act as a role model in terms of energy efficiency. All Schaffner Group production sites operate under environmental management systems that conform to the international ISO 14001 standard. Schaffner’s production in Asia, Hungary and Germany is also compliant with OHSAS 18001 (Occupational Health and Safety Assessment Series), a process that supports the systematic improvement of occupational health and safety for employees. www. unglobalcompact.org/participant/10379-Schaffner-Holding-AG

EICC Code of Conduct for the electronics industry

The Schaffner Group has adopted the Code of Conduct for the electronics industry developed by the Electronic Industry Citizenship Coalition (EICC) and is committed to establishing the code in all Schaffner companies. This involves ensuring that working conditions in the whole Schaffner supply chain are safe, that employees are treated with respect and dignity, and that manufacturing operations are environmentally sound. www.eicc.info/EICC_CODE.shtml

Conflict minerals policy

In addition, the Schaffner Group supports the Conflict Minerals Act to safeguard human rights in the mining industry, especially in the mining of tin, tantalum, tungsten and gold in conflict regions, particularly in the eastern portion of the Democratic Republic of the Congo and in adjoining countries. The Schaffner Group does not tolerate any such materials in its manufacturing operations. Schaffner works closely with suppliers to verify the origin of the raw materials that it uses. The related procedures form part of the procurement policies and the management system of the Schaffner Group. Employees

Schaffner is convinced that motivated employees and superior, innovative solutions are essential to meeting the exacting demands of customers and asserting the Schaffner Group’s claim to leadership. Our goal is therefore to become the sector’s preferred employer worldwide. To this end, we have drawn up a host of measures designed to attract, retain and develop the best staff. These include healthy and safe workplaces, annual job-specific training, and development of employees’ personal skills.

Financial Report and Corporate Governance Schaffner Group

2012 13

Contents 27 Corporate governance, including compensation report 51 Consolidated financial statements of the Schaffner Group 89 Company financial statements of Schaffner Holding AG

Corporate governance 28

Accountability and transparency for all stakeholders

employees are treated with respect and dignity, and that manufacturing operations are environmentally sound.

At Schaffner, following the current corporate governance directives and policies is a key element of company supervision and management.

The Schaffner Group likewise supports the Conflict Minerals Act for the protection of human rights in the mining industry, particularly in the mining of ore to produce tin, tantalum, tungsten and gold in conflict regions, especially the eastern part of the Democratic Republic of the Congo and the adjacent countries.

Principles

Transparency and well-defined responsibilities are the underpinnings of the Schaffner Group’s corporate governance: Transparent financial reporting and clearly assigned duties and accountabilities in the interactions between shareholders, the Board of Directors and the Executive Committee. As a company listed on the SIX Swiss Exchange, Schaffner fulfils the requirements of the Directive on Information Relating to Corporate Governance issued by the SIX Swiss Exchange. Schaffner also follows the applicable standards of the Swiss Code of Best Practice for Corporate Governance, including its Appendix 1 (recommendations for the compensation of boards of directors and executive committees). All relevant corporate governance documents are available on the home page of the Schaffner Group’s website under “Corporate Governance”: www.schaffner.com/en/investor-relations/ corporate-governance.html

In addition, Schaffner’s general principles of corporate governance are described in the Organizational Regulations of Schaffner Holding AG and in the Articles of Association, which can be viewed at or requested from the Company’s head office. As an active participant in the UN Global Compact, the Schaffner Group is committed in its strategy and activities to honoring the principles of the UN Global Compact regarding human rights, labor, the environment and anti-corruption. Schaffner expects its employees to be accountable for their actions, to respect people, society and the environment, to follow applicable rules and act with integrity. The Group’s current relevant report (Communication on Progress) is available at: www.unglobalcompact. org/participant/10379-Schaffner-Holding-AG

The Schaffner Group has also adopted the EICC Code of Conduct for the electronics industry and is committed to its application in all Schaffner companies. This is to ensure that working conditions in the whole Schaffner supply chain are safe, that

www.eicc.info/EICC_CODE.shtml

Governance-related events in fiscal year 2012/13

On 14 January 2013 the 17th Annual General Meeting of Schaffner Holding AG re-elected Daniel Hirschi as a member of the Board of Directors for a term of two years, and elected Gerhard Pegam, an Austrian citizen, as a new member of the Board for a two-year term. As well, the Annual General Meeting approved the shareholder proposal to transfer CHF 2,220,603 from share premium to the distributable share premium reserve and to distribute, from this newly funded reserve, CHF 3.50 per share entitled to dividends. The distribution was exempt from Swiss anticipatory tax. In the course of the first quarter of the fiscal year, the former head of the Automotive division, Jean-Michel Calleri, retired from the Executive Committee; he left the Schaffner Group at the end of June 2013. The Automotive division has since then been directed on an interim basis by the Chief Executive Officer.

Corporate governance 29

1 Group structure and significant shareholders 1.1 Group structure 1.1.1 Group operating structure

The Schaffner Group has a divisional organizational structure consisting of the three segments EMC, Power Magnetics and Automotive. The reporting to the Executive Committee (the Group’s chief operating decision-maker) follows this structure. The chart below shows the Group’s operating structure at 30 September 2013: Board of Directors Audit Committee, Nomination & Compensation Committee Executive Committee Group functions EMC division – Power Magnetics division – Automotive division

The Chief Executive Officer has responsibility for the operational management of the Schaffner Group. He is also the head of the Executive Committee (the Group’s top tier of executive management). The management of the Schaffner Group is provided by the Board of Directors and (through the Board’s delegation of authority) by the Chief Executive Officer and the Executive Committee. The division of responsibilities between the Board, Chief Executive Officer and Executive Committee is described on page 36 of this corporate governance report in section 3.5. The Executive Committee had the following structure at 30 September 2013: Executive Committee Alexander Hagemann Chief Executive Officer Kurt Ledermann, Finance & IT Chief Financial Officer Ah Bee Goh, Manufacturing Chief Operating Officer Guido Schlegelmilch, EMC division Executive Vice President Eduard Hadorn, Power Magnetics division Executive Vice President Alexander Hagemann, Automotive division Chief Executive Officer

More information about the Executive Committee is provided on page 38 of this corporate governance report, in section 4.

1.1.2 Listed companies

The Schaffner Group maintains an international presence through its own subsidiaries and a network of independent distributors. The parent company of the Schaffner Group is Schaffner Holding AG, whose shares are traded on the SIX Swiss Exchange. Schaffner Holding AG is the only Group company listed on a stock exchange. Schaffner Holding AG is a public limited company incorporated in Switzerland and has its registered office in Luter-bach. At 30 September 2013 the share capital consisted of 635,940 ordinary registered shares with a total nominal value of CHF 20,668,050. Registered office Listing exchange and regulatory standard Security number ISIN Ticker symbol Nominal value per share

4542 Luterbach, Switzerland SIX Swiss Exchange, Main Standard 906209 CH 0 009 062 099 SAHN CHF 32.50

Key share data for Schaffner Holding AG is provided on page 2 of this annual report. 1.1.3 Non-listed companies

The directly and indirectly held companies consolidated in the Group accounts of Schaffner Holding AG are shown on page 87 of this report in the notes to the consolidated financial statements. 1.2 Significant shareholders

At the balance sheet date of 30 September 2013 there were 1,226 shareholders registered with voting rights in the share register of Schaffner Holding AG (prior year: 1,325). Of the issued shares, 99.2% represented free float (prior year: 99.1%). Schaffner Holding AG held the other 0.8% as treasury shares (prior year: 0.9%). At 30 September 2013, shares of unregistered owners amounted to 15.0% of the issued shares (prior year: 14.4%). Under section 20 of the Swiss Federal Act on Stock Exchanges and Securities Trading (SESTA, or Stock Exchange Act), when a shareholder’s voting rights in a company listed on the SIX Swiss Exchange reach, rise above or fall below 3%, 5%, 10%, 15%, 20%, 25%, 33⅓%, 50% or 66⅔%, this event must be disclosed. In the year under review, seven such disclosure notifications were made: on 17 November 2012, 22 February 2013, 13 April 2013, 25 April 2013, 8 August 2013, 31 August 2013 and 5 September 2013. At the balance sheet date of 30 September 2013, Schaffner

Corporate governance 30

Holding AG had the following seven significant shareholders (defined for this purpose as shareholders holding more than 3% of voting rights; in alphabetic order): Alpine Select AG, Zug Balfidor Fondsleitung AG, Basel Buru Holding AG, Zug UBS AG, Basel Sarasin Investmendfonds AG, Basel SUVA (Swiss National Accident Insurance Fund), Lucerne

Information on significant shareholders is also provided on page 91 in the notes to the company financial statements of Schaffner Holding AG. As well, a record of all notifications issued under section 20 Stock Exchange Act is available on the website of the SIX Swiss Exchange at: www.six-exchange-regulation.com/ obligations/disclosure/major_shareholders_en.html?issuer=10 529&fromDate=19980101

1.3 Cross-shareholdings

There were no cross-shareholdings between Schaffner and other publicly traded companies.

2 Capital structure 2.1 Issued share capital

The company has issued share capital of CHF 20,668,050, consisting of 635,940 ordinary registered shares with a nominal value of CHF 32.50 per share. The issued shares are fully paid. Each share carries one vote at the General Meeting. All shares not held by the Company or by one of its subsidiaries attract dividends. 2.2 Authorized unissued capital

On 12 January 2012 the 16th Annual General Meeting of ÂSchaffner Holding AG approved the creation of authorized capital for share option plans, up to a maximum amount of CHF 2,351,115 consisting of up to 72,342 fully payable registered shares with a nominal value of CHF 32.50 per share. Detailed information can be found on page 77 of the Schaffner Groupâ&#x20AC;&#x2122;s annual report 2011/12, in section 18 of the notes to the consolidated financial statements. The Company had no other authorized unissued capital at 30 September 2013, i.e., no unissued capital authorized for purposes other than the share option plans. 2.3 Changes in equity

The Annual General Meeting on 12 January 2011 passed a resolution to distribute CHF 4.50 per share (exempt from Swiss anticipatory tax) in the form of a repayment of excess share premium. No other distribution to shareholders was made for fiscal 2009/10. The Annual General Meeting on 12 January 2012 passed a resolution to distribute CHF 4.50 per share (exempt from Swiss anticipatory tax) in the form of a repayment of excess share premium. No other distribution to shareholders was made for fiscal 2010/11. The Annual General Meeting on 14 January 2013 voted in favor of a shareholder proposal to distribute CHF 3.50 per share (exempt from Swiss anticipatory tax) in the form of a repayment of excess share premium. No other distribution to shareholders was made for fiscal 2011/12. The changes in share capital, in share premium, in retained earnings and in the other components of consolidated equity are presented in detail on page 55 in the consolidated financial statements in this annual report 2012/13. The comparative information on changes in equity for the three prior years is

Corporate governance 31

found on page 55 of the consolidated financial statements in the annual report 2011/12, on page 57 of the annual report 2010/11 and page 21 of the annual report 2009/10. 2.4 Shares and participation certificates 2.4.1 Shares

The 635,940 issued shares of Schaffner Holding AG have a nominal value of CHF 32.50 per share. Each share carries one vote and attracts dividends. Subject to provisions (i), (ii) and (iii) below, the shares are issued in uncertificated form and maintained as book-entry securities. Transfers of or dispositions regarding book-entry securities, including the granting of interests therein as collateral, are subject to the Swiss Federal Act on Book-Entry Securities. If uncertificated shares are transferred by assignment, such transfer is valid only if notified to the Company. (i) Shares maintained as book-entry securities may be withdrawn from the custody system by the Company. Shareholders that are registered in the share register may at any time request from the Company a certification of their ownership of their shares. (ii) Shareholders do not have a right to the printing and delivery of certificates (physical securities) or to the conversion of registered shares issued in one form into another form. The Company may, however, at any time print and deliver certificates (single share certificates, collective certificates or global certificates) or convert uncertificated or certificated shares into another form, and may cancel issued certificates that are returned to the Company. (iii) By amending the Articles of Association, the General Meeting of shareholders may at any time convert registered shares into bearer shares or convert bearer shares into registered shares. 2.4.2 Participation certificates

There were no participation certificates of Schaffner Holding AG at 30 September 2013 (participation certificates, or Partizipationsscheine in German, essentially are a type of preference share).

2.5 Dividend right certificates

Schaffner Holding AG had not issued any dividend right certificates as of 30 September 2013 (dividend right certifi-cates, or Genussscheine in German, essentially are preference shares for related parties). 2.6 Restrictions on transferability and nominee registration

Registered shares of Schaffner Holding AG may be acquired by all legal or natural persons. The purchase of Schaffner shares is subject to registration restrictions concerning the recognition and registration of share purchasers, and of nominees, as voting shareholders. These restrictions are specified in detail in the Share Registration Regulation of Schaffner Holding AG. The Share Registration Regulation was issued by the Board of Directors in reliance on sections 685a and 685d et seq. of the Swiss Code of Obligations and article 6 of the Articles of Association, and can be viewed at or requested from the Company’s head office. The Share Registration Regulation is also available at: www.schaffner.com/en/investor-relations/ share-registration-regulation.html

2.6.1 Recognition of share purchasers as voting shareholders

Shareholders or beneficial owners are deemed to be those persons registered in the Company’s share register. In accordance with article 6 para. 3 of the Articles of Association of Schaffner Holding AG, purchasers of shares are upon their request recorded as voting shareholders in the share register by the Board of Directors if the purchasers state expressly that they have acquired and will hold the shares for their own account. Recognition as a shareholder with voting rights thus requires both that the shareholder in question bears the economic risk incident to ownership of the shares to be registered, and that, in the application for registration, the shareholder expressly declares to the Company that the shareholder has acquired and will hold the shares for the shareholder’s own account. In reliance on article 6 para. 3 of the Articles of Association and the recognition requirements derived from it, applicants (purchasers holding legal title to the shares) are thus not recognized as voting shareholders if they have acquired, and are holding, the shares as a result of a securities lending transaction or similar transaction that gives them legal ownership without the associated economic risk. Registration of share purchasers

For each registration in the share register as a voting shareholder, a personally signed registration application or a registration au-

Corporate governance 32

thorization must be on file at the respective SIX SIS AG custodian bank, containing all of the following information:

›› For individuals:

last name, first name, nationality, and address

›› For legal entities:

entity name, registered office, and address

Each registration in the share register requires evidence of the acquisition of full legal title to the stock or evidence of the establishment of beneficial ownership, and always requires an express declaration that the stock was acquired and is held by the applicant in the applicant’s own name and for the applicant’s own account. In the case of registration applications by shareholders holding the shares for their own account where the applicant’s resulting voting rights reach or rise above 3% of votes or any of the further thresholds set out in section 20 of the Stock Exchange Act, the registration is not performed until the Company has received a complete disclosure notification by the applicant pursuant to section 20 of the Stock Exchange Act. If the disclosure notification meets the legal require-ments (i.e., if it contains the legally required information about the beneficial owner), the applicant (i.e., the acquired stock) is registered in the share register as having voting rights. If the disclosure notification is not made within the 20-day deadline specified in section 685g of the Swiss Code of Obligations, or is incomplete, the application for registration with voting rights is denied and the shareholder (i.e., the acquired stock) is registered in the share register as non-voting. Registration of nominees

Persons who do not expressly declare in their registration application that they hold the shares for their own account are classified as nominees. In accordance with article 6 para. 4 of the Articles of Association, by default any single nominee is registered in the share register as holding voting shares only up to a maximum of 5% of the share capital recorded in the Swiss commercial register of companies. Above this limit of 5%, the Board of Directors registers shares of nominees in the share register as voting shares only if: (i) the nominee discloses the names, addresses and holdings of Company shares of the persons for whose account the nominee holds 0.5% or more of the total registered-share capital that is recorded in the commercial register, and (ii) an agreement exists between the nominee and the Company which specifies the nominee’s position and the details of the nominee’s notification obligations.

The registrar (the company that is retained to operate the share register) is responsible for sending the nominee agreement to the respective nominee and collecting the information to be disclosed. If complete disclosure is not made within the 20-day deadline specified in section 685g of the Swiss Code of Obligations, or if no nominee agreement is concluded between the Company and the nominee within this period, the nominee is registered in the share register as non-voting in respect of these shares. To the extent permitted by law, the Board of Directors is authorized to enter into agreements with nominees regarding notification obligations. On a case-by-case basis, the Board may approve exceptions to the nominee rules. Where legal entities or groups with joint legal status are related to one another by capital, voting rights, management or in some other manner, they are deemed to constitute a single purchaser. Also deemed a single purchaser are all natural persons, legal entities or groups with joint legal status that by agreement, as a syndicate or in any other way act in a coordinated manner with a view to circumventing the nominee rules. The Company may void registrations in the share register with retroactive effect from the date of registration if they were based on false information given by the purchaser. The purchaser must be informed of this deletion immediately. Registered non-voting shareholders and registered non-voting nominees cannot exercise the voting rights associated with the shares nor exercise other rights related to the voting rights. However, they are not restricted in exercising any of their other shareholder rights, including also pre-emptive rights. At the General Meeting the shares registered as non-voting are treated as unrepresented (see section 685f para. 2 and 3 of the Swiss Code of Obligations). The registration restrictions described above also apply to shares bought or subscribed through the exercise of pre-emptive rights, options or conversion rights. At the balance sheet date of 30 September 2013, 15.0% (prior year: 14.4%) of all issued shares were unregistered or were registered as non-voting shares. 2.7 Convertible bonds and options 2.7.1 Convertible bonds

There are no outstanding convertible bonds of Schaffner Holding AG.

Corporate governance 33

2.7.2 Share option plans

The share option plans for executive management and members of the Board of Directors of the Schaffner Group (the Employee Share Option Plan and the Performance Option Plan) are described in detail on page 77 in the consolidated financial statements.

3 Board of Directors 3.1 Members of the Board of Directors

The Articles of Association require the Board of Directors of Schaffner Holding AG to have between three and seven members. In fiscal year 2012/13, until the Annual General Meeting on 14 January 2013, the Board consisted of five, non-executive members. After the election of Gerhard Pegam to the Board on 14 January 2013, the Board of Directors consisted of six, non-executive members on 30 September 2013. In the three years prior to the reporting period (the fiscal years 2009/10, 2010/11 and 2011/12), none of the Board members were members of Schaffner’s Executive Committee or of the management of a subsidiary. The Board members maintain no material business relationships with the Schaffner Group. They are thus independent within the meaning of section 22 of the Swiss Code of Best Practice for corporate governance issued by economiesuisse, the Swiss business federation. In fiscal year 2012/13 the Board of Directors of Schaffner Holding AG had the following members: Daniel Hirschi, Chairman, born 1956, Swiss citizen Board member since 2010, elected until 2015 Degree in Engineering, Berne University of Applied Sciences, Biel From 2006 to 2009 was Chief Executive Officer and Designated Representative of the Board of Directors of Benninger AG, Uzwil. From 1983 to 2005 served in various management functions at Saia-Burgess, Murten, including Chief Ex-ecutive Officer from 2001 and Designated Representative of the Board from 2003. Herbert Bächler, born 1950, Swiss citizen Board member since 2009, elected until 2015 PhD in Technical Sciences and MSc in Chemical Engineering, Federal Institute of Technology, Zurich In charge of innovation management at ARfinanz Holding AG, Stäfa. From 2002 to 2008 was Chief Technology Officer at So-

nova/Phonak AG and from 1981 to 2002 held various management positions in its R&D department. Gerhard Pegam, born 1962, Austrian citizen Board member since 2013, elected until 2015 Degree in Electrical Engineering, Klagenfurt Technical College, Austria Until beginning of 2012 was Chief Executive Officer of EPCOS AG. From 2009 to 2012 was a member of the Board of Directors of EPCOS parent company TDK-EPC Corp. From middle of 2011 to mid-2012 was a Corporate Officer of TDK Corporation, Japan, and from 2004 to 2012 was a member of the Board of ZVEI, the German Electrical and Electronic Manufacturers’ Association. Between 1982 and 2001 held various management positions at EPCOS, Siemens and Philips. Suzanne Thoma, born 1962, Swiss citizen Board member since 2012, elected until 2014 PhD in Technical Sciences and MSc in Chemical Engineering, Federal Institute of Technology, Zurich From 1 January 2013: Chief Executive Officer of BKW AG, Berne. Previously member of the Group Executive Committee of BKW AG, Berne (formerly BKW FMB Energie AG) in charge of the Networks division. From 2007 to 2009 was head of the international automotive supply business of the WICOR Group, RapperswilJona. Before that, was Chief Executive Officer of Rolic Technologies, Allschwil, and held management positions at Ciba Spezialitätenchemie AG, Basel (now BASF AG) in Switzerland and abroad. Member of the Executive Committee of the Swiss Academy of Engineering Sciences. Georg Wechsler, born 1956, Swiss citizen Board member since 2012, elected until 2014 Degree in Business Administration and Swiss Certified Accountant Since 1994 has been Chief Financial Officer and member of the Group Executive Committee of Model Holding AG, W einfelden. Previous employers included Zurmont Finanz AG, Zurich; Zellweger Uster AG, Uster; and KPMG Fides, Zurich. The Secretary of the Board, since June 2008, is Kurt Ledermann, Chief Financial Officer of the Schaffner Group and nonmember of the Board.

Corporate governance 34

3.2 Activities and interests outside the Group Herbert Bächler Herbert Bächler holds various positions on the boards of companies not significant within the meaning of the Corporate governance Directive (appendix section 3.2) of the SIX Swiss Exchange. Daniel Hirschi Daniel Hirschi is a member of the Board of Benninger AG, Uzwil; of Carlo Gavazzi Holding AG, Steinhausen; and of Komax Holding AG, Dierikon. Gerhard Pegam Gerhard Pegam is a member of the Board and the Strategy Committee of OC Oerlikon Corporation AG and a member of the Supervisory Board of Süss Microtec AG, Germany. Suzanne Thoma Suzanne Thoma is Chairwoman of the Board of Arnold AG, Selzach, and of BKW ISP AG, Ostermundigen, as well as a member of the Board of AEK Energie AG, Solothurn and Beckers Group, Berlin. Georg Wechsler Georg Wechsler holds various positions on the boards of companies not significant within the meaning of the Corporate governance Directive (appendix section 3.2) of the SIX Swiss Exchange.

3.3 Board elections and terms

The members of the Board of Directors are elected individually by the General Meeting, for a term of up to three years, and may be re-elected for consecutive terms. The term of each member is determined at the time of election and ends on the date of an Annual General Meeting. Schaffner uses a staggered-board system, which means that in a given year of Board elections, only part of the Board retires (and, to the extent willing, submits itself for re-election). If elections are held during a term to replace or add Board members, the newly elected members serve for the remainder of the current term. Board members retire from the Board of Directors no later than at the first Annual General Meeting after they reach 70 years of age. 3.4 Internal organization

The Board of Directors of Schaffner Holding AG constitutes itself. It appoints its Chairman and the Secretary, who does not

need to be a member of the Board. A meeting of the Board of Directors is called by the Chairman or Vice Chairman or, if both are unavailable, by another Board member, as often as business requires or when a member requests it. Board meetings are called at least ten days before the meeting date. The Board of Directors has a quorum when the majority of its members participate in oral discussions and votes. Members may also be present by telephone or via electronic media (e.g., videoconferencing). Resolutions are passed by a simple majority of votes. In the event of an equality of votes, the chairman of the meeting has a second or casting vote For the purpose of resolutions concerning capital increases, the Board has a quorum irrespective of the number of members present. The Board may also adopt resolutions “by circulation” by written ballot sent in by mail, fax or e-mail, unless a member requests an oral discussion. In a vote by written ballot, passage of the resolution requires the affirmative vote of the majority of all Board members. The Board of Directors of Schaffner Holding AG is responsible for determining the Group’s strategy. It reviews the Group’s broad plans and objectives and identifies internal and external risks and opportunities. The tasks of the Board and the division of powers between the Board and the Executive Committee are defined in the Swiss Code of Obligations (Swiss corporation law), the Articles of Association of Schaffner Holding AG and its Organizational Regulations. 3.4.1 Division of responsibilities within the Board

Daniel Hirschi has been the Chairman of the Board of Directors since the 2010 Annual General Meeting. Since fiscal year 2012/13 the chairman of the Audit Committee is Georg Wechsler. The Nomination & Compensation Committee has been chaired by Daniel Hirschi since fiscal year 2012/13. The Board has no other standing committees or designated positions. 3.4.2 Composition, purpose and responsibilities of Board committees

The Board of Directors of Schaffner Holding AG maintains the Board committees detailed below. Their principal purpose is to provide decision support to the Board in specific subject areas. Although the committees support the Board of Directors, the Board’s duties and powers always remain with the full Board. The Board committees are made up solely of non-executive members of the Board. The committees meet as often as necessary and inform the Board of their findings and proposals at the

Corporate governance 35

ordinary Board meetings. In urgent cases they also inform the Chairman of the Board or the Chief Executive Officer at any time. Outside the ordinary Board meetings, the Board committee members also work directly with members of the Executive Committee (which is the Group’s top tier of executive management and is not a Board committee). The term of office of committee members normally coincides with their term as Board members. At any time, if required, new committees may be created or existing committees newly staffed or dissolved.

Officer and Chief Financial Officer of the Schaffner Group to its meetings, as well as other staff members of the Finance department as required. The external independent auditors are present at the meetings for the relevant agenda items. Nomination & Compensation Committee

The Audit Committee supports the Board in exercising oversight of accounting and financial reporting and in monitoring compliance with legal requirements. The roles and responsibilities of the Audit Committee are specified in the Organizational Regulations. It acts solely in an advisory capacity. The Audit Committee has the following responsibilities in particular:

The roles and responsibilities of the Nomination & Compensation Committee are specified in the Organizational Regulations of Schaffner Holding AG; it acts solely in an advisory capacity. The Nomination & Compensation Committee supports and advises the Board of Directors in matters of the appointment, terms of service or employment, and compensation, of Board members, Executive Committee members and other key staff in the Group. In particular, the Committee recommends the principles that govern performance-based compensation. The Nomination & Compensation Committee has the following responsibilities in particular:

›› It evaluates the appropriateness and validity of the Group

›› It periodically submits proposals to the Board concerning

Audit Committee

accounts ›› It assesses the effectiveness of the external auditors and internal controls ›› It monitors the effective coordination between external audit and internal controls, and reviews the performance and compensation of the external auditors ›› It assesses the effectiveness of risk management ›› It evaluates the financial planning and its implementation ›› It supports the financial reporting to shareholders, investors and the public ›› It supports the Finance department in major and complex tasks ›› On behalf of the Board, it receives the audit reports of the external independent auditors and presents them to the Board for review and comment The Audit Committee is composed of at least two non-executive members of the Board of Directors. The Committee chairman should have experience in finance and accounting. The Committee chairman is appointed by the Board of Directors. Audit Committee Georg Wechsler, Committee chairman Daniel Hirschi Gerhard Pegam

Tenure 2012 – 2014 2013 – 2015 2013 – 2015

The Audit Committee convenes as often as business requires, and not less than twice per year. It invites the Chief Executive

the nature and amount of the annual remuneration of the Board members and the Chief Executive Officer ›› It periodically reviews the proposals of the Chief Executive Officer for the annual compensation of the individual members of the Executive Committee ›› It develops incentive plans ›› It proposes the targets for the Executive Committee to the Board of Directors ›› It assesses the performance of the Executive Committee against targets ›› It submits a proposal to the Board for the variable compensation of the Executive Committee The Nomination & Compensation Committee also submits recommendations to the Board regarding:

›› Requests to evaluate and nominate candidates for election to the Board of Directors by the General Meeting of shareholders ›› Requests for the promotion of employees to the Executive Committee ›› Requests for the new hiring or removal of Executive Committee members

In the case of new hiring, members of the Nomination & Compensation Committee, as needed, participate in the evaluation of prospective staff.

Corporate governance 36

The Nomination & Compensation Committee is composed of at least two non-executive members of the Board. The Committee chairman is appointed by the Board of Directors. Nomination & Compensation Committee Daniel Hirschi, Committee chairman Herbert Bächler Suzanne Thoma

Tenure 2013 – 2015 2012 – 2015 2012 – 2014

The Audit Committee convenes as often as business requires, and not less than twice per year. The Committee may invite other Board members, Executive Committee members or specialists to its meetings as needed. All of the six meetings were also attended by the Chief Executive Officer, the Chief Financial Officer and the head of Corporate Human Resources. 3.4.3 Procedures of the Board and of Board committees

The Board of Directors meets at the invitation of its Chairman or the member representing the Chairman, or of one of the other Board members. The deliberations and decisions of the Board are recorded in the meeting minutes, which are signed by the meeting’s chairman and the Secretary. The Board convenes as often as business requires, and at least four times per year – usually once in every quarter – for a meeting that is about four hours in length. In the reporting period the Board met six times. The following overview shows the individual Board members’ attendance at Board and Board committee meetings, as well as the meetings’ average length: Number of meetings in 2012/13 Daniel Hirschi Herbert Bächler Hans Hess1 Gerhard Pegam2 Suzanne Thoma Georg Wechsler Average meeting length in hours BD Board of Directors AC Audit Committee NCC Nomination & Compensation Committee Retired 14 January 2013 Elected 14 January 2013

1 2

BD 6 6 6 2 4 6 6 6

AC 3 3 – – 2 – 3 2

NCC 2 2 1 1 – 2 – 2

Urgent business is discussed by telephone conference call. The Chief Executive Officer and Chief Financial Officer attend the ordinary meetings of the Board. For the discussion of specific matters, the Board requests members of the Executive Committee, other management staff or external advisors to attend its meetings as required. In the year under review, no external advisors were called to any significant extent. In a timely manner before the meetings, the Board receives written information on the agenda items, which are set by the Chairman or at the request of the Executive Committee. The Board Chairman and the Chief Executive Officer work closely together. In addition to its inalienable statutory duties set out in section 716a of the Swiss Code of Obligations, the Board of Directors of Schaffner Holding AG has, in particular, the following responsibilities and powers:

›› Strategic direction, organization and leadership of the

Group ›› Structuring of finance and accounting and provision of financial planning and control ›› Appointment and removal of the Executive Committee and of authorized signatories ›› Regular review of business activities ›› Decisions on matters not reserved for or transferred to another body by law, by the Articles of Association or by the Organizational Regulations ›› Formulation and preparation of resolutions for consideration by the General Meeting 3.5 Division of authority

The Board of Directors of Schaffner Holding AG is the highestlevel management and supervisory body of the Company and Group. It provides overall direction, supervision and control of the Group’s executive management (the Executive Committee). The Board is responsible primarily for decisions on Group strategy and organizational structure and for setting corporate policy. The Board’s role includes the appointment and removal of members of the Executive Committee and the structuring of finance and accounting. To an extent consistent with the applicable legal provisions and the Company’s Articles of Association, the Board of Directors has delegated the operational management of the Schaffner Group to the Executive Committee, led by the Chief Executive Officer. The Executive Committee is responsible for implementing the Group’s strategy within the parameters set by the Board

Corporate governance 37

of Directors. The responsibilities and powers of the Executive Committee are specified in the Organizational Regulations. Its main responsibilities are:

›› Annual strategic analytical reviews of the Group and the

›› Operational management ›› Optimization of internal organization and processes ›› External representation of the Schaffner Group ›› Internal and external communication

›› Special reports by the Executive Committee on significant

The Chief Executive Officer has primary responsibility for formulating Group strategy subject to the approval of the Board of Directors; for the operational management of the Group; for its overall financial results; and for the implementation of the strategy and plans of action adopted by the Board. The Chief Financial Officer has responsibility for financial, tax and capital management and for ensuring the development and implementation of risk control principles, rules and limits. The Chief Financial Officer is also responsible for the transparency of the financial results and ensuring high-quality, timely financial reporting.

divisions

›› A multi-year year plan regularly updated by the Executive Committee

investments, acquisitions and partnerships

The Chief Executive Officer briefs the Chairman of the Board on significant events. Chairman of the Board

The Board Chairman regularly meets with the Chief Executive Officer and Chief Financial Officer to discuss current business performance and activities. Audit Committee

The Audit Committee provides regular and comprehensive reports to the Board of Directors on matters of finance and accounting, financial reporting standards, compliance (with laws, regulations and procedures), and on external audit activities. It focuses especially on auditing the financial reporting processes.

3.6 Monitoring and control in respect of the Executive Committee

Internal Audit

Board of Directors

In view of the size of the company, the Schaffner Group elects not to maintain a dedicated internal audit function.

The Executive Committee provides the Board with a monthly written report on the Group’s financial results. The reporting consists of the consolidated balance sheet, income statement, statement of comprehensive income, statement of changes in equity, movement in provisions, and cash flow statement. The data are compared against the prior-year results. The Board of Directors regularly discusses the monthly reports at its meetings. The Chief Executive Officer and Chief Financial Officer attend the meetings. The Executive Committee carries out a risk assessment at least once per year and reports on the findings to the Board of Directors. In this assessment, general risks are analyzed and rated. Monitoring-and-control points and processes are defined based on the risk assessment and are implemented by the respective process owner. The Board of Directors monitors the assessment of the Group’s risks and verifies the implementation of risk management. Other tools for the monitoring and control of the Executive Committee are the following:

›› Periodic communication of the Executive Committee’s forecasts for revenue and for the key earnings and financial position data ›› Rolling forecast

Corporate governance 38

4 Members of the Executive Committee The Executive Committee is the Groupâ&#x20AC;&#x2122;s highest-level executive management team and has a divisional structure. In the year under review the Executive Committee, headed by the Chief Executive Officer, consisted of the CEO, the Chief Financial Officer, Chief Operating Officer, and the Executive Vice Presidents as heads of the three divisions, EMC, Power Magnetics and Automotive. The Executive Committee is responsible for implementing Group strategy within the framework set by the Board, and in particular for achieving the annual targets and medium- and long-term objectives. It is also responsible for process planning, for the controllership functions and for the implementation of Group-wide standards. The Chief Executive Officer formulates Group strategy for the approval of the Board of Directors and is responsible for strategy implementation. The CEO sets the business targets for all units of the Group. The Chief Financial Officer devises the framework for all strategic and operational controllership activities, ensures the Groupâ&#x20AC;&#x2122;s financing, optimizes its financing and tax structure, and supports the Chief Executive Officer and the other Executive Committee members in all financial matters. The Executive Vice Presidents (the division heads) are accountable for achieving the objectives within their respective areas of responsibility. These targets and goals include, in particular, achieving a leading market position as well as continuous innovation to support lasting competitiveness. 4.1 Members of the Executive Committee

In fiscal year 2012/13 the Executive Committee of the Schaffner Group had the following members: Alexander Hagemann, born 1962, German citizen Degree in Mechanical Engineering, RWTH Aachen University Joined the Schaffner Group as Chief Executive Officer on 1 March 2007. Also acting head of Automotive division since 9 November 2012. Previously held a number of management positions at the Schott Group, including Executive Vice President, Optics for Devices; earlier, worked in management roles in production and logistics at BMW.

Kurt Ledermann, born 1968, Swiss citizen MSEE Degree in Electrical Engineering, Federal Institute of Technology, Zurich; Master of Arts HSG, University of St. Gallen Joined the Schaffner Group as Chief Financial Officer on 1 June 2008. Previous roles included Executive Vice President, Finance & IT, Ruag Aerospace; Head of Finance & Accounting, Schaffner Group; Chief Financial Officer, Medivision; Group Controller and Head of Investor Relations, Sika Group. Ah Bee Goh, born 1950, Singaporean citizen Honours Bachelor of Science in Production Engineering, University of Strathclyde; MSc in Industrial Engineering, National University of Singapore; MSc in Finance, University of Leicester; MBA, University of Surrey Joined the Schaffner Group on 1 July 2007. Was Vice President, Manufacturing until 30 September 2011; Chief Operating Officer from 1 October 2011. Previously Managing Director at Leica Instruments, Singapore; various management roles at Maxtor Peripherals, Seagate Technology and Tandon/Western Digital. Eduard Hadorn, born 1956, Swiss citizen Degree in Business Administration With the Schaffner Group since 2003; Vice President, Business Development Asia from 1 March 2007. Managing Director, Schaffner EMC Ltd., Shanghai. Executive Vice President and head of Power Magnetics division since 1 October 2011. Previously was General Manager, Technology division at Diethelm & Co., and Head of Marketing & Sales at Beringer Hydraulik. Guido Schlegelmilch, 1964, German citizen Degree in Business Engineering and PhD, Darmstadt University of Technology Joined the Schaffner Group on 1 February 2009 as Managing Director, Schaffner Deutschland. Executive Vice President and head of EMC division since 1 October 2011. Previously held various management positions at Philips Semiconductors and NXP Semiconductors. Jean-Michel Calleri, born 1956, French citizen Electrical Engineering Diploma ESIGELEC, Rouen; IESTO CNAM, Paris With the Schaffner Group since 1999; Vice President, Sales Europe, from 1 July 2007. General Manager, Schaffner EMC S.A.S., Argenteuil. Executive Vice President, Automotive division from 1 October 2011 to 8 November 2012. Previously held a number of management positions in Marketing & Sales at Thomson Passive Components.

Corporate governance 39

4.2 Activities and interests outside the Group Alexander Hagemann Member of the Board of Directors of Wicor Holding AG, Rapperswil-Jona Kurt Ledermann Vice Chairman of the Board of Anlagestiftung Winterthur AWi, Zurich, and member of the Finance Committee of the city of Solothurn

The other members of the Executive Committee do not hold any positions in governing or supervisory bodies of any significant organization, institution or foundation under private or public law, nor do they hold any permanent management or consultancy positions in significant interest groups or any public or political office. 4.3 Management contracts

Schaffner Holding AG and its Group companies have no management contracts with third parties.

5 Compensation report The compensation report provides insight into the compensation of the Board of Directors and Executive Committee and describes the system for determining their compensation. The content and scope of these disclosures are consistent with section 663b bis and 663c of the Swiss Code of Obligations, with the principles of the Swiss Code of Best Practice for Corporate Governance issued by economiesuisse, and with the Corporate Governance Directive of the SIX Swiss Exchange. The compensation of the Board of Directors and Executive Committee is presented in detail from page 91 in the notes to the company financial statements of Schaffner Holding AG. 5.1 Guiding principles

The remuneration of the Board of Directors and Executive Committee is linked to the generation of sustainable earnings for shareholders and creates incentives conducive to the Schaffner Group’s lasting financial success. Based on the conviction that the performance of the Schaffner Group depends in large measure on the quality and commitment of its people, the compensation policy is designed to attract, motivate and retain qualified employees for the long term. The performance-related compensation is intended as an incentive for entrepreneurial thinking and action. The most important principles underlying the remuneration system are:

›› Compensation includes a performance-related element and is competitive with market levels

›› Promotion of the Group’s financial and business success ›› Fairness and transparency in decisions on compensation ›› Appropriate balance of short-term and long-term compensation

5.2 Responsibility and procedures for determining compensation

The Board of Directors maintains a Nomination & Compensation Committee, which consists of at least two independent members of the Board. The members of the Nomination & Compensation Committee (NCC) at 30 September 2013 were: Daniel Hirschi, Chairman of the Board of Directors, Committee chairman Herbert Bächler, member of the Board of Directors Suzanne Thoma, member of the Board of Directors

Corporate governance 40

The NCC performs its duties generally without involving external advisors. It:

›› Recommends to the Board, at the beginning of each term

of office, the nature and amount of the Board members’ annual remuneration ›› Reviews the proposals of the Chief Executive Officer for the annual compensation of the members of the Executive Committee ›› Determines incentive plans ›› Proposes to the Board of Directors the targets for the members of the Executive Committee ›› Assesses the performance of the Executive Committee against targets and submits a proposal to the Board for the variable compensation of the Executive Committee The Board of Directors:

›› Annually approves the fixed remuneration of each member

of the Board based on recommendations of the Nomination & Compensation Committee ›› Annually determines the amount to be awarded under the restricted share plan to the members of the Executive Committee and other senior executive management ›› Annually determines the fixed and variable cash compensation of the Chief Executive Officer based on a recommendation of the Nomination & Compensation Committee ›› Annually, upon review by the Nomination & Compensation Committee of proposals by the Chief Executive Officer, approves the fixed and variable cash compensation of the other members of the Executive Committee ›› Approves the compensation system ›› Sets the performance targets for the Executive Committee, in consultation with the Nomination & Compensation Committee ›› Approves the actual award of variable compensation to the Executive Committee according to performance against targets, based on recommendations of the Nomination & Compensation Committee ›› Approves the introduction of new incentive systems, based on recommendations of the Nomination & Compensation Committee

Compensation authority matrix CEO NCC Board Compensation of Board Chairman Propose Approve Compensation of Board members Propose Approve Compensation of CEO (fixed/variable) Propose Approve Compensation of Executive Committee (fixed/variable) Propose Review Approve

5.3 Compensation system 5.3.1 Board of Directors 5.3.1.1 Non-executive members of the Board

For their service on the Board – primarily for preparing for and participating in Board meetings and working on the Board committees – the non-executive members of the Board receive a fixed annual fee and a flat expense allowance. The amount of the compensation for each individual is set by the Board of Directors in its discretion, based on the amount of responsibility assigned, the complexity of the duties involved, the required professional and personal qualifications and the expected demands on the Board member’s time. In determining compensation levels, the Board also considers publicly available information on remuneration at comparable Swiss manufacturing companies of similar size listed on the SIX Swiss Exchange that have an international production and marketing organization. No significant compensation in kind is provided. The members of the Board do not participate in Schaffner’s pension plans. Detailed information on the compensation paid in the year under review and the prior year, including the share-based payments expense, is given from page 91 of this report in the notes to the company financial statements of Schaffner Holding AG. 5.3.1.2 Executive members of the Board

The Board of Directors of Schaffner Holding AG consists only of non-executive members. Compensation of the Board of Directors (from October 2012) Base compensation (excluding flat expense allowances) Chairman of the Board of Directors Members of the Board of Directors

CHF ‘000 112 47

Number of shares 207 104

Corporate governance 41

In fiscal year 2012/13 the members of the Board of Directors received aggregate compensation of CHF 493 thousand (prior year: CHF 477 thousand), expense allowances of CHF 30 thousand (prior year: CHF 31 thousand) and shares and options valued at CHF 184 thousand (prior year: CHF 135 thousand). The compensation of the members of the Board is presented in detail from page 91 in the notes to the company financial statements of Schaffner Holding AG. 5.3.2 Compensation of the Chief Executive Officer and members of the Executive Committee

The compensation of the members of the Executive Committee consists of a fixed portion and a variable cash component related to individual and corporate performance. The Nomination & Compensation Committee annually proposes to the Board of Directors the compensation of the Chief Executive Officer and reviews the proposals of the CEO for the compensation of the Executive Committee members. The fixed component consists of the monthly salary, the extra month’s salary paid in most years at the end of the year, and flat expense allowances. A fixed contribution is also paid to the management pension plan.

Compensation system for the Executive Committee

The fixed base salary is determined on a discretionary basis, taking into account the individual’s duties, amount of responsibility, formal qualifications and experience required, as well as the market environment. The process for determining base salaries includes taking into consideration market levels of pay relevant to the respective country, based on the latest Mercer Total Remuneration Survey. The variable performance-related cash compensation is determined on the basis of personal performance against individual targets and of the Group’s financial and business performance against the corporate targets set by the Board of Directors. At the beginning of the fiscal year, measurable personal performance targets are agreed between the Chairman of the Board and the Chief Executive Officer, and between the Chief Executive Officer and the members of the Executive Committee. Performance relative to these targets is evaluated after the end of the fiscal year. In its performance target structure, Schaffner seeks an appropriate balance of financial performance and volume productivity performance (such as turnover of product, for instance), taking into account the specific area of responsibility of the individual member of the Executive Committee. The additional targets, tailored to the particular position of the Executive Committee member, represent a mix of financial and in some cases non-financial objectives.

Compensation system for the Executive Committee Target share of overall compensation

Basis

Vehicle

Purpose

Drivers

Fixed base salary

50 – 60%

Employment contracts

Monthly cash compensation

Staff acquisition/ retention

Position, market rates of pay, individual’s skills and experience

Variable compensation – management dividend

Approx. 10%

Management incentive plan (MIP)

Annual cash compensation

Alignment with shareholder interests

Company performance

Net profit for the period

Management incentive plan (MIP)

Annual cash compensation

Personal performance

Net sales, EBIT, free cash flow, net profit for the period

Restricted share plan (RSP)

Shares with mandatory holding period

Staff retention

Employment contracts

Pension and insurance plans Perquisites

Protection against risks Staff acquisition/ retention

Variable compensation – personal award

Approx. 10%

Long-term incentive compensation

5 –10%

Pension, insurance and perquisites

5 –15%

Performance measures

Pay for performance Pay for performance

Efficiency metrics related to net working capital, production, development and marketing/sales

Alignment with shareholder interests

Share price over three years Market practice, employee position

Determined annually by the Board

Corporate governance 42

The variable compensation depends on the financial results of the Schaffner Group and ranges from 0% to 35% of base salaries. For the Chief Executive Officer, 10% of variable compensation is determined by the achievement of the budget targets of the Schaffner Group and 10% is dependent on performance against personal qualitative and quantitative targets. For the other members of the Executive Committee, 10% of variable compensation is determined by the achievement of the budget targets of the business area for which they have responsibility, and 10% is dependent on performance against personal qualitative and quantitative targets. Depending on the degree of target achievement, between 0% and 250% of the target variable compensation is paid. The financial and business success of the Group is measured by the following financial value drivers:

›› Organic growth ›› Operating profit (EBIT) ›› Free cash flow ›› Net profit for the period ›› Efficiency metrics related to net working capital and pro-

duction ›› Various metrics related to production, development and marketing/sales. 5.3.3 Share ownership plans

Share ownership plans contribute to aligning the medium- and long-term interests of senior management with those of shareholders. Since 1 October 1998, options to purchase registered shares of Schaffner Holding AG with an aggregate value of CHF 500,000 to CHF 900,000 per year were granted annually under the Schaffner share option plans to executive management and members of the Board of Directors. The awarding of such options was based on the Schaffner Holding AG Employee Share Option Plan 1998 (ESOP) – before and after the changes to the ESOP on 13 November 2006 – and on the Schaffner Holding AG Performance Option Plan (POP). The shares allocated to satisfy the combined obligations under the ESOP and POP comprised both (i) authorized unissued share capital of CHF 2,351,115, consisting of 72,342 registered shares of Schaffner Holding AG with a nominal value of CHF 32.50 per share, and (ii) treasury shares. Since fiscal year 2012/13, share options are no longer awarded.

Detailed information on the individual plans can be found on page 77 of this report in the notes to the consolidated financial statements. 5.3.3.1 Employee Share Option Plan (ESOP) options issued before the plan amendment of 13 November 2006

Equity-settled share options granted under the preamendment ESOP ordinarily vested in five annual installments of 20%, beginning one year after the grant date. Five years after the grant date, all granted options were thus ordinarily vested. The options were granted over three years in equal annual tranches. This resulted in a different vesting period for each tranche. Unexercised options expire ten years after the grant date. 5.3.3.2 ESOP options issued after the plan amendment of 13 November 2006

Equity-settled share options granted after the plan amendment become vested ordinarily in four annual installments of 25% each, beginning one year after the grant date. Four years after the grant date, all granted options are thus ordinarily vested. Unexercised options expire seven years after the grant date. 5.3.3.3 Performance Option Plan (POP)

Under the performance option plan, 100% of equity-settled POP share options ordinarily vested (provided that the nonvesting conditions were satisfied) if the performance target was reached at 30 September 2013. Under the non-vesting conditions, plan participants had to acquire, over the life of the plan, a specified number of shares in Schaffner Holding AG proportionate to the number of options which they held; restricted shares were counted towards the required number of shares. The performance target was a clearly defined corporate financial target set by the Board of Directors. Participation in the Performance Option Plan was reserved for members of the Executive Committee. Unexercised options expired ten years after the grant date. The Performance Option Plan expired at 30 September 2013 without vesting and has been discontinued. 5.3.3.4 Restricted Share Plan 2012

Members of the Executive Committee and other senior executive management were entitled to subscribe for restricted shares, in a quantity determined by the Board of Directors. These shares are subject to a holding period of four years; however, the grantee had the dividend rights and voting rights from the grant date. 5.3.3.5 Restricted Share Plan

Members of the Executive Committee and other senior execu-

Corporate governance 43

tive management are awarded restricted shares, in a quantity determined by the Board of Directors. These shares are subject to a holding period of three years; however, the grantee has the dividend rights and voting rights from the grant date.

to the members of the Executive Committee but to the Company, which remunerates these individuals in their capacity as Executive Committee members. ›› In the year under review the Group did not provide any sureties or guarantees on behalf of members of the Board of Directors or Executive Committee. ›› Neither Schaffner Holding AG nor another Group company waived repayment of any debt outstanding from a member of the Board of Directors or Executive Committee. ›› In the year under review the members of the Board of Directors and Executive Committee did not receive any fees or compensation for any additional services rendered to Schaffner Holding AG or another Group company.

5.3.4 Employment contracts and special benefits

There are no employment contracts with notice periods of more than twelve months. Members of the Board or of the Executive Committee do not have a contractual entitlement to termination benefits. 5.4 Compensation for the year under review

The compensation of the Board of Directors and Executive Committee disclosed below includes the compensation in respect of the full year under review, subject to the following qualifications and supplementary information:

›› The variable compensation elements shown relate to the

year under review. The variable compensation is ordinarily allotted and paid after the annual financial statements have been adopted by the Annual General Meeting. ›› When new members join the Board of Directors or Executive Committee, they are compensated in this capacity generally from the month in which they take up the position. ›› Where members move from the Executive Committee to the Board of Directors or vice versa, the individual’s entire compensation for the year under review is reflected and disclosed under the new position. ›› When a member leaves the Board of Directors, compensation is paid until and including the month of departure. When a member leaves the Executive Committee, compensation is paid until the date of departure. Depending on their specific position and country of residence, members of the Executive Committee are in some cases provided with a company car. Additional compensation is paid for postings to other countries (i.e., to expatriates). The value of any company car privileges and out-of-country allowances is reported under “other compensation”. ›› All payments to pension plans, contributions to management pension plans and contributions in the form of premium reductions for insurance are reported within pension costs. ›› Some members of the Executive Committee are also members of boards of directors of Group subsidiaries. To the extent that board member fees are paid by the subsidiaries for these board functions, the compensation is paid not

5.4.1 Members of the Board of Directors and Executive Committee of Schaffner Holding AG

A detailed analysis of the total compensation of the Board members and Executive Committee members, as well as their holdings of shares and share options, is provided from page 91 of this report in the notes to the company financial statements. 5.4.2 Members of the Executive Committee of Schaffner Holding AG

Short- and long-term compensation

Target for the coming years CEO

53% Fixed base salary 21% Variable compensation 12% Long-term incentive compensation 14% Pension, insurance and perquisites

Executive Committee (excl. CEO)

57% Fixed base salary 19% Variable compensation 8% Long-term incentive compensation 16% Pension, insurance and perquisites

Corporate governance 44

Analysis of CEO’s annual compensation Chief Executive Officer Fixed base salary Variable compensation Long-term incentive compensation Pension, insurance and perquisites Total

Share 2012/13 of total CHF ‘000 50% 480 24% 229

5.5 Loans Share 2011/12 of total CHF ‘000 54% 410 4% 32

12%

118

28%

217

14% 100%

131 958

14% 100%

103 762

Analysis of Executive Committee’s annual compensation (excluding CEO) Executive Committee Fixed base salary Variable compensation Long-term incentive compensation Pension, insurance and perquisites Termination benefits Total

Share 2012/13 of total CHF ‘000 46% 1,239 11% 295

Share 2011/12 of total CHF ‘000 54% 1,188 11% 241

167

14%

312

20% 16% 100%

536 440 2 ,677

21% 0% 100%

449 0 2 ,190

Detailed information on the compensation paid in the year under review and the prior year is provided from page 91 of this report in the notes to the company financial statements of Schaffner Holding AG. 5.4.3 Former members of management

In fiscal year 2012/13 the Schaffner Group did not provide any sureties on behalf of, nor provide any loans, advances or other forms of credit to, former or current members of the Board of Directors or Executive Committee or parties related to them. As well, no such commitments or receivables were outstanding at the end of the fiscal year. 5.6 Management transactions

Since 1 July 2005, Schaffner Holding AG reports to the SIX Swiss Exchange the transactions in Schaffner shares and options concluded by members of the Board of Directors or Executive Committee, or by parties related to them, including the names and positions of the persons concerned. Transactions exceeding the disclosure threshold of CHF 100,000 per reportable person in any given calendar month were published anonymously by SIX Swiss Exchange on its website. SIX Swiss Exchange did not publish any collective announcements of transactions below the disclosure threshold of CHF 100,000 in a calendar month. With effect from 1 April 2011 the SIX Swiss Exchange’s rules on the disclosure of management transactions were revised to make them simpler and improve transparency for market players. The revisions included the elimination of the disclosure threshold of CHF 100,000 for notification of management transactions. Management transactions in fiscal year 2012/13 Executive Committee Number of shares CHF ‘000 370 148

Board of Directors Number of shares CHF ‘000 623 141 – 500 – 78

In the year under review, total compensation of CHF 891 thousand was paid to Jean-Michel Calleri, who until 8 November 2012 was Executive Vice President and head of the Automotive division. The French-law-based employment contract with JeanMichel Calleri ended on 29 June 2013. Detailed information is provided on page 91 of this report in the notes to the company financial statements of Schaffner Holding AG. No other compensation was paid to persons who ceased to be a member of the Board of Directors or Executive Committee in the year under review or in prior years. As well, no compensation was paid to persons related to them.

Transaction date 07.01.2013 09.01.2013 21.05.2013 28.05.2013 23.09.2013 25.09.2013 30.09.2013 Overall result

5.4.4 Related parties

shares/companies/management_transactions_en.html?issuerId =10529&fromDate=20101128&preloadResults=+true

In the year under review, no fees or other compensation for services rendered to the Schaffner Group or to one of its subsidiaries were paid to or accrued by parties related to members of the Board or of the Executive Committee.

– 100 – 100 – 301 – 105 – 200 – 436

– 21 – 21 – 67 – 23 – 3 13

123

A compilation of the management transactions in the fiscal year under review is available on the website of the SIX Swiss Exchange at the following link: www.six-swiss-exchange.com/

An overview of the holdings of shares, options and conversion rights of the members of the Board of Directors and Executive

Corporate governance 45

Committee at 30 September 2013 and 2012 is provided on page 93 of this report in the company financial statements of Schaffner Holding AG.

6 Shareholder participation rights

meeting may additionally be sent by letter to all shareholders registered in the share register. In addition to the meeting date, hour and place, the notice must state the items of business to be discussed and the resolutions proposed by the Board of Directors and by shareholders that have requested a General Meeting or have put forward an item for discussion at the meeting. Resolutions cannot be passed on matters that have not been announced in this manner, except for motions to call an Extraordinary General Meeting or to conduct a special audit.

6.1 Voting rights restrictions and proxy voting

On the balance sheet date of 30 September 2013, there were 1,226 shareholders registered in the share register. Each share of Schaffner Holding AG, with the exception of shares held by the Company (treasury shares), carries one vote at the General Meeting of shareholders. There are no restrictions on voting rights.

Shareholders representing at least one-tenth (10%) of the share capital may submit a request – binding on the Company – to call an Extraordinary General Meeting. Such a request must be in writing and state the business to be discussed and the proposed resolutions.

Upon presentation of a written proxy, shareholders may be represented at the General Meeting by another shareholder having voting rights, by the Company-appointed proxy, the independent proxy, or a custodian (a bank). Partnerships and legal entities may be represented by authorized signatories, and minors and wards by their legal representatives, even if these proxies are not shareholders. Shareholders represented by a proxy may issue instructions regarding each agenda item and also regarding motions not included in the invitation, stating whether they wish to vote for or against a motion or abstain. The proxy appointed by the Company represents only shareholders who are approving the motions of the Board of Directors; proxy mandates accompanied by other instructions are turned over to the independent proxy. Unless explicitly instructed otherwise, the independent proxy will vote in support of the motions of the Board of Directors.

6.4 Placing business on the General Meeting agenda

6.2 Quorums under the Articles of Association

Except as otherwise required by law or the Articles of Association, the General Meeting passes its resolutions and decides its elections by a majority of the valid votes represented. If an election is not completed in the first round and there is more than one candidate, a second round of voting is held, which is decided by a relative majority. The Articles of Association of Schaffner Holding AG do not provide for special quorums that go beyond the provisions of Swiss corporation law. 6.3 Calling of the General Meeting

The General Meeting is called by the Board of Directors no later than 20 days before the meeting date by issuing a notice in the Company’s official gazette for statutory notices. Notice of the

One or more shareholders who together represent at least 5% of the share capital, or shares with a nominal value of at least CHF 1,000,000, whichever is less, may by their written request have business placed on the agenda of a General Meeting. Such a written request must be received by the Company no later than 45 days before the General Meeting. 6.5 Registration in the share register

In accordance with article 6 para. 1 of the Articles of Association, Schaffner Holding AG maintains a share register. The Company may outsource the operation of the share register to a company specializing in such services (a registrar). At present the share register is operated by ShareComm Services AG, based in Opfikon, Switzerland. The manager of the share register is Schaffner’s Chief Financial Officer. Concerning the share register, the CFO reports to the Chairman of the Board. The Chairman and the Chief Executive Officer receive regular reports on the shareholder structure (including share deregistrations above a certain size of shareholding). The Board of Directors annually receives a report on the shareholder structure. The Share Registration Regulation of Schaffner Holding AG sets out in detail the rules governing registration in the share register, including particularly the responsibilities in relation to, and the maintenance of, the share register and the monitoring of the shareholdings recorded in the share register. The Share Registration Regulation was issued by the Board of Directors in reliance on sections 685a and 685d et seq. of the Swiss Code of Obligations and article 6 of the Articles of

Corporate governance 46

Association of Schaffner Holding AG, can be viewed at or requested from the Company’s head office and is available at: www.schaffner.com/en/investor-relations/share-registrationregulation.html

For the purposes of the legal relationship with the Company, shareholders or beneficial owners of shares are recognized as such only if they are registered in the Company’s share register. In accordance with article 6 para. 3 of the Articles of Association of Schaffner Holding AG, purchasers of shares are upon their request recorded as voting shareholders in the share register by the Board of Directors if the purchasers state expressly that they have acquired and will hold the shares for their own account. Recognition as a shareholder with voting rights thus requires both that the shareholder in question bears the economic risk incident to ownership of the shares to be registered, and that, in the application for registration, the shareholder expressly declares to the Company that the shareholder has acquired and will hold the shares for the shareholder’s own account. In reliance on article 6 para. 3 of the Articles of Association and the recognition requirements derived from it, applicants (purchasers holding legal title to the shares) are thus not recognized as voting shareholders if they have acquired, and are holding, the shares as a result of a securities lending transaction or similar transaction that gives them legal ownership without the associated economic risk. In the case of registration applications by shareholders holding the shares for their own account where the applicant’s resulting voting rights reach or rise above 3% of votes or any of the further thresholds set out in section 20 of the Stock Exchange Act, the registration is not performed until the Company has received a complete disclosure notification by the applicant pursuant to section 20 of the Stock Exchange Act. If the disclosure notification meets the legal requirements (i.e., if it contains the legally required information about the beneficial owner), the applicant (i.e., the acquired stock) is registered in the share register as having voting rights. If the disclosure notification is not made within the 20-day deadline specified in section 685g of the Swiss Code of Obligations, or is incomplete, the application for registration with voting rights is denied and the shareholder (i.e., the acquired stock) is registered in the share register as non-voting. The manager of the share register will promptly inform the registrar (the company commissioned to operate the share register) about the disclosure notification made. Persons who do not expressly declare in their registration application that they hold the shares for their own account are

classified as nominees. In accordance with article 6 para. 4 of the Articles of Association, by default any single nominee is registered in the share register as holding voting shares only up to a maximum of 5% of the share capital recorded in the Swiss commercial register of companies. Above this limit of 5%, the Board of Directors registers shares of nominees in the share register as voting shares only if: (i) the nominee discloses the names, addresses and holdings of Company shares of the persons for whose account the nominee holds 0.5% or more of the total registered-share capital that is recorded in the commercial register, and (ii) an agreement exists between the nominee and the Company which specifies the nominee’s position and the details of the nominee’s notification obligations. The registrar is responsible for sending the nominee agreement to the respective nominee and collecting the information to be disclosed. If complete disclosure is not made within the 20-day deadline specified in section 685g of the Swiss Code of Obligations and no nominee agreement is concluded between the Company and the nominee within this period, the nominee is registered in the share register as non-voting for these shares. To the extent permitted by law, the Board of Directors is authorized to enter into agreements with nominees regarding notification obligations. On a case-by-case basis, the Board may approve exceptions to the nominee rules. Where legal entities or groups with joint legal status are related to one another by capital, voting rights, management or in some other manner, they are deemed to constitute a single purchaser. Also deemed a single purchaser are all natural persons, legal entities or groups with joint legal status that by agreement, as a syndicate or in any other way act in a coordinated manner with a view to circumventing the nominee rules. The Company may void registrations in the share register with retroactive effect from the date of registration if they were based on false information given by the purchaser. The purchaser must be informed of this deletion immediately. Shares for which the requirements (as set out in the Share Registration Regulation or in any amendments thereto) for registration as a voting shareholder are not, or are no longer, fulfilled, are registered in the share register as non-voting shares. Registered non-voting shareholders and registered non-voting nominees cannot exercise the voting rights associated with the shares nor exercise other rights related to the voting rights.

Corporate governance 47

However, they are not restricted in exercising any of their other shareholder rights, including also pre-emptive rights. At the General Meeting the shares registered as non-voting are treated as unrepresented (see section 685f para. 2 and 3 of the Swiss Code of Obligations). These registration restrictions also apply to shares bought or subscribed through the exercise of pre-emptive rights, options or conversion rights. The authority structure for the approval of shareholder registrations in the share register is as follows:

›› Registration applications for up to 5,000 shares per trans-

action that either clearly meet or clearly do not meet the requirements for registration as a voting shareholder or nominee: Approval by the registrar (the company commissioned to operate the share register)

›› Applications for registration as a nominee: Approval by the registrar

›› Registration applications for more than 5,000 shares per

transaction and all other transactions which do not clearly meet the requirements for registration as a voting shareholder or nominee, or in which there is uncertainty: Approval by the manager of the share register

›› All registration applications of shareholders or groups of shareholders that hold the shares for their own account where the applicant’s resulting voting rights reach or rise above 3% of votes or any of the further thresholds set out in section 20 of the Stock Exchange Act: Approval by the manager of the share register

Exceptional cases can at any time be forwarded for approval to the Chairman or, if absent, to the Vice Chairman of the Board. The Board may, after hearing the affected party, void the party’s registration in the share register as a voting share-holder, retroactively to the date of registration, if the registration was the result of false information supplied by the purchaser, and instead register the affected party as a non-voting shareholder. Registrations can also be deleted (or reclassified as non-voting) when a registered shareholder refuses, despite prior warning, to provide the requested information or fails to provide requested documentation (of beneficial ownership, etc.). The authority to decide on

deleting or reclassifying the registration of a voting shareholder or nominee or on terminating the relationship with a nominee rests with the Chairman of the Board of Directors. The purchaser must be informed of this deletion immediately. Under article 13 para. 4 of the Articles of Association, in the notice of the General Meeting the Board of Directors announces the record date at which registration in the share register is required for participation in and voting at the meeting, and thus announces the length of the period for which the share register will be closed. The record date for registration is generally the fifth trading day before the day of the General Meeting. Accordingly, the closure of the share register as a rule is in effect from the fourth trading day before the day of the General Meeting until and including the day of the General Meeting. Deletions from the share register can be made during the closure. Thus, despite the closure, a share seller is struck from the share register to the extent of the shares sold, if the sale is reported to the Company or to the manager of the share register during the closure. An admission ticket already issued in the seller’s name is automatically voided by the deletion from the share register. In the event of the partial sale of a shareholding, the admission ticket previously sent to the seller must be exchanged on the meeting date at the registration desk. The invitation to the General Meeting shall note this requirement.

7 Changes in control and measures to prevent hostile takeovers 7.1 Requirement to make a public purchase offer for shares

The Articles of Association of Schaffner Holding AG contain neither an opting-out clause nor an opting-up clause. This means that any person or entity acquiring one-third (33⅓%) or more of the voting rights of Schaffner Holding AG must, under section 32 of the Stock Exchange Act, make a public tender offer to purchase the remaining shares. 7.2 Provisions on changes in control

The participants in the Schaffner Holding AG Employee Share Option Plan 1998 (ESOP) and Schaffner Holding AG Performance Option Plan (POP) have the right to exercise immedi-

Corporate governance 48

ately any portion or all of their options without regard to the holding periods, in either of the following two cases:

›› If any person or entity directly or indirectly acquires a

number of shares in the Company that, under section 32 of the Stock Exchange Act, triggers the acquirer’s obligation to make an offer to acquire all other outstanding shares of the Company, or

›› If Schaffner Holding AG sells all or a substantial portion of the Company’s assets.

8 Auditors 8.1 D uration of audit firm’s engagement and tenure of lead audit partner 8.1.1 Starting date of current audit engagement

The external independent auditor is elected annually by the General Meeting. Ernst & Young AG, Berne, have been the external independent auditors of Schaffner Holding AG since fiscal year 2002/03. 8.1.2 Date of first appointment of lead audit partner

The lead audit partner at the external auditors (the person in charge of the audit engagement), Ms. Bernadette Koch, has held this position since fiscal year 2009/10. By law, the lead audit partner’s tenure is limited to seven years. 8.2 Audit fees

In fiscal year 2012/13, Ernst & Young AG billed the Schaffner Group a total of CHF 350 thousand for services in connection with the auditing of the company financial statements of Schaffner Holding AG and the consolidated financial statements of the Schaffner Group (prior year: CHF 358 thousand). 8.3 Additional fees

In addition, Ernst & Young AG invoiced the Schaffner Group CHF 51 thousand (prior year: CHF 18 thousand) for other services, which had the following composition: In CHF ‘000

2012/13

2011/12

Tax consulting

IT consulting Other

13 11

2 6

8.4 Monitoring the external independent auditors

The Audit Committee, on behalf of the Board of Directors, annually reviews the license, performance, fees and independence of the external auditors and recommends to the Board which external auditors to propose for election by the General Meeting. It also ensures compliance with the legal requirement for rotation of the lead audit partner. The external auditors in the course of their audit activities regularly communicate to the Audit Committee their findings and any suggestions for improvement. The results are reported through a management letter to the Board of Directors (prepared after the audit of the annual financial statements) and through the other reports of the external auditors. The Audit Committee meets with the external auditors at least two times per year, sets the scope and objectives of the audits, and annually assesses the work of the external audit firm through a performance evaluation process. This process takes into account the Committee’s experience in working with the external audit firm and the audit firm’s own quality assurance measures in respect of the engagement. The Audit Committee obtains assurance that the lead audit partner has the necessary technical qualifications and fulfills the requirements as to independence. The Chief Executive Officer and Chief Financial Officer also attend these meetings with the external auditors. The Board of Directors is kept informed by the Audit Committee.

9 Communication policy Schaffner follows a policy of open and active communication with the public and the financial markets. The communication policy also adheres to the rules of the SIX Swiss Exchange and the applicable legal requirements. The Schaffner Group’s financial reporting complies with International Financial Reporting Standards (IFRS). As a company listed on the SIX Swiss Exchange, Schaffner also publishes information (so-called “ad-hoc” disclosures) relevant to the share price in accordance with section 72 of the Listing Rules. In the course of its communications the Schaffner Group makes forward-looking statements. These statements are always based on management’s judgment, at the time the statement is made, regarding the current and future position and performance of the company. It is not the policy of Schaffner Holding AG to update information published in the past.

Corporate governance 49

The Schaffner Group reports on its financial and business performance on a half-yearly basis. All publications are made available in electronic format; the annual report is also available in hard copy. The half-year report is published on the Company’s website and mailed on request. The investor relations activities of the Schaffner Group include the following events (among others), conducted in compliance with the ad-hoc-disclosure requirements of the SIX Swiss Exchange:

›› Annual Shareholder Meeting ›› Presentation of the full-year results ›› Conference calls focusing on the publication of the half-

year results or other news ›› Meetings with shareholders, investors and analysts during road shows ›› Themed investor days for shareholders, investors and analysts

Publications in connection with maintaining the listing of the Company’s shares on the SIX Swiss Exchange are effected in accordance with the Listing Rules of the SIX Swiss Exchange. The Listing Rules can be obtained at: www.six-swiss-exchange.com A current source of in-depth information on the Group, including products and contact details, is: www.schaffner.com Investor relations contacts

›› Alexander Hagemann, Chief Executive Officer alexander.hagemann@schaffner.com T +41 32 681 66 06

›› Kurt Ledermann, Chief Financial Officer kurt.ledermann@schaffner.com T +41 32 681 66 08

Media releases remain available on the Schaffner website for at least two years after publication and can be accessed via the following link: www.schaffner.com/en/investor-relations/ad-hoc-

Financial calendar

notices.html

14 January 2014 13 May 2014

The fiscal year-end of Schaffner Holding AG is 30 September.

Annual and half-year reports remain available on the website for at least five years and are displayed at:

9 December 2014

www.schaffner.com/en/investor-relations/reports.html

15 January 2015

The corporate governance and compensation report can be found at the following link: www.schaffner.com/en/investorrelations/corporate-governance.html

Annual and half-year reports, corporate governance and compensation reports, media releases and presentations for shareholders, investors and analysts are published on the Group’s website at www.schaffner.com and archived there by publication date. The latest ad-hoc disclosures of the Schaffner Group can also be received by e-mail, promptly and free of charge, by registering for the news service at www.schaffner.com, specifically at: http://www.schaffner.com/en/news-service.html Responsibility for corporate communications rests with the Chief Executive Officer. He is supported in investor relations by the Chief Financial Officer. The Company’s official gazette for the publication of statutory and regulatory news is the Swiss Official Gazette of Commerce, or SOGC.

18th Annual General Meeting Publication of half-year report 2013/14 (half-year results) Publication of annual report 2013/14 (full-year results) 19th Annual General Meeting

Financial report 51

Contents 52 53 53 54 55 56 88

Consolidated financial statements of the Schaffner Group Consolidated balance sheet Consolidated income statement Consolidated statement of comprehensive income Consolidated cash flow statement Consolidated statement of changes in equity Notes to the consolidated financial statements Report of the statutory auditor on the consolidated financial statements

89 89 90 94 95

Company financial statements of Schaffner Holding AG Company balance sheet Company income statement Notes to the company financial statements of Schaffner Holding AG Proposal for the appropriation of retained earnings Report of the statutory auditor on the company financial statements

Consolidated financial statements of the Schaffner Group 52

Consolidated balance sheet In CHF â&#x20AC;&#x2122;000

Note

30.9.2013

30.9.2012

Intangible assets Property, plant and equipment Other non-current assets Deferred tax assets Non-current assets

3 4 5, 21 16

19,624 20,945 12,521 3,004 56,095

22,327 21,109 13,327 2,864 59,627

Inventories Trade receivables Income tax receivables Other receivables, prepaid expenses and accrued income Other current financial assets Cash and cash equivalents Current assets

6 7, 21

28,094 34,021 535 3,817 4,079 17,012 87,558

29,873 34,766 582 3,674 2,065 10,256 81,216

143,653

140,843

62,512 62,512

60,333 60,333

8, 21 21

Total assets Equity attributable to equity holders of Schaffner Holding AG Shareholders' equity Non-current provisions Deferred tax liabilities Non-current borrowings Non-current liabilities

9 16 10, 21

5,558 2,270 29,814 37,642

6,091 2,194 35,959 44,244

Current provisions Current borrowings Income tax payables Trade and other payables Current liabilities

9 10, 21

1,969 549 731 40,251 43,500

2,934 194 966 32,172 36,266

81,141

80,510

143,653

140,843

Total liabilities Total liabilities and shareholders' equity The accompanying notes are an integral part of the consolidated financial statements.

11, 21

Consolidated income statement (year ended 30 September) In CHF ’000

Notes

2012/13

2011/12

Net sales

194,889

176,942

– 142,301 52,589

– 128,037 48,905

373 – 17,066 – 15,482 – 10,135 10,278

961 – 16,798 – 14,185 – 10,785 8,098

– 864 9,414

– 855 7,243

Finance income Finance expense Profit before tax [EBT]

15 15

4,674 – 6,746 7,343

1,944 – 4,152 5,035

Income tax Net profit for the period

– 1,056 6,287

– 1,126 3,909

Earnings per share in CHF Basic Diluted

19 9.92 9.86

6.17 6.03

Cost of sales Gross profit Other income Marketing and selling expense Research, development and application expense General and administrative expense Operating profit before amortization of customer relationships Amortization of customer relationships1 Operating profit [EBIT]

In a strict classification by function of expense, amortization of customer relationships would be presented under marketing and selling expense.

Consolidated statement of comprehensive income (year ended 30 September) In CHF ’000

Net profit for the period Items of other comprehensive (loss)/income that may be reclassified to the income statement Exchange differences Movement in cash flow hedges Income tax Total items that may be reclassified to the income statement Other comprehensive (loss)/income for the period Total comprehensive income for the period The accompanying notes are an integral part of the consolidated financial statements.

2012/13

2011/12

6,287

3,909

– 1,237 169 0 – 1,068 – 1,068 5,219

1,795 10 0 1,805 1,805 5,714

Consolidated financial statements of the Schaffner Group 54

Consolidated cash flow statement (year ended 30 September) In CHF ’000

2012/13

2011/12

6,287 4,195 2,764 18 – 1,482 1,313 – 44 9,037 – 152 – 952 196 – 362 20,818

3,909 4,002 2,674 – 972 – 749 8 – 3,515 – 397 142 1,058 – 88 – 1,490 4,582

– 4,786 296 – 369 – 359 – 1,929 992 – 6,155

– 3,740 1,366 – 671 – 361 0 – 26 – 3,432

– 1,104 1,236 – 2,221 – 5,476 – 177 – 7,742

– 980 457 – 2,845 – 1,823 – 126 – 5,317

– 165 6,756

188 – 3,979

Cash and cash equivalents at 1 October Cash and cash equivalents at 30 September

10,256 17,012

14,235 10,256

Free cash flow1

15,959

1,537

Included in cash flow from operating activities: Interest paid Interest received Income tax paid

– 1,303 188 – 348

– 1,404 30 – 1,862

Net profit for the period Depreciation and impairment of property, plant and equipment Amortization and impairment of intangible assets Loss/(gain) on disposal of property, plant and equipment and intangible assets Change in provisions Change in inventories Change in receivables Change in current liabilities Change in deferred tax Share-based payments (income)/expense Exchange differences on intra-Group items Change in net defined benefit plan asset Cash flow from operating activities Purchase of property, plant and equipment Disposal of property, plant and equipment Purchase of intangible assets Acquisition of subsidiaries or businesses, and contingent consideration Change in current financial assets Change in loan receivables and non-current financial assets Cash flow from investing activities Purchase of treasury shares Proceeds from exercise of share options and from purchase of restricted shares by staff Repayment of excess share premium Repayment of borrowings Amortization in connection with finance lease Cash flow from financing activities

Notes

4 3 9

4 3 2

20 20

Effect of exchange rates on cash and cash equivalents Change in cash and cash equivalents

Cash flow from operating activities less net investment in property, plant and equipment and in intangible assets.

The accompanying notes are an integral part of the consolidated financial statements.

Consolidated statement of changes in equity Share capital

Share premium

Cumulative translation differences

Retained earnings

Treasury shares

Hedging reserve

Total shareholders' equity

20,668

58,249

– 16,095 1,795

– 3,855

– 1,617

– 421

56,929 1,795 10 3,909 5,714 – 565 – 2,845 1,100 60,333 – 1,237 169 6,287 5,219 – 399 – 2,221 – 420 62,512

In CHF ’000

At 1 October 2011 Exchange differences Movement in cash flow hedges Net profit for the period Total comprehensive income for the period Treasury shares Repayment of excess share premium1 Share option plans and restricted share plans At 30 September 2012 Exchange differences Movement in cash flow hedges Net profit for the period Total comprehensive income for the period Treasury shares Repayment of excess share premium2 Share option plans and restricted share plans At 30 September 2013

10 1,795

20,668

– 2,845 1,058 56,462

– 14,300 – 1,237

3,909 3,909 – 713

148

42 – 617

– 1,469

– 411 169

– 1,237

20,668

– 2,221 – 952 53,289

– 15,537

6,287 6,287 – 818

419

532 4,851

– 1,050

169

– 241

CHF 4.50 per share 2 CHF 3.50 per share 1

Share capital

Translation reserve

The issued share capital of Schaffner Holding AG consists of 635,940 ordinary registered shares with a nominal value of CHF 32.50 per share. The issued shares are fully paid. Each share carries one vote at the General Meeting. All shares not held by the Company or by one of its subsidiaries attract dividends.

Shareholders’ equity is carried at historical exchange rates. The resulting foreign exchange differences are recognized in other comprehensive income and accumulated in a separate component of equity until the disposal of the subsidiary in question.

There is also authorized unissued capital of 72,342 shares with a total nominal value of CHF 2.4 million. This is reserved for the Schaffner share option plans (see note 18 on page 77). Share premium

The share premium (also known as additional paid-in capital) represents the excess of the issued share capital’s market value over its nominal value. The decrease in share premium in the year under review resulted from the granting of conversion rights under the share option plans (see note 18 on page 77). In the reporting period, share premium was reduced by CHF 2.2 million through the repayment of CHF 3.50 per dividend- bearing registered share from this capital reserve.

The accompanying notes are an integral part of the consolidated financial statements.

Notes to the consolidated financial statements 56

Accounting policies Basis of preparation

The consolidated financial statements comprise the individual financial statements of Schaffner Holding AG (the “Company”) and its subsidiaries (together, “Schaffner”, the “Group” or the “Schaffner Group”) as at 30 September 2013, drawn up in accordance with the uniform accounting policies of the Group. The consolidated financial statements have been prepared under the historical cost convention, except for certain items (such as derivatives and listed securities) that are stated at fair value, as further detailed in the accounting policies below. The consolidated financial statements comply with Swiss law and have been prepared in accordance with International Financial Reporting Standards (IFRS) and the IFRIC interpretations issued by the IFRS Interpretations Committee (IFRIC). The presentation currency of the consolidated financial statements is the Swiss franc. The consolidated financial statements are prepared in German and translated into English. The English version is provided solely for readers’ convenience. Only the German version is definitive and legally binding.

IAS 19 IAS 27 IAS 28 IAS 36 IFRS 9 IFRS 10 IFRS 12 IFRS 10, IFRS 11, IFRS 12 IFRS 13 IFRIC 21

Changes in accounting policies

The Schaffner Group adopted the following changes with effect from 1 October 2012:

›› IAS 1 – Amendments – Presentation of Items of Other Comprehensive Income

›› IAS 12 – Amendments – Deferred Tax: Recovery of Under lying Assets

For the Schaffner Group, the changes to IAS 1 have an impact on the grouping of items of other comprehensive income. The items of other comprehensive income must now be grouped according to whether they may be reclassified to profit or loss in a future period, or whether they will not be so reclassified. None of the other IFRS changes and interpretations which became effective on 1 October 2012 have a material effect on the financial position, results of operations and cash flows of the Schaffner Group. IFRS standards becoming effective after the reporting period

The following new or amended standards and interpretations have been issued, but are not effective until subsequent periods and have not been applied early in these consolidated financial statements. Their impact on the consolidated financial statements of the Schaffner Group has not yet been systematically analyzed. However, based on a preliminary assessment, the expected impact of each standard and interpretation is presented in the following table.

– Annual Improvements to IFRSs 2009 – 2011 – Revised – Employee Benefits – Revised – Separate Financial Statements – Revised – Investments in Associates and Joint Ventures – Amendments – Recoverable Amount Disclosures for Non-Financial Assets – Financial Instruments – Consolidated Financial Statements – Disclosure of Interests in Other Entities – Amendments – Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance – Fair Value Measurement – Levies

Assessment

Effective date

Planned adoption by the Schaffner Group

** *** * * ** * * *

1.1.2013 1.1.2013 1.1.2013 1.1.2013 1.1.2014 1.1.2013 1.1.2013 1.1.2013

2013/14 2013/14 2013/14 2013/14 2014/15 2013/14 2013/14 2013/14

* ** *

1.1.2013 1.1.2013 1.1.2014

2013/14 2013/14 2014/15

* There is expected to be no, or no significant, impact on the consolidated financial statements. ** The impact on the consolidated financial statements is expected to take the form mainly of additional disclosures or of changes in presentation. *** See the detailed analysis of impacts below.

Revised IAS 19 – Employee Benefits

IAS 19 is changing in two important respects. First, the expected rate of return on plan assets and the interest expense on the defined benefit obligation are both replaced with the discount rate used to determine the deﬁned beneﬁt obligation. To date, a rate of return had been applied to the plan assets which was estimated based on the investment portfolio of the pension fund and its projected performance. In addition, the determination of the present value of the defined benefit obligation will also take into account the expected future contributions by employees. In the future, this risk-sharing between employer and employees will change the amount of the pension obligation and the allocation of service cost.

In CHF ’000

Second, the revised standard abolishes the corridor method currently used by Schaffner, whereby actuarial gains and losses from the periodic recalculation of the defined benefit obligation – to the extent that they exceed 10% of the greater of the plan assets or the defined benefit obligation – are amortized in the income statement on a straight-line basis over the average of the remaining working lives of the participating employees. With the elimination of the corridor method, actuarial gains and losses will henceforth be recognized immediately in other comprehensive income. As a result, in the future, Schaffner expects an increase in volatility of pension plan assets and liabilities and thus of consolidated shareholders’ equity, as well as higher staff costs. The revised standard will be applied in fiscal year 2013/14, with a restatement of the prior-year data. The expected impacts are as follows: 30.9.2012

30.9.2013

Other non-current assets Deferred tax assets Total assets

– 5,138 112 – 5,026

– 5,073 146 – 4,927

Non-current provisions Deferred tax liabilities Equity attributable to equity holders of Schaffner Holding AG Total liabilities and shareholders' equity

373 – 997 – 4,402 – 5,026

488 – 984 – 4,431 – 4,927 2012/13

Staff costs Net profit for the period

– 209 – 133

Earnings per share in CHF

– 0.21

Estimates

The consolidated financial statements of the Schaffner Group contain assumptions and estimates which affect the reported financial position, results of operations and cash flows. These assumptions and estimates were made on the basis of management’s best knowledge at the time of preparation of the accounts. Actual results could differ from the values presented. The following estimates have the greatest effects on the consolidated financial statements:

›› Intangible assets: For acquisitions, the fair value of the acquired net assets (including acquired intangible assets) is estimated. Any amount paid in excess of this estimate represents goodwill. Intangible assets with a finite life are written off over the expected period of use; those with an

indefinite life (primarily goodwill) are not amortized, but tested annually for impairment. The initial measurement of intangible assets (including goodwill), the estimation of useful life and the assumptions involved in the impairment test can have an effect on the consolidated financial statements.

›› Provisions: Provisions represent obligations arising from a

past event and are recognized only if settlement is likely to require an outflow of resources of unknown amount that can be estimated reliably. Nevertheless, provisions are based on assumptions, which may later prove to be incorrect.

Notes to the consolidated financial statements 58

›› Pension obligations: The calculation of the pension obligations of the defined benefit plans is based on actuarial assumptions that may be adjusted in the subsequent year to reflect changed circumstances and that may thus have an impact on the financial position, results of operations and cash flows.

›› Income tax: The Schaffner Group is subject to income tax

in numerous jurisdictions. Significant judgment is required in determining the provision for current and deferred income taxes. There are transactions and calculations for which the ultimate effective tax assessment is uncertain at the time of preparation of these financial statements. The recognition of deferred tax assets is based on management’s judgment. Deferred tax assets for tax loss carry-forwards are only recognized to the extent that it is probable they can be utilized. Their utilization depends on the ability to generate future taxable profits against which existing loss carry-forwards can be applied. Judging the probability of future utilization requires estimates of various factors, such as the future earnings situation. If the actual outcomes differ from the estimates, this can lead to changes in the assessed fair value of the deferred tax assets.

Definitions

A subsidiary is a company over which Schaffner Holding AG, Luterbach, directly or indirectly exercises control. The term “non-current liabilities” refers to all liabilities with remaining maturities of more than one year; “current liabilities” refers to all liabilities with remaining maturities of one year or less. Current liabilities thus also include that portion of non-current borrowings maturing within one year. All interest-bearing liabilities are included under borrowings. Methods of consolidation

The consolidated financial statements include the financial statements of Schaffner Holding AG and of its subsidiaries. Schaffner Holding AG and the subsidiaries are included by full consolidation. Under this method, these companies’ assets, liabilities, income and expenses are fully included in the consolidated financial statements. All intra-Group balances, income and expenses are eliminated on consolidation (both among the subsidiaries, and between the subsidiaries and Schaffner Holding AG). This also includes intra-Group profits on inventories and on non-current assets.

Companies acquired during the reporting period are included in the consolidated financial statements from the effective date of their acquisition. Companies divested during the reporting period remain included in the consolidated financial statements until the Group ceases to have control. Translation of subsidiaries’ functional currencies into the Group’s presentation currency

All assets and liabilities in the balance sheets of foreign subsidiaries drawn up in foreign currencies are translated into Swiss francs (CHF) at period-end exchange rates (i.e., at closing rates for the reporting period). Expenses, income and cash flows are translated into Swiss francs at weighted average exchange rates for the period, which approximate the actual transaction rates. Foreign exchange differences arising from the variation in applicable exchange rates are recognized directly in the consolidated statement of comprehensive income, where they are accumulated in the item “exchange differences”. Foreign currency transactions

Foreign currency transactions of subsidiaries are translated into the functional currency of the subsidiary at exchange rates prevailing at the transaction date (i.e., at transaction rates). Their foreign currency balances are translated at period-end exchange rates. Gains and losses arising from the recovery, settlement or translation of foreign currency monetary assets and liabilities are recognized as income or expense in the income statement. Intangible assets

Intangible assets are stated at historical cost less any amortization and impairment. Intangible assets other than goodwill (which is not amortized) are amortized on a straight-line basis over the following estimated useful lives: Trademarks, technology and rights Software Customer relationships

10 years 3 – 8 years 10 years

Acquisitions and goodwill

Companies are consolidated from the date at which control is acquired. Business combinations are accounted for using the acquisition method. The cost of an acquisition is calculated as the aggregate of the consideration transferred – measured at fair value at the acquisition date – and the amount of any non-controlling interest in the acquired company. For each business combination, the non-controlling interest in the acquired entity is measured either at fair value or at the proportionate share of the acquired company’s identifiable net assets. Acquisition costs incurred are recognized as an expense. Any contingent consideration payable is recognized at the acquisition date at fair value. Subsequent changes to the fair value of a contingent consideration which is deemed to be an asset or liability are recognized either in the consolidated income statement or in other comprehensive income. If the contingent consideration is classified as equity, it is not remeasured and its eventual settlement will be recognized in equity. If the acquisition cost of the company exceeds the market value of the acquired identifiable assets, liabilities, contingent liabilities and non-controlling interests, the difference is recognized as goodwill. Any negative goodwill is recognized in the income statement in the period of acquisition. Goodwill is assessed for impairment annually and any impairment is charged to the consolidated income statement. When a subsidiary is sold, the difference between its sale price and its net assets, plus cumulative exchange differences, is reported as operating income or expense in the consolidated income statement. Research and development costs

Development costs for new products are not capitalized, as a future economic benefit can be demonstrated only after a successful market launch. Development costs for software are capitalized as intangible assets, provided that the software will generate a future economic benefit through sale or through use within the Group and that its cost can be reliably estimated. Other conditions for capitalization are the technical feasibility of the asset and the intention and ability to complete its development and to either use or sell it. Intangible assets recognized for software development costs are amortized on a straight-line basis over their estimated useful life.

The capitalized costs are tested annually for impairment for as long as the software is not yet in use, or when there are objective indications of impairment. Property, plant and equipment

Items of property, plant and equipment are stated at historical cost less depreciation and impairment. They are depreciated on a straight-line basis over their estimated useful life, which is as follows: Land Buildings Machinery and equipment Furniture and fixtures Vehicles Information technology hardware Tools

Not depreciated 10 – 50 years 5 – 10 years 5 – 10 years 3 – 5 years 3 – 5 years 1 – 5 years

Leases under which a Group company as lessee has substantially all the benefits and risks of ownership are classified as finance leases. The leased asset is capitalized at the lower of its fair value or the present value of the minimum lease payments, and a liability of the same amount is recognized in borrowings. The interest portion (the finance charge) of the lease payments is charged to the income statement. Payments made under operating leases are recognized as an expense in the income statement in equal installments over the life of the lease.

Notes to the consolidated financial statements 60

The recoverable amount of an asset is estimated whenever there is an indication of impairment. If the asset’s carrying amount exceeds the recoverable amount, the difference is recorded as an impairment charge in the income statement.

flow of resources will be required to settle the obligation. If the outflow of resources is not probable or its amount cannot be determined with sufficient reliability, the obligation is reported in contingent liabilities. Provisions for warranty claims are as a rule determined and recognized based on historical experience.

The recoverable amount is the higher of an asset’s net selling price and its value in use. An asset’s value in use is the present value of the estimated future cash flows from the asset.

Where the effect of the time value of money is material, provisions are measured at the present value of the expected future expenditures.

Inventories

Restructuring provisions are recognized if the costs attributable to a restructuring plan can be determined reliably and represent a contractual obligation or a constructive obligation created by communication.

Impairment of non-financial assets

Products purchased for resale, and raw materials, are measured at cost of purchase. Internally produced goods are measured at the cost of conversion, including related production overhead. Inventories in the balance sheet, and the charge to the income statement for the conversion cost of goods sold (cost of sales), are measured using the standard cost method. The standard costs are regularly reviewed and, when necessary, brought into line with current circumstances. Inventories that are slow-moving or have a lower market value are written down. Unsaleable inventory is fully written off. Inventory is thus not measured at more than its net realizable value. Trade receivables

The carrying amount (also known as carrying value) of trade receivables is their nominal value less a provision for doubtful debts, i.e., for impairment. Securities held as current assets

Securities held as current assets are divided into two categories: listed securities and other securities. Listed securities are shares quoted on a stock exchange and are measured at market value. Other securities held as current assets are normally measured at fair value, with changes in value recognized in comprehensive income. In the unusual event that it is not possible to determine their market value, securities are measured at cost. Treasury shares are presented as a deduction from shareholders’ equity. Cash and cash equivalents

Cash and cash equivalents consist of cash in hand, bank deposits in postal and other bank accounts, bankers’ acceptances, and short-term time deposits with original maturities of up to 90 days. Provisions

Provisions are recognized when Schaffner has an obligation to a third party as a result of a past event, the amount of the obligation can be estimated reliably and it is probable that an out-

Revenue recognition and interest income

Net sales represent the revenue from goods sold and services rendered to third parties, net of discounts and other price reductions. Sales are recognized at the time that the benefits and risks of ownership of the products sold are transferred to the customer or that the service is rendered; the timing of this depends on the agreed shipment terms. Revenue is recognized if an economic benefit is likely to accrue to the Group and the amount of revenue can be reliably determined. Interest income is recognized on a time-proportion basis by the effective interest method unless the claim to the interest is in doubt. Pension obligations

The Schaffner Group operates a number of pension plans in various countries worldwide. The pension plans are generally financed by contributions from employees and the respective Group companies. The plans’ assets are as a rule held in legally separate trustee-administered funds, the management of which takes into account the recommendations of independent qualified actuaries. Where plan assets are not held in such segregated funds, those assets which serve to secure future pension obligations are recognized as other non-current assets in the Group’s consolidated balance sheet and the corresponding pension obligation is recorded in liabilities as a provision. For defined benefit plans, the future pension costs are assessed using the projected unit credit method. Under this method, the cost of providing future pensions is charged to the income statement in such a way as to spread the regular cost over the expected ser-

vice lives of employees. The amount of these costs and their distribution over employees’ service lives are determined in accordance with the advice of independent qualified actuaries. The Schaffner Group’s contributions to its pension plans are charged to the income statement in the year to which they relate. Accumulated unrecognized actuarial gains or losses exceeding the 10% “corridor” (10% of the greater of the present value of the defined benefit obligation or the fair value of the plan’s assets) are amortized in the income statement over the average of the remaining working lives of the participating employees. This recognition begins in the year following the year in which the corridor is exceeded. Borrowing costs

Borrowing costs are recognized as an expense in the period in which they are incurred. Segment reporting

With effect from 1 October 2011 the Schaffner Group converted from a functional to a divisional organizational structure consisting of the three divisions EMC, Power Magnetics and Automotive. This delineation of segments is consistent with the internal reporting on the basis of which the chief operating decision maker allocated resources to these segments and assessed their profitability. The Schaffner Group has identified the Executive Committee as the chief operating decision maker. Segment profit or loss represents the given segment’s operating profit or loss before amortization (if any) of customer relationships. Income tax

Current income tax is recognized on the basis of reported profits, in the period in which the profits arise. Tax is calculated in conformity with the applicable tax laws in the individual countries. Deferred income tax is recognized using the liability method. Under this approach, the income tax effects of temporary differences between carrying amounts in the financial statements and their tax bases used in the calculation of taxable income are recorded in non-current liabilities or non-current assets, using the tax rates that are expected to apply to the period when the asset is recovered or the liability settled. The change in deferred tax assets and liabilities is recognized as deferred income tax expense or benefit in the income statement, unless the temporary

difference arises from a transaction not affecting profit or loss. In the latter case, the change in deferred tax is recognized in the statement of comprehensive income. Deferred tax liabilities are calculated on all taxable temporary differences. Deferred tax assets, including assets for unused tax loss carryforwards, are only recognized to the extent it is probable that future taxable profits will be available which will allow the assets to be utilized. The determination of the amount of deferred tax assets to be recognized involves assumptions and estimates by management as to the likely timing and amounts of future taxable profits and as to future tax planning strategies. Financial assets and liabilities Financial assets and liabilities are classified into the following five categories:

›› Financial assets and liabilities at fair value through profit

or loss (these are assets classified as held for trading, and certain financial assets and liabilities designated as at fair value through profit or loss) ›› Financial investments held to maturity ›› Loans and receivables ›› Financial assets available for sale (this represents all financial assets not assignable to one of the categories above) ›› All other financial liabilities Financial assets are initially measured at fair value (including transaction costs, except in the case of financial assets at fair value through profit or loss, which are measured net of transaction costs). All purchases and sales of financial assets are recognized at the transaction date. Financial assets at fair value through profit or loss are subsequently measured at their fair value. Changes in value are reported as finance income or expense in the reporting period in which they occur. Financial instruments held to maturity, loans and receivables are initially measured at cost and subsequently measured at amortized cost using the effective interest method. Financial assets available for sale are subsequently measured at fair value, with changes in value (after income tax) recorded in shareholders’ equity. Upon sale, impairment or other disposal of the assets, the accumulated gains and losses recorded in shareholders’ equity since the purchase are reported in finance income or expense in the current period.

Notes to the consolidated financial statements 62

Assets not measured at fair value are tested for impairment at every balance sheet date. Financial assets are derecognized when Schaffner ceases to control them, i.e., when the related rights have been sold or have lapsed. Financial liabilities are derecognized when the contractual obligation is discharged, canceled or expires. Non-current financial liabilities are measured by the effective interest method. The interest expense therefore includes not only the actual interest payments but also the amounts for the unwinding of discount and for proportional transaction costs. Liabilities arising from trading activities and derivatives are measured at fair value. Derivative financial instruments and hedging

The Group uses derivative financial instruments to hedge its interest rate risks. Such derivatives are recognized at their fair value both at the date of the derivative contractâ&#x20AC;&#x2122;s inception and at every subsequent measurement. Derivatives with positive fair values are recorded as assets; derivatives with negative fair values are recorded as liabilities. Any gains or losses arising during the year from changes in fair value of derivative positions that were not entered into for hedging purposes are taken directly to the income statement. Cash flow hedges

Cash flow hedges are used to hedge exposure to variability in cash flows resulting from interest rate risks of a financial instrument. The effective portion of the gain or loss on the hedging instrument is recognized directly in the consolidated statement of comprehensive income, while any ineffective portion is recorded immediately in the income statement. Amounts recognized in the consolidated statement of comprehensive income are transferred to the income statement in the period in which the transaction occurs or when it is no longer expected that the transaction will occur. At the inception of a hedge relationship, the Group formally designates and documents the relationship, including documenting the risk management objective and strategy. The documentation also includes the identification of the hedge instrument, the hedged item or transaction, the nature of the risk being hedged and how the effectiveness of the hedge is to be assessed. If the hedging instrument expires or is sold or cancelled or its designation as a hedge is revoked, amounts previously recognized

in the consolidated statement of comprehensive income remain there until the forecast transaction occurs. Share-based payments

The fair value of granted share options is calculated using the Enhanced American Model (a sophisticated binomial model) at the grant date. Their fair value is expensed over the relevant vesting periods and also recorded as an increase in equity. The cumulative expenditure for share-based payment transactions from the balance sheet date to the vesting date represents the best estimate of the number of Schaffner shares which can then actually be purchased by employees. Expense adjustments for changes in expectations regarding the number of Schaffner shares which can be purchased are recognized in staff costs for the relevant reporting period. All options can only be exercised through the purchase of shares and are not cash-settled.

Foreign currencies

In the consolidation of Group companiesâ&#x20AC;&#x2122; separate financial statements, the following exchange rates were applied in translating foreign-currency-denominated accounts into Swiss francs: Balance sheet Country or region

Currency

China EU UK Hungary Japan Sweden Singapore Thailand Taiwan USA

CNY EUR GBP HUF JPY SEK SGD THB TWD USD

100 100 100 100 100 100 100 100 100 100

Income statement

30.9.2013

30.9.2012

2012/13

2011/12

in CHF

14.78 122.38 146.01 0.41 0.93 14.11 72.05 2.89 3.06 90.44

14.93 120.96 151.44 0.42 1.21 14.33 76.42 3.04 3.20 93.80

15.06 122.36 145.05 0.41 1.00 14.21 74.73 3.05 3.14 93.08

14.67 120.69 146.96 0.41 1.18 13.76 73.73 2.98 3.12 92.78

Business combinations

MTC Transformers

At 1 September 2011 the Group acquired the dry-type transformer division of US company MTC Transformers, Inc. under an asset purchase agreement.

The amount of USD 392 thousand (CHF 359 thousand) owed for fiscal 2011/12 was paid in the year under review.

The purchase price included an earn-out component of up to USD 800 thousand (CHF 645 thousand), payable in two installments on 30 September 2012 and 30 September 2013. The actual annual earn-out target was determined based on the amount by which EBITDA exceeded a fixed target of USD 1.2 million; the earn-out component was capped at a ceiling of USD 400 thousand per year.

In the prior year, CHF 361 thousand was paid as deferred consideration for the 2009 acquisition of BETEC-Engineering. All contractual payments arising from this acquisition have thus been made.

BETEC-Engineering

In the fiscal year under review the earn-out target was missed and the provision of CHF 362 thousand (USD 368 thousand) raised in the prior year for fiscal year 2012/13 was therefore released to other income. All contractual obligations arising from this acquisition have thus been settled.

Notes to the consolidated financial statements 64

Intangible assets

In CHF ’000

Cost at 1 October 2011 Additions purchased separately Additions developed internally Disposals Reclassifications Exchange differences Cost at 30 September 2012 Additions purchased separately Disposals Reclassifications Exchange differences Cost at 30 September 2013 Accumulated amortization and impairment at 1 October 2011 Amortization Disposals Exchange differences Accumulated amortization and impairment at 30 September 2012 Amortization Disposals Exchange differences Accumulated amortization and impairment at 30 September 2013 Net book value at 30 September 2012 Net book value at 30 September 2013

Trademarks, technology and rights

Software

Goodwill

Customer relationships

Intangible assets under construction

Total

5,385

9,818 387

9,012

8,515

474 16 268

– 31

– 292 758 24 10,695 182 – 2,320 103 – 14 8,646

33,204 403 268 – 323

137 9,149

73 8,588

77 5,431 – 283 – 86 5,062

– 1,235 – 467

– 758

187

311 33,863 369 – 2,603

– 103 – 156 8,993

– 60 8,528

– 316 31,313

– 2,613 – 855

– 5,305 – 1,352 292 – 13

– 9,153 – 2,674 292 – 1

– 1,701 – 470 283 10

– 6,378 – 1,430 2,320 12

– 3,457 – 864 – 13

– 11,536 – 2,764 2,603 9

– 1,878

– 5,476

– 4,334

– 11,688

3,730 3,184

4,317 3,170

9,149 8,993

5,131 4,193

22,327 19,624

Goodwill

Consistent with the internal organizational and reporting structure, goodwill impairment testing is conducted on an operating segment basis. For the purposes of reviewing goodwill in the balance sheet for impairment, the relevant cash-generating units are therefore defined as the segments. In CHF ’000

Electromagnetic Compatibility (EMC) Power Magnetics (PM) Total

The change in goodwill in the PM segment resulted from US dollar exchange rate fluctuation. As the goodwill in the EMC segment is measured in Swiss francs, it is not subject to currencyinduced variation. The goodwill in the balance sheet was tested for impairment in the year under review, by comparing the car-

At the balance sheet date, goodwill was allocated to cash-generating units as follows:

30.9.2013

30.9.2012

4,817 4,176 8,993

4,817 4,332 9,149

rying amount of the cash-generating units with their recoverable amount. Their recoverable amount equals their value in use. The calculations were made for a five-year period on the basis of estimated cash flows used in the business plan approved by the Board of Directors and on the basis of management’s estimates.

Cash flows beyond this period were extrapolated using a growth rate of 0%. The cash flow projections are based on historical experience and take into account potential variances from the underlying assumptions. The impairment test of goodwill carried in Discount rate (WACC) before tax

Electromagnetic Compatibility (EMC) Power Magnetics (PM)

The measurement of value in use is based on the following key assumptions: Discount rate (WACC) after tax

Long-term growth rate

30.9.2013

30.9.2012

30.9.2013

30.9.2012

30.9.2013

30.9.2012

8.7% 8.6%

8.0% 7.9%

7.1% 7.1%

6.5% 6.5%

0% 0%

A sensitivity analysis shows that a reduction of 10% in cash flows or an increase of 10% in the discount rate would not lead to impairment of goodwill. Using a zero growth rate for the projected

In CHF million

the balance sheet did not identify a need for an impairment charge.

cash flows from fiscal year 2014/15 would also not lead to impairment of goodwill. The sensitivity analysis shows the following safety margins:

Reduction in cash flow by 10%

Increase in discount rate by 10%

Zero growth in cash flow from 2014/15

240 53 293

264 60 324

209 14 223

EMC PM Total

Customer relationships

Customer relationships (existing at acquisition date) from the purchase price allocation of the former Jacke GmbH (now Schaffner Deutschland GmbH) and from the acquisition of the dry-type transformer division of US company MTC Transformers (now Schaffner MTC LLC) were valued and capitalized at

Schaffner Deutschland GmbH Schaffner MTC LLC

30 September 2013. The respective dates of these acquisitions were 3 November 2006 and 1 September 2011. At the balance sheet date the key information about customer relationships was as follows:

Carrying amount at 30.9.2013 in CHF â&#x20AC;&#x2122;000

Carrying amount at 30.9.2012 in CHF â&#x20AC;&#x2122;000

Useful life

Amortization method

Remaining useful life

1,616 2,577

2,120 3,011

10 years 10 years

Straight line Straight line

3 years 1 month 7 years 9 months

At the balance sheet date, all customer relationships subject to amortization pertained to the PM segment. The measurement at acquisition was performed by the excess earnings method. As the business performance of Schaffner MTC LLC did not meet expectations (especially in the first half of the fiscal year under review), an impairment test was carried out at the balance sheet date. This test did not show any need for an impairment charge, as the management expects a significant improvement in the situation in the next several years.

In the year under review, the business with traditional Schaffner PM products was in line with expectations. For this reason there was no indication of a possible impairment of customer relationships at Schaffner Deutschland GmbH at the balance sheet date.

Notes to the consolidated financial statements 66

Technology

At 30 September 2013 Schaffner carried on its books the “active harmonic filter” technology acquired with the purchase of BETEC-Engineering effective 5 January 2009 and the “drytype transformer” technology acquired with the dry-type transformer division of US company MTC Transformers effective 1 September 2011.

Active harmonic filters Dry-type transformers

At the balance sheet date the following material information can be reported concerning the measured technologies:

Carrying amount at 30.9.2013 in CHF '000

Carrying amount at 30.9.2012 in CHF '000

Useful life

Amortization method

Remaining useful life

1,121 2,005

1,316 2,342

10 years 10 years

Straight line Straight line

5 years 3 months 7 years 9 months

At the balance sheet date the dry-type transformer technology was associated with the PM segment and the active harmonic filter technology was associated with the EMC segment. The measurement at acquisition was performed using the relieffrom-royalty method. In the fiscal year under review as well, sales of active harmonic filters did not fully meet management’s expectations. An impairment test was therefore performed at the balance sheet date. This test identified no need for an impairment charge. Management believes that sales of active harmonic filters will rise in the next several years. As noted above, the business performance at Schaffner MTC in the past fiscal year fell short of expectations. At the balance sheet date the carrying amount of the dry-type transformer

technology was therefore tested for impairment. This test showed no need for an impairment charge. Management believes that business at Schaffner MTC also will recover in the next several years. In the consolidated income statement, amortization of intangible assets is included within cost of sales, marketing and selling expense, research, development and application expense, general and administrative expense and amortization of customer relationships.

Property, plant and equipment Land and buildings

Plant and machinery

Information technology hardware

Furniture and fixtures

Vehicles

Assets under construction

Total

9,874 3,701 – 1,519 139 404 12,599 840 – 1,754 63 – 211 11,537

32,383 1,793 – 1,255 931 971 34,823 2,264 – 355 423 – 907 36,247

4,395 142 – 124 8 60 4,481 285 – 1,655 1 – 51 3,063

2,346 142 – 942 – 15 38 1,569 66 – 53 1 – 42 1,541

1,116 69 – 36

1,068 807 – 3 – 1,064 – 9 800 1,238 – 269 – 488 – 64 1,217

51,182 6,654 – 3,879 0 1,479 55,436 4,786 – 4,209 0 – 1,292 54,721

– 5,462 – 814 1,205 – 194

– 21,014 – 2,618 1,266 – 621

– 3,791 – 303 117 – 47

– 1,918 – 131 906 16

– 795 – 136 18 – 11

– 32,980 – 4,002 3,512 – 857

– 5,265 – 1,015 1,754 134

– 22,987 – 2,632 348 624

– 4,024 – 291 1,655 44

– 1,127 – 152 19 34

– 924 – 105 117 15

– 34,327 – 4,195 3,893 851

– 4,392 7,334 2,840 7,147 2,755

– 24,647 11,836 32 11,600 15

– 2,616 457

– 1,226 442

– 897 240

800

447

316

219

1,217

In CHF ’000

Cost at 1 October 2011 Additions purchased separately Disposals Reclassifications Exchange differences Cost at 30 September 2012 Additions purchased separately Disposals Reclassifications Exchange differences Cost at 30 September 2013 Accumulated depreciation and impairment at 1 October 2011 Depreciation Disposals Exchange differences Accumulated depreciation and impairment at 30 September 2012 Depreciation Disposals Exchange differences Accumulated depreciation and impairment at 30 September 2013 Net book value at 30 September 2012 Of which finance leases Net book value at 30 September 2013 Of which finance leases

15 1,164 92 – 122 – 17 1,116

– 33,778 21,109 2,872 20,945 2,770

Notes to the consolidated financial statements 68

In the prior year a building was sold in Finland. This gave rise to a book profit of CHF 1.0 million, which was recorded in other income. Property, plant and equipment are covered by a Group-wide insurance policy. The maximum insured amount is CHF 80 million per claim.

In CHF ’000

Operating leases Minimum lease payments due: Within 1 year In more than 1 year and not more than 5 years Thereafter Total minimum payments Subleases Total future minimum income from sublease arrangements Total minimum income

In fiscal year 2012/13, total operating lease expenses were CHF 4.4 million (prior year: CHF 4.3 million). Total sublease income in 2012/13 was CHF 534 thousand (prior year: CHF 507 thousand). Finance lease

At 1 January 2012 the Group moved into the new logistics center in Wittelsheim, France. This facility is accounted for as 5

At the end of the fiscal year there were commitments to purchase property, plant and equipment in the amount of CHF 333 thousand (prior year: CHF 310 thousand). Operating leases

The future minimum payments under non-cancelable operating leases (mainly rent for office and manufacturing space), and future minimum sublease income under non-cancelable subleases, are presented in the table below: 30.9.2013

30.9.2012

3,225 6,275 0 9,500

4,203 10,661 396 15,260

991 991

1,308 1,308

a finance lease with an acquisition cost of EUR 2.4 million (CHF 2.9 million) in the land and buildings category. The logistics center is depreciated on a straight-line basis over a useful life of 25 years. From 1 January 2019 the Schaffner Group has the option of purchasing the building at the residual lease obligation plus administrative costs. At the end of the lease term (31 December 2023) the Schaffner Group also has the right to buy the building for EUR 240 thousand.

Other non-current assets

In CHF ’000

Present value of defined benefit assets and IFRIC 14 asset1 Rental/utility security deposits and guarantees Total other non-current assets

30.9.2013

30.9.2012

11,089 1,432 12,521

11,980 1,347 13,327

30.9.2013

30.9.2012

11,154 3,545 13,395 28,094

11,930 3,800 14,143 29,873

See note 14, page 72.

Inventories

In CHF ’000

Raw materials Work in process and semi-finished goods Finished goods Total inventories

Inventory provisions In CHF ’000

At 1 October Created Used Unused amounts reversed Exchange differences At 30 September

2012/13

2011/12

3,187 1,125 – 422 – 449 – 54 3,387

2,779 1,064 – 241 – 491 76 3,187

30.9.2013

30.9.2012

34,420 – 399 34,021

35,141 – 375 34,766

30.9.2013

30.9.2012

3,277 540 3,817

2,819 855 3,674

The amount of expensed inventories in the reporting period was CHF 97.5 million (prior year: CHF 88.3 million). 7

Trade receivables

In CHF ’000

Trade receivables, gross Provision for doubtful debts Total trade receivables

Other receivables, prepaid expenses and accrued income

In CHF ’000

Other receivables Prepaid expenses and accrued income Total other receivables, prepaid expenses and accrued income

Provisions

Warranty provisions

Provisions for employee benefits1

Restructuring provisions

Other provisions

Total

2,845 1,472 – 1,016 – 414

3,505 368 – 227 – 17

1,201

40 2,927 960 – 355 – 1,214

3,629 363 – 207 – 87

852

2,526 348 – 848 – 453 26 18 1,617 77 – 195 – 592 13 1 921 22 1,595 1,617 9 911 921

10,077 2,188 – 2,431 – 913 46 58 9,025 1,400 – 1,002 – 1,893 13 – 16 7,527 6,091 2,934 9,025 5,558 1,969 7,527

In CHF ’000

At 1 October 2011 Created Used Unused amounts reversed Unwinding of discount Exchange differences At 30 September 2012 Created Used Unused amounts reversed Unwinding of discount Exchange differences At 30 September 2013 Non-current provisions Current provisions Total provisions at 30 September 2012 Non-current provisions Current provisions Total provisions at 30 September 2013 See note 14, page 72.

– 11 2,307 1,830 1,097 2,927 1,491 816 2,307

– 9 3,689 3,629 3,629 3,689 3,689

– 340 – 29 20

– 246

4 610 610 242 852 368 242 610

Notes to the consolidated financial statements 70

Current provisions relate to cash outflows expected to occur within twelve months. Non-current provisions relate to outflows due after more than twelve months; where the time value of money is significant, the expected cash flows are discounted. Warranty provisions

The warranty provisions were created primarily for the warranty risks inherent in the nature of the business activities. Warranty provisions are measured based on historical experience regarding repairs and returns and adjusted to reflect current sales volumes. The outflows are expected to occur within one to three years. Provisions for employee benefits

Employee benefit provisions consist mainly of pension provisions for unfunded defined benefit plans in Germany, Thailand and France. Restructuring provisions

The restructuring provisions were created after the discontinuation of production at the Luterbach site, for resulting un-

In CHF ’000

Bank loans in Switzerland Bank loans in China Bank overdrafts Interest rate swap Finance leases Total borrowings Of which: Current borrowings Non-current borrowings

The debt financing of the Schaffner Group is assured through credit lines with four banks, with a credit limit of CHF 12.5 million per facility. These credit agreements are tied to covenants, which were fulfilled both during the year and at the balance sheet date.

used leased factory space that is not sublet. In the year under review, CHF 0.2 million of this provision was used. Schaffner believes that, until the expiration of the current lease for this space, a considerable portion of it will not be successfully sublet. The provision at the balance sheet date was CHF 0.6 million. The cash outflows are expected to occur within one to two years. Other provisions

The category “other provisions” includes provisions of CHF 0.7 million for tax risks and onerous contracts. For disputes under employment law with former employees, a provision of CHF 0.2 million was raised. The components of other provisions are almost entirely current in nature and will involve cash outflows within one year. 10 Borrowings

The average interest rate payable on borrowings in fiscal year 2012/13 was 3.2% (prior year: 3.4%). The composition of borrowings is shown in the following table: Effective interest rate at 30.9.2013

30.9.2013

30.9.2012

LIBOR + 1.7% 4.28% 4.125% 1.1575% 4.514%

24,543 2,364 533 266 2,657 30,363

27,879 5,024 6 434 2,810 36,153

549 29,814

194 35,959

The remaining maturities of the Group’s individual bank borrowings at the balance sheet date ranged up to 7.5 months. Under the credit agreements, they can be rolled over continuously until at least 16 April 2015.

Trade and other payables

In CHF ’000

Trade payables Other payables Accrued expenses Total trade and other payables

30.9.2013

30.9.2012

27,350 3,587 9,314 40,251

20,281 3,900 7,991 32,172

12 Contingent liabilities and pledged assets

As a company with worldwide operations, Schaffner is exposed to numerous legal risks. The outcome of currently pending legal proceedings cannot be predicted with certainty. Provisions are established inasmuch as the financial consequences of a past event can be estimated reliably and the estimate can be confirmed by independent expert opinion.

Assets of CHF 47 thousand (prior year: CHF 49 thousand) were pledged as collateral for electricity consumed. There are no other terms and conditions associated with the use of collateral.

13 Staff costs and staff count In CHF ’000

2012/13

2011/12

Wages and salaries Share-based payments expense1 Social security and other costs Pension costs for defined benefit plans2 Total staff costs

46,436 – 952 11,634 884 58,002

43,224 1,100 10,814 – 269 54,869

2,817

2,569

Number of employees in full-time equivalents (average for the year) See note 18, page 77. See note 14, page 72.

Notes to the consolidated financial statements 72

14 Post-employment and other long-term employee benefits

In addition to the statutory social insurance plans (which include pension plans), the Group maintains employee benefit plans that are defined benefit plans under IAS 19. The plan assets and defined benefit obligations are remeasured every year and were valued by independent actuaries at 30 September 2013. Accumulated unrecognized actuarial gains or losses exceeding the 10% “corridor” (10% of the greater of the present value of the defined benefit obligation or the fair value of the plan’s assets) are amor-

tized in the income statement over the average of the remaining working lives of the participating employees. A pension plan surplus is capitalized when there is an economic benefit to the Group from the overfunding of a pension plan under IAS 19. This economic benefit is calculated on the basis of future reductions in contributions, in accordance with IFRIC 14. The plan assets are largely held in separate funds external to the Group (referred to as “funded plans”). To the extent that plans are not held in such segregated funds (i.e., to the extent that they are “unfunded”), the plan assets and liabilities are recognized in the balance sheet.

In CHF ’000

30.9.2013

30.9.2012

Funded plans Fair value of defined benefit assets Present value of defined benefit obligations Unrecognized actuarial loss Net defined benefit plan assets

36,537 – 32,241 5,944 10,240

35,169 – 30,429 5,138 9,878

– 3,119 – 3,119

– 3,137 – 3,137

– 570 – 570

– 492 – 492

2012/13

2011/12

– 34,058 – 1,090 – 592 – 713 – 1,863 0 2,144 238 5 – 35,930

– 32,128 – 1,195 – 552 – 793 – 2,283 1,283 1,472 136 2 – 34,058

In CHF ’000

2012/13

2011/12

Movement in fair value of defined benefit assets At 1 October Expected return on plan assets Actuarial gain Employer contributions Employee contributions Benefits paid Insurance premiums At 30 September

35,169 1,172 802 998 592 – 1,958 – 238 36,537

31,888 1,165 2,052 937 552 – 1,289 – 136 35,169

Unfunded plans and employee benefits Provisions for pensions Present value of pension obligations recognized in the balance sheet Other Provisions for other employee benefits Present value of other employee benefit obligations recognized in the balance sheet In CHF ’000

Movement in present value of defined benefit obligations At 1 October Current service cost of employer Employee contributions Interest cost Actuarial loss Effect of curtailment Benefits paid Insurance premiums Exchange differences At 30 September

In CHF ’000

30.9.2013

30.9.2012

Amounts recognized in the balance sheet Present value of defined benefit assets Net defined benefit plan assets Provisions for pensions Other employee benefits

849 10,240 – 3,119 – 570

2,102 9,878 – 3,137 – 492

In CHF ’000

2012/13

2011/12

Amounts recognized in the income statement Current service cost of employer Interest cost Expected return on plan assets Effect of curtailment Recognized actuarial loss Pension cost

– 1,090 – 713 1,172 0 – 253 – 884

– 1,195 – 793 1,165 1,283 – 191 269

2012/13

2011/12

5.4% 2.1% 3.3% 1.1% 0.1% 5.5%

9.1% 2.1% 3.3% 1.0% 0.0% 1.4%

30.9.2013

30.9.2012

11,228 14,783 4,976 5,550 36,537

10,621 14,208 4,713 5,627 35,169

Return on plan assets and actuarial assumptions Actual rate of return on plan assets Discount rate Expected rate of return on plan assets Expected rate of salary increases Expected rate of increase in future pensions Rate of experience loss on defined benefit obligations In CHF ’000

Allocation of plan assets Equities Bonds Property Other assets Fair value of defined benefit assets

The expected return on plan assets is based on the asset allocation at the beginning of the year and the following expected rates of return for each asset class: Liquid assets 0.25%, Swiss bonds 1.50%, foreign currency bonds 1.60%, mortgages 2.00%, prop-

erty 4.00%, Swiss equities 5.80%, foreign equities 6.00%, alternative investments 4.00%. Returns in the subsequent year are expected to be in line with those of the year under review.

History of defined benefit plans and experience adjustments In CHF ’000

Fair value of defined benefit assets Present value of defined benefit obligations Plan surplus/(deficit) Rate of experience loss/(gain) on plan assets Rate of experience loss on defined benefit obligations

In total, the Group expects to contribute CHF 1.5 million to post-employment benefit plans in the subsequent year (year under review: CHF 1.6 million).

2012/13

2011/12

2010/11

2009/10

2008/09

36,537 – 35,930 607 2.2% 5.5%

35,169 – 34,058 1,111 5.8% 1.4%

31,888 – 32,128 – 240 –5.0% 0.8%

31,777 – 33,961 – 2,184 –1.8% 1.9%

33,634 – 32,816 818 –0.5% 1.2%

Notes to the consolidated financial statements 74

15 Finance income and expense Finance income In CHF ’000

2012/13

2011/12

185 4,489 4,674

31 1,913 1,944

In CHF ’000

2012/13

2011/12

Interest expense Foreign exchange losses Other finance expense Total finance expense

– 1,272 – 5,187 – 287 – 6,746

– 1,457 – 2,405 – 290 – 4,152

In CHF ’000

2012/13

2011/12

Current tax in respect of the current year Adjustments in respect of prior periods, net Current tax

– 1,124 – 84 – 1,208

– 860 – 124 – 984

Current tax Deferred tax Income tax

– 1,208 152 – 1,056

– 984 – 142 – 1,126

Interest income Foreign exchange gains Total finance income

Finance expense

Income tax

Deferred tax consisted of i) deferred tax assets of CHF 46 thousand (prior year: deferred tax liabilities of CHF 212 thousand) from the origination and reversal of temporary differences and the resulting capitalization of tax effects of loss carryforwards, and ii) deferred tax assets of CHF 106 thousand (prior year: deferred tax assets of CHF 70 thousand) from changes in tax rates. Deferred tax liabilities of CHF 1.5 million (prior year: deferred

tax liabilities of CHF 1.1 million) for temporary differences in connection with reinvested profits in subsidiaries were not recognized at the end of the fiscal year, as the Group is able to control the timing of reversal of these differences. Unused tax losses for which no deferred tax asset was recognized in the balance sheet were as follows:

In CHF ’000

2012/13

2011/12

Expiry in 1 year Expiry in 2 years Expiry in 3 years Expiry in 4 years Expiry in 5 years Expiry in more than 5 years Total unused tax loss carryforwards

201 33 902 4,420 3,729 3,878 13,164

0 0 1,129 1,003 4,440 9,237 15,809

Reconciliation of profit before tax (EBT) to income tax expense: In CHF ’000

2012/13

2011/12

Profit before tax reported in the income statement Nominal tax rate Expected income tax at nominal tax rate Effect of non-recognition of tax loss carryforwards Effect of tax rates other than nominal tax rate Effect of expenses not deductible for tax purposes Effect of non-taxable income Utilization of previously unrecognized tax losses or gains Adjustments in respect of prior periods Non-refundable withholding taxes Change in recognition of tax loss carryforwards Effect of changes in tax rates or of new taxes Other Income tax expense reported in the income statement

7,343 20% – 1,464 – 333 – 14 – 85 144 231 – 84 – 90 563 106 – 30 – 1,056

5,034 21% – 1,064 – 396 28 – 318 100 85 – 124 – 299 805 70 – 13 – 1,126

The Group’s nominal tax rate for 2012/13 is 19.94% (prior year: 21.14%). It is calculated as the weighted average of the products from multiplying each Group company’s earnings before tax by the respective local statutory tax rate.

At the balance sheet date, the deferred tax liabilities and assets were attributable to items in the balance sheet as follows:

In CHF ’000

2012/13

2011/12

Intangible assets Property, plant and equipment Other non-current assets Inventories Trade receivables Provisions Trade and other payables Tax loss carryforwards Net deferred tax assets Of which: Reported in the balance sheet as deferred tax liabilities Reported in the balance sheet as deferred tax assets

– 471 – 662 – 1,936 1,140 43 409 755 1,457 734

– 485 – 503 – 1,849 935 32 514 569 1,457 670

– 2,270 3,004

– 2,194 2,864

Notes to the consolidated financial statements 76

17 Operating segments

The Schaffner Group consists of three reportable segments: Electromagnetic Compatibility, Power Magnetics and Automotive. They represent the organizational units for which results were reported to the Executive Committee (the Group’s chief operating decision maker). Electromagnetic Compatibility (EMC)

The EMC division develops and manufactures standard and custom components that protect power electronic equipment from line interference (ensuring electromagnetic compatibility) as well as power quality filters to safeguard the stability of power grids. The key sales markets include energy-efficient drive systems, renewable energy, power supplies for electronic devices, machine tools, robotics and electrical infrastructure. Power Magnetics (PM)

The Power Magnetics division develops and manufactures power magnetic components (chokes and transformers) that ensure the reliability of power electronic systems, as well as customized high-performance transformers for demanding applications. Power magnetic components are an integral part of 2012/13

high- and ultra-high-performance systems for power conversion. The main sales markets include energy-efficient drive systems, renewable energy and rail technology. Automotive (AM)

The Automotive division develops and manufactures components for convenience and safety features in cars and for the drive trains of hybrid and electric vehicles. Corporate

The “corporate” column comprises all costs for Group functions that cannot be allocated to a particular segment. These are primarily the expenses of Schaffner Holding AG and, in the prior year, acquisition costs. No operating segments have been aggregated to form these reportable operating segments. No reconciliation of the management reporting data to the financial reporting data is required or provided, as the internal and external reporting follow the same accounting and presentation policies.

EMC

Corporate

109,685 14,071

53,924 2,963

31,280 – 1,973

– 4,783

EMC

Corporate

105,784 12,552

46,495 – 284

24,663 563

– 4,733

Group

In CHF ’000

Net sales Segment operating profit/(loss) Amortization of customer relationships Operating profit [EBIT] Finance income Finance expense Profit before tax [EBT] Income tax Net profit for the period 2011/12

194,889 10,278 – 864 9,414 4,674 – 6,746 7,343 – 1,056 6,287 Group

In CHF ’000

Net sales Segment operating profit/(loss) Amortization of customer relationships Operating profit [EBIT] Finance income Finance expense Profit before tax [EBT] Income tax Net profit for the period

176,942 8,098 – 855 7,243 1,944 – 4,152 5,035 – 1,126 3,909

Information by region

In the analysis below, net sales with external customers are allocated to regions according to the domicile of the Schaffner comIn CHF ’000

Net sales Non-current assets

In CHF ’000

Net sales Non-current assets

pany which generated the revenue. The non-current assets consist of property, plant and equipment and intangible assets in the respective countries.

Switzerland

Rest of Europe

Europe total

Asia

North America

Group

3,780 5,407

92,244 12,738

96,024 18,145

69,210 12,162

29,655 10,263

194,889 40,569

Switzerland

Rest of Europe

Europe total

Asia

North America

Group

4,776 6,423

88,494 13,652

93,270 20,075

52,356 12,226

31,316 11,135

176,942 43,436

Information by customer

No single external customer represented 10% or more of net sales. 18 Equity incentive plans

The Schaffner Group maintains several equity incentive plans (share ownership plans) for key executive management and the Board of Directors. These are option-based plans (ESOP and POP) and share-based plans (RSP). In the fiscal year under review the Board of Directors decided to replace the Employee Share Option Plan for key executive management and Board members (ESOP) with a Restricted Share Plan (RSP). This means that no further share options are awarded since fiscal year 2012/13. However, any rights associated with previously issued options remain intact. Option-based incentive plans

Since 1 October 1998, the Group has granted options over ordinary registered shares of Schaffner Holding AG to key executive management and to members of the Board of Directors. The awarding of such options was based on the Schaffner Holding AG Employee Share Option Plan 1998 (ESOP) – before and after the changes to the ESOP on 13 November 2006 – and on the Schaffner Holding AG Performance Option Plan (POP). The shares allocated to satisfy the combined obligations under the ESOP and POP comprise both (i) authorized unissued share capital of CHF 2.4 million, consisting of 72,342 registered shares of Schaffner Holding AG with a nominal value of CHF 32.50 per share, and (ii) treasury shares.

›› Employee Share Option Plan (ESOP) options issued be-

fore the plan amendment of 13 November 2006: Equitysettled share options granted under the pre-amendment ESOP ordinarily vested in five annual installments of 20%, beginning one year after the grant date. Five years after the grant date, all granted options were thus ordinarily vested. The options were granted over three years in equal annual tranches. This resulted in a different vesting period for each tranche. Unexercised options expire ten years after the grant date.

›› ESOP options issued after the plan amendment of 13 No-

vember 2006: Equity-settled share options granted after the plan amendment become vested ordinarily in four annual installments of 25% each, beginning one year after the grant date. Four years after the grant date, all granted options are thus ordinarily vested. Unexercised options expire seven years after the grant date.

›› Performance Option Plan (POP): 100% of equity-settled POP share options ordinarily vested (provided that the non-vesting conditions were satisfied) if the performance target was reached at 30 September 2013. Unexercised options expire ten years after the grant date.

As the POP’s performance target at 30 September 2013 was not reached, all expenses recognized in prior periods for this item, totalling CHF 1.2 million, were reversed in the year under review. This amount was recognized as a deduction item in general and administrative expense and correspondingly reduced the related reserves formed in the prior periods.

Notes to the consolidated financial statements 78

30.9.2013

30.9.2012

Number of share options outstanding

Average exercise price in CHF

Number of share options outstanding

Average exercise price in CHF

70,019 0 – 4,097 – 31,389 34,533

188

66,422 11,400 – 1,763 – 6,040 70,019

188 235 163 289 188

20,905 5,858 64,161 0

197

At 1 October Granted in the year Exercised in the year Expired/cancelled in the year At 30 September Of which: Vested Covered by treasury shares Covered by authorized unissued share capital

22,439 4,811 29,722 0

In the prior year, share options were granted for the last time on 21 November 2011, with an exercise price of CHF 235.00. No new share options have been granted since then.

172 168 208 200

The terms of the share options outstanding at the end of the fiscal year were as follows:

30.9.2013 Expiry date

20.11.2012 14.11.2013 24.11.2013 17.04.2014 09.11.2014 29.11.2014 11.11.2015 14.11.2015 30.11.2016 13.01.2017 21.11.2017 14.11.2018 14.11.2018 21.11.2018 Total share options outstanding

30.9.2012

Number of share options

Exercise price in CHF

Number of share options

Exercise price in CHF

0 718 1,417 500 2,899 1,918 1,493 3,150 6,013 1,000 6,910 0 0 8,515 34,533

159.00 212.00 192.00 250.00 260.00 180.00 180.00 153.50 159.90 157.00 240.50 153.50 235.00 235.00

1,166 1,400 1,617 500 3,799 2,118 2,071 4,525 7,513 1,000 8,030 25,000 1,500 9,780 70,019

159.00 212.00 192.00 250.00 260.00 180.00 180.00 153.50 159.90 157.00 240.50 153.50 235.00 235.00

The Enhanced American Model (a sophisticated binomial model) used to determine the fair value of the options granted is based on the following parameters: 2012/13 No grant

2011/12 ESOP grant date 21.11.2011

POP grant date 21.11.2011

235.00 35.30% 1.50% 0.34% 5.07 years 5.00% 235.00 62.65

235.00 34.10% 1.50% 0.30% 4.82 years 5.00% 235.00 59.91

Share price at grant date in CHF Expected volatility1 Expected dividend yield Risk-free interest rate Expected life of option Expected staff departure rate per year after vesting period Exercise price in CHF Fair value in CHF

The expected volatility is calculated from historical long-term volatilities. These volatilities are based on daily returns from Schaffner’s IPO (June 1998) to the respective grant date. The annualization of the volatility assumes 252 trading days.

In the year under review, income of CHF 995 thousand (prior year: expense of CHF 999 thousand) on share option plans was recognized in the income statement.

In the prior year the participants purchased 845 such shares, at an aggregate discount of CHF 42 thousand. Restricted Share Plan BETEC

Share-based incentive plans Restricted share plans

In the fiscal year under review, executive management and the members of the Board of Directors were granted restricted shares. This Restricted Share Plan replaces another compensation element, the share options awarded in prior years under the Employee Share Option Plan (ESOP). The shares are subject to a three-year holding period, during which they carry full voting and dividend rights. In the event that the recipient leaves the company during the holding period, the shares do not revert to the company, but remain subject to the holding period. In the year under review, 2,345 shares with a fair value of CHF 227 per share were granted. The expense of CHF 532 thousand was recognized in the fiscal year under review.

At 28 January 2009, key staff members of the acquired BETECEngineering were granted 620 restricted shares. These shares carry full voting and dividend rights; they were to revert to Schaffner if the grantees did not remain employed with the company for four years. The fair value of these restricted shares of CHF 145 per share was charged to the income statement over the term of four years. In the year under review, CHF 6 thousand (prior year: CHF 22 thousand) was charged to the income statement.   Restricted Share Plan MTC

At 1 September 2011, key personnel of the acquired division of MTC Transformers, Inc. were granted 570 restricted shares. These shares carry full voting and dividend rights; they revert to Schaffner if the grantees do not remain employed with the company for four years.

Restricted Share Plan 2012

In the prior year, the members of the Executive Committee and other senior executive management were entitled for the last time to subscribe for restricted shares, in a quantity determined by the Board of Directors, at a discount of 20% to the quoted market price of the Company’s shares. These shares are subject to a four-year holding period. The difference between the fair value at the grant date and the amount paid by the staff member was recorded immediately in staff costs.

The fair value of these restricted shares of CHF 258 per share is charged to the income statement over the term of four years. In the year under review, CHF 37 thousand (prior year: CHF 37 thousand) was charged to the income statement.

Notes to the consolidated financial statements 80

19 Earnings per share Basic earnings per share

Basic earnings per share are calculated by dividing the net profit for the period attributable to shareholders of Schaffner Holding AG by the weighted average number of ordinary shares outstand-

ing during the reporting period, excluding ordinary shares purchased by the Group and held as treasury shares.

Basic earnings per share Net profit for the period in CHF ’000 Weighted average number of shares outstanding entitled to dividend Basic earnings per share in CHF

2012/13

2011/12

6,287 633,859 9.92

3,909 632,990 6.17

Diluted earnings per share

Diluted earnings per share are calculated by dividing the net profit for the period attributable to shareholders of Schaffner Holding AG by the weighted average number of ordinary shares

outstanding during the reporting period, including all shares that would result from the exercise of all potentially dilutive outstanding share options. 2012/13

2011/12

6,287 3,733 637,592 9.86

3,909 15,518 648,508 6.03

Number of shares

Average share price in CHF

At average price in CHF '000

At 1 October 2011 + Purchase1 – Shares utilized to satisfy Employee Share Option Plan2 – Shares utilized for restricted shares plans2 Valuation differences3

4,791 4,420 – 1,763 – 1,590

337

1,617 980 – 288 – 169 – 671

At 30 September 2012 + Purchase1 – Sale1 – Shares utilized to satisfy Employee Share Option Plan2 – Shares utilized for restricted shares plans2 Valuation differences3

5,858 5,086 – 1 – 4,097 – 2,035

251

1,469 1,104 0 – 704 – 532 – 287

4,811

218

1,050

Diluted earnings per share Net profit for the period in CHF ’000 Relevant share options outstanding, in number of shares Weighted average number of shares outstanding used in calculation of diluted earnings per share Diluted earnings per share in CHF

Treasury shares

At 30 September 2013

At share prices quoted at transaction date 2 At exercise price 3 The difference between the average purchase price and the exercise price or selling price is taken to retained earnings.

Financial instruments

The Schaffner Group has a variety of financial assets that arise directly from its own business operations (such as cash and cash equivalents, receivables, prepaid expenses and accrued income), Financial assets

as well as other non-current assets. At the balance sheet date, the fair values of the Group’s financial assets did not differ from their carrying amounts. Carrying amount

In CHF ’000

Cash and cash equivalents2 Receivables, prepaid expenses and accrued income2 Other financial assets1, 2 Total financial assets

Fair value

30.9.2013

30.9.2012

30.9.2013

30.9.2012

17,012 37,838 5,511 60,361

10,256 38,441 3,412 52,109

17,012 37,838 5,511 60,361

10,256 38,441 3,412 52,109

Excluding defined benefit assets and IFRIC 14 asset. Classified to the loans and receivables category.

The main financial liabilities of the Schaffner Group are bank borrowings and trade payables. These financial liabilities are principally intended to ensure the financing of the Group’s dayto-day business operations. The fair values of the financial liabilities as a rule do not differ from their carrying amounts. At 30 September 2013 Schaffner also had an open interest rate swap position with a negative fair value of CHF 265 thousand (prior year: CHF 434 thousand). The swap was designated as a cash flow hedge of future variable interest payments. The variable interest payments relate to the Group’s debt financing. The hedge was contracted on the following terms in July 2010:

›› Notional principal amount: ›› Maturity date: ›› Reference rate: ›› Fixed rate:

CHF 12 million 26 July 2015 CHF, 3-month LIBOR 1.1575%

Financial liabilities (including derivatives) In CHF ’000

Non-current borrowings1 Current borrowings1 Trade and other payables1 Derivative financial instruments2 Total financial liabilities, including derivatives Measured at amortized cost. Classified as financial liabilities at fair value through profit or loss.

At the balance sheet date the management of the Schaffner Group considers that the credit facility will remain drawn in the amount of CHF 12 million until at least the expiry of the swap. In view of this circumstance and the matching other critical terms of the credit facility and the hedge, the Schaffner Group assesses this hedge as highly effective at the balance sheet date. The variable interest rate payments are due every quarter; the final such payment under this hedge is expected to occur in July 2015. In the year under review, as the hedge relationship is deemed highly effective, an unrealized gain of CHF 169 thousand (prior year: unrealized gain of CHF 10 thousand) was recognized in the statement of comprehensive income rather than in profit or loss. No hedging reserves had to be removed from equity and taken to profit or loss.

Carrying amount

Fair value

30.9.2013

30.9.2012

30.9.2013

30.9.2012

29,549 549 40,251 265 70,614

35,525 194 32,172 434 68,325

29,549 549 40,251 265 70,614

35,525 194 32,172 434 68,325

Notes to the consolidated financial statements 82

The financial assets and liabilities measured at fair value are categorized into the following fair value hierarchy according to the valuation technique used:

›› Level 2: Techniques for which all inputs that have a sig-

›› Level 1: Quoted prices (unadjusted) in active markets for

›› Level 3: Techniques using inputs that have a significant ef-

identical assets or liabilities.

nificant effect on the recorded fair value are based on directly or indirectly observable market data.

fect on the recorded fair value and are not based on observable market data.

Analysis by level in the fair value hierarchy 2012/2013 in CHF '000

Liabilities measured at fair value Derivative financial instruments Total liabilities measured at fair value

2011/12

Level 2

Total

Level 2

Total

265 265

434 434

In the reporting period the Group had no financial assets or liabilities that were classified as Level 1 or Level 3 in the fair value hierarchy. There were also no reclassifications between levels. Financial instruments

Loans and receivables

Financial liabilities at amortized cost

Financial liabilities at fair value through profit or loss

Carrying amount at 30 September 2013 Interest income/(expense) Foreign exchange losses1 Net other finance expense Change in provision for doubtful debts Net loss recognized in the income statement Net loss recognized in equity2 Total net loss in 2012/13

60,361 185 – 611

70,349 – 1,248 – 87 – 287

265 – 24

– 1,622

– 24

– 1,622

– 24

Carrying amount at 30 September 2012 Interest income/(expense) Foreign exchange losses1 Net other finance expense Change in provision for doubtful debts Net loss recognized in the income statement Net loss recognized in equity2 Total net loss in 2011/12

52,109 30 – 392

67,891 – 1,430 – 100 – 290

434 – 23

– 1,820

– 23

– 1,820

– 23

In CHF ’000

– 183 – 609 – 69 – 678

– 92 – 454 92 – 362

The foreign exchange gains/losses from intra-Group loans are as a rule classified to the loans and receivables category. From valuation of equity-like loans.

Total

– 1,087 – 698 – 287 – 183 – 2,255 – 69 – 2,324

– 1,423 – 492 – 290 – 92 – 2,297 92 – 2,205

The most significant risks in connection with the Group’s financial instruments are interest rate, foreign currency, credit and liquidity risk. The Audit Committee approves and reviews the guidelines for the monitoring, reporting and control of all these risks, which are summarized below. Interest rate risk

The Schaffner Group’s exposure to risk from fluctuations in interest rates was related primarily to short-term interest-bearing financial assets and financial liabilities such as bank loans. In the

reporting period the Group entered into hedges in the form of interest rate swaps in order to reduce the interest rate risk on bank loans, which is tied to 3-month LIBOR. The table below presents the sensitivity of profit before tax (EBT) to a reasonably possible change in interest rates when all other variables are held constant. The change in interest rates, expressed in basis points, is based on the actual range of fluctuation observed during the respective fiscal year.

2012/13

2011/12

Decrease in basis points

Effect on EBT in CHF '000

Decrease in basis points

Effect on EBT in CHF '000

2 97 17 6

1 – 26 – 8 6

5 104 51 14

3 35 – 12 12

CHF CNY EUR USD

Respectively, increases in interest rates by the same number of basis points as that shown in the preceding table have an effect equal and opposite to that shown. Foreign exchange risk

Its worldwide activities and its focus on exports expose the Schaffner Group to currency risks arising from the purchase and sale of goods in foreign currencies which are not invoiced in the functional currency of the respective subsidiary. This foreign exchange risk resulting from business operations can be reduced by buying and selling primarily in the subsidiary’s own foreign currency (natural hedging). As well, on a monthly basis, Schaffner analyzes and quantifies the foreign exchange risks and

assesses the need for risk management measures under internally defined foreign exchange guidelines, which require an intervention whenever the calculated value-at-risk exceeds 10% of budgeted EBIT. The table below shows the sensitivity of profit b efore tax (EBT) and of shareholders’ equity to a reasonably possible movement in the exchange rates of the euro, US dollar and Thai baht against the Swiss franc when all other variables are held constant.

2012/13

EUR/CHF USD/CHF THB/CHF

2011/12

Increase in %

Effect on EBT in CHF '000

Effect on equity in CHF '000

Increase in %

Effect on EBT in CHF '000

Effect on equity in CHF '000

2 5 7

152 486 – 600

48 30 0

4 8 7

347 420 – 461

93 49 0

Respectively, decreases in exchange rates by the same percentage amounts shown in the preceding table have an effect equal and opposite to that shown. The percentage movement in exchange rates is based on the actual range of fluctuation during the respective reporting period. The calculation of foreign currency risk includes all material

holdings of financial instruments that are not reported in the functional currency of the respective Group company. The effect on equity arises from foreign exchange differences on equitylike loans between Group companies denominated in euros and US dollars.

Notes to the consolidated financial statements 84

Credit risk Cash and cash equivalents

When investing cash, the Schaffner Group is exposed to potential losses from credit risks in the event that financial institutions do not fulfill their obligations. In order to minimize this

risk, the Group spreads its cash and cash equivalents among a number of banks and invests only in safe instruments with low default risk. The table below shows the amounts of cash and cash equivalents held at the three largest counterparties at the balance sheet date.

Creditworthiness of key counterparties In CHF ’000

Bank A Bank B Bank C Other counterparties Total cash and cash equivalents, other than cash in hand

30.9.2013

30.9.2012

Rating

Balance

Rating

Balance

A A– A–

3,517 2,681 2,525 8,275 16,998

AA– A A

1,467 1,447 1,303 6,018 10,235

Trade receivables

The Schaffner Group markets a wide range of products. Concentration risks in connection with trade receivables are limited as a result of the Group’s large, diverse and global customer base. The Group companies locally regularly assess and monitor receivables balances and adherence to payment terms.

Impairment risks on receivables are provided through individual impairment provisions, and collectively on the basis of historical experience. Receivables are only written off when there is sufficient evidence that no further payment is likely. Past experience has shown the risk of trade receivables impairment to be relatively low.

Provision for doubtful debts In CHF ’000

At 1 October Created Used Unused amounts reversed Exchange differences At 30 September

2012/13

2011/12

375 211 – 53 – 129 – 5 399

322 134 – 20 – 84 23 375

The ageing of trade receivables is detailed in the following table: Total

Not overdue

in CHF '000

Overdue Less than 30 days

30 to 60 days

61 to 90 More than 90 days days

Trade receivables at 30 September 2013

34,021

26,819

5,326

984

290

602

Trade receivables at 30 September 2012

34,766

24,790

6,583

1,596

474

1,323

The Schaffner Group’s maximum exposure to credit risk at 30 September 2013 was CHF 60.4 million (prior year: CHF 52.1 million), taking into account all financial assets.

shortages through prudent liquidity management. In addition, six-month bottom-up rolling liquidity and cash flow forecasts are generated monthly.

Liquidity risk

The following table provides an overview of the maturity structure of the Schaffner Group’s financial liabilities at the balance sheet date based on all contractual payment obligations (undiscounted).

Liquidity risk is the risk that the Schaffner Group will no longer be fully able to meet its financial obligations. The Schaffner Group monitors its liquidity risk and strives to avoid liquidity Carrying amount

Total

In CHF ’000

Non-current financial liabilities2 – Of which hedged1 – Of which unhedged1 – Interest rate swap Current financial liabilities2 Finance leases Total financial liabilities at 30 September 2013 Non-current financial liabilities2 – Of which hedged1 – Of which unhedged1 – Interest rate swap Current financial liabilities2 Finance leases Total financial liabilities at 30 September 2012 2

Less than 1 month

1 to 3 months

3 to 12 months

1 to 5 years

more than 5 years

27,172 12,265 14,907 265 40,785 2,658

28,403 12,553 15,850 273 40,785 3,372

674 86 588 34 533 78

511 0 511 0 36,298 0

1,953 208 1,745 102 3,954 232

25,265 12,259 13,006 137 0 1,203

0 0 0 0 0 1,859

70,614

72,560

1,285

36,809

6,139

26,468

1,859

33,337 12,434 20,903 434 32,178 2,810

33,835 12,525 21,310 392 32,178 3,592

200 102 98 33 6 74

352 0 352 0 28,515 0

6,384 162 6,222 98 3,657 235

26,899 12,261 14,638 261 0 1,200

0 0 0 0 0 2,083

68,325

69,605

280

28,867

10,276

28,099

2,083

Including interest margin. Excluding finance leases; these are presented separately.

Cash outflow due in

Notes to the consolidated financial statements 86

Capital management

The primary objectives of capital management in the Schaffner Group are to safeguard the business as a going concern and ensure sustained growth in the Group’s value. In its financial management the Group uses a system of financial ratios and other metrics. These control parameters, which are tailored to the business model, relate to liquidity, growth and profitability. To mon-

itor its capital structure, the Schaffner Group uses a gearing ratio, defined as the ratio of net debt to shareholders’ equity. The capital structure is designed to ensure sufficient equity to cover the business risks and secure the Group’s financial flexibility. Borrowings must not exceed an amount that the Group can repay in the medium term out of free cash flows.

In CHF ’000

30.9.2013

30.9.2012

Non-current borrowings Current borrowings Cash and cash equivalents Net debt

29,814 549 – 17,012 13,351

35,959 194 – 10,256 25,897

62,511 21%

60,333 43%

Sharholders' equity Gearing ratio

22 Related parties

All transactions with related parties are conducted at arm’s length. All transactions with subsidiaries were completely eliminated on consolidation.

Compensation of Executive Committee and Board of Directors

The following compensation was paid to the members of the Executive Committee, including the Chief Executive Officer:

In CHF ’000

Short-term compensation (base salaries, variable cash compensation and benefits in kind) Contractual post-employment benefits Share-based payments (income)/expense1 Pension plan contributions Total compensation of Executive Committee

2012/13

2011/12

2,775 441 – 755 182 2,643

2,346 0 529 125 3,000

The expense for the options granted in prior years is spread over the vesting period (see note 18 on page 77). The market value of the 5,500 options awarded in the prior year at an exercise price of CHF 235 each was CHF 340 thousand. The expense for the 795 restricted shares newly issued in the year under review at a market value of CHF 227 per share, i.e. at a combined market value of CHF 180 thousand, was recognized immediately. In the fiscal year under review this item additionally included an adjustment of CHF 1.0 million for the reversal of cumulative expenses from prior years, as the performance condition of the Performance Option Plan (POP) was not met.

In the year under review, members of the Board of Directors were paid fees and expense allowances (including flat expense allowances) of CHF 330 thousand (prior year: CHF 342 thousand) and were granted 623 restricted shares at a market value of CHF 227.00 per share (prior year: 2,500 options at an exercise price of CHF 235.00). Disclosures under the Swiss Code of Obligations on compensation of the Executive Committee and Board of Directors are set out from page 91 in the notes to the company financial statements of Schaffner Holding AG. Swiss pension funds

The Group’s pensions in Switzerland are administered by a legally separate fund in the form of a foundation. In the year under review, total contributions of CHF 1.6 million (prior year: CHF 1.5 million) were paid to this foundation. At the balance sheet date the Group had a net payables balance of CHF 79 thousand with the foundation (prior year: net receivables of CHF 34 thousand). As in the prior year, the pension fund held no ownership interests in Schaffner Holding AG and was not invested in property utilized by Schaffner.

Company

Schaffner Holding AG Schaffner Trading AG Schaffner EMV AG Schaffner Oy Schaffner EMC S.A.S. Schaffner Ltd. Schaffner EMV Hungary Kft. Schaffner EMC S.r.l. Schaffner Deutschland GmbH Schaffner EMC AB Schaffner EMC, Inc. Schaffner MTC LLC Schaffner EMC Ltd. Schaffner EMC K.K. Schaffner EMC Pte. Ltd. Schaffner EMC Co. Ltd. Schaffner EMV Ltd. (Taiwan Branch)

23 Risk assessment

The Board of Directors of Schaffner Holding AG evaluates the risks to the Group through systematic risk identification and analysis. Risk management measures are formulated on this basis and their implementation and results are continually monitored. The Group uses a risk management system which is designed for the timely detection, evaluation and mitigation of risks. 24 Release of the consolidated financial statements for publication

The consolidated financial statements were released by the Board of Directors of Schaffner Holding AG on 6 December 2013 for publication and will be presented to shareholders for adoption at the Annual General Meeting on 14 January 2014. 25 Events after the balance sheet date

No events have occurred after the balance sheet date that have a material effect on the amounts in the consolidated financial statements. 26

Companies of the Schaffner Group

The following companies’ results were included in the Schaffner Group’s consolidated financial statements at 30 September 2013:

Registered office

Luterbach, Switzerland Luterbach, Switzerland Luterbach, Switzerland Lohja, Finland Illzach, France Wokingham, UK Kecskemét, Hungary Milan, Italy Büren, Germany Sollentuna, Sweden Edison, NJ, USA Wytheville, VA, USA Shanghai, China Tokyo, Japan Singapore Lamphun, Thailand Taipei, Taiwan

CHF CHF CHF EUR EUR GBP HUF EUR EUR SEK USD USD CNY JPY SGD THB TWD

Capital in ’000

Group’s interest in %

20,668 250 14,000 34 5,330 260 8,000 100 380 200 1,030 2,676 52,815 10,000 1,200 140,000 5,000

100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Report of the statutory auditors on the consolidated financial statements 88

To the General Meeting of Schaffner Holding AG, Luterbach

As statutory auditor, we have audited the consolidated financial statements of Schaffner Holding AG, which comprise the balance sheet, income statement, statement of comprehensive income, cash flow statement, statement of changes in equity and notes (pages 52 to 87) for the year ended 30 September 2013. Board of Directors’ responsibility

The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) and the requirements of Swiss law. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.

Opinion

In our opinion, the consolidated financial statements for the year ended 30 September 2013 give a true and fair view of the financial position, the results of operations and the cash flows in accordance with IFRS and comply with Swiss law. Report on other legal requirements

We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence. In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors. We recommend that the consolidated financial statements submitted to you be approved.

Auditor’s responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards and International Standards on Auditing (ISA). Those standards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Berne, 6 December 2013 Ernst & Young Ltd Bernadette Koch Licensed audit expert (Auditor in charge)

Philippe Wenger Licensed audit expert

Company financial statements of Schaffner Holding AG 89

Balance sheet In CHF '000

30.9.2013

30.9.2012

28 85,251 85,279

0 85,251 85,251

7,771 63 809 105 8,748

1,989 84 939 88 3,100

Total assets

94,027

88,351

Share capital General legal reserve Reserve for treasury shares Share premium Retained earnings Net profit for the period Shareholders' equity

20,668 4,134 1,050 42,450 14,981 1,536 84,819

20,668 4,134 1,469 44,671 12,836 1,726 85,504

15 7,354 533 205 1,101 9,208

12 2,050 0 164 621 2,847

94,027

88,351

2012/13

2011/12

6,800 6,800

6,300 6,300

– 3,037 – 2,141 – 3 – 237 397 – 100 – 143 1,536

– 2,265 – 2,248 0 – 362 365 49 – 113 1,726

Property, plant and equipment Investments in subsidiaries Non-current assets Receivables from subsidiaries Other receivables, and prepaid expenses with non-Group entities Securities and term deposits Cash and cash equivalents Current assets

Non-current borrowings Liabilities to subsidiaries Current borrowings Other liabilities to non-Group entities Accrued expenses Total liabilities Total liabilities and shareholders' equity

Income statement (year ended 30 September) In CHF '000

Other income Total income Staff costs Operating expenses Depreciation Finance expense Finance income Foreign exchange (losses)/gains on financing, net Income tax Net profit for the period

Notes to the company financial statements of Schaffner Holding AG 90

Guarantees and pledged assets In CHF '000

30.9.2013

30.9.2012

41,250 27,440

41,250 32,910

Guarantees Of which utilized in subsidiaries in respect of credit obligations

As the Group’s Swiss companies are treated as a single entity for the purposes of value-added taxation, Schaffner Holding AG has joint and several liability for the Swiss subsidiaries’ VAT obligations to the Swiss federal tax authority. Under Group-wide agreements with Commerzbank and Credit Suisse, Schaffner Holding AG as a participant in the Group’s cash pool has joint and several liability to the extent of its free reserves. Issued share capital

The Company has authorized but unissued share capital with a total nominal value of CHF 2.4 million (72,342 ordinary registered shares at CHF 32.50 per share). This capital is allocated to satisfying obligations under the share option plans. At 30 September 2013 there were 34,533 share options outstanding, each relating to the purchase of one share of Schaffner Holding AG. In the year under review no options were exercised out of authorized unissued share capital.

Direct investments in subsidiaries

›› Schaffner EMV AG, Luterbach, Switzerland: 100% of the share capital of CHF 14 million

›› Schaffner Trading AG, Luterbach, Switzerland:

100% of the share capital of CHF 250 thousand ›› Schaffner EMV Hungary Kft., Kecskemét, Hungary: 2% of the share capital of HUF 8 million

Release of the company financial statements for publication

The company financial statements were released by the Board of Directors of Schaffner Holding AG on 6 December 2013 for publication and will be presented to shareholders for adoption at the Annual General Meeting on 14 January 2014. Fire insurance coverage

Group fire insurance with a maximum insured amount of CHF 80 million per claim is carried on property, plant and equipment. Information about treasury shares

The reserve for treasury shares was CHF 1.0 million. In the balance sheet at 30 September 2013, treasury shares were measured at the lower of their average cost or the average exercise price of the share options (CHF 168). In the year under review, 4,097 options were exercised, at an average price of CHF 172 each.

Number of shares

Fair value per share in CHF

Average price per share in CHF

At fair value in CHF 1'000

At average price in CHF 1'000

At 1 October 2011 + Purchase1 – Shares utilized for Employee Share Option Plan2 – Shares utilized for restricted share plans1 Value changes3

4,791 4,420 – 1,763 – 1,590

158

337

756 980 – 288 – 169 – 340

1,617 980 – 288 – 169 – 671

At 30 September 2012 + Purchase1 – Disposal1 – Shares utilized for Employee Share Option Plan2 – Shares utilized for restricted share plans1 Value changes3

5,858 5,086 – 1 – 4,097 – 2,035

160

251

939 1,104 0 – 704 – 532 2

1,469 1,104 0 – 704 – 532 – 287

4,811

168

218

809

1,050

Number of shares

Equity interest

Number of shares

Equity interest

Sarasin Investmentfonds AG Alpine Select AG Buru Holding AG UBS AG Balfidor Fonds SUVA (Swiss National Accident Insurance Fund) Shareholders with interests of less than 3% Free float

62,599 62,308 60,801 57,699 27,242 23,100 337,380 631,129

9.84% 9.80% 9.56% 9.07% 4.28% 3.63% 53.06% 99.24%

63,541 135,753 54,808 30,748 22,830 23,100 299,302 630,082

9.99% 21.35% 8.62% 4.84% 3.59% 3.63% 47.06% 99.08%

Treasury shares Total shares outstanding

4,811 635,940

0.76% 100.00%

5,858 635,940

0.92% 100.00%

At 30 September 2013

At share prices quoted at transaction date. At exercise price. 3 Year-end closing price or average exercise price of the options, whichever was less.

Significant shareholders 30.9.2013

Compensation of the Executive Committee and Board of Directors

The remuneration of the members of the Board of Directors and Executive Committee consists primarily of fees, salaries, variable compensation, options and restricted shares under the equity incentive plans, and other compensation, such as contributions to rental or travel costs. The variable compensation is dependent upon corporate financial results and the achievement of personal performance targets. It is paid out after the Board of Directors, based on recommendations of the Nomination &

30.9.2012

Compensation Committee, has confirmed the extent of target achievement. The variable compensation is ordinarily awarded and paid after the annual financial statements have been adopted by the Annual General Meeting. All variable compensation is presented on an accrual basis, which means that any variable compensation shown under a given fiscal year was accrued in that fiscal year. The expense for sharebased payments consists of the market value of granted share options and restricted shares attributable to the respective fiscal year.

Notes to the company financial statements of Schaffner Holding AG 92

Board of Directors in 2012/13 Cash fees and base salaries1

Variable compensation

Pension costs

In CHF '000

Daniel Hirschi, Chairman Herbert B채chler Hans Hess (until 14 January 2013) Gerhard Pegam (from 14 January 2013) Suzanne Thoma Georg Wechsler Total compensation of the Board of Directors

112 47 12 35 47 47 300

480 1,239 1,719

Share-based payments expense2, 3

Other compensation4

Total

75 37 24 0 24 24 184

187 84 36 35 71 71 484

229

121

118

958

295 524

448 569

167 285

528 538

2,677 3,635

Executive Committee in 2012/13 In CHF '000

Alexander Hagemann, Chief Executive Officer Total for all other members of the Executive Committee Total compensation of the Executive Committee

Excluding flat expense allowances. At market value. 3 For the Executive Committee, over the prior four years a cumulative total of CHF 1.0 million had been reported as share-based payments under the Performance Option Plan (POP). This represented four years of the annual expenses at market values, spread over the vesting periods in accordance with IFRS 2. As the POP performance target in the year under review was not reached, the plan participants do not receive any of the share options which were available under the plan. The share-based compensation element arising from the POP for the year under review was thus CHF 0. In accordance with transparency law, the compensation shown in the prior periods is not presented as negative compensation. 4 This includes statutory and contractual payments of CHF 440 thousand in termination benefits to Jean-Michel Calleri.

Board of Directors in 2011/12 Cash fees and base salaries1

Variable compensation2

Pension costs

In CHF '000

Daniel Hirschi, Chairman Herbert B채chler Hans Hess Suzanne Thoma (from 12 January 2012) Georg Wechsler (from 12 January 2012) Markus Zenh채usern (until 1 July 2012) Total compensation of the Board of Directors

112 47 47 35 35 35 311

410 1,188 1,598

Share-based payments expense3

Other compensation

Total

53 26 28 0 0 28 135

165 73 75 35 35 63 446

217

762

241 273

324 417

312 529

125 135

2,190 2,952

Executive Committee in 2011/12 In CHF '000

Alexander Hagemann, Chief Executive Officer Total for all other members of the Executive Committee Total compensation of the Executive Committee

Excluding flat expense allowances. Including, for the other members of the Executive Committee, CHF 54 thousand for discounts under the Restricted Share Plan (see note 18 on page 77). 3 At market value.

Holdings of shares, options and conversion rights 30.9.2013 Number of shares held

Board of Directors Daniel Hirschi, Chairman Herbert B채chler Hans Hess (until 14 January 2013) Gerhard Pegam (from 14 January 2013) Suzanne Thoma Georg Wechsler Total holdings of the Board of Directors Executive Committee Alexander Hagemann, Chief Executive Officer Kurt Ledermann, Chief Financial Officer Jean-Michel Calleri (until 29 June 2013) Ah Bee Goh, Chief Operating Officer Eduard Hadorn, Executive Vice President, Power Magnetics division Guido Schlegelmilch, Executive Vice President, EMC division Total holdings of the Executive Committee

30.9.2012

Number of share options held

Vested

Not vested

Total

327 604

1,080 660

1,580 660

2,660 1,320

10 109 304 1,354

0 0 0 1,740

0 0 0 2,240

0 0 0 3,980

725 889

3,115 1,747

2,065 973

5,180 2,720

751

1,075

725

649

1,293

186 3,200

375 7,605

In the year under review, Schaffner did not grant any loans or other credit to current or past members of the Board of Directors, members of the Executive Committee or parties related to them.

Number of shares held

Number of share options held

Vested

Not vested

Total

120 500 1,895

665 330 418

1,995 990 1,115

2,660 1,320 1,533

5 200 2,720

0 0 1,413

0 0 4,100

0 0 5,513

1,800

1,000 743 80 645

2,045 1,095 600 600

13,560 4,653 1,850 4,200

15,605 5,748 2,450 4,800

725

2,018

543

1,000

4,200

5,200

550 5,038

925 12,643

80 3,091

125 5,465

1,550 30,013

1,675 35,478

Risk assessment

Proposal for the appropriation of retained earnings 94

The Board of Directors proposes to the Annual General Meeting to allocate retained earnings as follows: In CHF ’000

2012/13

2011/12

Net profit for the period Earnings brought forward Change in reserve for treasury shares Retained earnings available for distribution Allocation to general legal reserve Earnings carried forward

1,536 14,564 419 16,519 0 16,519

1,726 12,690 148 14,564 0 14,564

2012/13

2011/12 2

0 2,840

0 2,221

– 2,840 0

– 2,221 0

635,940 – 4,811 631,129

635,940 – 5,858 630,082

The Board of Directors will also propose to the Annual General Meeting to allocate share premium (the reserve for additional paidin capital) as follows: In CHF ’000

Distributable share premium reserve brought forward Transfer from share premium account to distributable share premium reserve Distribution of CHF 4.50 (prior year: CHF 3.50) per share entitled to dividends, exempt from Swiss anticipatory tax Distributable share premium reserve carried forward Total number of shares outstanding Number of treasury shares Number of shares entitled to dividends1 Shares entitled to dividends are those shares not held by the Company or one of its subsidiaries. Amounts approved by last year's Annual General Meeting.

Report of the statutory auditor on the company financial statements 95

To the General Meeting of Schaffner Holding AG, Luterbach

As statutory auditor, we have audited the financial statements of Schaffner Holding AG, which comprise the balance sheet, income statement and notes (pages 89 to 93) for the year ended 30 September 2013. Board of Directors’ responsibility

The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the company’s articles of incorporation. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Auditor’s responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements for the year ended 30 September 2013 comply with Swiss law and the company’s articles of incorporation. Report on other legal requirements

We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 Code of Obligations (CO) and article 11 AOA) and that there are no circumstances incompatible with our independence. In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the Board of Directors. We further confirm that the proposed appropriation of available earnings complies with Swiss law and the company’s articles of incorporation. We recommend that the financial statements submitted to you be approved. Berne, 6 December 2013 Ernst & Young Ltd

Bernadette Koch Licensed audit expert (Auditor in charge)

Philippe Wenger Licensed audit expert

Selected addresses of the Schaffner Group 96

Headquarters and global innovation and development center Switzerland Schaffner Group Nordstrasse 11 4542 Luterbach T +41 32 681 66 26 F +41 32 681 66 30 info@schaffner.com www.schaffner.com

Sales and application centers China Schaffner EMC Ltd. Shanghai T20-3, No 565 Chuangye Road Pudong New Area Shanghai 201201 T +86 21 3813 9500 F +86 21 3813 9501 / 02 cschina@schaffner.com www.schaffner.com.cn Germany Schaffner Deutschland GmbH Schoemperlenstrasse 12B 76185 Karlsruhe T +49 721 56910 F +49 721 569110 germanysales@schaffner.com Finland Schaffner Oy Sauvonrinne 19 H 08500 Lohja T +358 19 35 72 71 F +358 19 32 66 10 finlandsales@schaffner.com France Schaffner EMC S.A.S. 112, Quai de Bezons 95103 Argenteuil T +33 1 34 34 30 60 F +33 1 39 47 02 28 francesales@schaffner.com Italy Schaffner EMC S.r.l. Via Galileo Galilei 47 20092 Cinisello Balsamo (MI) T +39 02 66 04 30 45/47 F +39 02 61 23 943 italysales@schaffner.com Japan Schaffner EMC K.K. 7F Mitsui-Seimei sangenjaya Bldg. 1-32-12, Kamiuma, Setagaya-ku 154-0011 Tokyo T +81 3 5712 3650 F +81 3 5712 3651 japansales@schaffner.com www.schaffner.jp Sweden Schaffner EMC AB Turebergstorg 1, 6 19147 Sollentuna T +46 8 5792 1121 / 22 F +46 8 92 96 90 swedensales@schaffner.com

Switzerland Schaffner EMV AG Nordstrasse 11 4542 Luterbach T +41 32 681 66 26 F +41 32 681 66 41 sales@schaffner.ch www.schaffner.ch Singapore Schaffner EMC Pte Ltd. Blk 3015A Ubi Road 1 05-09 Kampong Ubi Industrial Estate 408705 Singapore T +65 6377 3283 F +65 6377 3281 singaporesales@schaffner.com Spain Schaffner EMC España Calle Caléndula 93 Miniparc III, Edificio E El Soto de la Moraleja Alcobendas 28109 Madrid T +34 618 176 133 spainsales@schaffner.com Taiwan Schaffner EMV Ltd. 6th Floor, No 413 Rui Guang Road Neihu District 114 Taipei City T +886 2 8752 5050 F +886 2 8751 8086 taiwansales@schaffner.com www.schaffner.com.tw Thailand Schaffner EMC Co. Ltd. Northern Region Industrial Estate 67 Moo 4 Tambon Ban Klang Amphur Muangg P.O. Box 14 Lamphun 51000 T +66 53 58 11 04 F +66 53 58 10 19 thailandsales@schaffner.com UK Schaffner Ltd. 5 Ashville Way Molly Millars Lane Wokingham RG41 2PL Berkshire T +44 118 977 00 70 F +44 118 979 29 69 uksales@schaffner.com www.schaffner.uk.com

USA Schaffner EMC, Inc. 52 Mayfield Avenue 08837 Edison, NJ T +1 732 225 9533 F +1 732 225 4789 usasales@schaffner.com www.schaffner.com/us

Important note regarding forward-looking statements This report contains forward-looking statements, which may be identified by the use of expressions such as could, “propose”, “opens up opportunities”, “outlook”, “attractive”, or similar wording. Such forward-looking statements reflect management’s current opinion and are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Schaffner Group to differ materially from those contained or implied in such statements. These include, but are not limited to, risks related to the success of and demand for the Group’s products, the potential for its products to become obsolete, the Group’s ability to protect its patents, the Group’s ability to develop and market new products quickly enough, the rapidly changing and competitive environ-

ment in which the Group operates, the regulatory environment, fluctuation in foreign exchange rates, the Group’s ability to generate revenue and net profits, and its ability to carry out expansion or cost control projects in a timely manner. Should one or more such risks or uncertainties materialize or come to bear, or should underlying assumptions prove incorrect, the actual results could differ materially from the outcomes suggested in this report. The information in this report represents Schaffner’s best knowledge at the time of publication. Schaffner does not undertake any obligation to update any forward-looking statements contained herein, whether as a result of new information, future events or otherwise.

Publication information © Schaffner Holding AG, December 2013 Publication and production: Schaffner Holding AG, Luterbach Concept and consulting: Communicators AG, Zurich Translation: Martin Focken, North Bay, Ontario, Canada; CLS Communication AG, Glattbrugg-Zurich Prepress: W4 Marketing AG, Zurich/Dresden Publishingsystem: ns.publish by Multimedia Solutions AG, Zurich Printing: Neidhart + Schön AG, Zurich Photography: flamisch photography, Düsseldorf; GettyImages; Shutterstock

Schaffner Holding AG Nordstrasse 11 4542 Luterbach, Switzerland T +41 32 681 66 26 F +41 32 681 66 30 www.schaffner.com