Annual Report 2011/12 by Schaffner Group

Schaffner Group Annual Report

2011/12

Structure of the 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 current report of the Schaffner Group in its capacity as an active member of the UN Global Compact.

This English version of the Schaffner Group Annual Report 2011/12 is a translation from the German and is provided solely for readers‘ convenience. Only the German version is binding.

Contents 4 6 8 12 18 20 22 27 50 95

Fiscal year 2011/12 The Schaffner universe – Markets of the Schaffner Group EMC division Power Magnetics division Automotive division Global footprint Leadership and values Corporate governance Financial report 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 world’s largest oceanarium at the new Resorts World Sentosa in southern Singapore, more than 30 ECOsineTM Active power quality filters ensure the efficient and reliable functioning of the electrical grid. On an area of 8 hectares – about the size of 13 football fields – the oceanarium has space for more than 100,000 marine animals representing over 800 species. It is expected to attract up to 16 million visitors a year.

Schaffner 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 as well as in electrical infrastructure and 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, solutions both for electric drive systems in vehicles and for their charging infrastructure.

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 customized components that ensure immunity of power electronic systems to line interference (electromagnetic compatibility), as well as power quality filters that assure the stability of electricity grids. Key sales markets range from energy-efficient drive systems, renewable energy and power supplies for electronic devices, to machine tools, robotics and electrical infrastructure. The Power Magnetics division develops and manufactures power magnetic components (chokes and transformers) that ensure the reliable functioning of power electronic systems, as well as customized high-power transformers for demanding applications. Power magnetic components are an integral part of high- and ultra-high-performance systems for power conversion. The main markets include energy-efficient drive systems, renewable energy and rail technology. The Automotive division develops and manufactures components for convenience and safety features in cars and for the drive trains of vehicles with hybrid or electric drive.

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 Share capital reduction through partial repayment of nominal value and of excess share premium, per share Free float

2008 / 09

2009 / 10

2010 / 11

2011 / 12

635,940

in CHF

606,317 15.43 91.44

606,124 – 18.04 74.39

635,131 18.87 88.04

633,266 16.03 89.52

632,990 6.17 94.87

in CHF in %

3.50 94.0

0.00 99.9

4.50 99.3

2.001 99.1

in CHF

271 214 230

233 118 170

220 148 219

350 216 235

271 204 235

172 136 146

148 75 108

140 94 139

223 137 149

172 130 149

in CHF

Share price2 High for year Low for year At end of year Market capitalization2 12-month high 12-month low At end of year

2007 / 08

in CHF in CHF

in CHF million in CHF million in CHF million

Subject to approval by the Annual General Meeting on 14 January 2013 Period: Fiscal year from 1 October to 30 September (Source: Bloomberg)

1 2

Share price performance 1 October 2007 to 30 September 20121

Share price performance 1 October 2011 to 30 September 20121

In CHF

400

300

250

200 200

100 0

150 07 08 09 10 11 12

Oct.

Nov.

Dec.

Jan.

Feb.

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 (loss), Power Magnetics division Net sales, Automotive division Segment (loss)/profit, 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

2008 / 09

2009 / 10

2010 / 111

2011 / 12

182,445 n/a n/a n/a n/a n/a n/a 13,892 7.6 9,355 5.1 148,078 58,149 39.3 2,318

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

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

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

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

Operating profit (EBIT)

Net sales1 200

2007 / 08

In CHF million

150

Net profit

In CHF million

Free cash flow

In CHF million

Restated

08/09

– 6

– 9

– 12

11/12

10/11

09/10

08/09

07/08

11/12

10/11

0 09/10

– 3

07/08

11/12

0 10/11

11/12

10/11

09/10

08/09

07/08 1

– 3

07/08

09/10

08/09

100

Non-recurring restructuring costs

Net sales in 2011/12 by region 47% Europe

35% Asia

18% North America

Net sales in 2011/12 by market 13% Machine tools and robotics 16% Power supplies for electronic devices 8% Electrical infrastructure 14% Automotive electronics

2% Other markets

23% Energy-efficient drive systems

15% Renewable energy 9% Rail technology

Fiscal year 2011/12 4/5

Solid business performance in difficult market environment Sales and earnings recover in second half

After a difficult first quarter, the Schaffner Group passed the bottom of the cycle in the first half of 2011/12, with orders growing since the beginning of 2012. All strategic growth markets stabilized: In the rail market, a gradual recovery emerged in China; the renewable energy sector benefited from orders placed by China’s and Japan’s photovoltaic industry; the market for energy-efficient drive systems trended better again thanks in part to the strong demand for power quality filters in the Asia-Pacific region; and sales of components for automotive electronics saw a significant growth contribution from convenience and safety systems for production starts of new vehicle series. As well, the integration of Schaffner MTC LLC, acquired in the prior year, was successfully completed. The Schaffner Group generated net sales of CHF 176.9 million in fiscal year 2011/12 (2010/11 restated: CHF 182.6 million). The sales reduction of 3.1% (or 4.7% in local currencies) was in line with expectations and resulted from the economic uncertainty in the euro countries, a cyclical low in traditional markets such as machines tools and robotics, and a sales slump in the renewable energy and rail markets in the first quarter of 2011/12. Schaffner MTC, which the Group acquired at the beginning of September 2011, contributed CHF 16.8 million to sales in the reporting period (prior year for one month: CHF 1.2 million). Through savings in material and production costs, Schaffner largely offset the increase in staff costs in Thailand and China and further reduced its fixed costs. The shift in the geographic sales mix toward the more intensely competitive Asia-Pacific region drove up price pressure; this and the volume-induced underutilization of plants led to an operating (EBIT) margin of 4.1% (prior year: 7.0%), at the lower end of the expected range of 4% to 6%. Operating profit (EBIT) eased to CHF 7.2 million (from CHF 12.8 million) and net profit for the year declined to CHF 3.9 million (prior year: CHF 10.2 million). Significant improvement over the course of the year

The first half of 2011/12 was characterized by a very poor business trend in China’s railway market and problems in the Euro-

pean renewable energy market. Schaffner responded by launching a sweeping cost reduction drive. In the second half of the year, sales and earnings improved in all three divisions, helped not just by the rail market upturn but also by growth in the Chinese and Japanese photovoltaic industry, the market success of active harmonic filters and new project starts in the Automotive division. From the first to the second half of the year, net sales thus expanded sequentially by 18.4% and the EBIT operating margin rose from 1.7% to 6.1%. Adjustments to regional market strategy

Given the growing general overcapacity in the Chinese domestic market and the associated narrowing of margins, Schaffner significantly stepped up export activities from Shanghai into the Asia-Pacific region. These efforts were particularly effective in Japan, Australia and India. In the Chinese market itself, going forward, Schaffner will focus on products featuring sophisticated technology, which will be supplied both to the leading domestic customers and the local subsidiaries of international groups. The North American market continues to be viewed positively, and since the integration of Schaffner MTC a good starting position has been created to capture some of the investment in infrastructure renewal in the United States. Divisional organization in place

At the beginning of fiscal 2011/12 the Schaffner Group changed over to a divisional organizational structure, with the three divisions EMC, Power Magnetics and Automotive. The power quality filters product group, previously integrated in the former Power Quality segment, is now part of the EMC division. The remainder of the old Power Quality segment forms the new Power Magnetics division. The Automotive division represents the former Automotive segment. In this annual report the prior-year results are presented on the basis of the new divisional structure. The EMC division closed the year below expectations with a decrease in sales to CHF 105.8 million (prior year: CHF 128.9 million) and a segment profit of CHF 12.6 million (prior year: profit of CHF 20.2 million). The Power Magnetics division, with sales

Fiscal year 2011/12 5

From left to right: Daniel Hirschi, Alexander Hagemann.

of CHF 46.5 million (prior year: CHF 36.0 million) and a segment loss of CHF 0.3 million (prior year: loss of 0.3 million), slightly missed expectations, while Automotive exceeded its targets with sales of CHF 24.7 million (prior year: CHF 17.6 million) and a segment profit of CHF 0.6 million (prior year: loss of CHF 0.4 million). Sound financing structure

The Schaffner Group possesses a sound financing structure. As a result of the higher business volume at the end of the fiscal year, net working capital rose to CHF 37.8 million (from CHF 33.0 million at the prior year-end). Free cash flow consequently fell to CHF 1.5 million (prior year: CHF 9.7 million). Net debt therefore increased to CHF 25.9 million (prior year: CHF 20.3 million) and the gearing ratio of net debt to equity rose somewhat to 43% (prior year: 36%). With shareholders’ equity of CHF 60.3 million (prior year: CHF 56.9 million), Schaffner’s equity ratio at the end of September 2012 was 42.8% (prior year: 41.6%). Board changes

Markus Zenhäusern, a Board member of Schaffner Holding AG since 2008 and chairman of the Audit Committee, passed away on 1 July 2012 after a serious illness. The Board of Directors and Executive Committee are saddened by the loss of a well-liked and respected colleague and take this opportunity to again convey their profound sympathy to Mr. Zenhäuser’s family. The chairmanship of the Audit Committee was assumed by its existing member Georg Wechsler. Hans Hess, a member of the Board of Directors since 2006, will retire for professional reasons upon the completion of his term at the 17th Annual General Meeting of Schaffner Holding AG. The Board and Executive Committee accept his decision with regret and thank Hans Hess sincerely for his valuable contributions to the Schaffner Group on the Board, the Audit Committee, as chairman of the Nomination and Compensation Committee and as the Group’s interim managing director from September 2006 to March 2007. The Board will recommend to the Annual General Meeting on 14 January 2013 to elect as his successor Gerhard Pegam, 50, an industrial manager with extensive experience in the components business. Pegam, an Austrian citizen, is a Board member of OC Oerlikon Corporation AG, among other roles. For eleven years he headed EPCOS AG, until the beginning of 2012.

He holds a degree in electrical engineering from Klagenfurt Technical College. Distribution proposal

The Board of Directors of Schaffner Holding AG will propose to the Annual General Meeting on 14 January 2013 a distribution of CHF 2.00 (prior year: CHF 4.50) per share in the form of a tax-free repayment of capital to shareholders, in line with the target payout ratio of 25% of net profit. Outlook

All three divisions delivered positive results in the second half of the year under review and have had a strong start to the new, 2012/13 fiscal year. The macroeconomic outlook has deteriorated visibly, however, leading to a decline in the book-to-bill ratio (new orders to sales) from 1.10 in the first six months to 0.95 in the latter half of 2011/12. Despite the difficult environment, the Schaffner Group is cautiously optimistic about the future, as further sales growth is expected in the automotive business and as the cost reduction measures in the EMC division and structural adjustments in the Power Magnetics division have been bearing fruit. Provided the global economic situation does not worsen further, and assuming stable key currencies, Schaffner expects an increase in sales and in EBIT margin, especially in the first half of the new fiscal year relative to the 2011/12 comparative period. In the growth regions of Asia-Pacific and North America, and with new products and market share wins, Schaffner is well positioned both to grow structurally and to benefit disproportionately from a cyclical recovery in the markets. Thank you

Schaffner had another eventful year in 2011/12. The positive overall trajectory of our results was only possible through the confidence of our customers, the loyalty of our shareholders and the true dedication of our staff. We sincerely thank every one of them.

Daniel Hirschi Chairman of the Board of Directors

Alexander Hagemann Chief Executive Officer

The Schaffner Universe â&#x20AC;&#x201C; Markets of the Schaffner Group

The Schaffner Group delivers innovative products to meet the growing demand for reliable, energy-efficient solutions for power electronics worldwide.

13% Machine tools and robotics

Sinusoidal filter FN 5040 For protecting electric motors and extending their service life

16% Power supplies for electronic devices

EMC filter FN 3280 Four-wire interference suppression For the most exacting requirements in advanced machine tool production

Innovative and versatile plug filter module FN 9280 For ensuring electromagnetic compatibility, e.g., in medical technology

Medium voltage transformer For electrical infrastructure in demanding commercial and industrial installations

8â&#x20AC;&#x160;% Electrical infrastructure

Compact EMC filter solution For reliable electromobility Antennas and sensors For convenience and safety applications in automobiles

Other markets: 2â&#x20AC;&#x160;%

14% Automotive electronics

6/7

23â&#x20AC;&#x160; % Energy-efficient drive systems

EMC filter FN 3268 For ensuring electromagnetic compatibility

ECOsine harmonic filter For improving power quality and efficiency in electrical grids

Combination of transformer and inductor DSC 9943 For compliant grid connection of photovoltaic systems

DC filter FN 2200 For protection of solar modules

14%

division

High-quality magnetic components DSC 9364 For use in drives and auxiliary systems in trains

26%

division

EMC

division

15% Renewable energy

60%

9% Rail technology

EMC division

EMC division 10

EMC division The EMC division develops and manufactures standard and custom components that protect power electronic equipment from line interference (electromagnetic compatibility) as well as power quality filters to ensure 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 telecommunications.

Renewable energy

Energy-efficient drive systems

Power supplies for electronic devices

Machine tools and robotics

Power electronic systems must meet high standards of protection against electromagnetic interference if they are to function reliably. The Schaffner Group is the worldâ&#x20AC;&#x2122;s leading supplier of solutions and products for electromagnetic compatibility and serves customers worldwide with a network of application centers, logistics centers and production plants. The EMC division has the expertise and the most complete product range for identifying and isolating potential sources of EMC interference at an early stage, both in the development of new products and during subsequent system optimization. It offers customers a broad range of standard components, an efficient measurement service, expert technical consulting and the capacity to rapidly develop, build and deliver customized solutions directly or through a network of distribution partners in all markets worldwide. Compliance with European and international guidelines and standards governing power electronic systems is certified by Schaffner. Sales and earnings impacted by market downturn in Europe

In fiscal year 2011/12 the EMC division generated sales of CHF 105.8 million (prior year: CHF 128.9 million), contributing 59.8% (prior year: 70.6%) to Group sales. In local currencies this amounted to a reduction of 18.3% from the prior year. The decline in sales was primarily attributable to the drastic fall in demand from European manufacturers of capital goods and solar inverters compared with the previous year. Growth in the solar technology market in China, the USA and Japan and gains in market share, most notably in North America, only partially cushioned this drop in sales.

While sales increased sequentially by 10.6% from the first to the second half, this was insufficient to rectify the underutilization of plant capacity. As a result, the EMC division closed the financial year with a lower-than-expected segment profit of CHF 12.6 million (prior year: CHF 20.2 million). However, thanks to cost savings and capacity adjustments, EMC was able despite this difficult environment to achieve a segment profit margin of 11.9%. The division also benefited from the fact that the Automotive division was able to make use of freed-up capacity in the Thailand manufacturing plant. Since adopting lean production processes, Schaffner is able to make such shifts in production quickly and inexpensively.

ECOsine harmonic filter For improving power quality and efficiency in electrical grids

EMC division aims to improve structural earnings potential

While the current earnings situation is heavily affected by a cyclical weakness in demand, the Schaffner Group also foresees structural changes in the market. The production of capital goods, infrastructure facilities and installations for generating renewable energy will see an even greater shift to the target markets for these products, most notably to China and other emerging economies as well as North America. Costs will continue to rise unabated, above all in Asia, and intense competition will limit the degree to which they can be passed through to customers in higher prices. Schaffner therefore decided to take measures for the structural improvement of the EMC divisionâ&#x20AC;&#x2122;s earnings. The main thrusts of this initiative are the lowering of material costs, further automation of manufacturing processes, and introduction of new, cost-optimized product designs (design-to-cost). Schaffner management is confident that the implementation of these measures will enable the EMC division to achieve a target operating margin of 16% to 20% even under the current market conditions. Product innovation to support sustained growth

Schaffner is investing heavily in new product development in order to expand its market leadership in EMC filters and meet the growing demand for power quality filter solutions for an increasing number of applications. Besides numerous customized solutions, the year under review also saw the completed development and market launch of several new standard products. The new IEC inlet filters are meeting with a very positive response and Schaffner thus expects to substantially grow its market share in this segment. The ECOsineTM and ECOsine ActiveTM range of harmonic filters have

Innovative and versatile plug filter module FN 9280 For ensuring electromagnetic compatibility, e.g., in medical technology

been further expanded, enabling the Group to offer innovative solutions that improve power quality and grid stability in an ever-increasing number of applications. Process optimization throughout the value chain

The rollout of the SAP ERP system was completed on time and on budget. Having defined optimized business processes at the start of the project, the IT platform now in place will enable Schaffner to further enhance operational procedures and processes. A major focus of the project was on planning and logistics, where significant improvements have been achieved. Key milestones in the continual enhancement of operational excellence were the opening of the new logistics center in the French town of Wittelsheim in early 2012 and the introduction of endto-end barcode systems.

PM division

Power Magnetics division 14

Power Magnetics division The Power Magnetics division develops and manufactures chokes that ensure the proper functioning of power electronic devices and systems, as well as customized high-performance transformers for demanding applications. The main sales markets include energy-efficient drive systems, renewable energy and rail technology.

The divisionâ&#x20AC;&#x2122;s power magnetic components are integral to high and ultra-high performance systems used in power conversion. Schaffner solutions deployed in solar inverters and in wind turbine converters are highly efficient and assure the best possible adaptation to electricity grids. Schaffner components are used to implement compact, high-performance, energy-efficient locomotive drive systems and eliminate interference from powerful motors. They also safeguard a secure power supply in applications requiring maximum reliability, such as mining. Healthy sales growth in second half after disappointing start

Renewable energy

Energy-efficient drive systems

Electrical infrastructure

Rail technology

In fiscal year 2011/12 the Power Magnetics division increased its sales by 29.2% (31.1% in local currencies) to CHF 46.5 million (prior year: CHF 36.0 million) and accounted for 26.3% (prior year: 19.7%) of Group sales. The sales figure includes the first-time consolidation of Schaffner MTC, which contributed CHF 16.8 million (prior year for one month: CHFÂ 1.2 million). Adjusted for acquisition effects, sales contracted by 14.7%. Especially in China, sales were down sharply year-on-year due to the suspension of rail projects amid the reorganization of the Ministry of Railways and a drop in demand for photovoltaic products. The resulting underutilization of capacity in the Shanghai plant in the first six months led to a significant loss at that facility. The production sites in Europe and the USA, on the other hand, achieved their earnings targets. The Power Magnetics division posted sequential growth of 32.5% in the second half, closing the latter half with a positive result. As it was not able to fully recoup the first-half operating losses, it registered a small segment loss for the full year of CHF 0.3 million (prior year: loss of CHF 0.3 million).

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

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

Shift in growth markets

The photovoltaic segment saw a further shift from the European market to China, Japan and North America, and hence to local manufacturers of solar inverters. Schaffner is responding to the overcapacity-induced price erosion for all photovoltaic system components by stepping up investment in the development of new, more cost-efficient systems. The wind turbine market also suffered from excess capacity and steeply falling prices, but the trend has stabilized in the last few months. Schaffner is supporting new developments by the leading vendors in this market segment and sees potential to achieve lasting wins in market share. The trend in the Japanese market for power magnetic components used in photovoltaic converters has been compellingly positive. Having successfully entered the market in fiscal 2011/12, Schaffner expects to see significant growth. The rail technology market in China has stabilized, and in Russia large contracts continue to be awarded to foreign manufacturers of trains and locomotives. Schaffner is superbly positioned in the rail technology market. Meeting sales and earnings targets by leveraging operational excellence and synergies

All production plants succeeded in cutting material costs while improving process quality during the year under review. More production volume was transferred from the German plant in BĂźren to KecskemĂŠt, Hungary. Productivity was raised and fixed costs reduced. Schaffner MTC launched a number of projects with international customers in the fields of motor controls, rail technology and renewable energy in order to be able to supply the North American market with locally manufactured power magnetic components and hence grow Schaffnerâ&#x20AC;&#x2122;s market share. The initiative is already bearing fruit and initial small-scale orders have been received. Long qualification cycles

Medium voltage transformer For electrical infrastructure in demanding commercial and industrial installations

are customary in this business, however, so that a noticeable contribution to sales is not expected until the second half of the new fiscal year. High innovation rate in Power Magnetics division is strengthening market position

The need for power magnetic components that reconcile the demands for greater compactness, efficiency and reliability with the desire to also save costs, calls for a high level of investment in basic development. Headway was achieved in this area with the introduction of water-cooled components and new mechanical design concepts. Standardization across sites allows further cost savings to be achieved. This in combination with the measures to hone operational excellence leaves the division wellplaced to meet its targeted segment profit margin of between 8% and 10% in the medium term.

AM division

Automotive division 18

Automotive division The Automotive division develops and manufactures components for convenience and safety features in cars and for the drive trains of hybrid and electric vehicles. The campaign to step up Automotive product development activities and globalize sales is proving very successful, and the Schaffner Group expects that strong demand from the global automobile industry will enable the Automotive division to meet its CHF 40 million sales target for fiscal year 2014/15 one year earlier than planned, in 2013/14. The first deliveries of components for keyless entry systems for a leading global automobile manufacturer are underway, and assuming full order drawdown by the customer over the projectâ&#x20AC;&#x2122;s multi-year term, the division expects to achieve cumulative sales in the mid doubledigit millions with this account alone. Schaffner is also making preparations for the series production of components for another auto manufacturerâ&#x20AC;&#x2122;s hybrid drive vehicles.

Expectations exceeded

Reaping the benefits of its business strategy, the Automotive division increased sales in fiscal year 2011/12 by 39.9% to CHF 24.7 million (prior year: CHF 17.6 million), or by 40.3% in local currencies. The Automotive division enlarged its share of Group sales to 13.9% (from 9.7%). Despite continuing high costs for the development and series production of new products, the division reported a sooner-than-expected positive result, with a segment profit of CHF 0.6 million (prior year: loss of CHF 0.4 million). The results of the second half of the year were especially impressive, with sales up 30.4% from the first six months and an operating margin of 6.5%, taking the division a big step closer to its target margin of 8% to 10%. Global leader in components for convenience and safety electronics

Schaffner components for convenience and safety electronics in cars are chiefly found in keyless entry systems. Schaffner builds the antennas that enable communication between the driver and the vehicle at a distance. Every year, Schaffner products are installed in millions of vehicles worldwide. Supplying a large customer base, Schaffner is one of the leading global vendors in this rapidly growing market segment, which is benefiting from a substantial rise in the proportion of vehicles featuring keyless entry. Provider of choice for EMC and power quality solutions in the high-potential market of electromobility

Automotive electronics

In the highly promising market of electromobility as well, EMC and power quality play a vital role. With innovative solutions and concepts, Schaffner has successfully positioned itself as a partner to the international automobile industry. Schaffner engineers and technologies support leading automobile manufacturers from the very development stage of new models, with specialized expertise in EMC and power quality and with products for use in electric drive systems of all types of electric and hybrid vehicles (full hybrid, plug-in hybrid, electric vehicles

with range extender, and pure electric vehicles). What is significant for Schaffner is that, regardless of the drive concept, many of the power electronics components are identical and can be used in several vehicle models. The result is a growing demand for EMC and power quality components both on the supplier side and directly from global automobile manufacturers. Schaffner continues to expect only modest growth in sales of pure electric cars, but believes there is a very high potential in plug-in hybrids and range-extended electric vehicles.

age the international surge in growth, the Board of Directors of Schaffner Holding AG appointed Chief Executive Officer Alexander Hagemann as interim head of the Automotive division at the beginning of November 2012. The outgoing head of the division, Jean-Michel Calleri, left the Executive Committee as part of the reorganization. The Board thanks him for his great dedication and commitment in successfully building up the Automotive division.

Organization realigned to accommodate the strong growth

The marketâ&#x20AC;&#x2122;s rapid growth, the need for closer direct collaboration with the auto manufacturers themselves, and rising product complexity necessitated a review and alignment of internal processes and structures in the Automotive division. To enable the division to respond rapidly to market trends and best man-

EMC filter applications for: Converter in hybrid applications Converter in electric vehicles Motor management and turbo charger

Trunk antenna

Door handle antenna with touch sensor Immobilizer antenna on key lock housing Low frequency antenna for initiating tire pressure measuring cycle

Tire pressure sensor housing with integrated RF antenna

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 customer service and application centers ensure rapid turnaround times, relevant consulting and responsive customeroriented engineering. 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 customerâ&#x20AC;&#x2122;s development departments or from the Schaffner laboratories. Schaffner Group engineers and consultants know their customers personally. They understand their individual requirements and are also at home with the cultural diversity of the worldâ&#x20AC;&#x2122;s local markets.

Headquarters

Development and production centers

Customer service 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 (page 28 to 49) and on our website at www.schaffner.com: www.schaffner.com/en/investorrelations/corporate-governance.html

Changes since publication of the Annual Report 2010/11

At the 16th Annual General Meeting of the Schaffner Group on 12 January 2012, Suzanne Thoma, Executive Committee member and designated Chief Executive Officer of BKW AG, and Georg Wechsler, Executive Committee member and Chief Financial Officer of Model Holding AG, were elected to the Board of Directors for a term of two years. Markus Zenhäusern, who was a member of the Board of Directors from 2008 and Chairman of the Audit Committee, died on 1 July 2012. The chairmanship of the Committee was assumed by its member Georg Wechsler. On 25 September 2012, Gerhard Pegam, an experienced industrial manager, was nominated for election to the Board of Directors to succeed Hans Hess, who has been a member since 2006 and will step down for professional reasons upon expiry of his term. On 9 November 2012 the Board of Directors appointed Chief Executive Officer Alexander Hagemann as acting head of the Automotive division, in addition to his role as CEO. The existing division head, Jean-Michel Calleri, left the Group’s Executive Committee as part of the reorganization.

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 2008/09, 2009/10 and 2010/11) the members of the Board of Directors were members neither of the Schaffner Group Executive Committee nor of the management of a subsidiary, and they 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 Member Tenure Markus Zenhäusern, Committee chairman, deceased 1 July 2012 2012 –2015 Daniel Hirschi 2010 –2013 Georg Wechsler, Committee chairman from 24 August 2012 2012 –2014

Nomination & Compensation Committee Member Tenure Hans Hess, Committee chairman 2010 – 2013 Daniel Hirschi 2010 – 2013 Suzanne Thoma 2012 –2014

In fiscal year 2011/12 the Board of Directors of Schaffner Holding AG had the following members:

From left to right: Herbert B채chler, Daniel Hirschi, Suzanne Thoma, Hans Hess, Georg Wechsler

Daniel Hirschi, Chairman, born 1956, Swiss citizen Degree in Engineering, Berne University of Applied Sciences, Biel. Member since 2010, elected until 2013.

Georg Wechsler, born 1956, Swiss citizen Degree in Business Administration and Swiss Certified Accountant. Member since 2012, elected until 2014.

Hans Hess, Vice Chairman, born 1955, Swiss citizen Degree in Mechanical Engineering, Federal Institute of Technology, Zurich; MBA, University of Southern California. Member since 2006, elected until 2013.

Markus Zenh채usern, born 1962, deceased 1 July 2012, Swiss citizen Degree in Economics, University of St. Gallen; PhD in Political Science, University of Fribourg. Member since 2008, 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.

Kurt Ledermann, Chief Financial Officer of the Schaffner Group, served as Secretary to the Board.

Suzanne Thoma, born 1955, Swiss citizen PhD in Technical Sciences and MSc in Chemical Engineering, Federal Institute of Technology, Zurich. Member since 2012, elected until 2014.

Leadership and values 24

Executive Committee

In the year under review the divisionally structured Executive Committee, led by the Chief Executive Officer, consisted of the CEO, the Chief Financial Officer, Chief Operating Officer, and three Executive Vice Presidents as heads of the three divisions, EMC, Power Magnetics and Automotive.

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

Alexander Hagemann1, born 1962, German citizen

Jean-Michel Calleri2, born 1956, French citizen

Degree in Engineering, RWTH Aachen University. Joined the Schaffner Group as Chief Executive Officer on 1 March 20071.

Electrical Engineering Diploma ESIGELEC, Rouen; IESTO CNAM, Paris. Joined the Schaffner Group in 1999. Executive Vice President, Automotive division, since 1 October 2011.

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.

Eduard Hadorn, born 1956, Swiss citizen

Ah Bee Goh, born 1950, Singaporean citizen

Guido Schlegelmilch, born 1964, German citizen

HBSc 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. Vice President, Manufacturing, until 30 September 2011. Chief Operating Officer since 1 October 2011.

Degree in Business Engineering and PhD, Darmstadt University of Technology. Joined the Schaffner Group in 2009. Executive Vice President, EMC division, since 1 October 2011.

Degree in Business Administration. Joined the Schaffner Group in 2003. Executive Vice President, Power Magnetics division, since 1 October 2011.

1 2

Acting Head of Automotive division since 9 November 2012. Left the Group Executive Committee at 9 November 2012.

Quality principles The management, employees and partners of the Schaffner Group are committed to working for the benefit of all its stakeholder groups and providing them with topquality service. 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 our competitors. We deliver our products and services on time, defect-free 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 ongoing 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 developed 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

Corporate citizenship The Schaffner name is synonymous with energy efficiency and reliability, both in innovative customer solutions and in the Group’s own activities.

The Schaffner Group is known for being an ethical company and is committed to upholding 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 to act as a role model in terms of energy efficiency. All Schaffner Group production sites operate under environmental management systems conforming to the international ISO 14001 standard. Schaffner production in Asian countries 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-SchaffnerHolding-AG

Electronic Industry Code of Conduct (EICC)

The Schaffner Group has adopted the Electronic Industry Code of Conduct (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

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

2011 12

Contents 27 51 89

Corporate governance, incl. compensation report Consolidated financial statements of the Schaffner Group Company financial statements of Schaffner Holding AG

Corporate governance 28

Accountability and transparency for all stakeholders Corporate governance forms a key element of Schaffner’s corporate strategy.

The Schaffner Group has also adopted the Electronic Industry Code of Conduct (EICC) and is committed to introducing it 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

Principles

Transparency and well-defined responsibilities are the underpinnings of Schaffner’s corporate governance policy: Transparency in financial reporting and clearly assigned duties and accountabilities in the interactions between shareholders, the Board of Directors and 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 and of section 663b bis and 663c (3) of the Swiss Code of Obligations. 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 ten 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.

Governance-related changes in fiscal year 2011/12

On 12 January 2012 the 16th Annual General Meeting of Schaffner Holding AG elected two new members to the Board of Directors for a term of two years (until 2014): Suzanne Thoma, member of the Executive Committee of BKW AG and its designated Chief Executive Officer; and Georg Wechsler, Chief Financial Officer and member of the Executive Committee of Model Holding AG. Hans Hess, Vice Chairman of the Board of Directors and Board member since 2006, will retire from the Board of Schaffner Holding AG for professional reasons upon the expiry of his term of office at the 17th Annual General Meeting on 14 January 2013. Markus Zenhäusern, a member of the Board of Directors since 2008 (elected until 2015), passed away on 1 July 2012. On 25 September 2012, Gerhard Pegam was nominated for election to the Board of Directors at the 17th Annual General Meeting on 14 January 2013.

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

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. In the course of this reorganization, the Harmonic Filters product group (which until 30 September 2011 belonged to the Power Quality segment) became part of the EMC division. The rest of the former Power Quality segment now operates as the Power Magnetics division, while the former Electromagnetic Compatibility (EMC) segment together with the Harmonic Filters product group makes up the EMC division. The Automotive division is the former Automotive segment. The reporting to the Executive Committee (the Group’s chief operating decision-maker) follows this organizational structure.

Corporate governance 29

The following chart shows the Group’s operating structure at 30 September 2012: General Meeting of shareholders 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 level of executive management). The management of the Schaffner Group is provided by the Board of Directors and (through the delegation of authority from the Board) 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 37 of this corporate governance report in section 3.5. The Executive Committee had the following structure at 30 September 2012:

Schaffner Holding AG is a public limited company incorporated in Switzerland and has its registered office in Luterbach. At 30 September 2012 the share capital consisted of 635,940 ordinary registered shares with a total nominal value of CHF 20,668,050. Registered office 4542 Luterbach, Switzerland Listing exchange and SIX Swiss Exchange, regulatory standard Main Standard Security number 906209 ISIN CH 0 009 062 099 Ticker symbol SAHN Nominal value per share 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

Executive Committee Alexander Hagemann Kurt Ledermann, Finance & IT Ah Bee Goh, Manufacturing Guido Schlegelmilch, EMC division Eduard Hadorn, Power Magnetics division Jean-Michel Calleri, Automotive division

Chief Executive Officer Chief Financial Officer Chief Operating Officer Executive Vice President Executive Vice President Executive Vice President

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.

At 30 September 2012 there were 1,325 shareholders registered with voting rights in the share register of Schaffner Holding AG (prior year: 1,198). Of the issued shares, 99.1% represented free float (prior year: 99.3%). Schaffner Holding AG held the other 0.9% as treasury shares (prior year: 0.7%). At 30 September 2012, shares of unregistered owners amounted to 14.4% of the issued shares (prior year: 15.7%). Under the Swiss Federal Act on Stock Exchanges and Securities Trading (SESTA, or Stock Exchange Act), any holder of shares of a company listed on the SIX Swiss Exchange must notify the issuer company and the SIX Swiss Exchange whenever the holder’s voting rights reach, rise above or fall below one of the following thresholds: 3%, 5%, 10%, 15%, 20%, 25%, 33⅓%, 50% and 66⅔%. This disclosure obligation exists regardless of whether the voting rights can be exercised or not. Therefore, certain derivatives positions, such as options and similar financial instruments, are also notifiable. Upon receiving such notification, the issuer of the shares must relay the information to the public through an announcement on the electronic publication platform of the SIX Swiss Exchange. In the fiscal year under review, one disclosure notification was made, on 18 February 2012.

Corporate governance 30

Information on significant shareholders is also provided on page 91 in the notes to the parent company financial statements. A complete record of all notifications issued under section 20 of the Stock Exchange Act is available on the website of the SIX Swiss Exchange at www.six-swiss-exchange.com/shares/ companies/major_shareholders_en.html?fromDate=19980101 &issuer=10529.

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.

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 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 of this Annual Report 2011/12, in the consolidated financial statements. The comparative information for the three prior years is found on page 57 of the consolidated financial statements in the Annual Report 2010/11, on page 21 in the Annual Report 2009/10 and page 17 in the Annual Report 2008/09. 2.4 Shares and participation certificates 2.4.1 Shares

2.2 Authorized unissued capital

On 12 January 2012 the 16th Annual General Meeting of Schaffner 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 this report in section 18 of the notes to the consolidated financial statements. The Company had no other authorized unissued capital at 30 September 2012, i.e., no unissued capital authorized for purposes other than the share option plans. 2.3 Changes in equity

By a resolution of the Annual General Meeting on 14 January 2009, CHF 3.50 per registered share was distributed as a partial repayment of nominal value, thus reducing the issued share capital of Schaffner Holding AG from CHF 36 per share to CHF 32.50 and from a total of CHF 22,893,840 to CHF 20,668,050. The authorized unissued capital was reduced accordingly.

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

Corporate governance 31

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.

declares to the Company that the shareholder has acquired and will hold the shares for the shareholder’s own account. In reliance on section 6 (3) of the Articles of Association and the requirements for recognition derived therefrom, 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.

2.4.2 Participation certificates

Registration of share purchasers

There were no participation certificates of Schaffner Holding AG at 30 September 2012 (participation certificates, or Partizipationsscheine in German, essentially are a type of preference share).

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

2.5 Dividend right certificates

Schaffner Holding AG had not issued any dividend right certificates as of 30 September 2012 (in German: Genussscheine; these 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 section 6 of the Articles of Association, and can be viewed at or requested from the Company’s head office. 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 section 6 (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

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 (5%, 10%, 15%, 20%, 25%, 33⅓%, 50% and 66⅔% of votes), 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 (or the acquired stock) is registered in the share register as non-voting.

Corporate governance 32

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 section 6 (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 to the Company the names, addresses and Schaffner shareholdings of the persons for whose account the nominee holds 0.5% or more of the share capital registered 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 requirements. The company that is retained to operate the share register is responsible for sending the nominee agreement to the respective nominee and for 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 time 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, as 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 rights as shareholders, including also pre-emptive rights. At the General Meeting the shares registered as non-voting are treated as unrepresented (see section 685 f (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 end of the fiscal year under review, 14.4% (prior year: 15.7%) 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. 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

The Articles of Association require the Board of Directors of Schaffner Holding AG to have between three and seven members. In fiscal year 2011/12, the Board consisted of six, nonexecutive members. After the death of Markus Zenhäusern on 1 July 2012, the Board of Directors consisted of five, nonexecutive members at 30 September 2012. In the three years prior to the reporting period (the fiscal years 2008/09, 2009/10 and 2010/11), 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.

Corporate governance 33

In fiscal year 2011/12 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 2013 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 Executive Officer from 2001 and Designated Representative of the Board from 2003. Hans Hess, Vice Chairman, born 1955, Swiss citizen Board member since 2006, elected until 2013 MSc in Mechanical Engineering, Federal Institute of Technology, Zurich; MBA, University of Southern California. From 8 September 2006 to 31 March 2007 was Interim Designated Representative of the Board of Directors of Schaffner Holding AG. Until 2005 held various management positions in the Leica Group, most recently ten years as Chief Executive Officer and Designated Representative of the Board of Directors of Leica Geosystems, Heerbrugg. Herbert B채chler, born 1950, Swiss citizen Board member since 2009, elected until 2015 PhD in Technical Sciences and MSc in Electrical Engineering, Federal Institute of Technology, Zurich. In charge of innovation management at ARfinanz Holding AG, St채fa. From 2002 to 2008 was Chief Technology Officer at Sonova/Phonak AG and from 1981 to 2002 held various management positions in its R&D department. Suzanne Thoma, born 1955, 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, Rapperswil-Jona. Before that, was Chief Executive Officer of Rolic Technologies, Allschwil, and held management positions at Ciba Spezialit채tenchemie 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, Weinfelden. Previous employers included Zurmont Finanz AG, Zurich; Zellweger Uster AG, Uster; and KPMG Fides, Zurich. Markus Zenh채usern, born 1962, deceased 1 July 2012, Swiss citizen Board member since 2008, elected until 2015 Degree in Economics, University of St. Gallen; PhD in Political Science, University of Fribourg. Until October 2011 was with Swiss Post, Berne: Staff role in Group management, Chief Financial Officer and member of the Group Executive Management. From 2005 to 2008 was Chief Financial Officer and member of the Group Executive Committee of Sika Group, Baar. Previous positions included Chief Financial Officer of Habasit Group, Reinach, and Corporate Controller of Hero Group, Lenzburg. Kurt Ledermann, Secretary of the Board

Corporate governance 34

3.1.1 Nominated for election to the Board Gerhard Pegam, born 1962, Austrian citizen Nominated for election at the 17th Annual General Meeting on 14 January 2013 Degree in Electrical Engineering, Klagenfurt Technical College, Austria. Until beginning of 2012 was Chief Executive Officer of EPCOS AG. From 2009 to 2012 was 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.

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.

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. Markus Zenhäusern (deceased 1 July 2012) Markus Zenhäusern was a member of the Board of Swiss Post International Holding AG, Berne, and of Post Liechtenstein AG, Schaan. He was also Chairman of the Board of Swiss Post Insurance AG, Vaduz.

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 reaching 70 years of age.

Hans Hess Hans Hess is Chairman of the Board of Comet Holding AG, Flamatt, and of Reichle & De-Massari Holding AG, Wetzikon, member of the Board of Burckhardt Compression Holding AG, Winterthur, President of Swissmem (the trade association of the Swiss mechanical and electrical engineering industries), Vice President of economiesuisse (the Swiss business federation), and member of the ETH Board.

3.4 Internal organization

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.

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 a tie, the meeting’s chairman has the 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 written ballot (by mail, fax or e-mail), unless a member requests an oral discussion. In a vote by written ballot, passage of a resolution requires the affirmative vote of the majority of all Board members.

Suzanne Thoma Suzanne Thoma is Chairwoman of the Board of Arnold AG, Selzach, and of BKW ISP AG, Ostermundigen, as well as member of the Board of BKW Netz Schweiz AG, Berne, of swissgrid AG, Laufenburg, and AEK Energie AG, Solothurn.

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.

Corporate governance 35

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. The Audit Committee was chaired by Markus Zenhäusern (deceased on 1 July 2012); since 24 August 2012 the Committee’s chairman is Georg Wechsler. The chairman of the Nomination & Compensation Committee is Hans Hess. 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 special subject areas. 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 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.

Audit Committee

The Audit Committee supports the full 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:

›› It evaluates the appropriateness and validity of the Group

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 chairman of the Audit Committee is appointed by the Board of Directors. Audit Committee Markus Zenhäusern, Committee chairman, deceased 1 July 2012 Daniel Hirschi Georg Wechsler, Committee chairman from 24 August 2012

Tenure 2008 – 2015 2010 – 2013 2012 – 2014

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

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Nomination & Compensation Committee

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 relating to performance-based compensation. The Nomination & Compensation Committee has the following responsibilities in particular:

›› It periodically submits proposals to the Board concerning the nature and amount of the Board members’ annual remuneration. ›› It annually submits recommendations to the Board concerning the remuneration of each member of the Executive Committee. ›› It develops incentive plans. ›› It sets the targets for the Executive Committee, in consultation with 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 elec-

tion 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 participate in the evaluation of prospective staff as required. The Nomination & Compensation Committee is composed of at least two non-executive members of the Board. In the year under review, the members of the Nomination & Compensation Committee were Hans Hess (chairman), Daniel Hirschi and Suzanne Thoma.

Nomination & Compensation Committee Hans Hess, Committee chairman Daniel Hirschi Suzanne Thoma

Tenure 2010 – 2013 2010 – 2013 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. The Chief Executive Officer participated in all of the five meetings held in the year. 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 nine 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 2011/12 Daniel Hirschi Herbert Bächler Hans Hess Suzanne Thoma Georg Wechsler Markus Zenhäusern1 Average meeting length in hours 1 Deceased on 1 July 2012.

BD AC NCC 9 6 5 9 6 5 8 – – 9 – 5 4 – 2 4 3 – 7 5 – 4 1.5 2.5

BD Board of Directors AC Audit Committee NCC Nomination & Compensation Committee

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

Corporate governance 37

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 of the Schaffner Group 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 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 framework set by the Board

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

›› Operational management ›› Optimization of internal organization and processes ›› External representation of the Schaffner Group ›› Internal and external communication. The Chief Executive Officer has primary responsibility for formulating Group strategy for the approval of the Board of Directors, for the operational management of the Group, its overall financial results and 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.

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3.6 Monitoring and control in respect of the Executive Committee Board of Directors

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, 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. Monitoringand-control points and processes are defined based on the risk assessment and 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 ›› Annual strategic analytical reviews of the Group and the divisions ›› A multi-year year plan regularly updated by the Executive Committee ›› Special reports by the Executive Committee on significant 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. Internal audit

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

4 Executive Committee The Executive Committee is the Group’s highest-level executive management team. In the year under review the divisionally structured Executive Committee, headed by the Chief Executive Officer, consisted of the CEO, the Chief Financial Officer, Chief Operating Officer and three 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. He 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 Group’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 three 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.

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4.1 Members of the Executive Committee

In fiscal year 2011/12 the Executive Committee of the Schaffner Group had the following members: Alexander Hagemann1, born 1962, German citizen Degree in Mechanical Engineering, RWTH Aachen University. Joined the Schaffner Group as Chief Executive Officer on 1 March 2007. 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 BSc degree 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. Jean-Michel Calleri2, 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 since 1 October 2011. Previously held a number of management positions in Marketing & Sales at Thomson Passive Components.

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, 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, EMC division since 1 October 2011. Previously held various management positions at Philips Semiconductors and NXP Semiconductors. 1 2

Interim Head of Automotive division since 9 November 2012. Left the Executive Committee at 9 November 2012.

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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 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 financial and business success of the Group

›› Fairness and transparency in decisions on compensation ›› Appropriate balance of short-term and long-term compensation.

The information below describes the compensation system and the compensation paid to the members of the Board of Directors and of the Executive Committee of the Schaffner Group. The compensation report is explained every year at the Annual General Meeting. The information presented is consistent with section 5 of the Directive on Information Relating to Corporate Governance issued by the SIX Swiss Exchange. Schaffner also observes 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). The compensation and shareholdings within the meaning of section 663b bis and 663c (3) of the Swiss Code of Obligations are also disclosed and discussed in the consolidated financial statements of Schaffner Holding AG. 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 at 30 September 2012 were: Hans Hess, member of the Board of Directors, Committee chairman Daniel Hirschi, Chairman of the Board of Directors Suzanne Thoma, member of the Board of Directors

The Nomination & Compensation Committee:

›› Performs its duties generally without involving external advisors.

›› At the beginning of each term of office, recommends to

the Board the nature and amount of the Board members’ annual remuneration. ›› Annually recommends to the Board the remuneration of each member of the Executive Committee. ›› Determines incentive plans. ›› Sets the targets for the Executive Committee, in consultation with the Board of Directors. ›› Assesses the performance of the Executive Committee against targets and submits a proposal to the Board for the variable compensation of the Executive Committee.

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The Board of Directors:

›› Annually approves the fixed remuneration of each mem-

ber of the Board based on recommendations of the Nomination & Compensation Committee. ›› Annually determines the variable compensation under the Schaffner share option plans for the individual members of the Board of Directors and executive management of the Schaffner Group (for further information on the Schaffner share option plans, see page 77 of this report in the notes to the consolidated financial statements). ›› Annually determines the fixed and variable cash compensation of the Chief Executive Officer based on a recommendation of the Nomination & Compensation Committee. ›› Annually, together with the Chief Executive Officer, determines the fixed and variable cash compensation of the other members of the Executive Committee based on recommendations of the Nomination & Compensation 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. 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, a flat expense allowance, and (on a variable basis) options over shares of Schaffner Holding AG under the Schaffner share option plans. The amount of the fixed fee and variable share award 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 Swiss manufacturing companies of similar size listed on the SIX Swiss Exchange that have an international production and marketing organization. The annual base fee (excluding flat expense allowances) for the Board Chairman is CHF 112,000 and that for each other member of the Board is CHF 47,000.00. No significant compensation in kind is provided. Detailed information on the compensation paid in the year under review and the prior year, including the share-based payments expense, is given on page 91 of this report in the notes to the parent company financial statements. 5.3.1.2 Executive members of the Board

The Board of Directors of Schaffner Holding AG consists only of non-executive members. 5.3.2 Executive Committee

The compensation of the members of the Executive Committee consists of a fixed portion, a variable cash component related to individual and corporate performance, and options under the Schaffner share option plans. The Nomination & Compensation Committee annually reviews 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. In individual cases, Executive Committee members receive benefits in kind and other fringe benefits, which are disclosed when they individually exceed CHF 50,000 in the fiscal year under review. 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.

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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. The variable compensation depends on the financial results of the Schaffner Group and ranges from 33% to 40% of base salaries. For Executive Committee members, 80% of variable compensation is determined by the achievement of the budget targets of the business area for which they have responsibility, and 20% is dependent on performance against personal qualitative and quantitative targets. Depending on the degree of target achievement, between 0% and 260% 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

production ›› Various metrics related to production, development and marketing/sales. The allotment of options over shares of Schaffner Holding AG under the Schaffner share option plans is variable and is performed annually based on the recommendation of the Nomination & Compensation Committee and at the discretion of the Board of Directors. Detailed information on the compensation paid in the year under review and the prior year is provided on page 91 of this report in the notes to the parent company financial statements. 5.3.3 Share ownership plans

Share ownership plans contribute to aligning the mediumand long-term interests of senior management with those of shareholders.

Since 1 October 1998, options to purchase registered shares of Schaffner Holding AG with a value of CHF 500,000 to CHF 900,000 have been granted annually under the Schaffner share option plans to executive management and members of the Board of Directors. The awarding of such options is 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 2,351,115, consisting of 72,342 registered shares of Schaffner Holding AG with a nominal value of CHF 32.50 per share, and (ii) treasury shares. 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 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 are 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)

100% of equity-settled POP share options ordinarily vest (provided that the non-vesting conditions are satisfied) if the performance target is reached at 30 September 2013. Under the non-vesting conditions, plan participants must, over the life of the plan, acquire a specified number of shares in Schaffner Holding AG that is proportionate to the number of options which they hold; restricted shares are counted towards the required number of shares. The performance target is a clearly defined corporate financial target set by the Board of Directors.

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Participation in the Performance Option Plan is reserved for members of the Executive Committee. Unexercised options expire ten years after the grant date. 5.3.3.4 Restricted shares

The members of the Executive Committee and other senior executive management are ordinarily entitled 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 holding period of four years; however, the grantee has the dividend rights and voting rights from the grant date. 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. In the year under review, no termination benefits were 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. 5.4 Compensation for the year under review

By decision of the Board of Directors, options over shares of Schaffner Holding AG were awarded for the year under review under the Schaffner share option plans. The Board decided at its meeting on 2 December 2011 to award 15,020 options over shares of Schaffner Holding AG at an exercise price of CHF 235.00. The basis for the exercise price was the closing price on the date of the grant. The Enhanced American Model used to estimate the fair value of the granted share options (a sophisticated binomial model) is explained in detail on page 79 of this report in the notes to the consolidated financial statements. 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 Ex-

ecutive 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 man-

agement 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 mem-

bers 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 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 com-

pany 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.

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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 including shares, share options and conversion rights, as well as their holdings of shares and share options, is provided on page 91 of this report in the notes to the parent company financial statements.

from 1 April 2011 the SIX Swiss Exchangeâ&#x20AC;&#x2122;s rules on the disclosure of management transactions were revised to make them simpler and create greater transparency for market players. The revisions included the elimination of the disclosure threshold of CHF 100,000 for notification of management transactions. 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/

5.4.2 Members of the Executive Committee of Schaffner Holding AG

shares/companies/management_transactions_en.html?preload Results=true&issuerId=10529&fromDate=20101128

In the year under review the variable portion of the compensation of the Executive Committee members on average represented 9.25% (prior year: 28%) of their total compensation, with cash making up 100%-points (prior year: 50%-points) of the variable portion. In the prior year, 50%-points of the variable portion had been paid in the form of options or shares.

An overview of the holdings of shares, options and conversion rights of the members of the Board of Directors and Executive Committee at 30 September 2012 and 2011 is provided on page 91 of this report in the company financial statements of Schaffner Holding AG.

5.4.3 Former members of management

In the year under review the total compensation of Markus ZenhĂ¤usern, who died on 1 July 2012, was CHF 35,250, plus expenses of CHF 3,750.

6 Shareholder participation rights 6.1 Voting rights restrictions and proxy voting

5.4.4 Related parties

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. 5.5 Loans

In fiscal year 2011/12 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, Executive Committee, or by parties related to them, including the name and position of the persons concerned. Transactions exceeding the disclosure threshold of CHF 100,000 per reportable person per calendar month were published anonymously on the website of SIX Swiss Exchange. SIX Swiss Exchange did not publish any collective announcements of transactions below the disclosure threshold of CHF 100,000 in any calendar month. With effect

At 30 September 2012 there were 1,325 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. 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.

Corporate governance 45

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 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. 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. 6.4 Placing business on the General Meeting agenda

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 million, 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 at least 45 days before the General Meeting. 6.5 Registration in the share register

In accordance with section 6 (1) of the Articles of Association, Schaffner Holding AG maintains a share register. The Company may outsource the operation of the share register to an entity specializing in such services. At present the share register is operated by ShareComm Services AG, Opfikon. The manager of the share register is Schaffner’s Chief Financial Officer. The CFO reports to the Chairman of the Board concerning the share

register. 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 Registration Regulation has been issued by the Board of Directors in reliance on sections 685a and 685d et seq. of the Swiss Code of Obligations and section 6 of the Articles of Association of Schaffner Holding AG, and can be viewed at or requested from the Company’s head office. 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 section 6 (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 section 6 (3) of the Articles of Association and the requirements for recognition 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 (5%, 10%, 15%, 20%, 25%, 33⅓%, 50% and 66⅔% of votes), 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), then

Corporate governance 46

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 (or the acquired stock) is registered in the share register as nonvoting. The manager of the share register will promptly inform the company in charge of operating 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 section 6 (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 to the Company the names, addresses and Schaffner shareholdings of the persons for whose account the nominee holds 0.5% or more of the share capital registered 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 requirements. The registrar company retained to operate the share register is responsible for sending the nominee agreement to the respective nominee and for 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 time 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, as 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 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 other rights related to the voting rights. However, they are not restricted in exercising any of their other rights as shareholders, including also pre-emptive rights. At the General Meeting the shares registered as non-voting are treated as unrepresented (see section 685 f (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 registrations of shareholders 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 company commissioned to operate the share register.

›› Applications for registration as a nominee: Approval by

the registrar company commissioned to operate the share register.

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

transaction and all other transactions that 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 (5%, 10%, 15%, 20%, 25%, 33⅓%, 50% and 66⅔% of votes): Approval by the manager of the share register.

Corporate governance 47

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 shareholder, 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 to provide the requested information or fails to provide requested evidence (regarding beneficial owners, etc.) despite prior warning. 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 the deletion immediately. Under section 13 (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 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 should note this fact.

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 Swiss Federal Act on Stock Exchanges and Securities Trading (SESTA, or 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 immediately 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.

Corporate governance 48

8 Auditors 8.1 Duration of audit firm’s engagement and tenure of lead audit partner 8.1.1 Date of beginning of current audit engagement

The external independent auditor is appointed annually by the General Meeting. Ernst & Young AG, Berne, have been the external independent auditors of Schaffner Holding AG since the 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 the fiscal year 2009/10. By law, the lead audit partner’s tenure is limited to seven years. 8.2 Audit fees

In fiscal year 2011/12, Ernst & Young AG billed the Schaffner Group a total of CHF 358,000 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 389,000). 8.3 Additional fees

In addition, Ernst & Young AG invoiced the Schaffner Group CHF 18,000 (prior year: CHF 37,000) for other services, which had the following composition: Tax consulting CHF 10,000 IT consulting CHF 2,000 Other CHF 6,000

Prior year: CHF 17,000 Prior year: CHF 18,000 Prior year: CHF 2,000

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.

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 General Meeting (prepared after the audit of the annual financial statements) and through the other reports of the external auditors.

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 printed on request.

Corporate governance 49

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:

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.

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

A current source of in-depth information on the Group, products and contact details is www.schaffner.com.

year results or other news ›› Meetings with shareholders, investors and analysts during road shows ›› Themed investor days for shareholders, investors and analysts. 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/adhoc-mitteilungen.html

Annual and half-year reports remain available on the website for at least five years and are displayed at: www.schaffner.com/en/ investor-relations/reports.html

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: 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.

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

Financial calendar

The fiscal year-end of Schaffner Holding AG is 30 September. 14 January 2013 13 May 2013 10 December 2013 14 January 2014

17th Annual General Meeting Publication of Half-Year Report 2012/13 (half-year results) Publication of Annual Report 2012/13 (full-year results) 18th Annual General Meeting

Financial report 51

Contents 52 53 53 54 55 56 88 89 89 90 94 95

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 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 '000

Note

30.9.2012

30.9.2011

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

3 4 5, 21 16

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

24,051 18,202 11,817 2,683 56,753

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

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

29,069 32,426 446 3,680 213 14,235 80,069

140,843

136,822

60,333 60,333

56,929 56,929

8, 21 21

Total assets Equity attributable to equity holders of Schaffner Holding AG Shareholdersâ&#x20AC;&#x2122; equity Non-current provisions Deferred tax liabilities Non-current borrowings Non-current liabilities

9 16 10, 21

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

6,556 1,935 441 8,932

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

9 10, 21

2,934 194 966 32,172 36,266

3,521 34,559 1,928 30,953 70,961

80,510

79,893

140,843

136,822

Total liabilities Total liabilities and shareholdersâ&#x20AC;&#x2122; 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

Note

2011 / 12

Restated 2010 / 11

Net sales

176,942

182,603

– 128,037 48,905

– 126,175 56,428

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

961 – 16,798 – 14,185 – 10,785 8,098

355 – 15,271 – 14,100 – 14,033 13,379

Amortization of customer relationships1 Operating profit [EBIT]

– 855 7,243

– 568 12,810

Finance income Finance expense Profit before tax [EBT]

15 15

1,944 – 4,152 5,035

10,680 – 12,613 10,877

Income tax Net profit for the period

– 1,126 3,909

– 727 10,150

Earnings per share in CHF Basic Diluted

19 6.17 6.03

16.03 15.43

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 Exchange differences Movement in cash flow hedges Income tax Total comprehensive income for the period The accompanying notes are an integral part of the consolidated financial statements.

2011/12

2010/11

3,909 1,795 10 0 5,714

10,150 – 4,028 – 306 0 5,816

Consolidated financial statements of the Schaffner Group 54

Consolidated cash flow statement

(year ended 30 September) In CHF '000

2011/12

2010/11

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

10,150 3,374 1,916 – 44 – 1,137 344 6,406 – 3,529 – 1,214 889 650 0 17,805

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

– 6,901 176 – 1,434 – 10,558 – 19 – 18,736

– 980 0 457 – 2,845 0 – 1,823 – 126 – 5,317

– 7,356 26 4,411 – 2,842 13,360 0 0 7,599

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

188 – 3,979

– 494 6,174

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

14,235 10,256

8,061 14,235

1,537

9,646

– 1,404 30 – 1,862

– 872 82 – 344

Net profit for the period Depreciation and impairment of property, plant and equipment Amortization and impairment of intangible assets 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 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 loan receivables and non-current financial assets Cash flow from investing activities Purchase of treasury shares Disposal of treasury shares Proceeds from exercise of share options and from purchase of restricted shares by staff Repayment of excess share premium Proceeds from borrowings Repayment of borrowings Amortization in connection with finance lease Cash flow from financing activities

Note

4 3 4 9

4 3 2

20 20 20

Free cash flow1 Included in cash flow from operating activities: Interest paid Interest received Income tax paid 1

ash flow from operating activities less net investment in property, plant and equipment and in intangible assets. C The accompanying notes are an integral part of the consolidated financial statements.

Consolidated statement of changes in equity Share capital

Share premium

Translation reserve

Retained earnings

Treasury shares

Hedging reserve

Total shareholders’ equity

20,668

60,202

– 12,067 – 4,028

– 11,824

– 879

– 115

55,985 – 4,028 – 306 10,150

In CHF '000

At 1 October 2010 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 Issue of restricted shares Share option plans At 30 September 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 shares At 30 September 2012 1

– 306 10,150 0

– 4,028

10,150 – 2,034

0 – 1,181

– 147

443

– 3,855

– 1,617

– 306

– 2,842

20,668

889 58,249

– 16,095 1,795

– 421 10

3,909 0

1,795

20,668

– 2,845 1,058 56,462

– 14,300

3,909 – 713

0 148

42 – 617

– 1,469

– 411

5,816 – 3,215 – 2,842 296 889 56,929 1,795 10 3,909 5,714 – 565 – 2,845 1,100 60,333

CHF 4.50 per share.

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 directly in shareholders’ equity as a separate line item 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 increase 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 2.8 million through the repayment of CHF 4.50 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 2012, 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 or 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 their interpretations (IFRIC) issued by the International Accounting Standards Board (IASB). 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.

Changes in accounting policies

The Schaffner Group adopted the following changes with effect from 1 October 2011:

›› IFRS 1 – Amendments – Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters

›› IFRS 7 – Amendments – Disclosures: Transfers of Financial Assets

›› IAS 24 – Amendments – Related Party Disclosures ›› IFRIC 14 – Amendments – Prepayments of a Minimum Funding Requirement ›› Annual Improvements to IFRSs 2008 – 2010

None of the IFRS changes and interpretations which became effective on 1 October 2011 have a material effect on the financial position, results of operations and cash flows of the Schaffner Group. Change in presentation – net sales

In the prior years, volume-based discounts and commissions to distributors were erroneously presented in the item “marketing and selling expense”. In the income statement these are now recognized as sales deductions. This change will provide users of the financial statements with a clearer picture of operating costs which are relatively fixed in nature. Discounts and commissions to distributors – which accrue in direct proportion to sales – are now deducted from gross sales in the same way as other discounts and rebates. The prior year has been restated accordingly. As a result, net sales and the item “marketing and selling expense” each decreased by CHF 1.1 million. The change had no effect on net profit or on earnings per share. 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 table below.

IAS 1 – Amendments – Presentation of Items of Other Comprehensive Income IAS 12 – Amendments – Deferred Tax: Recovery of Underlying Assets IAS 19 – Revised – Employee Benefits IAS 27 – Revised – Separate Financial Statements IAS 28 – Revised – Investments in Associates and Joint Ventures IAS 32 – Amendments – Offsetting Financial Assets and Financial Liabilities IFRS 1 – Amendments – Government Loans IFRS 7 – Amendments – Disclosures – Offsetting Financial Assets and Financial Liabilities IFRS 9 – Financial Instruments IFRS 10 – Consolidated Financial Statements IFRS 11 – Joint Arrangements IFRS 12 – Disclosure of Interests in Other Entities IFRS 13 – Fair Value Measurement IFRIC 20 – Stripping Costs in the Production Phase of a Surface Mine Annual Improvements to IFRSs 2012

Assessment

Effective date

Planned adoption by Schaffner Group

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

1.7.2012 1.1.2012 1.1.2013 1.1.2013 1.1.2013 1.1.2014 1.1.2013 1.1.2013 1.1.2015 1.1.2013 1.1.2013 1.1.2013 1.1.2013 1.1.2013 1.1.2013

2012/13 2012/13 2013/14 2013/14 2013/14 2014/15 2013/14 2013/14 2015/16 2013/14 2013/14 2013/14 2013/14 2013/14 2013/14

* 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. *** The impact on the consolidated financial statements cannot yet be determined with sufficient reliability. **** IAS 19 is changing in two important respects. First, the expected return on plan assets and the interest costs on the defined benefit obligations will be replaced by a single quantity – net interest – calculated by applying the discount rate to the reported net defined benefit asset or liability. Second, past service costs will be recognized in the period in which a plan amendment occurs, and unvested benefits will no longer be spread over future periods. These changes will have an impact both on profit for the period and on earnings per share, as pension cost will increase. The changes will also affect the amounts recognized in comprehensive income and the net employee benefit assets recognized in the balance sheet. The impact on the amounts in the financial statements could not yet be determined conclusively, due especially to the presence of risksharing features. At 30 September 2012 there were unrecognized actuarial losses of CHF 5.1 million. If the changes to IAS 19 were already applied, approximately CHF 4.1 million (after tax) of this amount would therefore have had to be recognized in equity.

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 largest effects on the consolidated financial statements:

›› Provisions: Provisions are recognized only if the specific

›› Intangible assets: For acquisitions, the fair value of the

gations 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.

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.

criteria under IFRS for doing so are met. 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.

›› Pension obligations: The calculation of the pension obli-

›› 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

Notes to the consolidated financial statements 58

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 noncurrent 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 effective completion of the divestment transaction. 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.

terest 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.

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.

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. 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.

Impairment of non-financial assets

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 either use or sell it. Intangible assets recognized for development costs of software 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 – 6 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 in-

Inventories

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. Unsalable 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 measured at fair value where possible, or otherwise 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.

Notes to the consolidated financial statements 60

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

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 service 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

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; this timing 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.

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.

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.

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 that it is probable that future taxable profits will be available against which the assets can 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.

holders’ equity since the purchase are reported in finance income or expense in the current period. 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.

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 share-

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 contract’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 derivatives 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.

Notes to the consolidated financial statements 62

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 companies’ 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 100 EUR 100 GBP 100 HUF 100 JPY 100 SEK 100 SGD 100 THB 100 TWD 100 USD 100

Income statement

30.9.2012 in CHF

30.9.2011 in CHF

2011/12 in CHF

2010/11 in CHF

14.93 120.96 151.44 0.42 1.21 14.33 76.42 3.04 3.20 93.80

14.22 121.75 141.34 0.41 1.18 13.18 69.68 2.91 2.98 90.83

14.67 120.69 146.96 0.41 1.18 13.76 73.73 2.98 3.12 92.78

13.74 125.23 144.00 0.46 1.11 13.87 71.18 2.98 3.05 89.71

Business combinations

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

at the time. Since then, no further adjustments have been required and thus the data published on a provisional basis last year are now definitive.

Last year the purchase price allocation was still subject to uncertainty and all its items were thus still designated as provisional

The fair values of the identified assets and liabilities were as follows.

Acquired net assets In CHF '000

Customer relationships Technology Software Property, plant and equipment Inventories Trade receivables Other receivables, prepaid expenses and accrued income Total assets

Fair value recognized at acquisition date of 1.9.2011

2,903 2,258 34 657 908 2,188 36 8,984

Trade and other payables Total liabilities

– 2,043 – 2,043

Net assets Goodwill Total consideration

6,941 3,724 10,665

Satisfied by: Cash paid Contingent consideration (present value at 30 September 2011)

10,052 613

Cash flow on acquisition: Net cash outflow in the reporting period

10,052

Notes to the consolidated financial statements 64

The transaction costs of CHF 591 thousand were recognized as an expense and are presented within general and administrative expense.

which EBITDA exceeds a fixed target of USD 1.2 million; the earn-out component is capped at a ceiling of USD 400 thousand per year.

In the prior year, in the period from the acquisition to 30 September 2011, the acquired company contributed CHF 1.2 million to net sales and CHF 52 thousand to net profit for the period. If the business combination had occurred at the first day of the fiscal year, the net sales of the Schaffner Group in the prior year would have been higher by CHF 12.6 million and net profit for the period would have been higher by CHF 799 thousand.

The acquisition-date fair value of the contingent consideration was estimated at CHF 613 thousand (USD 760 thousand), which represented the present value of the maximum earn-out component. At 30 September 2012 the present value of the annual component for 2012/13 was adjusted to CHF 362 thousand (USD 386 thousand) and a liability of CHF 368 thousand (USD 392 thousand) was recognized for fiscal year 2011/12 (also see note 9 on page 69).

In addition to the cash component shown above, 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 component is determined based on the amount by

In the year under review, CHF 361 thousand (prior year: CHF 505 thousand) was paid as deferred consideration from the 2009 acquisition of BETEC-Engineering. All contractual payments arising from this acquisition have thus been made.

Intangible assets

In CHF '000

Cost at 1 October 2010 Additions purchased separately Additions acquired through business combinations Additions developed internally Reclassifications Exchange differences Cost at 30 September 2011 Additions purchased separately Additions developed internally Disposals Reclassifications Exchange differences Cost at 30 September 2012 Accumulated amortization and impairment at 1 October 2010 Amortization Exchange differences Accumulated amortization and impairment at 30 September 2011 Amortization Disposals Exchange differences Accumulated amortization and impairment at 30 September 2012 Net book value at 30 September 2011 Net book value at 30 September 2012

Trademarks, technology and rights

Software

Goodwill

Customer relationships

Intangible assets under construction

Total

2,886

7,816 430 34

4,817

5,745

1,073 689

3,724

2,903

22,337 1,119 8,919 315 0 514 33,204 403 268 – 323 0 311 33,863

2,258 25 216 5,385

1,578 – 40 9,818 387

– 31 77 5,431

– 292 758 24 10,695

– 1,069 – 228 62 – 1,235 – 467

315 – 1,603 471 9,012

– 133 8,515

137 9,149

73 8,588

– 4,239 – 1,120 54

– 2,256 – 568 211

– 7,564 – 1,916 327

– 2,613 – 855

– 5,305 – 1,352 292 – 13

– 9,153 – 2,674 292 – 1

– 1,701 4,150 3,730

– 6,378 4,513 4,317

0 9,012 9,149

0 474 0

– 11,536 24,051 22,327

474 16 268 – 758 0

11 – 3,457 5,902 5,131

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.

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

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 carrying 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.

Discount rate (WACC) before tax

EMC PM

EMC PM Total

30.9.2011

4,817 4,332 9,149

4,817 4,195 9,012

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 the balance sheet did not identify a need for an impairment charge. The measurement of value in use is based on the following key assumptions:

Discount rate (WACC) after tax

Long-term growth rate

30.9.2012

30.9.2011

30.9.2012

30.9.2011

30.9.2012

30.9.2011

8.0% 7.9%

9.4% 9.3%

6.5% 6.5%

7.0% 7.0%

0% 0%

A sensitivity analysis showed that a reduction of 10% in cash flows or an increase of the discount rate by 10% would not lead to impairment of goodwill. Furthermore, using a zero growth rate for the projected cash flows from fiscal year 2013/14 would not lead to impairment of EMC goodwill. For PM goodwill, using a zero growth rate for the cash flows from fiscal year 2013/14 would lead to impairment. As, in management's judgment – par-

in CHF million

30.9.2012

ticularly on the basis of the positive trend in the second half of fiscal 2011/12 – the assumptions in the business plan are realistic, Schaffner has elected not to adjust the calculation or to recognize impairment on PM 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 2013/14

239 46 285

265 52 317

140 – 22 118

Notes to the consolidated financial statements 66

Customer relationships

Customer relationships (existing at acquisition at 3 November 2006) from the purchase price allocation of the former Jacke GmbH (now Schaffner Deutschland GmbH) were valued and remained capitalized at 30 September 2012. Existing customer relationships were also capitalized in the prior year in connec-

Schaffner Deutschland GmbH Schaffner MTC LLC

tion with the acquisition of the dry-type transformer division of US company MTC Transformers, Inc. at 1 September 2011. At the balance sheet date the key information about customer relationships was as follows:

Carrying amount 30.9.2012 in CHF '000

Carrying amount 30.9.2011 in CHF '000

Useful life

Amortization method

Remaining useful life

2,120 3,011

2,660 3,243

10 years 10 years

Straight line Straight line

4 years 1 month 8 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.

Technologies

As the business performance of Schaffner Deutschland GmbH (especially in the first half of the fiscal year under review) did not meet expectations, an impairment test was carried out at the balance sheet date. This test showed no need for an impairment charge, as management expects the situation to improve significantly in the next several years.

At 30 September 2012 Schaffner measured the “active harmonic filter” technology acquired with the purchase of BETEC-Engineering effective 5 January 2009 and the dry-type transformer technology acquired with the dry-type transformer division of US company MTC Transformers effective 1 September 2011. At the balance sheet date the following information can be reported concerning the measured technologies:

In the year under review, the business performance of Schaffner MTC LLC was in line with expectations. For this reason there was no indication of a possible impairment of customer relationships at the balance sheet date.

Active harmonic filters Dry-type transformers

Carrying amount 30.9.2012 in CHF '000

Carrying amount 30.9.2011 in CHF '000

Useful life

Amortization method

Remaining useful life

1,316 2,342

1,511 2,522

10 years 10 years

Straight line Straight line

6 years 3 months 8 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 the 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 showed no need for an impairment charge. Management believes that sales of active harmonic filters will increase in the next several years. In the year under review, the business performance of Schaffner MTC was in line with expectations. For this reason there was no indication of a possible impairment of the dry-type transformer technology at the balance sheet date.

In fiscal year 2007/08 a project was launched to implement a Group-wide SAP system. Until the commissioning (the going live) of a given phase of the system, the external investment and internal development costs related to that phase are capitalized as intangible assets under construction and are not amortized. The first phase was commissioned in fiscal year 2008/09. The useful life of the core system is estimated at five years and that of the country-specific programming at eight years. In fiscal year 2011/12, one further phase of the project was commissioned.

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

7,931 2,525

31,507 3,131

4,298 234

2,381 151

1,418 2

218 858

47,753 6,901

– 34 108 – 656 9,874 3,701 – 1,519 139 404 12,599

544 – 1,013 118 – 1,904 32,383 1,793 – 1,255 931 971 34,823

33 – 37 – 19 – 114 4,395 142 – 124 8 60 4,481

62 – 43

18 – 216

– 205 2,346 142 – 942 – 15 38 1,569

– 106 1,116 69 – 36 15 1,164

– 207 199 1,068 807 – 3 – 1,063 – 9 800

657 – 1,343 0 – 2,786 51,182 6,654 – 3,879 0 1,479 55,436

– 5,197 – 674 15 – 14 408

– 21,103 – 2,137 916 – 5 1,315

– 3,707 – 227 55

– 2,012 – 122 39

– 818 – 195 154

177

– 5,462 – 814 1,205 – 194

– 21,014 – 2,618 1,266 – 621

– 3,791 – 303 117 – 47

– 1,918 – 131 906 16

– 5,265 4,412

– 22,987 11,368

– 4,024 604

7,334 2,840

11,836 32

457

In CHF '000

Cost at 1 October 2010 Additions purchased separately Additions acquired through business combinations Disposals Reclassifications Exchange differences Cost at 30 September 2011 Additions purchased separately Disposals Reclassifications Exchange differences Cost at 30 September 2012 Accumulated depreciation and impairment at 1 October 2010 Depreciation Disposals Impairment Exchange differences Accumulated depreciation and impairment at 30 September 2011 Depreciation Disposals Exchange differences Accumulated depreciation and impairment at 30 September 2012 Net book value at 30 September 2011 Of which finance leases Net book value at 30 September 2012 Of which finance leases

– 32,837 – 3,355 1,179 – 19 2,052

– 795 – 136 18 – 11

– 32,980 – 4,002 3,512 – 857

– 1,127 428

– 924 322

0 1,068

442

240

800

– 34,327 18,202 0 21,109 2,872

Notes to the consolidated financial statements 68

At 1 January 2012 the Group moved into the new logistics centre in Wittelsheim, France. This facility is accounted for as 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 being 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. In the fiscal year a building was sold in Finland. This led to a book profit of CHF 1.0 million, which is recorded in other income. 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 sublease income Total minimum income

In fiscal year 2011/12, total operating lease expenses were CHF 4.3 million (prior year: CHF 4.4 million). 5

At the end of the fiscal year there were commitments to purchase property, plant and equipment in the amount of CHF 310 thousand (prior year: CHF 280 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: 30.9.2012

30.9.2011

4,203 10,661 396 15,260

2,976 11,261 2,812 17,049

1,308 1,308

1,194 1,194

Total sublease income in 2011/12 was CHF 507 thousand (prior year: CHF 308 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 1

Property, plant and equipment are covered by a Group-wide insurance policy. The maximum insured amount is CHF 70 million per claim.

30.9.2012

30.9.2011

11,980 1,347 13,327

10,378 1,439 11,817

30.9.2012

30.9.2011

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

14,026 3,274 11,769 29,069

See note 14 on page 72.

6 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 Amounts created Amounts used Reversal of unused amounts Exchange differences At 30 September

2010/12

2010/11

2,779 1,064 – 241 – 491 76 3,187

3,547 1,674 – 1,840 – 329 – 273 2,779

The amount of expensed inventories in the reporting period was CHF 88.3 million (prior year: CHF 89.9 million). 7

Trade receivables

In CHF '000

Trade receivables, gross Provision for doubtful debts Total trade receivables

30.9.2011

35,141 – 375 34,766

32,748 – 322 32,426

30.9.2012

30.9.2011

2,819 855 3,674

2,877 803 3,680

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

9 Provisions

Warranty provisions

Provisions for employee benefits1

Restructuring provisions

Other provisions

Total

2,300 1,413 – 630 – 75

3,502 519 – 179 – 62

1,715

– 163 2,845 1,472 – 1,016 – 414

– 275 3,505 368 – 227 – 17

40 2,927

3,629

852

4,445 1,287 – 1,010 – 1,952 73 – 317 2,526 348 – 848 – 453 26 18 1,617

11,962 3,219 – 2,364 – 2,089 104 – 755 10,077 2,188 – 2,431 – 913 46 58 9,025

3,460 45 3,505 3,629

861 340 1,201 610 242 852

410 2,116 2,526 22 1,595 1,617

6,556 3,521 10,077 6,091 2,934 9,025

In CHF '000

At 1 October 2010 Amounts created Amounts used Reversal of unused amounts Unwinding of discount Exchange differences At 30 September 2011 Amounts created Amounts used Reversal of unused amounts Unwinding of discount Exchange differences At 30 September 2012 Non-current provisions Current provisions Total provisions at 30 September 2011 Non-current provisions Current provisions Total provisions at 30 September 2012 1

30.9.2012

See note 14 on page 72.

– 545 31

1,825 1,020 2,845 1,830 1,097 2,927

3,629

1,201 – 340 – 29 20

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.

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 0.9 million. The cash outflows are expected to occur within one to three years.

Warranty provisions

Other 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.

From the prior year’s acquisition of the dry-type transformer division of US company MTC Transformers, Inc., there was a current provision at the end of fiscal year 2011/12 for contingent consideration of CHF 0.4 million. Also included in “other provisions” were provisions of CHF 0.6 million for tax risks and onerous contracts. For disputes under employment law with former employees, a provision of CHF 0.4 million was raised. The components of other provisions are almost entirely current in nature and will involve cash outflows within one year.

Provisions for employee benefits

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

10 Borrowings Restructuring provisions

The restructuring provisions were created after the discontinuation of production at the Luterbach site, for resulting unused leased factory space that is not sublet. In the year under review, CHF 0.3 million of this provision was used. Schaffner believes

In CHF '000

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

The average interest rate payable on borrowings in fiscal year 2011/12 was 3.4% (prior year: 3.0%). The composition of borrowings is shown in the following table:

Effective interest rate at 30.9.2012

30.9.2012

30.9.2011

LIBOR + 2.25% 5.27-7.99% 5.125% 1.1575% 4.514%

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

28,500 5,800 259 441 0 35,000

194 35,959

34,559 441

The debt financing of the Schaffner Group is assured through The remaining maturities of the Group’s individual bank borcredit lines with four banks, with a credit limit of CHF 12.5 mil- rowings at the balance sheet date ranged from seven months to lion per facility. repayable on demand. Under the credit agreements, they can be rolled over continuously until at least 16 April 2015. These credit agreements are tied to covenants, which were fulfilled at the balance sheet date.

Trade and other payables

In CHF '000

Trade payables Other payables Accrued expenses Total

30.9.2011

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

19,570 2,510 8,873 30,953

Contingent liabilities and pledged assets

The Group operates internationally and therefore inherently incurs tax risks (such as from transfer prices). As these tax risks currently cannot be estimated, no provision has been recognized for them. 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

30.9.2012

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

Staff costs and staff count

In CHF '000

2011/12

2010/11

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

43,224 1,100 10,814 â&#x20AC;&#x201C;â&#x20AC;&#x2030;269 54,869

39,165 889 11,532 1,494 53,080

2,569

2,702

Number of employees in full-time equivalents (average for the year)

Notes to the consolidated financial statements 72

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 2012. 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. 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

30.9.2012

30.9.2011

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

35,169 – 30,429 5,138 9,878

31,888 – 28,623 5,123 8,388

– 3,137 – 3,137

– 3,035 – 3,035

– 492 – 492

– 470 – 470

2011/12

2010/11

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

– 33,961 – 1,102 – 538 – 832 3,008 0 955 342 – 32,128

In CHF '000

2011/12

2010/11

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

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

31,777 1,079 – 1,581 914 538 – 839 0 31,888

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 pension 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)/gain Effect of curtailment Benefits paid Insurance premiums Exchange differences At 30 September

In CHF '000

2011/12

2010/11

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

2,102 9,878 – 3,137 – 492

1,990 8,388 – 3,035 – 470

In CHF '000

2011/12

2010/11

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

– 1,195 – 793 1,165 1,283 – 191 269

– 1,102 – 832 1,079 – 639 – 1,494

2011/12

2010/11

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

– 1.6% 2.5% 3.6% 1.0% 0.0% 0.8%

In CHF '000

2011/12

2010/11

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

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

8,992 12,819 4,879 5,198 31,888

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 gain on defined benefit obligations

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 2.60%, 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) Experience (loss)/gain on plan assets 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 1.5 million).

2011/12

2010/11

2009/10

2008/09

2007/08

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%

40,066 – 39,494 572 – 17.0% 3.5%

Notes to the consolidated financial statements 74

Finance income and expense

Finance income In CHF '000

2011/12

2010/11

31 1,913 1,944

80 10,600 10,680

In CHF '000

2011/12

2010/11

Interest expense Foreign exchange losses Other finance expense Total finance expense

– 1,457 – 2,405 – 290 – 4,152

– 826 – 11,543 – 244 – 12,613

2011/12

2010/11

– 860 – 124 – 984

– 1,817 – 124 – 1,941

– 984 – 142 – 1,126

– 1,941 1,214 – 727

Interest income Foreign exchange gains Total finance income

Finance expense

Income tax

In CHF '000

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

Deferred tax consisted of i) deferred tax liabilities of CHF 212 thousand (prior year: deferred tax asset of CHF 1.2 million) from the origination and reversal of temporary differences and the resulting recognition of tax loss carryforwards, and ii) deferred tax assets of CHF 70 thousand (prior year: deferred tax liabilities of CHF 22 thousand) from changes in tax rates. Deferred tax liabilities of CHF 1.1 million (prior year: CHF

1.0 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

2011/12

2010/11

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

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

0 0 0 566 146 19,002 19,714

Reconciliation of earnings before tax to income tax expense: In CHF '000

2011/12

2010/11

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 carryforwards1 Effect of changes in tax rates or of new taxes Other Income tax expense reported in the income statement

5,035 21% – 1,064 – 396 28 – 318 100 85 – 124 – 299 805 70 – 13 – 1,126

10,877 17% – 1,811 – 487 491 – 437 419 426 – 124 – 222 983 – 23 58 – 727

ithin this item, CHF 332 thousand in the prior year related to the acquisition of Schaffner EMC Inc., as existing tax loss carry-forwards of the W acquired entity can be utilized against future earnings of the new Group company, Schaffner MTC LLC.

The Group’s nominal tax rate for 2011/12 is 21.14% (prior year: 16.65%). 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. In CHF '000

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

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

30.9.2012

30.9.2011

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

– 643 – 263 – 1,543 936 13 521 205 1,521 748

– 2,194 2,864

– 1,935 2,683

Operating segments

EMC division. The rest of the former Power Quality segment now operates as the Power Magnetics division, while the former Electromagnetic Compatibility (EMC) segment together with the Harmonic Filters product group now makes up the EMC division. The Automotive division is the former Automotive segment. The reporting to the Executive Committee

Notes to the consolidated financial statements 76

(the Group’s chief operating decision-maker) follows this organizational structure. The prior-year data have been restated accordingly. Electromagnetic Compatibility (EMC)

The Power Magnetics division develops and manufactures power magnetic components (chokes and transformers) that ensure the reliable functioning of power electronic systems, as well as customized high-power transformers for demanding applications. Power magnetic components are an integral part of high and ultra-high-performance systems for power conversion. Key sales markets include energy-efficient drive systems, renewable energy and rail technology.

2011/12 In CHF '000

Net sales Segment profit/(loss) Amortization of customer relationships Operating profit [EBIT] Finance income Finance expense Profit before tax [EBT] Income tax Net profit for the period 2010/11 Restated in CHF '000

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

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. 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, the 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

Group

105,784 12,552

46,495 – 284

24,663 563

0 – 4,733

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

EMC

Corporate

Group

128,932 20,174

36,046 – 331

17,625 – 395

0 – 6,425

182,603 13,023 355 – 568 12,810 10,680 – 12,613 10,877 – 727 10,150

Information by region

In the analysis below, net sales with external customers are allocated to regions according to the domicile of the Schaffner com2011/12 In CHF '000

Net sales Non-current assets

2010/11 Restated In CHF '000

Net sales Non-current assets

Switzerland

Rest of Europe

Europe

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

Switzerland

Rest of Europe

Europe

Asia

North America

Group

7,043 7,247

109,486 11,477

116,529 18,724

51,804 12,785

14,270 10,743

182,603 42,253

Information by customer

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

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

Share option plans

Since 1 October 1998, the Group has been granting 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 is 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 are 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 vest (when the non-vesting conditions are satisfied) provided that the performance target is reached at 30 September 2013. Unexercised options expire ten years after the grant date.

Notes to the consolidated financial statements 78

30.9.2012

30.9.2011

Number of share options outstanding

Average exercise price in CHF

Number of share options outstanding

Average exercise price in CHF

At 1 October Granted in the year Exercised in the year Expired/cancelled in the year At 30 September

66,422 11,400 – 1,763 – 6,040 70,019

188 235 163 289 188

88,113 8,620 – 21,124 – 9,187 66,422

211 241 195 445 188

Of which: Vested Covered by treasury shares Covered by authorized unissued share capital Uncovered

20,905 5,858 64,161 0

197

20,442 4,791 21,340 40,291

233

At the balance sheet date, 14,546 of the vested share options were in the money (prior year: 11,896). The number of treasury shares required to satisfy obligations under share options is monitored on an ongoing basis and the number of shares held available is adjusted accordingly.

In the year under review, share options were granted on 21 November 2011 with an exercise price of CHF 235.00 (prior year: CHF 240.50). The earliest tranche of these option grants will vest on 21 November 2012. The expiry dates of the options issued in the year under review are 14 November 2018 and 21 November 2018.

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

30.9.2012 Expiry date

04.12.2011 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 29.11.2017 14.11.2018 14.11.2018 21.11.2018 Total share options outstanding

30.9.2011

Number of share options

Exercise price in CHF

Number of share options

Exercise price in CHF

0 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

295.50 159.00 212.00 192.00 250.00 260.00 180.00 180.00 153.50 159.90 157.00 240.50 153.50 235.00 235.00

5,300 1,229 1,400 1,767 500 3,899 2,218 2,071 5,450 8,288 1,000 8,300 25,000

295.50 159.00 212.00 192.00 250.00 260.00 180.00 180.00 153.50 159.90 157.00 240.50 153.50

66,422

The Enhanced American Model (a sophisticated binomial model) used to determine the fair value of the options granted is based on the following parameters:

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 1

2011/12

2010/11

ESOP grant date 21.11.2011

POP grant date 21.11.2011

ESOP grant date 29.11.2010

235.00 35.3% 1.5% 0.34% 5.07 years 5.00% 235.00 62.65

235.00 34.1% 1.5% 0.30% 4.82 years 5.00% 235.00 59.91

240.50 37.73% 0.47% 0.96% 5.07 years 5.00% 240.50 76.24

The expected volatility is calculated from historical long-term volatilities. These volatilities are based on daily returns from Schaffnerâ&#x20AC;&#x2122;s IPO (June 1998) to the respective grant date. The annualization of the volatility assumes 252 trading days.

In the year under review, CHF 999 thousand (prior year: CHF 827 thousand) was charged to the income statement for share option plans. Restricted share plans

At 8 April 2008, key staff members in the then ongoing SAP project were granted restricted shares, subject to the vesting condition that the beneficiaries would still be employed at Schaffner at 30 June 2011. This plan was completed in the prior year in the ordinary course of its operation, and no further expense was charged to the income statement in the year under review (prior year: CHF 37 thousand). At 28 January 2009, key staff members of the acquired BETECEngineering were granted 620 restricted shares. These shares carry full voting and dividend rights. The award will vest provided that the grantees are still employed at Schaffner after four years. The fair value of these restricted shares of CHF 145 per share is charged to the income statement over the term of four years. In the year under review, CHF 22 thousand (prior year: CHF 22 thousand) was charged to the income statement. At 1 September 2011, key staff members of the acquired division of MTC Transformers, Inc. were granted 570 restricted shares. These shares carry full voting and dividend rights. The award will vest provided that the grantees are still employed at Schaffner after four years.

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 3 thousand) was charged to the income statement. The members of the Executive Committee and other senior executive management are ordinarily entitled 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 Companyâ&#x20AC;&#x2122;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 is recorded immediately in staff costs. In the year under review the participants purchased 845 such shares (prior year: 933), at an aggregate discount of CHF 42 thousand (prior year: CHF 61 thousand).

Notes to the consolidated financial statements 80

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 outstanding 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

2011/12

2010/11

3,909 632,990 6.17

10,150 633,266 16.03

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. 2011/12

2010/11

3,909 15,518 648,508 6.03

10,150 24,525 657,791 15.43

Number of shares

Average share price in CHF

At average price in CHF ’000

At 1 October 2010 + Purchase1 – Disposal1 – Shares utilized for Employee Share Option Plan2 – Shares utilized for restricted share plans2 Valuation differences

4,391 23,127 – 100 – 21,124 – 1,503

200

879 7,356 – 26 – 4,115 – 443 – 2,034

At 30 September 2011 + Purchase1 – Shares utilized for Employee Share Option Plan2 – Shares utilized for restricted share plans2 Valuation differences

4,791 4,420 – 1,763 – 1,590

337

1,617 980 – 288 – 169 – 671

5,858

251

1,469

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 2012 1 2

At share prices quoted at transaction date. At exercise price.

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),

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.

Financial assets

Carrying amount

In CHF '000

Cash and cash equivalents2 Receivables, prepaid expenses and accrued income2 Other financial assets1,2 Total financial assets 1 2

At 30 September 2012 Schaffner also had an open interest rate swap position with a negative fair value of CHF 434 thousand (prior year: CHF 441 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 2

30.9.2011

30.9.2012

30.9.2011

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

14,235 36,106 1,652 51,994

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

14,235 36,106 1,652 51,994

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.

Fair value

30.9.2012

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 10 thousand (prior year: unrealized loss of CHF 306 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

30.9.2012

30.9.2011

30.9.2012

30.9.2011

35,525 194 32,172 434 68,325

0 34,559 30,953 441 65,953

35,525 194 32,172 434 68,325

0 34,559 30,953 441 65,953

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

identical assets or liabilities.

nificant effect on the recorded fair value are based on directly or indirectly observable market data. effect on the recorded fair value and are not based on observable market data.

Analysis by level in the fair value hierarchy 2011/12 In CHF '000

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

2010/11

Level 2

Total

Level 2

Total

434 434

441 441

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 2012 Interest income/(expense) Foreign exchange losses2 Net other finance expense Change in provision for doubtful debts Net loss recognized in the income statement Net loss recognized in equity1 Total net loss in 2011/12

52,109 30 – 392

67,891 – 1,430 – 100 – 290

434 – 23

– 1,820

– 23

– 1,820

– 23

Carrying amount at 30 September 2011 Interest income/(expense) Foreign exchange losses Net other finance expense Change in provision for doubtful debts Net loss recognized in the income statement Net loss recognized in equity1 Total net loss in 2010/11

51,994 80 – 560

65,512 – 701 – 383 – 244

441 – 21

– 1,328

– 21

– 1,328

– 21

In CHF '000

– 92 – 454 92 – 362

230 – 710 – 360 – 1,070

From valuation of equity-like loans. 2 The foreign exchange gains/losses from intra-Group loans are as a rule classified to the loans and receivables category.

Total

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

– 642 – 943 – 244 – 230 – 2,059 – 360 – 2,419

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.

2011/12

2010/11

Decrease in basis points

Effect on EBT in CHF '000

Decrease in basis points

Effect on EBT in CHF '000

5 104 51 14

3 35 – 12 12

9 122 29 10

5 53 – 11 9

CHF CNY EUR USD

An increase in interest rates by the same number of basis points as that shown in the preceding table produces an effect equal and opposite to that shown. Foreign exchange risk

Its worldwide activities and 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 before 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.

2011/12

EUR / CHF USD / CHF THB / CHF

2010/11

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

4 8 7

347 420 – 461

93 49 0

13 16 14

1,697 296 – 500

305 94 0

Notes to the consolidated financial statements 84

A decrease in exchange rates by the same percentage amounts shown in the preceding table produces an equal, opposite effect on EBT and equity. 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 equity-like loans between Group companies denominated in euros and US dollars.

Credit risk Cash and cash equivalents

When investing cash, the Schaffner Group is exposed to 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 30.9.2012 In CHF '000

Bank A Bank B Bank C Other counterparties Total cash and cash equivalents, other than cash in hand and banker’s acceptances

30.9.2011

Rating

Balance

Rating

Balance

AAA A

1,467 1,447 1,303 5,620

A A BBB

3,017 2,605 2,341 5,406

9,837

13,369

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 for collectively on the basis of historical experience, and through individual impairment provisions. 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 Additions Amounts used Reversal of unused amounts Exchange differences At 30 September

2011/12

2010/11

322 134 – 20 – 84 23 375

166 254 – 75 – 12 – 11 322

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 days

more than 90 days

Trade receivables at 30 September 2012

34,766

24,790

6,583

1,596

474

1,323

Trade receivables at 30 September 2011

32,426

24,368

4,776

1,713

525

1,045

The Schaffner Group’s maximum exposure to credit risk at 30 September 2012 was CHF 52.1 million (prior year: CHF 52 million), which represented 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 hedged loans1 – of which unhedged loans – Interest rate swap Current financial liabilities2 Finance lease Total financial liabilities at 30 September 2012 Non-current financial liabilities – Interest rate swap Current financial liabilities – of which hedged loans1 – of which unhedged loans Total financial liabilities at 30 September 2011

less than 1 month

1 to 3 months

3 to 12 months

1 to 5 years

more than 5 years

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

441 441 65,512 12,441 5,616

544 544 66,450 12,610 5,630

34 34 374 65 14

0 0 26,717 0 0

102 102 38,951 12,137 5,616

408 408 408 408 0

65,953

66,994

408

26,717

39,053

816

Including interest margin. 2 Excluding finance leases; these are presented separately.

Cash outflows 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 monitor 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

30.9.2012

30.9.2011

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

35,959 194 – 10,256 25,897

441 34,559 – 14,235 20,765

60,333 43%

56,929 36%

Shareholders’ equity Gearing ratio

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 members of the Executive Committee:

In CHF '000

Short-term compensation (base salaries, variable cash compensation and benefits in kind) Share-based payments expense1 Contributions to pension plan Total compensation of Executive Committee 1

2011/ 12

2010/ 11

2,346 529 125 3,000

2,593 463 144 3,200

T he expense for the options granted is spread over the vesting period (see note 18 on page 77). The market value of the 5,500 options granted in the year under review, at an exercise price of CHF 235.00 (prior year: 3,420 options at an exercise price of CHF 240.50), was CHF 340 thousand (prior year: CHF 261 thousand).

In the year under review, members of the Board of Directors were paid fees and expense allowances (including flat expense allowances) of CHF 342 thousand (prior year: CHF 304 thousand) and were granted 2,500 share options (prior year: 1,620) at an exercise price of CHF 235.00 (prior year: CHF 240.50). Disclosures under the Swiss Code of Obligations on compensation of the Executive Committee and Board of Directors are set out on page 91 in the notes to the company financial statements of Schaffner Holding AG.

analysis. On this basis, risk management measures are formulated 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 4 December 2012 for publication and will be presented to shareholders for adoption at the Annual General Meeting on 14 January 2013.

Swiss pension funds

The Group’s pensions in Switzerland are administered by legally separate funds in the form of foundations. In the year under review a total of CHF 1.5 million (prior year: CHF 1.5 million) was paid to these foundations. At the balance sheet date the Group had a net receivables balance of CHF 34 thousand with the foundations (prior year: CHF 34 thousand). As in the prior year, at the balance sheet date the pension fund held no ownership interests in Schaffner Holding AG. 23

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 results of the following companies were included in the Schaffner Group’s consolidated financial statements at 30 September 2012:

Risk assessment

The Board of Directors of Schaffner Holding AG evaluates the risks to the Group through systematic risk identification and

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)

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 auditor 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 2012. 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 2012 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, 4 December 2012 Ernst & Young AG Bernadette Koch

Pascal Kocher

Licensed audit expert (Auditor in charge)

Licensed audit expert

Company financial statements of Schaffner Holding AG 89

Balance sheet In CHF '000

30.9.2012

30.9.2011

0 85,251 85,251

3,000 85,251 88,251

1,989 84 939 88 3,100

1,479 99 756 145 2,479

Total assets

88,351

90,730

Share capital General legal reserve Reserve for treasury shares Share premium Retained earnings Net profit/(loss) for the period Shareholders’ equity

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

20,668 4,134 1,617 47,515 13,881 – 1,193 86,622

12 2,050 164 621 2,847

12 2,983 147 966 4,108

88,351

90,730

2011 / 12

2010 / 11

6,300 6,300

5,303 5,303

– 2,265 – 2,248 – 2 – 360 365 49 – 113 1,726

– 3,457 – 2,738 – 3 – 635 455 – 39 – 79 – 1,193

Loan to Schaffner EMV AG 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 provisions Liabilities to subsidiaries 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 Interest expense Other finance expense Interest income Foreign exchange losses on financing, net Income tax Net profit/(loss) for the period

Notes to the company financial statements of Schaffner Holding AG 90

Guarantees and pledged assets In CHF '000

30.9.2012

30.9.2011

41,250 32,910

49,500 34,559

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 2012 there were 70,019 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 4 December 2012 for publication and will be presented to shareholders for adoption at the Annual General Meeting on 14 January 2013. Information about treasury shares

The reserve for treasury shares was CHF 1.5 million. In the balance sheet at 30 September 2012, treasury shares were measured at the lower of their average cost or the average exercise price of the share options (CHF 160). In the year under review, 1,763 options were exercised, at an average price of CHF 163 each.

Number of shares

Fair value per share in CHF

Average price per share in CHF

At fair value in CHF '000

At average price in CHF '000

At 1 October 2010 + Purchase1 – Disposal1 – Shares utilized for Employee Share Option Plan3 – Shares utilized for restricted share plans1 Value changes2

4,391 23,127 – 100 – 21,124 – 1,503

163

200

716 7,356 – 26 – 4,115 – 443 – 2,732

879 7,356 – 26 – 4,115 – 443 – 2,034

At 30 September 2011 + Purchase1 – Shares utilized for Employee Share Option Plan3 – Shares utilized for restricted share plans1 Value changes2

4,791 4,420 – 1,763 – 1,590

158

337

756 980 – 288 – 169 – 340

1,617 980 – 288 – 169 – 671

5,858

160

251

939

1,469

Number of shares

Equity interest

Number of shares

Equity interest

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

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

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

131,663 61,834 50,808 30,702 20,000 11,020 325,122 631,149

20.70% 9.72% 7.99% 4.84% 3.14% 1.73% 51.13% 99.25%

Treasury shares Total shares outstanding

5,858 635,940

0.92% 100.00%

4,791 635,940

0.75% 100.00%

At 30 September 2012

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

Significant shareholders 30.9.2012

30.9.2011

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 under the share option 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 & Compensation Committee, has confirmed the extent of target achievement. The varia-

ble compensation is ordinarily allotted 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 attributable to the respective fiscal year.

Notes to the company financial statements of Schaffner Holding AG 92

Board of Directors in 2011/12 Cash fees and base salaries3

Variable compensation2

Pension costs

In CHF '000

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

112 47 47 35 35 35 311

410 1,188 1,598

Share-based payments expense1

Other com pensation

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 Total for all other members of the Executive Committee Total compensation of Executive Committee

At market value in accordance with IFRS 2 (see note 18 on page 77). Including, for the other members of the Executive Committee, CHF 25 thousand for discounts under the restricted share plan (see note 18 on page 77). 3 Excluding flat expense allowances.

Board of Directors in 2010/11 Cash fees and base salaries3

Variable compensation2

Pension costs

In CHF '000

Daniel Hirschi, Chairman Herbert Bächler Hans Hess Robert F. Spoerry (retired 31 March 2011) Markus Zenhäusern Total compensation of Board of Directors

112 47 47 24 47 277

395 1,298 1,693

130 268 398

Share-based payments expense1

Other com pensation

Total

38 19 25 0 23 105

150 66 72 24 70 382

114 368 482

187 276 463

10 95 105

836 2,305 3,141

Executive Committee in 2010/11 In CHF '000

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

At market value in accordance with IFRS 2 (see note 18 on page 77). Including, for discounts under the restricted share plan, CHF 26 thousand for Alexander Hagemann and CHF 28 thousand for the other members of the Executive Committee (see note 18 on page 77). 3 Excluding flat expense allowances. 1

Holdings of shares, options and conversion rights 30.9.2012 Number of shares held

Board of Directors Daniel Hirschi, Chairman Herbert Bächler Hans Hess Suzanne Thoma (from 12 January 2012) Georg Wechsler (from 12 January 2012) Markus Zenhäusern (until 1 July 2012) Total holdings of the Board of Directors Executive Committee Alexander Hagemann, Chief Executive Officer Kurt Ledermann, Chief Financial Officer Fabian Beck (until 30 September 2011) Jean-Michel Calleri, Executive Vice President, Automotive division Ah Bee Goh, Chief Operating Officer Eduard Hadorn, Executive Vice President, Power Magnetics division Martin Köppel (until 30 September 2011) Guido Schlegelmilch (from 1 October 2011), Executive Vice President, EMC division Total holdings of the Executive Committee

30.9.2011

Number of share options held

Vested

Not vested

Total

120 500 1,895 5 200

665 330 418 0 0

1,995 990 1,115 0 0

2,660 1,320 1,533 0 0

2,720

1,413

4,100

5,513

1,000 743

2,045 1,095

13,560 4,653

80 645

600 600

543

80 3,091

Number of shares held

Number of share options held

Vested

Not vested

Total

120 500 1,520

250 125 0

1,410 695 1,033

1,660 820 1,033

100 2,240

375 750

945 4,083

1,320 4,833

15,605 5,748

1,000 743 601

1,437 590 287

13,618 4,458 3,823

15,055 5,048 4,110

1,850 4,200

2,450 4,800

0 545

725 150

1,125 4,150

1,850 4,300

1,000

4,200

5,200

373 687

575 262

4,125 3,698

4,700 3,960

125 5,465

1,550 30,013

1,675 35,478

3,949

4,026

34,997

39,023

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

Risk assessment

The Board of Directors of Schaffner Holding AG evaluates the risks to the Group through systematic risk identification and analysis. On this basis, risk management measures are formulated 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.

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

2011/12

2010/11

Net profit/(loss) 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

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

– 1,193 14,621 – 738 12,690 0 12,690

2011/12

2010/11

0 1,260

0 2,840

– 1,260 0

– 2,840 0

635,940 – 5,858 630,082

635,940 – 4,791 631,149

The Board of Directors also proposes to the Annual General Meeting to allocate share premium (the reserve for additional paid-in 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 2.00 (prior year: CHF 4.50) 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 1

Shares entitled to dividends are those shares not held by the Company or one of its subsidiaries.

Report of the statutory auditor on the financial statements 95

To the General Meeting of Schaffner Holding AG, L uterbach

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 2012. Board of Directors’ responsibility

Opinion

In our opinion, the financial statements for the year ended 30 September 2012 comply with Swiss law and the company’s articles of incorporation. Report on other legal requirements

Pascal Kocher

Licensed audit expert (Auditor in charge)

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 41 info@schaffner.com www.schaffner.com

Customer service 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 environment 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 2012 Publication and production: Schaffner Holding AG, Luterbach Concept and consulting: Communicators AG, Zurich Text: Schaffner Holding AG, Luterbach; Communicators AG, Zurich Translation: Martin Focken, North Bay, Ontario, Canada Design concept and prepress: W4 Marketing AG, Zurich/Dresden Printing: Merkur Druck, Langenthal Photography: flamisch photography, Düsseldorf; iStockphoto; Resorts World Sentosa

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