Annual Report 2012/13

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Schaffner GroupAnnual Report

2012/13

Structure of this reportThis integrated report comprises the business review and financial reporting of the Schaffner Group as well as the corporate govern-ance 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 require-ments of the International Financial Reporting Standards (IFRS) and, where applicable, of Swiss law.

In this publication the Schaffner Group reports to its stakehold-er groups on its economic performance and corporate social re-sponsibility. The scope and content of the sustainability report-ing is based on the latest report filed by the Schaffner Group in its capacity as an active member of the UN Global Compact.

External audit and opinionParts 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 is-sued an unqualified audit opinion.

About the cover photoIn the oil and gas industry, complex installations are often built and operated in remote areas. As they are located far from the grid, their power is usually supplied by large generators. The de-mands on power quality are especially high for operation in this so-called island mode. Schaffner’s active filters, EMC filters, and sinusoidal filters ensure a reliable supply of power and pro-tect electrical infrastructure and motors from premature aging.

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

Contents

4 To our shareholders 6 EMC division 10 Power Magnetics division 14 Automotive division 18 Operations20 Global footprint22 Leadership and values27 Financial report and corporate governance 96 Selected addresses of the Schaffner Group

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The Schaffner Group is a global leader in the development and production of solutions that ensure the efficient and reliable op-eration of power electronic systems. The company’s portfolio ranges from EMC filters, power quality filters and power mag-netic components to the development and implementation of customized solutions.

Schaffner components are deployed in energy-efficient drive sys-tems and electronic motor controls, in wind power and photo-voltaic systems, in rail technology applications, machine tools and robotics, electrical infrastructure, as well as in power sup-plies 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 mar-ket, offers solutions used in electric drive systems and in the charging infrastructure for electric vehicles.

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

The EMC division develops and manufactures standard and custom components that protect power electronic equipment from line interference (thus assuring electromagnetic compati-bility, or EMC) and ensure the stability of power grids. Key sales markets include energy-efficient drive systems, renewable en-ergy, power supplies for electronic devices, and machine tools and robotics.

The Power Magnetics division (PM) develops and manufac-tures components to ensure the reliable operation of power elec-tronic systems, and builds customized high-performance trans-formers for demanding applications. Schaffner solutions deployed in solar inverters and converters in wind turbines are highly effi-cient and assure the best possible adaptation to electricity grids. Schaffner components are also integrated into compact, high-performance, energy-efficient locomotive drive systems and elim-inate network interference from powerful motors.

The Automotive division (AM) develops and manufactures components for keyless entry systems as well as solutions for the drive systems of hybrid and electric vehicles. Schaffner engineers work closely with leading automobile manufacturers and support them in the development stage of new models with specialized expertise in EMC.

Energy efficiencyand reliability

Machine toolsand robotics

Renewableenergy

Power supplies forelectronic devices

Energy-efficientdrive systems

Rail technology

Automotive electronics

Electricalinfrastructure

Profile

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Trading of the Company’s securitiesThe registered shares of Schaffner Holding AG are traded onthe SIX Swiss Exchange under Securities No. 906209.

Ticker symbolRegistered shares: SAHN

Key share data

2008 / 09 2009 / 10 2010 / 11 2011 / 12 2012 / 13

Number of shares (par value of CHF 32.50) 635,940 635,940 635,940 635,940 635,940Weighted average number of sharesoutstanding (entitled to dividend) 606,124 635,131 633,266 632,990 633,859Earnings per share (EPS) in CHF – 18.04 18.87 16.03 6.17 9.92Shareholders’ equity per share in CHF 74.39 88.04 89.52 94.87 98.30Repayment of excess share premium, per share in CHF 0.00 4.50 4.50 3.50 4.501

Free float in % 99.9 99.3 99.3 99.1 99.2

Share price2

High for year in CHF 233 220 350 271 240Low for year in CHF 118 148 216 204 203At end of year in CHF 170 219 235 235 227

Market capitalization2

High for year in CHF million 148 140 223 172 153Low for year in CHF million 75 94 137 130 129At end of year in CHF million 108 139 149 149 144

1 Subject to approval by the Annual General Meeting on 14 January 2014. 2 Period: fiscal year from 1 October to 30 September (Source: Bloomberg).

Share price performance 1 October 2012 to 30 September 20133Share price performance 1 October 2008 to 30 September 20133

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Key financials of the Schaffner Group

In CHF '000 2008 / 09 2009 / 10 2010 / 111 2011 / 12 2012 / 13

Net sales 133,363 188,939 182,603 176,942 194,889Net sales, EMC division n/a n/a 128,932 105,784 109,686

Segment profit, EMC division n/a n/a 20,174 12,552 14,071

Net sales, Power Magnetics division n/a n/a 36,046 46,495 53,924

Segment profit/(loss), Power Magnetics division n/a n/a – 331 – 284 2,963

Net sales, Automotive division n/a n/a 17,625 24,663 31,280

Segment profit/(loss), Automotive division n/a n/a – 395 563 – 1,973

Operating profit/(loss) [EBIT] – 9,193 15,000 12,810 7,243 9,414In % of net sales – 6.9 7.9 7.0 4.1 4.8

Net profit/(loss) for the period – 10,935 11,983 10,150 3,909 6,287In % of net sales – 8.2 6.3 5.6 2.2 3.2

Total assets 126,883 126,643 136,822 140,843 143,653Shareholders’ equity 47,305 55,985 56,929 60,333 62,512In % of total assets 37.3 44.2 41.6 42.8 43.5

Number of employees 1,808 2,393 2,702 2,569 2,817

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Net profitIn CHF million

Net sales in 2012/13 by regionBased on customer location

15% North America44% Europe 41% Asia

Net sales in 2012/13 by market

23% Energy-efficient drive systems

18% Renewableenergy

9% Railtechnology16% Automotive electronics

15% Power suppliesfor electronic devices

12% Machine toolsand robotics

5% Electricalinfrastructure

2% Other markets

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To our shareholders

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

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

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

Positive trajectories in the divisionsThe two divisions Power Magnetics and Automotive posted growth above the Group average in the year under review, nar-rowing the gap to the traditionally largest division, EMC, which contributed 56% (prior year: 60%) of sales. The Power Magnet-ics division grew from 26% to 28% of Group sales, while Auto-motive now accounted for 16%, up from 14%.

The EMC division grew its sales to CHF 109.7 million in fiscal year 2012/13, thanks particularly to faster growth in the key mar-kets during the second half, when sales were 18.5% higher than in the first six months. This acceleration was driven in particular by power quality filters, including the ECOsine line of harmonic fil-ters. Although the plants were underutilized as a result of low or-der volume during the first six months in particular, and the sharp hike of 80% in statutory minimum wages in Thailand weighed on profitability, the EMC division pushed up its segment profit to CHF 14.1 million (prior year: CHF 12.6 million). The profit mar-gin increased by one percentage point to 12.8% (prior year: 11.8%).

Sales in the Power Magnetics division increased to CHF 53.9 million (prior year: CHF 46.5 million). The good growth of 16% was due largely to the successful establishment of a strong posi-tion in the Japanese photovoltaics market. Thanks to the opera-

Back on track for growth

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

OutlookAll divisions achieved growth in the second half of the year un-der review and made a good start into the new fiscal year. The outlook in the important European market for industrial elec-tronics improved in recent months. Schaffner intends to consol-idate and expand its leading position in the EMC market as well as in attractive niche markets, through new products and supe-rior customer service. In addition, operational excellence is to be continually enhanced.

The Automotive division should return to profits now that the two major new projects are underway. For fiscal 2013/14 the management thus expects the Schaffner Group to deliver sales growth in the high single-digit range and a further improvement in operating margin.

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

Daniel Hirschi Alexander HagemannChairman of the Board of Directors Chief Executive Officer

tional improvement measures, the PM division returned to prof-itability. The division’s segment profit amounted to CHF 3.0 million (prior year: loss of CHF 0.3 million), with a profit mar-gin of 5.5% (prior year: – 0.5%).

The Automotive division boosted its sales by about one-fourth during the year under review, reaching CHF 31.3 million (prior year: CHF 24.7 million). Despite this continuing growth in sales, the division registered a loss of CHF 2.0 million, compared with a profit of CHF 0.6 million in the previous year. High project-related costs had a negative impact here, as two large projects were developed and taken to industrial scale in the areas of electromo-bility and keyless access systems. Both projects will generate sales and earnings from fiscal year 2013/14. The division’s profitabil-ity was also restricted by one-time personnel expenses arising from the termination of the (French-law) employment contract of the former head of the Automotive division. After the power-ful sales growth of the last several years, the focus for this divi-sion is now on a solid improvement in earnings.

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

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

From left: Daniel Hirschi and Alexander Hagemann

EMCdivision

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EMC division

After a sharp sales decline in the previous year, the EMC division returned to growth in fiscal year 2012/13. Sales in the first half of the reporting period were still at the low prior-year level, but business picked up significantly in the latter half, leading to an overall year-on-year rise of 3.7% in sales to CHF 109.7 million (prior year: CHF 105.8 million). This was equivalent to 56% of the Schaffner Group’s consolidated sales (prior year: 60%).

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

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

Machine toolsand robotics

Renewableenergy

Power supplies forelectronic devices


Power electronic systems must meet high standards of protection against electromagnetic interference. Schaffner’s EMC division is the world’s leading supplier of products and solutions for electromagnetic compatibility. It develops and manufactures components that ensure the immunity of power electronic systems to line interference, as well as products such as power quality filters to safeguard the stability of electricity grids. The division’s key sales markets are in energy-efficient drive systems, renewable energy, power supplies for electronic devices, and machine tools and robotics.

EMC division

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

Continuing innovation campaignSchaffner’s investments during the reporting period remained fo-cused primarily on innovation and bringing new products to mar-ket. In the product segment of harmonic filters, for example, new solutions such as the ECOsine light harmonic filter and the AHF 690 V active harmonic filter were unveiled. A customer-focusedservice organization is also being set up for the ECOsine prod-uct family and should generate additional revenue potential in the medium term. The presentation of Schaffner’s new Power Quality Simulators (PQS) generated keen interest and the EMC division made good progress in its development of the next gen-eration of AC/DC filters. Strategic partnerships with universi-ties and industrial partners were also intensified during the re-porting year.

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

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

PMdivision

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Power Magnetics division

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

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

Renewableenergy


Rail technology

Electricalinfrastructure

Power Magnetics division

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

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the federal budget, which in October 2013 even led to a tempo-rary halt in government spending, meant delays in the conver-sion of already-won US government contracts into orders.

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

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

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

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

High-quality magneticcomponents For use in drives and auxiliarysystems in trains

Combination oftransformer and inductor For compliant grid connectionof photovoltaic systems

AMdivision

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Automotive division

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

Automotive division

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

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

Looking ahead: Double-digit growth expectedFor fiscal year 2013/14, Schaffner expects the Automotive division to record another rise in sales, probably in the double digits. Sev-

Automotive electronics

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

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

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

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

New head of Automotive division from 2014Günther Werkmeister will take over as the new head of the Au-tomotive division at the beginning of January 2014. In this position he will succeed Chief Executive Officer Alexander Hage-mann, who has filled the role on an interim basis since the depar-ture of the former division head in late 2012. Günther Werk-meister has thoroughly familiarized himself with the division in 2013 and is very well prepared to assume its leadership at the start of 2014. He has more than 30 years’ experience in the automo-tive industry, including over 25 years in management at interna-tional automotive suppliers.

Antennas and sensorsFor convenience and safety applications in automobiles

DC storage chokeDeveloped for automotive applications, primarily for power conversion in elec-trical vehicles. Internal components are made from high-tech materials to with-stand high operating temperatures.

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Operations

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

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

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

Systematic process optimizationLean manufacturing processes and Schaffner’s guiding principle of ROFO (Responsibility, Ownership, Focus, On-time correc-tive action) were systematically furthered during the year under review, generating additional improvements in productivity. The lower production costs are strengthening Schaffner’s competi-tiveness in its key markets. Worth highlighting is the Group’s con-tinuing success in the year under review in meeting the demand-ing quality and price expectations of customers in the automobile industry. The largely completed introduction of Schaffner’s lean-cell concept, a manufacturing process based on continuous im-provement, allows steady productivity gains to be made at the in-dividual sites, permits the reduction of inventory levels and throughput times, and saves factory space. Likewise, the incre-mental automation of individual processes helped enable the

Operational excellence

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

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Schaffner lean-cell concept Raising productivity through automation

White-room automotive production in Thailand

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The Schaffner Group is a global company with a localpresence in all key markets. Production facilities in Asia,Europe and North America as well as 18 sales and application centers ensure rapid turnaround times, relevant consulting and responsive customer-driven 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 customer’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 world’s local markets.

Global footprint

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China Germany ThailandHungary USA

Development and production centers

Headquarters

Switzerland

Sales and application centers

China Germany FinlandFranceItalyJapanSweden

SwitzerlandSingaporeSpainTaiwanThailandUKUSA

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

Board committeesThe 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 commit-tees consist solely of non-executive members of the Board.

Audit Committee

Members TenureGeorg Wechsler, Committee chairman 2012 – 2014Daniel Hirschi 2013 – 2015Gerhard Pegam 2013 – 2015

Nomination & Compensation Committee

Members TenureDaniel Hirschi, Committee chairman 2013 – 2015Herbert Bächler 2012 – 2015Suzanne Thoma 2012 – 2014

Corporate governance

Leadership and values

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 gov-ernance policy can be found in the corporate governance sec-tion of the Schaffner financial report (pages 27 to 50) and on our website at: www.schaffner.com/en/investor-relations/cor porate-governance.html

Changes since publication of the 2011/12 annual reportAt the 17th Annual General Meeting of the Schaffner Group on 14 January 2013, Daniel Hirschi was re-elected to the Board of Directors for a further term of two years and the Austrian na-tional Gerhard Pegam was elected as a new member of the Board for a two-year term. As well, the Annual General Meet-ing approved the shareholder proposal to transfer CHF 2,220,603 from share premium to the distributable share pre-mium reserve and to distribute, from this newly funded reserve, CHF 3.50 per share entitled to dividends. The distribution was exempt from Swiss anticipatory tax. During the first quarter of the fiscal year, the former head of the Automotive division, Jean-Michel Calleri, retired from the Executive Committee; he left the Schaffner Group at the end of June 2013. The Automotive division has since then been directed on an interim basis by the Chief Executive Officer.

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Bord of DirectorsIn fiscal year 2012/13 the Board of Directors of Schaffner Hold-ing AG had the following members: Daniel Hirschi (Chairman),

Daniel Hirschi, Chairman, born 1956, Swiss citizenDegree in Engineering, Berne University of Applied Sciences, BielMember since 2010, elected until 2015 Herbert Bächler, born 1950, Swiss citizenPhD in Technical Sciences and MSc in Electrical Engineering, Federal Institute of Technology, Zurich Member since 2009, elected until 2015 Gerhard Pegam, born 1962, Austrian citizenDegree in Electrical Engineering, Klagenfurt Technical College, AustriaMember since 2013, elected until 2015

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

Suzanne Thoma, born 1962, Swiss citizenPhD in Technical Sciences and MSc in Chemical Engineering, Federal Institute of Technology, Zurich Member since 2012, elected until 2014 Georg Wechsler, born 1956, Swiss citizenDegree in Business Administration and Swiss Certified Accountant Member since 2012, elected until 2014 Kurt Ledermann, Chief Financial Officer of the Schaffner Group, has served as Secretary of the Board of Directors since June 2008. The Secretary is not a member of the Board.

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

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Executive CommitteeFollowing the exit of the former head of the Automotive divi-sion on 9 November 2012, the divisionally structured Executive Committee, led by the Chief Executive Officer, consisted of the

Alexander Hagemann, born 1962, German citizenDegree in Mechanical Engineering from RWTH Aachen University Joined the Schaffner Group as Chief Executive Officer on March 1, 2007. Acting head of the Automotive division from 9 November 2012.

Kurt Ledermann, born 1968, Swiss citizenMSEE Degree in Electrical Engineering, Federal Institute of Technology, Zurich; Master of Arts HSG, University of St. GallenJoined the Schaffner Group as Chief Financial Officer on 1 June 2008.

Ah Bee Goh, born 1950, Singaporean citizen HBSc Degree in Production Engineering, University of Strathclyde; MSc in Industrial Engineering, National University of Singapore; MSc in Finance, University of Leicester; MBA, University of SurreyJoined the Schaffner Group on 1 July 2007. Vice President, Manufacturing, until 30 September 2011. Chief Operating Of-ficer since 1 October 2011.

Jean-Michel Calleri, born 1956, French citizenElectrical Engineering Diploma ESIGELEC, Rouen; IESTO CNAM, ParisJoined the Schaffner Group in 1999. Executive Vice President and head of the Automotive division from 1 October 2011 until 9 November 2012.

Eduard Hadorn, born 1956, Swiss citizenDegree in Business AdministrationJoined the Schaffner Group in 2003. Executive Vice President and head of the Power Magnetics division since 1 October 2011.

Guido Schlegelmilch, born 1964, German citizenDegree in Business Engineering and PhD, Darmstadt University of TechnologyJoined the Schaffner Group in 2009. Executive Vice President and head of the EMC division since 1 October 2011.

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

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

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

› We exceed our customers’ expectations and win them over with our products, solutions and services. Through our ac-tivities we generate added value for our customers.

› We develop and implement stable, flexible, streamlined processes that can be adapted quickly to changing market requirements.

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

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

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

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

All certifications are periodically reviewed and upgraded.

Quality principles

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

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The Schaffner Group is known as an ethical company and is com-mitted to maintaining this valuable reputation. Our operating principle is to treat shareholders, customers, partners, suppliers, competitors and government agencies with professionalism and honesty.

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

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

Conflict minerals policyIn addition, the Schaffner Group supports the Conflict Miner-als Act to safeguard human rights in the mining industry, espe-cially in the mining of tin, tantalum, tungsten and gold in con-flict regions, particularly in the eastern portion of the Democratic Republic of the Congo and in adjoining countries. The Schaffner Group does not tolerate any such materials in its manufacturing operations. Schaffner works closely with suppliers to verify the origin of the raw materials that it uses. The related procedures form part of the procurement policies and the management sys-tem of the Schaffner Group.

EmployeesSchaffner is convinced that motivated employees and superior, innovative solutions are essential to meeting the exacting de-mands of customers and asserting the Schaffner Group’s claim to leadership. Our goal is therefore to become the sector’s pre-ferred 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.

Sustainability

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

Schaffner GroupFinancial Report and

Corporate Governance

Contents

27 Corporate governance, including compensation report51 Consolidated financial statements of the Schaffner Group89 Company financial statements of Schaffner Holding AG

201213

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Accountability and transparency for all stakeholders

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

PrinciplesTransparency and well-defined responsibilities are the underpin-nings of the Schaffner Group’s corporate governance: Transpar-ent financial reporting and clearly assigned duties and account-abilities in the interactions between shareholders, the Board of Directors and the Executive Committee.

As a company listed on the SIX Swiss Exchange, Schaffner ful-fils the requirements of the Directive on Information Relating to Corporate Governance issued by the SIX Swiss Exchange. Schaffner also follows the applicable standards of the Swiss Code of Best Practice for Corporate Governance, including its Ap-pendix 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 “Corpo-rate Governance”: www.schaffner.com/en/investor-relations/corporate-governance.html

In addition, Schaffner’s general principles of corporate govern-ance are described in the Organizational Regulations of Schaffner Holding AG and in the Articles of Association, which can be viewed at or requested from the Company’s head office.

As an active participant in the UN Global Compact, the Schaffner Group is committed in its strategy and activities to honoring the principles of the UN Global Compact regarding human rights, labor, the environment and anti-corruption. Schaffner expects its employees to be accountable for their actions, to respect peo-ple, society and the environment, to follow applicable rules and act with integrity. The Group’s current relevant report (Com-munication on Progress) is available at: www.unglobalcompact.org/participant/10379-Schaffner-Holding-AG

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

employees are treated with respect and dignity, and that manu-facturing operations are environmentally sound.www.eicc.info/EICC_CODE.shtml

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

Governance-related events in fiscal year 2012/13On 14 January 2013 the 17th Annual General Meeting of Schaffner Holding AG re-elected Daniel Hirschi as a member of the Board of Directors for a term of two years, and elected Ger-hard Pegam, an Austrian citizen, as a new member of the Board for a two-year term. As well, the Annual General Meeting ap-proved the shareholder proposal to transfer CHF 2,220,603 from share premium to the distributable share premium reserve and to distribute, from this newly funded reserve, CHF 3.50 per share entitled to dividends. The distribution was exempt from Swiss an-ticipatory tax. In the course of the first quarter of the fiscal year, the former head of the Automotive division, Jean-Michel Calleri, re-tired from the Executive Committee; he left the Schaffner Group at the end of June 2013. The Automotive division has since then been directed on an interim basis by the Chief Executive Officer.

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1 Group structure and significant shareholders

1.1 Group structure

1.1.1 Group operating structureThe Schaffner Group has a divisional organizational structure consisting of the three segments EMC, Power Magnetics and Automotive. The reporting to the Executive Committee (the Group’s chief operating decision-maker) follows this structure.

The chart below shows the Group’s operating structure at 30 September 2013:

Board of Directors Audit Committee, Nomination & Compensation CommitteeExecutive Committee Group functionsEMC division – Power Magnetics division – Automotive division

The Chief Executive Officer has responsibility for the opera-tional management of the Schaffner Group. He is also the head of the Executive Committee (the Group’s top tier of executive management). The management of the Schaffner Group is provided by the Board of Directors and (through the Board’s delegation of authority) by the Chief Executive Officer and the Executive Committee.

The division of responsibilities between the Board, Chief Execu-tive Officer and Executive Committee is described on page 36 of this corporate governance report in section 3.5.

The Executive Committee had the following structure at 30 September 2013:

Executive Committee

Alexander Hagemann Chief Executive OfficerKurt Ledermann, Finance & IT Chief Financial OfficerAh Bee Goh, Manufacturing Chief Operating OfficerGuido Schlegelmilch, EMC division Executive Vice PresidentEduard Hadorn, Power Magnetics division Executive Vice PresidentAlexander Hagemann, Automotive division Chief Executive Officer

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

1.1.2 Listed companiesThe Schaffner Group maintains an international presence through its own subsidiaries and a network of independent distributors. The parent company of the Schaffner Group is Schaffner Holding AG, whose shares are traded on the SIX Swiss Exchange.

Schaffner Holding AG is the only Group company listed on a stock exchange.

Schaffner Holding AG is a public limited company incorporated in Switzerland and has its registered office in Luter-bach. At 30 September 2013 the share capital consisted of 635,940 ordinary registered shares with a total nominal value of CHF 20,668,050.

Registered office 4542 Luterbach, SwitzerlandListing exchange and regulatory standard

SIX Swiss Exchange, Main Standard

Security number 906209ISIN CH 0 009 062 099Ticker symbol SAHNNominal 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 companiesThe 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 shareholdersAt the balance sheet date of 30 September 2013 there were 1,226 shareholders registered with voting rights in the share register of Schaffner Holding AG (prior year: 1,325). Of the issued shares, 99.2% represented free float (prior year: 99.1%). Schaffner Hold-ing AG held the other 0.8% as treasury shares (prior year: 0.9%). At 30 September 2013, shares of unregistered owners amounted to 15.0% of the issued shares (prior year: 14.4%).

Under section 20 of the Swiss Federal Act on Stock Exchanges and Securities Trading (SESTA, or Stock Exchange Act), when a shareholder’s voting rights in a company listed on the SIX Swiss Exchange reach, rise above or fall below 3%, 5%, 10%, 15%, 20%, 25%, 33⅓%, 50% or 66⅔%, this event must be disclosed. In the year under review, seven such disclosure notifications were made: on 17 November 2012, 22 February 2013, 13 April 2013, 25 April 2013, 8 August 2013, 31 August 2013 and 5 September 2013. At the balance sheet date of 30 September 2013, Schaffner

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Holding AG had the following seven significant shareholders (defined for this purpose as shareholders holding more than 3% of voting rights; in alphabetic order):

Alpine Select AG, Zug Balfidor Fondsleitung AG, BaselBuru Holding AG, ZugUBS AG, BaselSarasin Investmendfonds AG, BaselSUVA (Swiss National Accident Insurance Fund), Lucerne

Information on significant shareholders is also provided on page 91 in the notes to the company financial statements of Schaffner Holding AG. As well, a record of all notifications issued under section 20 Stock Exchange Act is available on the website of the SIX Swiss Exchange at: www.six-exchange-regulation.com/obligations/disclosure/major_shareholders_en.html?issuer=10529&fromDate=19980101

1.3 Cross-shareholdingsThere were no cross-shareholdings between Schaffner and other publicly traded companies.

2 Capital structure

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

2.2 Authorized unissued capitalOn 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 reg-istered shares with a nominal value of CHF 32.50 per share. Detailed information can be found on page 77 of the Schaffner Group’s annual report 2011/12, in section 18 of the notes to the consolidated financial statements.

The Company had no other authorized unissued capital at 30 September 2013, i.e., no unissued capital authorized for pur-poses other than the share option plans.

2.3 Changes in equityThe Annual General Meeting on 12 January 2011 passed a resolution to distribute CHF 4.50 per share (exempt from Swiss anticipatory tax) in the form of a repayment of excess share premium. No other distribution to shareholders was made for fiscal 2009/10.

The Annual General Meeting on 12 January 2012 passed a resolution to distribute CHF 4.50 per share (exempt from Swiss anticipatory tax) in the form of a repayment of excess share premium. No other distribution to shareholders was made for fiscal 2010/11.

The Annual General Meeting on 14 January 2013 voted in favor of a shareholder proposal to distribute CHF 3.50 per share (exempt from Swiss anticipatory tax) in the form of a repayment of excess share premium. No other distribution to shareholders was made for fiscal 2011/12.

The changes in share capital, in share premium, in retained earnings and in the other components of consolidated equity are presented in detail on page 55 in the consolidated financial statements in this annual report 2012/13. The comparative information on changes in equity for the three prior years is

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

2.4 Shares and participation certificates

2.4.1 SharesThe 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, in-cluding the granting of interests therein as collateral, are subject to the Swiss Federal Act on Book-Entry Securities. If uncertifi-cated 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 owner-ship of their shares.

(ii) Shareholders do not have a right to the printing and de-livery of certificates (physical securities) or to the conversion of registered shares issued in one form into another form. The Company may, however, at any time print and deliver certifi-cates (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 Meet-ing of shareholders may at any time convert registered shares into bearer shares or convert bearer shares into registered shares.

2.4.2 Participation certificatesThere were no participation certificates of Schaffner Holding AG at 30 September 2013 (participation certificates, or Partizipation-sscheine in German, essentially are a type of preference share).

2.5 Dividend right certificatesSchaffner Holding AG had not issued any dividend right cer-tificates as of 30 September 2013 (dividend right certifi-cates, or Genussscheine in German, essentially are preference shares for related parties).

2.6 Restrictions on transferability and nominee registration

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

2.6.1 Recognition of share purchasers as voting shareholders

Shareholders or beneficial owners are deemed to be those per-sons registered in the Company’s share register. In accordance with article 6 para. 3 of the Articles of Association of Schaffner Holding AG, purchasers of shares are upon their request re-corded as voting shareholders in the share register by the Board of Directors if the purchasers state expressly that they have ac-quired and will hold the shares for their own account. Recogni-tion 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 appli-cation for registration, the shareholder expressly declares to the Company that the shareholder has acquired and will hold the shares for the shareholder’s own account. In reliance on article 6 para. 3 of the Articles of Association and the recognition re-quirements derived from it, applicants (purchasers holding legal title to the shares) are thus not recognized as voting shareholders if they have acquired, and are holding, the shares as a result of a securities lending transaction or similar transaction that gives them legal ownership without the associated economic risk.

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

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

› For individuals: last name, first name, nationality, and address

› For legal entities: entity name, registered office, and address

Each registration in the share register requires evidence of the ac-quisition of full legal title to the stock or evidence of the establish-ment of beneficial ownership, and always requires an express dec-laration that the stock was acquired and is held by the applicant in the applicant’s own name and for the applicant’s own account.

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

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

The registrar (the company that is retained to operate the share register) is responsible for sending the nominee agreement to the respective nominee and collecting the information to be disclosed. If complete disclosure is not made within the 20-day deadline specified in section 685g of the Swiss Code of Obliga-tions, or if no nominee agreement is concluded between the Company and the nominee within this period, the nominee is registered in the share register as non-voting in respect of these shares. To the extent permitted by law, the Board of Directors is authorized to enter into agreements with nominees regarding notification obligations. On a case-by-case basis, the Board may approve exceptions to the nominee rules.

Where legal entities or groups with joint legal status are related to one another by capital, voting rights, management or in some other manner, they are deemed to constitute a single purchaser. Also deemed a single purchaser are all natural persons, legal entities or groups with joint legal status that by agreement, as a syndicate or in any other way act in a coordinated manner with a view to circumventing the nominee rules. The Company may void registrations in the share register with retroactive effect from the date of registration if they were based on false informa-tion given by the purchaser. The purchaser must be informed of this deletion immediately.

Registered non-voting shareholders and registered non-voting nominees cannot exercise the voting rights associated with the shares nor exercise other rights related to the voting rights. However, they are not restricted in exercising any of their other shareholder rights, including also pre-emptive rights. At the General Meeting the shares registered as non-voting are treated as unrepresented (see section 685f para. 2 and 3 of the Swiss Code of Obligations).

The registration restrictions described above also apply to shares bought or subscribed through the exercise of pre-emptive rights, options or conversion rights.

At the balance sheet date of 30 September 2013, 15.0% (prior year: 14.4%) of all issued shares were unregistered or were reg-istered as non-voting shares.

2.7 Convertible bonds and options

2.7.1 Convertible bondsThere are no outstanding convertible bonds of Schaffner Hold-ing AG.

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2.7.2 Share option plansThe share option plans for executive management and mem-bers of the Board of Directors of the Schaffner Group (the Em-ployee Share Option Plan and the Performance Option Plan) are described in detail on page 77 in the consolidated financial statements.

3 Board of Directors

3.1 Members of the Board of DirectorsThe Articles of Association require the Board of Directors of Schaffner Holding AG to have between three and seven mem-bers. In fiscal year 2012/13, until the Annual General Meeting on 14 January 2013, the Board consisted of five, non-executive members. After the election of Gerhard Pegam to the Board on 14 January 2013, the Board of Directors consisted of six, non-executive members on 30 September 2013. In the three years prior to the reporting period (the fiscal years 2009/10, 2010/11 and 2011/12), none of the Board members were members of Schaffner’s Executive Committee or of the man-agement 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 govern-ance issued by economiesuisse, the Swiss business federation.

In fiscal year 2012/13 the Board of Directors of Schaffner Hold-ing AG had the following members:

Daniel Hirschi, Chairman, born 1956, Swiss citizenBoard member since 2010, elected until 2015Degree in Engineering, Berne University of Applied Sciences, BielFrom 2006 to 2009 was Chief Executive Officer and Desig-nated Representative of the Board of Directors of Benninger AG, Uzwil. From 1983 to 2005 served in various management functions at Saia-Burgess, Murten, including Chief Ex-ecutive Officer from 2001 and Designated Representative of the Board from 2003.

Herbert Bächler, born 1950, Swiss citizenBoard member since 2009, elected until 2015PhD in Technical Sciences and MSc in Chemical Engineering, Federal Institute of Technology, ZurichIn charge of innovation management at ARfinanz Holding AG, Stäfa. From 2002 to 2008 was Chief Technology Officer at So-

nova/Phonak AG and from 1981 to 2002 held various manage-ment positions in its R&D department.

Gerhard Pegam, born 1962, Austrian citizenBoard member since 2013, elected until 2015Degree in Electrical Engineering, Klagenfurt Technical College, AustriaUntil beginning of 2012 was Chief Executive Officer of EPCOS AG. From 2009 to 2012 was a member of the Board of Directors of EPCOS parent company TDK-EPC Corp. From middle of 2011 to mid-2012 was a Corporate Officer of TDK Corporation, Japan, and from 2004 to 2012 was a member of the Board of ZVEI, the German Electrical and Electronic Manufacturers’ Association. Between 1982 and 2001 held various management positions at EPCOS, Siemens and Philips.

Suzanne Thoma, born 1962, Swiss citizenBoard member since 2012, elected until 2014PhD in Technical Sciences and MSc in Chemical Engineering, Federal Institute of Technology, ZurichFrom 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 Net-works 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 Tech-nologies, Allschwil, and held management positions at Ciba Spezialitätenchemie AG, Basel (now BASF AG) in Switzerland and abroad. Member of the Executive Committee of the Swiss Academy of Engineering Sciences.

Georg Wechsler, born 1956, Swiss citizenBoard member since 2012, elected until 2014Degree in Business Administration and Swiss Certified AccountantSince 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; Zell-weger Uster AG, Uster; and KPMG Fides, Zurich. The Secretary of the Board, since June 2008, is Kurt Leder-mann, Chief Financial Officer of the Schaffner Group and non-member of the Board.

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3.2 Activities and interests outside the Group

Herbert BächlerHerbert Bächler holds various positions on the boards of com-panies not significant within the meaning of the Corporate governance Directive (appendix section 3.2) of the SIX Swiss Exchange.

Daniel HirschiDaniel Hirschi is a member of the Board of Benninger AG, Uzwil; of Carlo Gavazzi Holding AG, Steinhausen; and of Komax Holding AG, Dierikon.

Gerhard PegamGerhard Pegam is a member of the Board and the Strategy Committee of OC Oerlikon Corporation AG and a member of the Supervisory Board of Süss Microtec AG, Germany.

Suzanne ThomaSuzanne Thoma is Chairwoman of the Board of Arnold AG, Selzach, and of BKW ISP AG, Ostermundigen, as well as a mem-ber of the Board of AEK Energie AG, Solothurn and Beckers Group, Berlin.

Georg WechslerGeorg Wechsler holds various positions on the boards of com-panies not significant within the meaning of the Corporate governance Directive (appendix section 3.2) of the SIX Swiss Exchange.

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

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

need to be a member of the Board. A meeting of the Board of Directors is called by the Chairman or Vice Chairman or, if both are unavailable, by another Board member, as often as business requires or when a member requests it. Board meetings are called at least ten days before the meeting date.

The Board of Directors has a quorum when the majority of its members participate in oral discussions and votes. Members may also be present by telephone or via electronic media (e.g., vide-oconferencing). Resolutions are passed by a simple majority of votes. In the event of an equality of votes, the chairman of the meeting has a second or casting vote For the purpose of resolutions concerning capital increases, the Board has a quorum irrespective of the number of members present. The Board may also adopt resolutions “by circulation” by written ballot sent in by mail, fax or e-mail, unless a member requests an oral discussion. In a vote by written ballot, passage of the resolution requires the affirmative vote of the majority of all Board members.

The Board of Directors of Schaffner Holding AG is responsible for determining the Group’s strategy. It reviews the Group’s broad plans and objectives and identifies internal and external risks and opportunities. The tasks of the Board and the division of powers between the Board and the Executive Committee are defined in the Swiss Code of Obligations (Swiss corporation law), the Articles of Association of Schaffner Holding AG and its Organi-zational Regulations.

3.4.1 Division of responsibilities within the BoardDaniel Hirschi has been the Chairman of the Board of Di-rectors since the 2010 Annual General Meeting. Since fiscal year 2012/13 the chairman of the Audit Committee is Georg Wechsler. The Nomination & Compensation Committee has been chaired by Daniel Hirschi since fiscal year 2012/13. The Board has no other standing committees or designated positions.

3.4.2 Composition, purpose and responsibilities of Board committees

The Board of Directors of Schaffner Holding AG maintains the Board committees detailed below. Their principal purpose is to provide decision support to the Board in specific subject areas. Although the committees support the Board of Directors, the Board’s duties and powers always remain with the full Board.

The Board committees are made up solely of non-executive members of the Board. The committees meet as often as neces-sary and inform the Board of their findings and proposals at the

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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 com-mittee members also work directly with members of the Ex-ecutive 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 CommitteeThe Audit Committee supports the Board in exercising over-sight of accounting and financial reporting and in monitoring compliance with legal requirements. The roles and responsibili-ties 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, inves-

tors 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 Commit-tee chairman is appointed by the Board of Directors.

Audit Committee TenureGeorg Wechsler, Committee chairman 2012 – 2014Daniel Hirschi 2013 – 2015Gerhard Pegam 2013 – 2015

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 depart-ment as required. The external independent auditors are present at the meetings for the relevant agenda items.

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

› It periodically submits proposals to the Board concerning the nature and amount of the annual remuneration of the Board members and the Chief Executive Officer

› It periodically reviews the proposals of the Chief Execu-tive Officer for the annual compensation of the individual members of the Executive Committee

› It develops incentive plans › It proposes the targets for the Executive Committee to

the Board of Directors › It assesses the performance of the Executive Committee

against targets › It submits a proposal to the Board for the variable com-

pensation of the Executive Committee

The Nomination & Compensation Committee also submits recommendations to the Board regarding:

› Requests to evaluate and nominate candidates for election to the Board of Directors by the General Meeting of share-holders

› Requests for the promotion of employees to the Executive Committee

› Requests for the new hiring or removal of Executive Com-mittee members

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

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The Nomination & Compensation Committee is composed of at least two non-executive members of the Board. The Commit-tee chairman is appointed by the Board of Directors.

Nomination & Compensation Committee TenureDaniel Hirschi, Committee chairman 2013 – 2015Herbert Bächler 2012 – 2015Suzanne Thoma 2012 – 2014

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

3.4.3 Procedures of the Board and of Board committeesThe 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 meet-ing that is about four hours in length.

In the reporting period the Board met six times. The following overview shows the individual Board members’ attendance at Board and Board committee meetings, as well as the meetings’ average length:

BD AC NCCNumber of meetings in 2012/13 6 3 2Daniel Hirschi 6 3 2Herbert Bächler 6 – 1Hans Hess1 2 – 1Gerhard Pegam2 4 2 –Suzanne Thoma 6 – 2Georg Wechsler 6 3 –Average meeting length in hours 6 2 2

BD Board of DirectorsAC Audit CommitteeNCC Nomination & Compensation Committee

1Retired 14 January 20132Elected 14 January 2013

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 Com-mittee, other management staff or external advisors to attend its meetings as required. In the year under review, no external advisors were called to any significant extent. In a timely man-ner before the meetings, the Board receives written information on the agenda items, which are set by the Chairman or at the request of the Executive Committee. The Board Chairman and the Chief Executive Officer work closely together.

In addition to its inalienable statutory duties set out in section 716a of the Swiss Code of Obligations, the Board of Direc-tors of Schaffner Holding AG has, in particular, the following responsibilities and powers:

› Strategic direction, organization and leadership of the Group

› Structuring of finance and accounting and provision of financial planning and control

› Appointment and removal of the Executive Committee and of authorized signatories

› Regular review of business activities › Decisions on matters not reserved for or transferred to

another body by law, by the Articles of Association or by the Organizational Regulations

› Formulation and preparation of resolutions for considera-tion by the General Meeting

3.5 Division of authorityThe Board of Directors of Schaffner Holding AG is the highest-level management and supervisory body of the Company and Group. It provides overall direction, supervision and control of the Group’s executive management (the Executive Commit-tee). 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 implement-ing the Group’s strategy within the parameters set by the Board

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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 for-mulating Group strategy subject to the approval of the Board of Directors; for the operational management of the Group; for its overall financial results; and for the implementation of the strategy and plans of action adopted by the Board. The Chief Financial Officer has responsibility for financial, tax and capital management and for ensuring the development and implemen-tation 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 re-porting.

3.6 Monitoring and control in respect of the Executive Committee

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

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

› Rolling forecast

› 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 BoardThe Board Chairman regularly meets with the Chief Executive Officer and Chief Financial Officer to discuss current business performance and activities.

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

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

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4 Members of the Executive Committee

The Executive Committee is the Group’s highest-level executive management team and has a divisional structure. In the year under review the Executive Committee, headed by the Chief Executive Officer, consisted of the CEO, the Chief Financial Officer, Chief Operating Officer, and the Executive Vice Presi-dents as heads of the three divisions, EMC, Power Magnetics and Automotive.

The Executive Committee is responsible for implementing Group strategy within the framework set by the Board, and in particular for achieving the annual targets and medium- and long-term objectives. It is also responsible for process planning, for the controllership functions and for the implementation of Group-wide standards.

The Chief Executive Officer formulates Group strategy for the approval of the Board of Directors and is responsible for strategy implementation. The CEO sets the business targets for all units of the Group. The Chief Financial Officer devises the framework for all strategic and operational controllership activities, ensures the Group’s financing, optimizes its financing and tax structure, and supports the Chief Executive Officer and the other Execu-tive Committee members in all financial matters. The Executive Vice Presidents (the division heads) are accountable for achiev-ing the objectives within their respective areas of responsibility. These targets and goals include, in particular, achieving a leading market position as well as continuous innovation to support lasting competitiveness.

4.1 Members of the Executive Committee In fiscal year 2012/13 the Executive Committee of the Schaffner Group had the following members:

Alexander Hagemann, born 1962, German citizenDegree in Mechanical Engineering, RWTH Aachen UniversityJoined the Schaffner Group as Chief Executive Officer on 1 March 2007. Also acting head of Automotive division since 9 November 2012. Previously held a number of management positions at the Schott Group, including Executive Vice Presi-dent, Optics for Devices; earlier, worked in management roles in production and logistics at BMW.

Kurt Ledermann, born 1968, Swiss citizenMSEE Degree in Electrical Engineering, Federal Institute of Technology, Zurich; Master of Arts HSG, University of St. GallenJoined 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 citizenHonours Bachelor of Science in Production Engineering, Uni-versity of Strathclyde; MSc in Industrial Engineering, National University of Singapore; MSc in Finance, University of Leicester; MBA, University of SurreyJoined the Schaffner Group on 1 July 2007. Was Vice President, Manufacturing until 30 September 2011; Chief Operating Offic-er from 1 October 2011. Previously Managing Director at Leica Instruments, Singapore; various management roles at Maxtor Peripherals, Seagate Technology and Tandon/Western Digital.

Eduard Hadorn, born 1956, Swiss citizenDegree in Business AdministrationWith the Schaffner Group since 2003; Vice President, Business Development Asia from 1 March 2007. Managing Director, Schaffner EMC Ltd., Shanghai. Executive Vice President and head of Power Magnetics division since 1 October 2011. Previ-ously was General Manager, Technology division at Diethelm & Co., and Head of Marketing & Sales at Beringer Hydraulik.

Guido Schlegelmilch, 1964, German citizenDegree in Business Engineering and PhD, Darmstadt University of TechnologyJoined the Schaffner Group on 1 February 2009 as Managing Director, Schaffner Deutschland. Executive Vice President and head of EMC division since 1 October 2011. Previously held various management positions at Philips Semiconductors and NXP Semiconductors.

Jean-Michel Calleri, born 1956, French citizenElectrical Engineering Diploma ESIGELEC, Rouen; IESTO CNAM, ParisWith the Schaffner Group since 1999; Vice President, Sales Eu-rope, from 1 July 2007. General Manager, Schaffner EMC S.A.S., Argenteuil. Executive Vice President, Automotive division from 1 October 2011 to 8 November 2012. Previously held a number of management positions in Marketing & Sales at Thomson Passive Components.

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4.2 Activities and interests outside the Group

Alexander HagemannMember of the Board of Directors of Wicor Holding AG, Rap-perswil-Jona

Kurt LedermannVice 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 consul-tancy positions in significant interest groups or any public or political office.

4.3 Management contractsSchaffner Holding AG and its Group companies have no man-agement contracts with third parties.

5 Compensation report

The compensation report provides insight into the compensa-tion of the Board of Directors and Executive Committee and describes the system for determining their compensation. The content and scope of these disclosures are consistent with sec-tion 663b bis and 663c of the Swiss Code of Obligations, with the principles of the Swiss Code of Best Practice for Corporate Governance issued by economiesuisse, and with the Corporate Governance Directive of the SIX Swiss Exchange.

The compensation of the Board of Directors and Executive Committee is presented in detail from page 91 in the notes to the company financial statements of Schaffner Holding AG.

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

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

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

pensation

5.2 Responsibility and procedures for determining compensation

The Board of Directors maintains a Nomination & Compensa-tion Committee, which consists of at least two independent members of the Board.

The members of the Nomination & Compensation Committee (NCC) at 30 September 2013 were:

Daniel Hirschi, Chairman of the Board of Directors, Committee chairmanHerbert Bächler, member of the Board of DirectorsSuzanne Thoma, member of the Board of Directors

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The NCC performs its duties generally without involving ex-ternal advisors. It:

› Recommends to the Board, at the beginning of each term of office, the nature and amount of the Board members’ annual remuneration

› Reviews the proposals of the Chief Executive Officer for the annual compensation of the members of the Executive Committee

› Determines incentive plans › Proposes to the Board of Directors the targets for the

members of the Executive Committee › Assesses the performance of the Executive Committee

against targets and submits a proposal to the Board for the variable compensation of the Executive Committee

The Board of Directors:

› Annually approves the fixed remuneration of each member of the Board based on recommendations of the Nomina-tion & Compensation Committee

› Annually determines the amount to be awarded under the restricted share plan to the members of the Executive Com-mittee and other senior executive management

› Annually determines the fixed and variable cash compensa-tion of the Chief Executive Officer based on a recommen-dation of the Nomination & Compensation Committee

› Annually, upon review by the Nomination & Compensa-tion Committee of proposals by the Chief Executive Of-ficer, approves the fixed and variable cash compensation of the other members of the Executive Committee

› Approves the compensation system › Sets the performance targets for the Executive Committee,

in consultation with the Nomination & Compensation Committee

› Approves the actual award of variable compensation to the Executive Committee according to performance against targets, based on recommendations of the Nomination & Compensation Committee

› Approves the introduction of new incentive systems, based on recommendations of the Nomination & Compensation Committee

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

5.3 Compensation system

5.3.1 Board of Directors

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

5.3.1.2 Executive members of the BoardThe Board of Directors of Schaffner Holding AG consists only of non-executive members.

Compensation of the Board of Directors (from October 2012)

Base compensation (excluding flat expense allowances) CHF ‘000 Number of sharesChairman of the Board of Directors 112 207Members of the Board of Directors 47 104

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In fiscal year 2012/13 the members of the Board of Directorsreceived aggregate compensation of CHF 493 thousand (prioryear: CHF 477 thousand), expense allowances of CHF 30 thou-sand (prior year: CHF 31 thousand) and shares and options valued at CHF 184 thousand (prior year: CHF 135 thousand).

The compensation of the members of the Board is presented in detail from page 91 in the notes to the company financial state-ments of Schaffner Holding AG.

5.3.2 Compensation of the Chief Executive Officer and members of the Executive Committee

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

Compensation system for the Executive CommitteeThe fixed base salary is determined on a discretionary basis, taking into account the individual’s duties, amount of respon-sibility, 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 deter-mined 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 perfor-mance targets are agreed between the Chairman of the Board and the Chief Executive Officer, and between the Chief Ex-ecutive Officer and the members of the Executive Committee. Performance relative to these targets is evaluated after the end of the fiscal year. In its performance target structure, Schaffner seeks an appropriate balance of financial performance and vol-ume 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 Ex-ecutive Committee member, represent a mix of financial and in some cases non-financial objectives.

Target share of overall compensation Basis Vehicle Purpose Drivers Performance measures

Fixed base salary 50 – 60% Employment contracts

Monthly cash compensation

Staff acquisition/retention

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

Variable compensation – management dividend

Approx. 10% Management incentive plan (MIP)

Annual cash compensation

Alignment with shareholder interests

Pay for performance

Company performance Net profit for the period

Variable compensation – personal award

Approx. 10% Management incentive plan (MIP)

Annual cash compensation

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

Efficiency metrics related to net working capital, production, de-velopment and marketing/sales

Long-term incentive compensation

5 –10% Restricted share plan (RSP)

Shares with mandatory holding period

Staff retention

Alignment with shareholder interests

Share price over three years

Determined annually by the Board

Pension, insurance and perquisites

5 –15% Employment contracts

Pension and insurance plansPerquisites

Protection against risksStaff acquisition/ retention

Market practice, employee position

Compensation system for the Executive Committee

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The variable compensation depends on the financial results of the Schaffner Group and ranges from 0% to 35% of base salaries. For the Chief Executive Officer, 10% of variable compensa-tion is determined by the achievement of the budget targets of the Schaffner Group and 10% is dependent on performance against personal qualitative and quantitative targets. For the other members of the Executive Committee, 10% of variable compensation is determined by the achievement of the budget targets of the business area for which they have responsibility, and 10% is dependent on performance against personal qualita-tive and quantitative targets.

Depending on the degree of target achievement, between 0% and 250% of the target variable compensation is paid.

The financial and business success of the Group is measured by the following financial value drivers:

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

duction › Various metrics related to production, development and

marketing/sales.

5.3.3 Share ownership plansShare ownership plans contribute to aligning the medium- and long-term interests of senior management with those of share-holders.

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

Detailed information on the individual plans can be found on page 77 of this report in the notes to the consolidated financial statements.

5.3.3.1 Employee Share Option Plan (ESOP) options issued before the plan amendment of 13 November 2006

Equity-settled share options granted under the preamendment ESOP ordinarily vested in five annual installments of 20%, be-ginning one year after the grant date. Five years after the grant date, all granted options were thus ordinarily vested. The options were granted over three years in equal annual tranches. This re-sulted in a different vesting period for each tranche. Unexercised options expire ten years after the grant date.

5.3.3.2 ESOP options issued after the plan amendment of 13 November 2006

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

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

5.3.3.4 Restricted Share Plan 2012Members of the Executive Committee and other senior execu-tive management were entitled to subscribe for restricted shares, in a quantity determined by the Board of Directors. These shares are subject to a holding period of four years; however, the grantee had the dividend rights and voting rights from the grant date.

5.3.3.5 Restricted Share PlanMembers of the Executive Committee and other senior execu-

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

5.3.4 Employment contracts and special benefitsThere 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 termina-tion benefits.

5.4 Compensation for the year under reviewThe 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 capac-ity 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, compensa-tion is paid until and including the month of departure. When a member leaves the Executive Committee, com-pensation is paid until the date of departure. Depend-ing 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-coun-try 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 Com-mittee.

› In the year under review the members of the Board of Directors and Executive Committee did not receive any fees or compensation for any additional services rendered to Schaffner Holding AG or another Group company.

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

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

5.4.2 Members of the Executive Committee of Schaffner Holding AG

Short- and long-term compensation Target for the coming years

CEO Executive Committee (excl. CEO)

14% Pension, insurance and perquisites

16% Pension, insurance and perquisites

21% Variable compensation 19% Variable compensation 53% Fixed base salary 57% Fixed base salary

12% Long-term incentive compensation

8% Long-term incentive compensation

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Analysis of CEO’s annual compensation

Chief Executive Officer Shareof total

2012/13CHF ‘000

Shareof total

2011/12CHF ‘000

Fixed base salary 50% 480 54% 410

Variable compensation 24% 229 4% 32

Long-term incentive compensation 12% 118 28% 217

Pension, insurance and perquisites 14% 131 14% 103

Total 100% 958 100% 762

Analysis of Executive Committee’s annual compensation (excluding CEO)

Executive Committee Shareof total

2012/13CHF ‘000

Shareof total

2011/12CHF ‘000

Fixed base salary 46% 1,239 54% 1,188

Variable compensation 11% 295 11% 241

Long-term incentive compensation 6% 167 14% 312

Pension, insurance and perquisites 20% 536 21% 449

Termination benefits 16% 440 0% 0

Total 100% 2 ,677 100% 2 ,190

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

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

5.4.4 Related partiesIn the year under review, no fees or other compensation for services rendered to the Schaffner Group or to one of its sub-sidiaries were paid to or accrued by parties related to members of the Board or of the Executive Committee.

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

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

Management transactions in fiscal year 2012/13

Executive Committee Board of Directors

Transaction dateNumber

of shares CHF ‘000Number

of shares CHF ‘000

07.01.2013 370 148 623 141

09.01.2013 – 500 – 78

21.05.2013 – 100 – 21

28.05.2013 – 100 – 21

23.09.2013 – 301 – 67

25.09.2013 – 105 – 23

30.09.2013 – 200 – 3

Overall result – 436 13 123 63

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

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

45


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

6 Shareholder participation rights

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

Upon presentation of a written proxy, shareholders may be rep-resented 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 in-structions regarding each agenda item and also regarding motions not included in the invitation, stating whether they wish to vote for or against a motion or abstain. The proxy appointed by the Company represents only shareholders who are approving the motions of the Board of Directors; proxy mandates accompanied by other instructions are turned over to the independent proxy. Unless explicitly instructed otherwise, the independent proxy will vote in support of the motions of the Board of Directors.

6.2 Quorums under the Articles of AssociationExcept as otherwise required by law or the Articles of Associa-tion, the General Meeting passes its resolutions and decides its elections by a majority of the valid votes represented. If an elec-tion 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 MeetingThe 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 Direc-tors 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 Extraor-dinary 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 agendaOne or more shareholders who together represent at least 5% of the share capital, or shares with a nominal value of at least CHF 1,000,000, whichever is less, may by their written request have business placed on the agenda of a General Meeting. Such a written request must be received by the Company no later than 45 days before the General Meeting.

6.5 Registration in the share registerIn accordance with article 6 para. 1 of the Articles of Associa-tion, Schaffner Holding AG maintains a share register. The Company may outsource the operation of the share register to a company specializing in such services (a registrar). At present the share register is operated by ShareComm Services AG, based in Opfikon, Switzerland. The manager of the share register is Schaffner’s Chief Financial Officer. Concerning the share register, the CFO reports to the Chairman of the Board. The Chairman and the Chief Executive Officer receive regular reports on the shareholder structure (including share deregis-trations above a certain size of shareholding). The Board of Di-rectors 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 mon-itoring of the shareholdings recorded in the share register. The Share Registration Regulation was issued by the Board of Directors in reliance on sections 685a and 685d et seq. of the Swiss Code of Obligations and article 6 of the Articles of

46


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

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

In the case of registration applications by shareholders holding the shares for their own account where the applicant’s resulting voting rights reach or rise above 3% of votes or any of the further thresholds set out in section 20 of the Stock Exchange Act, the registration is not performed until the Company has received a complete disclosure notification by the applicant pursuant to section 20 of the Stock Exchange Act. If the disclosure notifica-tion 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 hav-ing 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 registra-tion with voting rights is denied and the shareholder (i.e., the acquired stock) is registered in the share register as non-voting. The manager of the share register will promptly inform the reg-istrar (the company commissioned to operate the share register) about the disclosure notification made.

Persons who do not expressly declare in their registration ap-plication that they hold the shares for their own account are

classified as nominees. In accordance with article 6 para. 4 of the Articles of Association, by default any single nominee is registered in the share register as holding voting shares only up to a maximum of 5% of the share capital recorded in the Swiss commercial register of companies. Above this limit of 5%, the Board of Directors registers shares of nominees in the share register as voting shares only if: (i) the nominee discloses the names, addresses and holdings of Company shares of the persons for whose account the nominee holds 0.5% or more of the total registered-share capital that is recorded in the commercial register, and (ii) an agreement exists between the nominee and the Com-pany which specifies the nominee’s position and the details of the nominee’s notification obligations. The registrar is responsible for sending the nominee agreement to the respective nominee and collecting the information to be disclosed. If complete disclosure is not made within the 20-day deadline specified in section 685g of the Swiss Code of Obligations and no nominee agreement is concluded between the Company and the nominee within this period, the nomi-nee 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 regard-ing 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 pur-chaser. Also deemed a single purchaser are all natural persons, legal entities or groups with joint legal status that by agree-ment, 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 ret-roactive 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 Reg-istration Regulation or in any amendments thereto) for reg-istration as a voting shareholder are not, or are no longer, ful-filled, are registered in the share register as non-voting shares.

Registered non-voting shareholders and registered non-voting nominees cannot exercise the voting rights associated with the shares nor exercise other rights related to the voting rights.

47


However, they are not restricted in exercising any of their other shareholder rights, including also pre-emptive rights. At the Gen-eral Meeting the shares registered as non-voting are treated as unrepresented (see section 685f para. 2 and 3 of the Swiss Code of Obligations).

These registration restrictions also apply to shares bought or subscribed through the exercise of pre-emptive rights, options or conversion rights.

The authority structure for the approval of shareholder regis-trations in the share register is as follows:

› Registration applications for up to 5,000 shares per trans-action that either clearly meet or clearly do not meet the requirements for registration as a voting shareholder or nominee: Approval by the registrar (the company com-missioned to operate the share register)

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

› Registration applications for more than 5,000 shares per transaction and all other transactions which do not clearly meet the requirements for registration as a voting share-holder or nominee, or in which there is uncertainty: Ap-proval by the manager of the share register

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

Exceptional cases can at any time be forwarded for approval to the Chairman or, if absent, to the Vice Chairman of the Board.

The Board may, after hearing the affected party, void the party’s registration in the share register as a voting share-holder, ret-roactively 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. Registra-tions can also be deleted (or reclassified as non-voting) when a registered shareholder refuses, despite prior warning, to provide the requested information or fails to provide requested documen-tation (of beneficial ownership, etc.). The authority to decide on

deleting or reclassifying the registration of a voting shareholder or nominee or on terminating the relationship with a nominee rests with the Chairman of the Board of Directors. The purchaser must be informed of this deletion immediately.

Under article 13 para. 4 of the Articles of Association, in the notice of the General Meeting the Board of Directors announces the record date at which registration in the share register is re-quired 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. Accord-ingly, the closure of the share register as a rule is in effect from the fourth trading day before the day of the General Meeting until and including the day of the General Meeting.

Deletions from the share register can be made during the closure. Thus, despite the closure, a share seller is struck from the share register to the extent of the shares sold, if the sale is reported to the Company or to the manager of the share register during the closure. An admission ticket already issued in the seller’s name is automatically voided by the deletion from the share register. In the event of the partial sale of a shareholding, the admission ticket previously sent to the seller must be exchanged on the meeting date at the registration desk. The invitation to the General Meet-ing shall note this requirement.

7 Changes in control and measures to prevent hostile takeovers

7.1 Requirement to make a public purchase offer for shares

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

7.2 Provisions on changes in controlThe participants in the Schaffner Holding AG Employee Share Option Plan 1998 (ESOP) and Schaffner Holding AG Perfor-mance Option Plan (POP) have the right to exercise immedi-

48


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

› If any person or entity directly or indirectly acquires a number of shares in the Company that, under section 32 of the Stock Exchange Act, triggers the acquirer’s obli-gation to make an offer to acquire all other outstanding shares of the Company, or

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

8 Auditors

8.1 Duration of audit firm’s engagement and tenure of lead audit partner

8.1.1 Starting date of current audit engagementThe external independent auditor is elected annually by the General Meeting. Ernst & Young AG, Berne, have been the external independent auditors of Schaffner Holding AG since fiscal year 2002/03.

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

8.2 Audit feesIn fiscal year 2012/13, Ernst & Young AG billed the Schaffner Group a total of CHF 350 thousand for services in connection with the auditing of the company financial statements of Schaffner Hold-ing AG and the consolidated financial statements of the Schaffner Group (prior year: CHF 358 thousand).

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

In CHF ‘000 2012/13 2011/12

Tax consulting 27 10

IT consulting 13 2Other 11 6

8.4 Monitoring the external independent auditorsThe Audit Committee, on behalf of the Board of Directors, annually reviews the license, performance, fees and independ-ence of the external auditors and recommends to the Board which external auditors to propose for election by the General Meeting. It also ensures compliance with the legal requirement for rotation of the lead audit partner. The external auditors in the course of their audit activities regularly communicate to the Audit Committee their findings and any suggestions for improvement. The results are reported through a management letter to the Board of Directors (prepared after the audit of the annual financial statements) and through the other reports of the external auditors.

The Audit Committee meets with the external auditors at least two times per year, sets the scope and objectives of the audits, and annually assesses the work of the external audit firm through a performance evaluation process. This process takes into account the Committee’s experience in working with the external audit firm and the audit firm’s own quality assurance measures in re-spect of the engagement. The Audit Committee obtains assurance that the lead audit partner has the necessary technical qualifica-tions 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 finan-cial 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 perfor-mance of the company. It is not the policy of Schaffner Holding AG to update information published in the past.

49


The Schaffner Group reports on its financial and business per-formance on a half-yearly basis. All publications are made avail-able in electronic format; the annual report is also available in hard copy. The half-year report is published on the Company’s website and mailed on request.

The investor relations activities of the Schaffner Group include the following events (among others), conducted in compliance with the ad-hoc-disclosure requirements of the SIX Swiss Exchange:

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

year results or other news › Meetings with shareholders, investors and analysts during

road shows › Themed investor days for shareholders, investors and analysts

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

Annual and half-year reports, corporate governance and com-pensation reports, media releases and presentations for share-holders, 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 reg-istering for the news service at www.schaffner.com, specifically at: http://www.schaffner.com/en/news-service.html

Responsibility for corporate communications rests with the Chief Executive Officer. He is supported in investor relations by the Chief Financial Officer.

The Company’s official gazette for the publication of statutory and regulatory news is the Swiss Official Gazette of Commerce, or SOGC.

Publications in connection with maintaining the listing of the Company’s shares on the SIX Swiss Exchange are effected in ac-cordance with the Listing Rules of the SIX Swiss Exchange. The Listing Rules can be obtained at: www.six-swiss-exchange.com

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

Investor relations contacts

› Alexander Hagemann, Chief Executive Officer [email protected] T +41 32 681 66 06

› Kurt Ledermann, Chief Financial Officer [email protected] T +41 32 681 66 08

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

14 January 2014 18th Annual General Meeting

13 May 2014 Publication of half-year report 2013/14 (half-year results)

9 December 2014 Publication of annual report 2013/14 (full-year results)

15 January 2015 19th Annual General Meeting

Contents

Consolidated financial statements of the Schaffner Group52 Consolidated balance sheet53 Consolidated income statement53 Consolidated statement of comprehensive income54 Consolidated cash flow statement55 Consolidated statement of changes in equity56 Notes to the consolidated financial statements88 Report of the statutory auditor on the consolidated financial statements

Company financial statements of Schaffner Holding AG89 Company balance sheet89 Company income statement90 Notes to the company financial statements of Schaffner Holding AG94 Proposal for the appropriation of retained earnings95 Report of the statutory auditor on the company financial statements

51

Financial report

Consolidated balance sheet

In CHF ’000 Note 30.9.2013 30.9.2012

Intangible assets 3 19,624 22,327Property, plant and equipment 4 20,945 21,109Other non-current assets 5, 21 12,521 13,327Deferred tax assets 16 3,004 2,864Non-current assets 56,095 59,627

Inventories 6 28,094 29,873Trade receivables 7, 21 34,021 34,766Income tax receivables 535 582Other receivables, prepaid expenses and accrued income 8, 21 3,817 3,674Other current financial assets 4,079 2,065Cash and cash equivalents 21 17,012 10,256Current assets 87,558 81,216

Total assets 143,653 140,843

Equity attributable to equity holders of Schaffner Holding AG 62,512 60,333Shareholders' equity 62,512 60,333

Non-current provisions 9 5,558 6,091Deferred tax liabilities 16 2,270 2,194Non-current borrowings 10, 21 29,814 35,959Non-current liabilities 37,642 44,244

Current provisions 9 1,969 2,934Current borrowings 10, 21 549 194Income tax payables 731 966Trade and other payables 11, 21 40,251 32,172Current liabilities 43,500 36,266

Total liabilities 81,141 80,510

Total liabilities and shareholders' equity 143,653 140,843

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

52

Consolidated financial statements of the Schaffner Group

Consolidated income statement(year ended 30 September)

In CHF ’000 Notes 2012/13 2011/12

Net sales 17 194,889 176,942

Cost of sales – 142,301 – 128,037Gross profit 52,589 48,905

Other income 373 961Marketing and selling expense – 17,066 – 16,798Research, development and application expense – 15,482 – 14,185General and administrative expense – 10,135 – 10,785Operating profit before amortization of customer relationships 10,278 8,098

Amortization of customer relationships1 3 – 864 – 855Operating profit [EBIT] 9,414 7,243

Finance income 15 4,674 1,944Finance expense 15 – 6,746 – 4,152Profit before tax [EBT] 7,343 5,035

Income tax 16 – 1,056 – 1,126Net profit for the period 6,287 3,909

Earnings per share in CHF 19Basic 9.92 6.17Diluted 9.86 6.03

1 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 2012/13 2011/12

Net profit for the period 6,287 3,909Items of other comprehensive (loss)/income that may be reclassified to the income statementExchange differences – 1,237 1,795Movement in cash flow hedges 169 10Income tax 0 0Total items that may be reclassified to the income statement – 1,068 1,805Other comprehensive (loss)/income for the period – 1,068 1,805Total comprehensive income for the period 5,219 5,714


53

Consolidated cash flow statement(year ended 30 September)

In CHF ’000 Notes 2012/13 2011/12

Net profit for the period 6,287 3,909Depreciation and impairment of property, plant and equipment 4 4,195 4,002Amortization and impairment of intangible assets 3 2,764 2,674Loss/(gain) on disposal of property, plant and equipment and intangible assets 18 – 972Change in provisions 9 – 1,482 – 749Change in inventories 1,313 8Change in receivables – 44 – 3,515Change in current liabilities 9,037 – 397Change in deferred tax 16 – 152 142Share-based payments (income)/expense – 952 1,058Exchange differences on intra-Group items 196 – 88Change in net defined benefit plan asset – 362 – 1,490Cash flow from operating activities 20,818 4,582

Purchase of property, plant and equipment 4 – 4,786 – 3,740Disposal of property, plant and equipment 296 1,366Purchase of intangible assets 3 – 369 – 671Acquisition of subsidiaries or businesses, and contingent consideration 2 – 359 – 361Change in current financial assets – 1,929 0Change in loan receivables and non-current financial assets 992 – 26Cash flow from investing activities – 6,155 – 3,432

Purchase of treasury shares 20 – 1,104 – 980Proceeds from exercise of share options and from purchase of restricted shares by staff 20 1,236 457Repayment of excess share premium – 2,221 – 2,845Repayment of borrowings – 5,476 – 1,823Amortization in connection with finance lease – 177 – 126Cash flow from financing activities – 7,742 – 5,317

Effect of exchange rates on cash and cash equivalents – 165 188Change in cash and cash equivalents 6,756 – 3,979

Cash and cash equivalents at 1 October 10,256 14,235Cash and cash equivalents at 30 September 17,012 10,256

Free cash flow1 15,959 1,537

Included in cash flow from operating activities:Interest paid – 1,303 – 1,404Interest received 188 30Income tax paid – 348 – 1,862

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


54

Consolidated financial statements of the Schaffner Group

Consolidated statement of changes in equity

In CHF ’000

Share capital Share premium

Cumulative translation differences

Retained earnings

Treasury shares

Hedgingreserve

Total shareholders'

equity

At 1 October 2011 20,668 58,249 – 16,095 – 3,855 – 1,617 – 421 56,929Exchange differences 1,795 1,795Movement in cash flow hedges 10 10Net profit for the period 3,909 3,909Total comprehensive income for the period 1,795 3,909 10 5,714Treasury shares – 713 148 – 565Repayment of excess share premium1 – 2,845 – 2,845Share option plans and restricted share plans 1,058 42 1,100At 30 September 2012 20,668 56,462 – 14,300 – 617 – 1,469 – 411 60,333Exchange differences – 1,237 – 1,237Movement in cash flow hedges 169 169Net profit for the period 6,287 6,287Total comprehensive income for the period – 1,237 6,287 169 5,219Treasury shares – 818 419 – 399Repayment of excess share premium2 – 2,221 – 2,221Share option plans and restricted share plans – 952 532 – 420At 30 September 2013 20,668 53,289 – 15,537 4,851 – 1,050 – 241 62,512

1 CHF 4.50 per share2 CHF 3.50 per share

Share capitalThe 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.

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

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

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


55

Accounting policies

Basis of preparationThe consolidated financial statements comprise the individual financial statements of Schaffner Holding AG (the “Company”) and its subsidiaries (together, “Schaffner”, the “Group” or the

“Schaffner Group”) as at 30 September 2013, drawn up in accordance with the uniform accounting policies of the Group.

The consolidated financial statements have been prepared under the historical cost convention, except for certain items (such as derivatives and listed securities) that are stated at fair value, as further detailed in the accounting policies below. The consoli-dated financial statements comply with Swiss law and have been prepared in accordance with International Financial Reporting Standards (IFRS) and the IFRIC interpretations issued by the IFRS Interpretations Committee (IFRIC). The presentation cur-rency 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 de-finitive and legally binding.

Changes in accounting policiesThe Schaffner Group adopted the following changes with effect from 1 October 2012:

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

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

For the Schaffner Group, the changes to IAS 1 have an impact on the grouping of items of other comprehensive income. The items of other comprehensive income must now be grouped ac-cording to whether they may be reclassified to profit or loss in a future period, or whether they will not be so reclassified.

None of the other IFRS changes and interpretations which be-came effective on 1 October 2012 have a material effect on the financial position, results of operations and cash flows of the Schaffner Group.

IFRS standards becoming effective after the reporting periodThe 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 state-ments of the Schaffner Group has not yet been systematically analyzed. However, based on a preliminary assessment, the ex-pected impact of each standard and interpretation is presented in the following table.

Assessment Effective date Planned adoption by the Schaffner Group

– Annual Improvements to IFRSs 2009 – 2011 ** 1.1.2013 2013/14IAS 19 – Revised – Employee Benefits *** 1.1.2013 2013/14IAS 27 – Revised – Separate Financial Statements * 1.1.2013 2013/14IAS 28 – Revised – Investments in Associates and Joint Ventures * 1.1.2013 2013/14IAS 36 – Amendments – Recoverable Amount Disclosures for Non-Financial Assets ** 1.1.2014 2014/15IFRS 9 – Financial Instruments * 1.1.2013 2013/14IFRS 10 – Consolidated Financial Statements * 1.1.2013 2013/14IFRS 12 – Disclosure of Interests in Other Entities * 1.1.2013 2013/14IFRS 10, IFRS 11, IFRS 12

– Amendments – Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance * 1.1.2013 2013/14

IFRS 13 – Fair Value Measurement ** 1.1.2013 2013/14IFRIC 21 – Levies * 1.1.2014 2014/15

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

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Notes to the consolidated financial statements

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

Second, the revised standard abolishes the corridor method cur-rently used by Schaffner, whereby actuarial gains and losses from the periodic recalculation of the defined benefit obligation – to the extent that they exceed 10% of the greater of the plan assets or the defined benefit obligation – are amortized in the income statement on a straight-line basis over the average of the remain-ing working lives of the participating employees. With the elim-ination of the corridor method, actuarial gains and losses will henceforth be recognized immediately in other comprehensive income. As a result, in the future, Schaffner expects an increase in volatility of pension plan assets and liabilities and thus of con-solidated shareholders’ equity, as well as higher staff costs.

The revised standard will be applied in fiscal year 2013/14, with a restatement of the prior-year data. The expected impacts are as follows:

In CHF ’000 30.9.2012 30.9.2013

Other non-current assets – 5,138 – 5,073Deferred tax assets 112 146Total assets – 5,026 – 4,927

Non-current provisions 373 488Deferred tax liabilities – 997 – 984Equity attributable to equity holders of Schaffner Holding AG – 4,402 – 4,431Total liabilities and shareholders' equity – 5,026 – 4,927

2012/13

Staff costs – 209Net profit for the period – 133

Earnings per share in CHF – 0.21

EstimatesThe consolidated financial statements of the Schaffner Group contain assumptions and estimates which affect the reported fi-nancial position, results of operations and cash flows. These as-sumptions and estimates were made on the basis of manage-ment’s best knowledge at the time of preparation of the accounts. Actual results could differ from the values presented. The fol-lowing estimates have the greatest effects on the consolidated fi-nancial statements:

› Intangible assets: For acquisitions, the fair value of the ac-quired net assets (including acquired intangible assets) is estimated. Any amount paid in excess of this estimate rep-resents 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 impair-ment test can have an effect on the consolidated financial statements.

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

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› Pension obligations: The calculation of the pension ob-ligations of the defined benefit plans is based on actuar-ial 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 oper-ations and cash flows.

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

DefinitionsA 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 re-maining maturities of more than one year; “current liabilities” refers to all liabilities with remaining maturities of one year or less. Current liabilities thus also include that portion of non-cur-rent borrowings maturing within one year. All interest-bearing liabilities are included under borrowings.

Methods of consolidationThe 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, lia-bilities, income and expenses are fully included in the consoli-dated 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 in-tra-Group profits on inventories and on non-current assets.

Companies acquired during the reporting period are included in the consolidated financial statements from the effective date of their acquisition. Companies divested during the reporting period remain included in the consolidated financial statements until the Group ceases to have control.

Translation of subsidiaries’ functional currencies into the Group’s presentation currencyAll assets and liabilities in the balance sheets of foreign subsidi-aries 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 appli-cable exchange rates are recognized directly in the consolidated statement of comprehensive income, where they are accumu-lated in the item “exchange differences”.

Foreign currency transactionsForeign currency transactions of subsidiaries are translated into the functional currency of the subsidiary at exchange rates pre-vailing 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 assetsIntangible assets are stated at historical cost less any amortiza-tion 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 10 yearsSoftware 3 – 8 yearsCustomer relationships 10 years

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Acquisitions and goodwillCompanies are consolidated from the date at which control is acquired. Business combinations are accounted for using the ac-quisition 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-con-trolling interest in the acquired company. For each business com-bination, 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 in-curred are recognized as an expense.

Any contingent consideration payable is recognized at the ac-quisition 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 state-ment or in other comprehensive income. If the contingent con-sideration is classified as equity, it is not remeasured and its even-tual settlement will be recognized in equity.

If the acquisition cost of the company exceeds the market value of the acquired identifiable assets, liabilities, contingent liabili-ties and non-controlling interests, the difference is recognized as goodwill. Any negative goodwill is recognized in the income statement in the period of acquisition.

Goodwill is assessed for impairment annually and any impair-ment 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 re-ported as operating income or expense in the consolidated in-come statement.

Research and development costsDevelopment costs for new products are not capitalized, as a fu-ture economic benefit can be demonstrated only after a success-ful market launch. Development costs for software are capital-ized 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 con-ditions for capitalization are the technical feasibility of the as-set and the intention and ability to complete its development and to either use or sell it.

Intangible assets recognized for software development costs are amortized on a straight-line basis over their estimated useful life.

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

Property, plant and equipmentItems 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 Not depreciatedBuildings 10 – 50 yearsMachinery and equipment 5 – 10 yearsFurniture and fixtures 5 – 10 yearsVehicles 3 – 5 yearsInformation technology hardware 3 – 5 yearsTools 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 lia-bility of the same amount is recognized in borrowings. The in-terest portion (the finance charge) of the lease payments is charged to the income statement. Payments made under oper-ating leases are recognized as an expense in the income state-ment in equal installments over the life of the lease.

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Impairment of non-financial assetsThe recoverable amount of an asset is estimated whenever there is an indication of impairment. If the asset’s carrying amount ex-ceeds 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.

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

Trade receivablesThe carrying amount (also known as carrying value) of trade re-ceivables is their nominal value less a provision for doubtful debts, i.e., for impairment.

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

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

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

flow of resources will be required to settle the obligation. If the outflow of resources is not probable or its amount cannot be de-termined 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, provi-sions 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.

Revenue recognition and interest incomeNet sales represent the revenue from goods sold and services ren-dered to third parties, net of discounts and other price reduc-tions. Sales are recognized at the time that the benefits and risks of ownership of the products sold are transferred to the customer or that the service is rendered; the timing of this depends on the agreed shipment terms. Revenue is recognized if an economic benefit is likely to accrue to the Group and the amount of revenue can be reliably deter-mined.

Interest income is recognized on a time-proportion basis by the effective interest method unless the claim to the interest is in doubt.

Pension obligationsThe 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 qual-ified actuaries. Where plan assets are not held in such segregated funds, those assets which serve to secure future pension obliga-tions are recognized as other non-current assets in the Group’s consolidated balance sheet and the corresponding pension obligation is recorded in liabilities as a provision. For defined benefit plans, the future pension costs are assessed using the pro-jected unit credit method. Under this method, the cost of pro-viding future pensions is charged to the income statement in such a way as to spread the regular cost over the expected ser-

60


vice lives of employees. The amount of these costs and their dis-tribution over employees’ service lives are determined in accord-ance 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 remain-ing working lives of the participating employees. This recognition begins in the year following the year in which the corridor is ex-ceeded.

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

Segment reportingWith effect from 1 October 2011 the Schaffner Group con-verted 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 de-cision maker allocated resources to these segments and assessed their profitability.

The Schaffner Group has identified the Executive Committee as the chief operating decision maker.

Segment profit or loss represents the given segment’s operating profit or loss before amortization (if any) of customer relationships.

Income taxCurrent income tax is recognized on the basis of reported profits, in the period in which the profits arise. Tax is calculated in con-formity 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 dif-ferences 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 ex-pense 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 carry-forwards, are only recognized to the extent it is probable that future taxable profits will be available which will allow the as-sets to be utilized. The determination of the amount of deferred tax assets to be recognized involves assumptions and estimates by management as to the likely timing and amounts of future taxable profits and as to future tax planning strategies.

Financial assets and liabilitiesFinancial 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 finan-

cial assets not assignable to one of the categories above) › All other financial liabilities

Financial assets are initially measured at fair value (including trans-action 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 share-holders’ equity. Upon sale, impairment or other disposal of the assets, the accumulated gains and losses recorded in shareholders’ equity since the purchase are reported in finance income or ex-pense in the current period.

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Assets not measured at fair value are tested for impairment at every balance sheet date. Financial assets are derecognized when Schaffner ceases to control them, i.e., when the related rights have been sold or have lapsed. Financial liabilities are derecognized when the contractual obligation is discharged, canceled or expires.

Non-current financial liabilities are measured by the effective interest method. The interest expense therefore includes not only the actual interest payments but also the amounts for the unwinding of discount and for proportional transaction costs. Liabilities arising from trading activities and derivatives are measured at fair value.

Derivative financial instruments and hedging The Group uses derivative financial instruments to hedge its in-terest 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 val-ues are recorded as liabilities.

Any gains or losses arising during the year from changes in fair value of derivative positions that were not entered into for hedg-ing purposes are taken directly to the income statement.

Cash flow hedgesCash flow hedges are used to hedge exposure to variability in cash flows resulting from interest rate risks of a financial instru-ment. 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 re-corded immediately in the income statement.

Amounts recognized in the consolidated statement of compre-hensive income are transferred to the income statement in the period in which the transaction occurs or when it is no longer expected that the transaction will occur.

At the inception of a hedge relationship, the Group formally des-ignates 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 des-ignation as a hedge is revoked, amounts previously recognized

in the consolidated statement of comprehensive income remain there until the forecast transaction occurs.

Share-based paymentsThe 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 transac-tions 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.

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1 Foreign currenciesIn the consolidation of Group companies’ separate financial statements, the following exchange rates were applied in trans-lating foreign-currency-denominated accounts into Swiss francs:

Balance sheet Income statement

30.9.2013 30.9.2012 2012/13 2011/12

Country or region Currency in CHF in CHF in CHF in CHF

China CNY 100 14.78 14.93 15.06 14.67EU EUR 100 122.38 120.96 122.36 120.69UK GBP 100 146.01 151.44 145.05 146.96Hungary HUF 100 0.41 0.42 0.41 0.41Japan JPY 100 0.93 1.21 1.00 1.18Sweden SEK 100 14.11 14.33 14.21 13.76Singapore SGD 100 72.05 76.42 74.73 73.73Thailand THB 100 2.89 3.04 3.05 2.98Taiwan TWD 100 3.06 3.20 3.14 3.12USA USD 100 90.44 93.80 93.08 92.78

2 Business combinations

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

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

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

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

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

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3 Intangible assets

In CHF ’000

Trademarks, technology

and rights

Software Goodwill Customer relationships

Intangible assets under construction

Total

Cost at 1 October 2011 5,385 9,818 9,012 8,515 474 33,204Additions purchased separately 387 16 403Additions developed internally 268 268Disposals – 31 – 292 – 323Reclassifications 758 – 758Exchange differences 77 24 137 73 311Cost at 30 September 2012 5,431 10,695 9,149 8,588 33,863Additions purchased separately 182 187 369Disposals – 283 – 2,320 – 2,603Reclassifications 103 – 103Exchange differences – 86 – 14 – 156 – 60 – 316Cost at 30 September 2013 5,062 8,646 8,993 8,528 84 31,313

Accumulated amortization and impairment at 1 October 2011 – 1,235 – 5,305 – 2,613 – 9,153Amortization – 467 – 1,352 – 855 – 2,674Disposals 292 292Exchange differences 1 – 13 11 – 1Accumulated amortization and impairment at 30 September 2012 – 1,701 – 6,378 – 3,457 – 11,536Amortization – 470 – 1,430 – 864 – 2,764Disposals 283 2,320 2,603Exchange differences 10 12 – 13 9Accumulated amortization and impairment at 30 September 2013 – 1,878 – 5,476 – 4,334 – 11,688

Net book value at 30 September 2012 3,730 4,317 9,149 5,131 22,327Net book value at 30 September 2013 3,184 3,170 8,993 4,193 84 19,624

GoodwillConsistent with the internal organizational and reporting struc-ture, goodwill impairment testing is conducted on an operating segment basis. For the purposes of reviewing goodwill in the bal-ance sheet for impairment, the relevant cash-generating units are therefore defined as the segments.

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

In CHF ’000 30.9.2013 30.9.2012

Electromagnetic Compatibility (EMC) 4,817 4,817Power Magnetics (PM) 4,176 4,332Total 8,993 9,149

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 currency-induced variation. The goodwill in the balance sheet was tested for impairment in the year under review, by comparing the car-

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

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Cash flows beyond this period were extrapolated using a growth rate of 0%. The cash flow projections are based on historical ex-perience and take into account potential variances from the un-derlying 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) before tax Discount rate (WACC) after tax Long-term growth rate

30.9.2013 30.9.2012 30.9.2013 30.9.2012 30.9.2013 30.9.2012

Electromagnetic Compatibility (EMC) 8.7% 8.0% 7.1% 6.5% 0% 0%Power Magnetics (PM) 8.6% 7.9% 7.1% 6.5% 0% 0%

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

cash flows from fiscal year 2014/15 would also not lead to im-pairment of goodwill.

The sensitivity analysis shows the following safety margins:

In CHF millionReduction in

cash flow by 10%Increase in

discount rate by 10%Zero growth in

cash flow from 2014/15

EMC 240 264 209PM 53 60 14Total 293 324 223

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

30 September 2013. The respective dates of these acquisitions were 3 November 2006 and 1 September 2011.

At the balance sheet date the key information about customer relationships was as follows:

Carrying amount at 30.9.2013 in CHF ’000

Carrying amount at 30.9.2012 in CHF ’000

Useful life Amortization method

Remaining useful life

Schaffner Deutschland GmbH 1,616 2,120 10 years Straight line 3 years 1 monthSchaffner MTC LLC 2,577 3,011 10 years Straight line 7 years 9 months

At the balance sheet date, all customer relationships subject to amortization pertained to the PM segment. The measurement at acquisition was performed by the excess earnings method.

As the business performance of Schaffner MTC LLC did not meet expectations (especially in the first half of the fiscal year under review), an impairment test was carried out at the balance sheet date. This test did not show any need for an impairment charge, as the management expects a significant improvement in the situation in the next several years.

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

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Technology At 30 September 2013 Schaffner carried on its books the “ac-tive 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 ef-fective 1 September 2011.

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

Carrying amount at 30.9.2013 in CHF '000

Carrying amount at 30.9.2012 in

CHF '000

Useful life Amortization method

Remaining useful life

Active harmonic filters 1,121 1,316 10 years Straight line 5 years 3 monthsDry-type transformers 2,005 2,342 10 years Straight line 7 years 9 months

At the balance sheet date the dry-type transformer technology was associated with the PM segment and the active harmonic filter technology was associated with the EMC segment. The measurement at acquisition was performed using the relief-from-royalty method.

In the fiscal year under review as well, sales of active harmonic filters did not fully meet management’s expectations. An im-pairment test was therefore performed at the balance sheet date. This test identified no need for an impairment charge. Manage-ment believes that sales of active harmonic filters will rise in the next several years.

As noted above, the business performance at Schaffner MTC in the past fiscal year fell short of expectations. At the balance sheet date the carrying amount of the dry-type transformer

technology was therefore tested for impairment. This test showed no need for an impairment charge. Management be-lieves that business at Schaffner MTC also will recover in the next several years.

In the consolidated income statement, amortization of intan-gible assets is included within cost of sales, marketing and sell-ing expense, research, development and application expense, general and administrative expense and amortization of cus-tomer relationships.

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4 Property, plant and equipment

In CHF ’000

Land and buildings

Plant andmachinery

Information technology

hardware

Furniture and fixtures

Vehicles Assets under construction

Total

Cost at 1 October 2011 9,874 32,383 4,395 2,346 1,116 1,068 51,182Additions purchased separately 3,701 1,793 142 142 69 807 6,654Disposals – 1,519 – 1,255 – 124 – 942 – 36 – 3 – 3,879Reclassifications 139 931 8 – 15 – 1,064 0Exchange differences 404 971 60 38 15 – 9 1,479Cost at 30 September 2012 12,599 34,823 4,481 1,569 1,164 800 55,436Additions purchased separately 840 2,264 285 66 92 1,238 4,786Disposals – 1,754 – 355 – 1,655 – 53 – 122 – 269 – 4,209Reclassifications 63 423 1 1 – 488 0Exchange differences – 211 – 907 – 51 – 42 – 17 – 64 – 1,292Cost at 30 September 2013 11,537 36,247 3,063 1,541 1,116 1,217 54,721

Accumulated depreciation and impairment at 1 October 2011 – 5,462 – 21,014 – 3,791 – 1,918 – 795 – 32,980Depreciation – 814 – 2,618 – 303 – 131 – 136 – 4,002Disposals 1,205 1,266 117 906 18 3,512Exchange differences – 194 – 621 – 47 16 – 11 – 857Accumulated depreciation and impairment at 30 September 2012 – 5,265 – 22,987 – 4,024 – 1,127 – 924 – 34,327Depreciation – 1,015 – 2,632 – 291 – 152 – 105 – 4,195Disposals 1,754 348 1,655 19 117 3,893Exchange differences 134 624 44 34 15 851Accumulated depreciation and impairment at 30 September 2013 – 4,392 – 24,647 – 2,616 – 1,226 – 897 – 33,778Net book value at 30 September 2012 7,334 11,836 457 442 240 800 21,109

Of which finance leases 2,840 32 2,872Net book value at 30 September 2013 7,147 11,600 447 316 219 1,217 20,945

Of which finance leases 2,755 15 2,770

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In the prior year a building was sold in Finland. This gave rise to a book profit of CHF 1.0 million, which was recorded in other income.

Property, plant and equipment are covered by a Group-wide in-surance policy. The maximum insured amount is CHF 80 mil-lion per claim.

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

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

In CHF ’000 30.9.2013 30.9.2012

Operating leasesMinimum lease payments due:Within 1 year 3,225 4,203 In more than 1 year and not more than 5 years 6,275 10,661 Thereafter 0 396 Total minimum payments 9,500 15,260

SubleasesTotal future minimum income from sublease arrangements 991 1,308 Total minimum income 991 1,308

In fiscal year 2012/13, total operating lease expenses were CHF 4.4 million (prior year: CHF 4.3 million).

Total sublease income in 2012/13 was CHF 534 thousand (prior year: CHF 507 thousand).

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

a finance lease with an acquisition cost of EUR 2.4 million (CHF 2.9 million) in the land and buildings category. The lo-gistics center is depreciated on a straight-line basis over a useful life of 25 years. From 1 January 2019 the Schaffner Group has the option of purchasing the building at the residual lease obli-gation 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.

5 Other non-current assets

In CHF ’000 30.9.2013 30.9.2012

Present value of defined benefit assets and IFRIC 14 asset1 11,089 11,980Rental/utility security deposits and guarantees 1,432 1,347Total other non-current assets 12,521 13,327

1 See note 14, page 72.

6 Inventories

In CHF ’000 30.9.2013 30.9.2012

Raw materials 11,154 11,930Work in process and semi-finished goods 3,545 3,800Finished goods 13,395 14,143Total inventories 28,094 29,873

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Inventory provisions

In CHF ’000 2012/13 2011/12

At 1 October 3,187 2,779Created 1,125 1,064Used – 422 – 241Unused amounts reversed – 449 – 491Exchange differences – 54 76At 30 September 3,387 3,187

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

7 Trade receivables

In CHF ’000 30.9.2013 30.9.2012

Trade receivables, gross 34,420 35,141Provision for doubtful debts – 399 – 375Total trade receivables 34,021 34,766

8 Other receivables, prepaid expenses and accrued income

In CHF ’000 30.9.2013 30.9.2012

Other receivables 3,277 2,819Prepaid expenses and accrued income 540 855Total other receivables, prepaid expenses and accrued income 3,817 3,674

9 Provisions

In CHF ’000

Warranty provisions

Provisions for employee

benefits1

Restructuring provisions

Other provisions

Total

At 1 October 2011 2,845 3,505 1,201 2,526 10,077Created 1,472 368 348 2,188Used – 1,016 – 227 – 340 – 848 – 2,431Unused amounts reversed – 414 – 17 – 29 – 453 – 913Unwinding of discount 20 26 46Exchange differences 40 18 58At 30 September 2012 2,927 3,629 852 1,617 9,025Created 960 363 77 1,400Used – 355 – 207 – 246 – 195 – 1,002Unused amounts reversed – 1,214 – 87 – 592 – 1,893Unwinding of discount 13 13Exchange differences – 11 – 9 4 1 – 16At 30 September 2013 2,307 3,689 610 921 7,527Non-current provisions 1,830 3,629 610 22 6,091Current provisions 1,097 242 1,595 2,934Total provisions at 30 September 2012 2,927 3,629 852 1,617 9,025Non-current provisions 1,491 3,689 368 9 5,558Current provisions 816 242 911 1,969Total provisions at 30 September 2013 2,307 3,689 610 921 7,527

1 See note 14, page 72.

69

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

Warranty provisionsThe 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 regard-ing repairs and returns and adjusted to reflect current sales vol-umes. The outflows are expected to occur within one to three years.

Provisions for employee benefitsEmployee benefit provisions consist mainly of pension provi-sions for unfunded defined benefit plans in Germany, Thailand and France.

Restructuring provisionsThe restructuring provisions were created after the discontin-uation of production at the Luterbach site, for resulting un-

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

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

10 BorrowingsThe average interest rate payable on borrowings in fiscal year 2012/13 was 3.2% (prior year: 3.4%).

The composition of borrowings is shown in the following table:

In CHF ’000Effective interest rate

at 30.9.201330.9.2013 30.9.2012

Bank loans in Switzerland LIBOR + 1.7% 24,543 27,879Bank loans in China 4.28% 2,364 5,024Bank overdrafts 4.125% 533 6Interest rate swap 1.1575% 266 434Finance leases 4.514% 2,657 2,810Total borrowings 30,363 36,153Of which:Current borrowings 549 194Non-current borrowings 29,814 35,959

The debt financing of the Schaffner Group is assured through credit lines with four banks, with a credit limit of CHF 12.5 million per facility.

These credit agreements are tied to covenants, which were ful-filled both during the year and at the balance sheet date.

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

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11 Trade and other payables

In CHF ’000 30.9.2013 30.9.2012

Trade payables 27,350 20,281Other payables 3,587 3,900Accrued expenses 9,314 7,991Total trade and other payables 40,251 32,172

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

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

13 Staff costs and staff count

In CHF ’000 2012/13 2011/12

Wages and salaries 46,436 43,224Share-based payments expense1 – 952 1,100Social security and other costs 11,634 10,814Pension costs for defined benefit plans2 884 – 269Total staff costs 58,002 54,869

Number of employees in full-time equivalents (average for the year) 2,817 2,569

1 See note 18, page 77.2 See note 14, page 72.

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14 Post-employment and other long-term employee benefits

In addition to the statutory social insurance plans (which include pension plans), the Group maintains employee benefit plans that are defined benefit plans under IAS 19. The plan assets and de-fined benefit obligations are remeasured every year and were val-ued by independent actuaries at 30 September 2013. Accumu-lated unrecognized actuarial gains or losses exceeding the 10%

“corridor” (10% of the greater of the present value of the defined benefit obligation or the fair value of the plan’s assets) are amor-

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

In CHF ’000 30.9.2013 30.9.2012

Funded plansFair value of defined benefit assets 36,537 35,169Present value of defined benefit obligations – 32,241 – 30,429Unrecognized actuarial loss 5,944 5,138Net defined benefit plan assets 10,240 9,878

Unfunded plans and employee benefitsProvisions for pensions – 3,119 – 3,137Present value of pension obligations recognized in the balance sheet – 3,119 – 3,137

OtherProvisions for other employee benefits – 570 – 492Present value of other employee benefit obligations recognized in the balance sheet – 570 – 492

In CHF ’000 2012/13 2011/12

Movement in present value of defined benefit obligationsAt 1 October – 34,058 – 32,128Current service cost of employer – 1,090 – 1,195Employee contributions – 592 – 552Interest cost – 713 – 793Actuarial loss – 1,863 – 2,283Effect of curtailment 0 1,283Benefits paid 2,144 1,472Insurance premiums 238 136Exchange differences 5 2At 30 September – 35,930 – 34,058

In CHF ’000 2012/13 2011/12

Movement in fair value of defined benefit assetsAt 1 October 35,169 31,888Expected return on plan assets 1,172 1,165Actuarial gain 802 2,052Employer contributions 998 937Employee contributions 592 552Benefits paid – 1,958 – 1,289Insurance premiums – 238 – 136At 30 September 36,537 35,169

72


In CHF ’000 30.9.2013 30.9.2012

Amounts recognized in the balance sheetPresent value of defined benefit assets 849 2,102Net defined benefit plan assets 10,240 9,878Provisions for pensions – 3,119 – 3,137Other employee benefits – 570 – 492

In CHF ’000 2012/13 2011/12

Amounts recognized in the income statementCurrent service cost of employer – 1,090 – 1,195Interest cost – 713 – 793Expected return on plan assets 1,172 1,165Effect of curtailment 0 1,283Recognized actuarial loss – 253 – 191Pension cost – 884 269

2012/13 2011/12

Return on plan assets and actuarial assumptionsActual rate of return on plan assets 5.4% 9.1%Discount rate 2.1% 2.1%Expected rate of return on plan assets 3.3% 3.3%Expected rate of salary increases 1.1% 1.0%Expected rate of increase in future pensions 0.1% 0.0%Rate of experience loss on defined benefit obligations 5.5% 1.4%

In CHF ’000 30.9.2013 30.9.2012

Allocation of plan assetsEquities 11,228 10,621Bonds 14,783 14,208Property 4,976 4,713Other assets 5,550 5,627Fair value of defined benefit assets 36,537 35,169

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

erty 4.00%, Swiss equities 5.80%, foreign equities 6.00%, alter-native 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 2012/13 2011/12 2010/11 2009/10 2008/09

Fair value of defined benefit assets 36,537 35,169 31,888 31,777 33,634Present value of defined benefit obligations – 35,930 – 34,058 – 32,128 – 33,961 – 32,816Plan surplus/(deficit) 607 1,111 – 240 – 2,184 818Rate of experience loss/(gain) on plan assets 2.2% 5.8% –5.0% –1.8% –0.5%Rate of experience loss on defined benefit obligations 5.5% 1.4% 0.8% 1.9% 1.2%

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

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15 Finance income and expense

Finance income

In CHF ’000 2012/13 2011/12

Interest income 185 31Foreign exchange gains 4,489 1,913Total finance income 4,674 1,944

Finance expense

In CHF ’000 2012/13 2011/12

Interest expense – 1,272 – 1,457Foreign exchange losses – 5,187 – 2,405Other finance expense – 287 – 290Total finance expense – 6,746 – 4,152

16 Income tax

In CHF ’000 2012/13 2011/12

Current tax in respect of the current year – 1,124 – 860Adjustments in respect of prior periods, net – 84 – 124Current tax – 1,208 – 984

Current tax – 1,208 – 984Deferred tax 152 – 142Income tax – 1,056 – 1,126

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

tax liabilities of CHF 1.1 million) for temporary differences in connection with reinvested profits in subsidiaries were not rec-ognized at the end of the fiscal year, as the Group is able to con-trol the timing of reversal of these differences.

Unused tax losses for which no deferred tax asset was recognized in the balance sheet were as follows:

In CHF ’000 2012/13 2011/12

Expiry in 1 year 201 0Expiry in 2 years 33 0Expiry in 3 years 902 1,129Expiry in 4 years 4,420 1,003Expiry in 5 years 3,729 4,440Expiry in more than 5 years 3,878 9,237Total unused tax loss carryforwards 13,164 15,809

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Reconciliation of profit before tax (EBT) to income tax expense:

In CHF ’000 2012/13 2011/12

Profit before tax reported in the income statement 7,343 5,034Nominal tax rate 20% 21%Expected income tax at nominal tax rate – 1,464 – 1,064Effect of non-recognition of tax loss carryforwards – 333 – 396Effect of tax rates other than nominal tax rate – 14 28Effect of expenses not deductible for tax purposes – 85 – 318Effect of non-taxable income 144 100Utilization of previously unrecognized tax losses or gains 231 85Adjustments in respect of prior periods – 84 – 124Non-refundable withholding taxes – 90 – 299Change in recognition of tax loss carryforwards 563 805Effect of changes in tax rates or of new taxes 106 70Other – 30 – 13Income tax expense reported in the income statement – 1,056 – 1,126

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

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

In CHF ’000 2012/13 2011/12

Intangible assets – 471 – 485Property, plant and equipment – 662 – 503Other non-current assets – 1,936 – 1,849Inventories 1,140 935Trade receivables 43 32Provisions 409 514Trade and other payables 755 569Tax loss carryforwards 1,457 1,457Net deferred tax assets 734 670Of which:Reported in the balance sheet as deferred tax liabilities – 2,270 – 2,194Reported in the balance sheet as deferred tax assets 3,004 2,864

75

17 Operating segments The Schaffner Group consists of three reportable segments: Elec-tromagnetic Compatibility, Power Magnetics and Automotive. They represent the organizational units for which results were reported to the Executive Committee (the Group’s chief oper-ating decision maker).

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

Power Magnetics (PM) The Power Magnetics division develops and manufactures power magnetic components (chokes and transformers) that ensure the reliability of power electronic systems, as well as cus-tomized high-performance transformers for demanding appli-cations. Power magnetic components are an integral part of

high- and ultra-high-performance systems for power conver-sion. The main sales markets include energy-efficient drive sys-tems, renewable energy and rail technology.

Automotive (AM)The Automotive division develops and manufactures compo-nents for convenience and safety features in cars and for the drive trains of hybrid and electric vehicles.

Corporate The “corporate” column comprises all costs for Group functions that cannot be allocated to a particular segment. These are primar-ily the expenses of Schaffner Holding AG and, in the prior year, ac-quisition costs.

No operating segments have been aggregated to form these report-able operating segments.

No reconciliation of the management reporting data to the finan-cial reporting data is required or provided, as the internal and external reporting follow the same accounting and presentation policies.

2012/13 EMC PM AM Corporate Group

In CHF ’000

Net sales 109,685 53,924 31,280 194,889Segment operating profit/(loss) 14,071 2,963 – 1,973 – 4,783 10,278Amortization of customer relationships – 864Operating profit [EBIT] 9,414Finance income 4,674Finance expense – 6,746Profit before tax [EBT] 7,343Income tax – 1,056Net profit for the period 6,287

2011/12 EMC PM AM Corporate Group

In CHF ’000

Net sales 105,784 46,495 24,663 176,942Segment operating profit/(loss) 12,552 – 284 563 – 4,733 8,098Amortization of customer relationships – 855Operating profit [EBIT] 7,243Finance income 1,944Finance expense – 4,152Profit before tax [EBT] 5,035Income tax – 1,126Net profit for the period 3,909

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Information by regionIn the analysis below, net sales with external customers are allo-cated to regions according to the domicile of the Schaffner com-

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

In CHF ’000 Switzerland Rest of Europe Europe total Asia North America Group

Net sales 3,780 92,244 96,024 69,210 29,655 194,889Non-current assets 5,407 12,738 18,145 12,162 10,263 40,569

In CHF ’000 Switzerland Rest of Europe Europe total Asia North America Group

Net sales 4,776 88,494 93,270 52,356 31,316 176,942Non-current assets 6,423 13,652 20,075 12,226 11,135 43,436

Information by customerNo single external customer represented 10% or more of net sales.

18 Equity incentive plansThe Schaffner Group maintains several equity incentive plans (share ownership plans) for key executive management and the Board of Directors. These are option-based plans (ESOP and POP) and share-based plans (RSP).

In the fiscal year under review the Board of Directors decided to replace the Employee Share Option Plan for key executive management and Board members (ESOP) with a Restricted Share Plan (RSP). This means that no further share options are awarded since fiscal year 2012/13. However, any rights associ-ated with previously issued options remain intact.

Option-based incentive plansSince 1 October 1998, the Group has granted options over or-dinary registered shares of Schaffner Holding AG to key exec-utive management and to members of the Board of Directors. The awarding of such options was based on the Schaffner Hold-ing 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 regis-tered 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: 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 were thus ordinarily vested. The options were granted over three years in equal annual tranches. This resulted in a different vesting period for each tranche. Unexercised options expire ten years after the grant date.

› ESOP options issued after the plan amendment of 13 No-vember 2006: Equity-settled share options granted after the plan amendment become vested ordinarily in four an-nual installments of 25% each, beginning one year after the grant date. Four years after the grant date, all granted options are thus ordinarily vested. Unexercised options expire seven years after the grant date.

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

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

77

30.9.2013 30.9.2012

Number of share options outstanding

Average exercise price

in CHF

Number of share options outstanding

Average exercise price

in CHF

At 1 October 70,019 188 66,422 188Granted in the year 0 11,400 235Exercised in the year – 4,097 172 – 1,763 163Expired/cancelled in the year – 31,389 168 – 6,040 289At 30 September 34,533 208 70,019 188

Of which: 22,439 200 20,905 197Vested 4,811 5,858Covered by treasury shares 29,722 64,161Covered by authorized unissued share capital 0 0

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

The terms of the share options outstanding at the end of the fis-cal year were as follows:

30.9.2013 30.9.2012

Expiry dateNumber of

share optionsExercise price

in CHF Number of

share optionsExercise price

in CHF

20.11.2012 0 159.00 1,166 159.0014.11.2013 718 212.00 1,400 212.0024.11.2013 1,417 192.00 1,617 192.0017.04.2014 500 250.00 500 250.0009.11.2014 2,899 260.00 3,799 260.0029.11.2014 1,918 180.00 2,118 180.0011.11.2015 1,493 180.00 2,071 180.0014.11.2015 3,150 153.50 4,525 153.5030.11.2016 6,013 159.90 7,513 159.9013.01.2017 1,000 157.00 1,000 157.0021.11.2017 6,910 240.50 8,030 240.5014.11.2018 0 153.50 25,000 153.5014.11.2018 0 235.00 1,500 235.0021.11.2018 8,515 235.00 9,780 235.00Total share options outstanding 34,533 70,019

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

2012/13 2011/12

No grant ESOP grant date 21.11.2011

POP grant date 21.11.2011

Share price at grant date in CHF 235.00 235.00Expected volatility1 35.30% 34.10%Expected dividend yield 1.50% 1.50%Risk-free interest rate 0.34% 0.30%Expected life of option 5.07 years 4.82 yearsExpected staff departure rate per year after vesting period 5.00% 5.00%Exercise price in CHF 235.00 235.00Fair value in CHF 62.65 59.91

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

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

Share-based incentive plans

Restricted share plansIn the fiscal year under review, executive management and the members of the Board of Directors were granted restricted shares. This Restricted Share Plan replaces another compensa-tion element, the share options awarded in prior years under the Employee Share Option Plan (ESOP). The shares are sub-ject to a three-year holding period, during which they carry full voting and dividend rights. In the event that the recipient leaves the company during the holding period, the shares do not re-vert to the company, but remain subject to the holding period.

In the year under review, 2,345 shares with a fair value of CHF 227 per share were granted. The expense of CHF 532 thousand was recognized in the fiscal year under review.

Restricted Share Plan 2012In the prior year, the members of the Executive Committee and other senior executive management were entitled for the last time to subscribe for restricted shares, in a quantity determined by the Board of Directors, at a discount of 20% to the quoted market price of the Company’s shares. These shares are subject to a four-year holding period. The difference between the fair value at the grant date and the amount paid by the staff mem-ber was recorded immediately in staff costs.

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

Restricted Share Plan BETECAt 28 January 2009, key staff members of the acquired BETEC-Engineering were granted 620 restricted shares. These shares carry full voting and dividend rights; they were to revert to Schaffner if the grantees did not remain employed with the company for four years.

The fair value of these restricted shares of CHF 145 per share was charged to the income statement over the term of four years. In the year under review, CHF 6 thousand (prior year: CHF 22 thousand) was charged to the income statement. Restricted Share Plan MTCAt 1 September 2011, key personnel of the acquired division of MTC Transformers, Inc. were granted 570 restricted shares. These shares carry full voting and dividend rights; they revert to Schaffner if the grantees do not remain employed with the com-pany for 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 37 thousand) was charged to the income statement.

79

19 Earnings per share

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

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

2012/13 2011/12

Basic earnings per shareNet profit for the period in CHF ’000 6,287 3,909Weighted average number of shares outstanding entitled to dividend 633,859 632,990Basic earnings per share in CHF 9.92 6.17

Diluted earnings per shareDiluted 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 outstand-ing share options.

2012/13 2011/12

Diluted earnings per shareNet profit for the period in CHF ’000 6,287 3,909Relevant share options outstanding, in number of shares 3,733 15,518Weighted average number of shares outstanding used in calculation of diluted earnings per share 637,592 648,508Diluted earnings per share in CHF 9.86 6.03

20 Treasury sharesNumber of shares Average share

price in CHFAt average price in

CHF '000

At 1 October 2011 4,791 337 1,617+ Purchase1 4,420 980– Shares utilized to satisfy Employee Share Option Plan2 – 1,763 – 288– Shares utilized for restricted shares plans2 – 1,590 – 169Valuation differences3 – 671

At 30 September 2012 5,858 251 1,469+ Purchase1 5,086 1,104– Sale1 – 1 0– Shares utilized to satisfy Employee Share Option Plan2 – 4,097 – 704– Shares utilized for restricted shares plans2 – 2,035 – 532Valuation differences3 – 287

At 30 September 2013 4,811 218 1,050

1 At share prices quoted at transaction date2 At exercise price3 The difference between the average purchase price and the exercise price or selling price is taken to retained earnings.

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21 Financial instrumentsThe 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 assetsCarrying amount Fair value

In CHF ’000 30.9.2013 30.9.2012 30.9.2013 30.9.2012

Cash and cash equivalents2 17,012 10,256 17,012 10,256Receivables, prepaid expenses and accrued income2 37,838 38,441 37,838 38,441Other financial assets1, 2 5,511 3,412 5,511 3,412Total financial assets 60,361 52,109 60,361 52,109

1 Excluding defined benefit assets and IFRIC 14 asset.2 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 day-to-day business operations. The fair values of the financial lia-bilities as a rule do not differ from their carrying amounts.

At 30 September 2013 Schaffner also had an open interest rate swap position with a negative fair value of CHF 265 thousand (prior year: CHF 434 thousand). The swap was designated as a cash flow hedge of future variable interest payments. The varia-ble interest payments relate to the Group’s debt financing.

The hedge was contracted on the following terms in July 2010:

› Notional principal amount: CHF 12 million › Maturity date: 26 July 2015 › Reference rate: CHF, 3-month LIBOR › Fixed rate: 1.1575%

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 fi-nal such payment under this hedge is expected to occur in July 2015. In the year under review, as the hedge relationship is deemed highly effective, an unrealized gain of CHF 169 thou-sand (prior year: unrealized gain of CHF 10 thousand) was rec-ognized 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.

Financial liabilities (including derivatives)Carrying amount Fair value

In CHF ’000 30.9.2013 30.9.2012 30.9.2013 30.9.2012

Non-current borrowings1 29,549 35,525 29,549 35,525Current borrowings1 549 194 549 194Trade and other payables1 40,251 32,172 40,251 32,172Derivative financial instruments2 265 434 265 434Total financial liabilities, including derivatives 70,614 68,325 70,614 68,325

1 Measured at amortized cost.2 Classified as financial liabilities at fair value through profit or loss.

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

› Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

› Level 2: Techniques for which all inputs that have a sig-nificant effect on the recorded fair value are based on di-rectly or indirectly observable market data.

› Level 3: Techniques using inputs that have a significant ef-fect on the recorded fair value and are not based on ob-servable market data.

Analysis by level in the fair value hierarchy

2012/2013 2011/12

in CHF '000 Level 2 Total Level 2 Total

Liabilities measured at fair valueDerivative financial instruments 265 265 434 434Total liabilities measured at fair value 265 265 434 434

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

Financial instruments

In CHF ’000

Loans and receivables

Financial liabilities at amortized cost

Financial liabilities at fair value through

profit or loss

Total

Carrying amount at 30 September 2013 60,361 70,349 265Interest income/(expense) 185 – 1,248 – 24 – 1,087Foreign exchange losses1 – 611 – 87 – 698Net other finance expense – 287 – 287Change in provision for doubtful debts – 183 – 183Net loss recognized in the income statement – 609 – 1,622 – 24 – 2,255Net loss recognized in equity2 – 69 – 69Total net loss in 2012/13 – 678 – 1,622 – 24 – 2,324

Carrying amount at 30 September 2012 52,109 67,891 434Interest income/(expense) 30 – 1,430 – 23 – 1,423Foreign exchange losses1 – 392 – 100 – 492Net other finance expense – 290 – 290Change in provision for doubtful debts – 92 – 92Net loss recognized in the income statement – 454 – 1,820 – 23 – 2,297Net loss recognized in equity2 92 92Total net loss in 2011/12 – 362 – 1,820 – 23 – 2,205

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

82


The most significant risks in connection with the Group’s finan-cial instruments are interest rate, foreign currency, credit and li-quidity 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 riskThe Schaffner Group’s exposure to risk from fluctuations in in-terest 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 fluctu-ation observed during the respective fiscal year.

2012/13 2011/12

Decrease in basis points

Effect on EBT in CHF '000

Decrease in basis points


CHF 2 1 5 3CNY 97 – 26 104 35EUR 17 – 8 51 – 12USD 6 6 14 12

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

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

assesses the need for risk management measures under internally defined foreign exchange guidelines, which require an interven-tion whenever the calculated value-at-risk exceeds 10% of budg-eted 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.

2012/13 2011/12

Increase in %


Effect on equity in CHF '000

Increase in %


Effect on equity in CHF '000

EUR/CHF 2 152 48 4 347 93USD/CHF 5 486 30 8 420 49THB/CHF 7 – 600 0 7 – 461 0

Respectively, decreases in exchange rates by the same percent-age amounts shown in the preceding table have an effect equal and opposite to that shown.

The percentage movement in exchange rates is based on the ac-tual 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.

83

Credit risk

Cash and cash equivalentsWhen investing cash, the Schaffner Group is exposed to poten-tial losses from credit risks in the event that financial institu-tions do not fulfill their obligations. In order to minimize this

risk, the Group spreads its cash and cash equivalents among a number of banks and invests only in safe instruments with low default risk.

The table below shows the amounts of cash and cash equivalents held at the three largest counterparties at the balance sheet date.

Creditworthiness of key counterparties

In CHF ’000 30.9.2013 30.9.2012

Rating Balance Rating Balance

Bank A A 3,517 AA– 1,467Bank B A– 2,681 A 1,447Bank C A– 2,525 A 1,303Other counterparties 8,275 6,018Total cash and cash equivalents, other than cash in hand 16,998 10,235

Trade receivablesThe Schaffner Group markets a wide range of products. Con-centration 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 re-ceivables balances and adherence to payment terms.

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

Provision for doubtful debts

In CHF ’000 2012/13 2011/12

At 1 October 375 322Created 211 134Used – 53 – 20Unused amounts reversed – 129 – 84Exchange differences – 5 23At 30 September 399 375

84


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

Total Not overdue Overdue

in CHF '000Less than 30

days30 to 60

days61 to 90

daysMore than 90

days

Trade receivables at 30 September 2013 34,021 26,819 5,326 984 290 602

Trade receivables at 30 September 2012 34,766 24,790 6,583 1,596 474 1,323

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

Liquidity riskLiquidity 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

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

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

Carrying amount

Total Cash outflow due in

In CHF ’000Less than 1

month1 to 3

months3 to 12

months1 to 5 years

more than 5 years

Non-current financial liabilities2 27,172 28,403 674 511 1,953 25,265 0– Of which hedged1 12,265 12,553 86 0 208 12,259 0– Of which unhedged1 14,907 15,850 588 511 1,745 13,006 0– Interest rate swap 265 273 34 0 102 137 0Current financial liabilities2 40,785 40,785 533 36,298 3,954 0 0Finance leases 2,658 3,372 78 0 232 1,203 1,859Total financial liabilities at 30 September 2013 70,614 72,560 1,285 36,809 6,139 26,468 1,859

Non-current financial liabilities2 33,337 33,835 200 352 6,384 26,899 0– Of which hedged1 12,434 12,525 102 0 162 12,261 0– Of which unhedged1 20,903 21,310 98 352 6,222 14,638 0– Interest rate swap 434 392 33 0 98 261 0Current financial liabilities2 32,178 32,178 6 28,515 3,657 0 0Finance leases 2,810 3,592 74 0 235 1,200 2,083Total financial liabilities at 30 September 2012 68,325 69,605 280 28,867 10,276 28,099 2,083

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

85

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

itor its capital structure, the Schaffner Group uses a gearing ra-tio, 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 re-pay in the medium term out of free cash flows.

In CHF ’000 30.9.2013 30.9.2012

Non-current borrowings 29,814 35,959Current borrowings 549 194Cash and cash equivalents – 17,012 – 10,256Net debt 13,351 25,897

Sharholders' equity 62,511 60,333Gearing ratio 21% 43%

22 Related partiesAll transactions with related parties are conducted at arm’s length. All transactions with subsidiaries were completely elim-inated on consolidation.

Compensation of Executive Committee and Board of DirectorsThe following compensation was paid to the members of the Executive Committee, including the Chief Executive Officer:

In CHF ’000 2012/13 2011/12

Short-term compensation (base salaries, variable cash compensation and benefits in kind) 2,775 2,346Contractual post-employment benefits 441 0Share-based payments (income)/expense1 – 755 529Pension plan contributions 182 125Total compensation of Executive Committee 2,643 3,000

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

86


In the year under review, members of the Board of Directors were paid fees and expense allowances (including flat expense allowances) of CHF 330 thousand (prior year: CHF 342 thou-sand) and were granted 623 restricted shares at a market value of CHF 227.00 per share (prior year: 2,500 options at an exer-cise price of CHF 235.00).

Disclosures under the Swiss Code of Obligations on compensa-tion of the Executive Committee and Board of Directors are set out from page 91 in the notes to the company financial state-ments of Schaffner Holding AG.

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

23 Risk assessmentThe Board of Directors of Schaffner Holding AG evaluates the risks to the Group through systematic risk identification and analysis. Risk management measures are formulated on this ba-sis and their implementation and results are continually moni-tored. The Group uses a risk management system which is de-signed for the timely detection, evaluation and mitigation of risks.

24 Release of the consolidated financial statements for publicationThe consolidated financial statements were released by the Board of Directors of Schaffner Holding AG on 6 December 2013 for publication and will be presented to shareholders for adoption at the Annual General Meeting on 14 January 2014.

25 Events after the balance sheet dateNo 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 GroupThe following companies’ results were included in the Schaffner Group’s consolidated financial statements at 30 September 2013:

Company Registered office Capital in ’000 Group’s interest in %

Schaffner Holding AG Luterbach, Switzerland CHF 20,668 100%Schaffner Trading AG Luterbach, Switzerland CHF 250 100%Schaffner EMV AG Luterbach, Switzerland CHF 14,000 100%

Schaffner Oy Lohja, Finland EUR 34 100%Schaffner EMC S.A.S. Illzach, France EUR 5,330 100%Schaffner Ltd. Wokingham, UK GBP 260 100%Schaffner EMV Hungary Kft. Kecskemét, Hungary HUF 8,000 100%Schaffner EMC S.r.l. Milan, Italy EUR 100 100%Schaffner Deutschland GmbH Büren, Germany EUR 380 100%Schaffner EMC AB Sollentuna, Sweden SEK 200 100%Schaffner EMC, Inc. Edison, NJ, USA USD 1,030 100%

Schaffner MTC LLC Wytheville, VA, USA USD 2,676 100%Schaffner EMC Ltd. Shanghai, China CNY 52,815 100%Schaffner EMC K.K. Tokyo, Japan JPY 10,000 100%Schaffner EMC Pte. Ltd. Singapore SGD 1,200 100%Schaffner EMC Co. Ltd. Lamphun, Thailand THB 140,000 100%Schaffner EMV Ltd. (Taiwan Branch) Taipei, Taiwan TWD 5,000 100%

87

To the General Meeting ofSchaffner Holding AG, LuterbachAs statutory auditor, we have audited the consolidated financial statements of Schaffner Holding AG, which comprise the bal-ance sheet, income statement, statement of comprehensive in-come, cash flow statement, statement of changes in equity and notes (pages 52 to 87) for the year ended 30 September 2013.

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

Auditor’s responsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our au-dit in accordance with Swiss law and Swiss Auditing Standards and International Standards on Auditing (ISA). Those stand-ards require that we plan and perform the audit to obtain rea-sonable assurance whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evi-dence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the au-ditor’s judgment, including the assessment of the risks of mate-rial misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation and fair presentation of the consolidated fi-nancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of ex-pressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropri-ateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the consolidated financial statements. We be-lieve that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the consolidated financial statements for the year ended 30 September 2013 give a true and fair view of the finan-cial position, the results of operations and the cash flows in ac-cordance with IFRS and comply with Swiss law.

Report on other legal requirementsWe confirm that we meet the legal requirements on licensing ac-cording to the Auditor Oversight Act (AOA) and independ-ence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence.

In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal con-trol system exists, which has been designed for the preparation of consolidated financial statements according to the instruc-tions of the Board of Directors.

We recommend that the consolidated financial statements sub-mitted to you be approved.

Berne, 6 December 2013

Ernst & Young Ltd

Bernadette Koch Philippe WengerLicensed audit expert Licensed audit expert(Auditor in charge)

88

Report of the statutory auditors on the consolidated financial statements

Balance sheet In CHF '000 30.9.2013 30.9.2012

Property, plant and equipment 28 0Investments in subsidiaries 85,251 85,251Non-current assets 85,279 85,251

Receivables from subsidiaries 7,771 1,989Other receivables, and prepaid expenses with non-Group entities 63 84Securities and term deposits 809 939Cash and cash equivalents 105 88Current assets 8,748 3,100

Total assets 94,027 88,351

Share capital 20,668 20,668General legal reserve 4,134 4,134Reserve for treasury shares 1,050 1,469Share premium 42,450 44,671Retained earnings 14,981 12,836Net profit for the period 1,536 1,726Shareholders' equity 84,819 85,504

Non-current borrowings 15 12Liabilities to subsidiaries 7,354 2,050Current borrowings 533 0Other liabilities to non-Group entities 205 164Accrued expenses 1,101 621Total liabilities 9,208 2,847

Total liabilities and shareholders' equity 94,027 88,351

Income statement(year ended 30 September)

In CHF '000 2012/13 2011/12

Other income 6,800 6,300Total income 6,800 6,300

Staff costs – 3,037 – 2,265Operating expenses – 2,141 – 2,248Depreciation – 3 0Finance expense – 237 – 362Finance income 397 365Foreign exchange (losses)/gains on financing, net – 100 49Income tax – 143 – 113Net profit for the period 1,536 1,726

89

Company financial statements of Schaffner Holding AG

Guarantees and pledged assets

In CHF '000 30.9.2013 30.9.2012

Guarantees 41,250 41,250Of which utilized in subsidiaries in respect of credit obligations 27,440 32,910

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 ob-ligations 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 capitalThe company has issued share capital of CHF 20,668,050, consist-ing 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.

Authorized but unissued capitalThe Company has authorized but unissued share capital with a total nominal value of CHF 2.4 million (72,342 ordinary reg-istered shares at CHF 32.50 per share). This capital is allocated to satisfying obligations under the share option plans. At 30 Sep-tember 2013 there were 34,533 share options outstanding, each relating to the purchase of one share of Schaffner Holding AG. In the year under review no options were exercised out of au-thorized 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 publicationThe company financial statements were released by the Board of Directors of Schaffner Holding AG on 6 December 2013 for publication and will be presented to shareholders for adoption at the Annual General Meeting on 14 January 2014.

Fire insurance coverageGroup fire insurance with a maximum insured amount of CHF 80 million per claim is carried on property, plant and equipment.

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

90

Notes to the company financial statements of Schaffner Holding AG

Number of shares

Fair value per share

in CHF

Average price per share

in CHF

At fair value in CHF 1'000

At average price in CHF 1'000

At 1 October 2011 4,791 158 337 756 1,617+ Purchase1 4,420 980 980– Shares utilized for Employee Share Option Plan2 – 1,763 – 288 – 288– Shares utilized for restricted share plans1 – 1,590 – 169 – 169Value changes3 – 340 – 671

At 30 September 2012 5,858 160 251 939 1,469+ Purchase1 5,086 1,104 1,104– Disposal1 – 1 0 0– Shares utilized for Employee Share Option Plan2 – 4,097 – 704 – 704– Shares utilized for restricted share plans1 – 2,035 – 532 – 532Value changes3 2 – 287

At 30 September 2013 4,811 168 218 809 1,050

1 At share prices quoted at transaction date.2 At exercise price.3 Year-end closing price or average exercise price of the options, whichever was less.

Significant shareholders

30.9.2013 30.9.2012

Number of shares Equity interest Number of shares Equity interest

Sarasin Investmentfonds AG 62,599 9.84% 63,541 9.99%Alpine Select AG 62,308 9.80% 135,753 21.35%Buru Holding AG 60,801 9.56% 54,808 8.62%UBS AG 57,699 9.07% 30,748 4.84%Balfidor Fonds 27,242 4.28% 22,830 3.59%SUVA (Swiss National Accident Insurance Fund) 23,100 3.63% 23,100 3.63%Shareholders with interests of less than 3% 337,380 53.06% 299,302 47.06%Free float 631,129 99.24% 630,082 99.08%

Treasury shares 4,811 0.76% 5,858 0.92%Total shares outstanding 635,940 100.00% 635,940 100.00%

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, varia-ble compensation, options and restricted shares under the eq-uity incentive plans, and other compensation, such as contribu-tions 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 variable compensation is ordinarily awarded and paid after the annual financial statements have been adopted by the Annual General Meeting.

All variable compensation is presented on an accrual basis, which means that any variable compensation shown under a given fis-cal year was accrued in that fiscal year. The expense for share-based payments consists of the market value of granted share op-tions and restricted shares attributable to the respective fiscal year.

91

Board of Directors in 2012/13

In CHF '000

Cash fees and base salaries1

Variable compensation

Pension costs Share-based payments expense2, 3

Other compensation4

Total

Daniel Hirschi, Chairman 112 75 187Herbert Bächler 47 37 84Hans Hess (until 14 January 2013) 12 24 36Gerhard Pegam (from 14 January 2013) 35 0 35Suzanne Thoma 47 24 71Georg Wechsler 47 24 71Total compensation of the Board of Directors 300 0 0 184 0 484

Executive Committee in 2012/13

In CHF '000

Alexander Hagemann, Chief Executive Officer 480 229 121 118 10 958Total for all other members of the Executive Committee 1,239 295 448 167 528 2,677Total compensation of the Executive Committee 1,719 524 569 285 538 3,635

1 Excluding flat expense allowances.2 At market value.3 For the Executive Committee, over the prior four years a cumulative total of CHF 1.0 million had been reported as share-based payments under

the Performance Option Plan (POP). This represented four years of the annual expenses at market values, spread over the vesting periods in ac-cordance with IFRS 2. As the POP performance target in the year under review was not reached, the plan participants do not receive any of the share options which were available under the plan. The share-based compensation element arising from the POP for the year under review was thus CHF 0. In accordance with transparency law, the compensation shown in the prior periods is not presented as negative compensation.

4 This includes statutory and contractual payments of CHF 440 thousand in termination benefits to Jean-Michel Calleri.

Board of Directors in 2011/12

In CHF '000

Cash fees and base salaries1

Variable compensation2

Pension costs Share-based payments expense3

Other compensation

Total

Daniel Hirschi, Chairman 112 53 165Herbert Bächler 47 26 73Hans Hess 47 28 75Suzanne Thoma (from 12 January 2012) 35 0 35Georg Wechsler (from 12 January 2012) 35 0 35Markus Zenhäusern (until 1 July 2012) 35 28 63Total compensation of the Board of Directors 311 0 0 135 0 446

Executive Committee in 2011/12

In CHF '000

Alexander Hagemann, Chief Executive Officer 410 32 93 217 10 762Total for all other members of the Executive Committee 1,188 241 324 312 125 2,190Total compensation of the Executive Committee 1,598 273 417 529 135 2,952

1 Excluding flat expense allowances.2 Including, for the other members of the Executive Committee, CHF 54 thousand for discounts under the Restricted Share Plan

(see note 18 on page 77).3 At market value.

92

Notes to the company financial statements of Schaffner Holding AG

Holdings of shares, options and conversion rights

30.9.2013 30.9.2012

Number of shares

held

Number of share options held Number of shares

held

Number of share options held

Vested

Not

vested

Total

Vested

Not

vested

Total

Board of DirectorsDaniel Hirschi, Chairman 327 1,080 1,580 2,660 120 665 1,995 2,660Herbert Bächler 604 660 660 1,320 500 330 990 1,320Hans Hess (until 14 January 2013) 1,895 418 1,115 1,533Gerhard Pegam (from 14 January 2013) 10 0 0 0Suzanne Thoma 109 0 0 0 5 0 0 0Georg Wechsler 304 0 0 0 200 0 0 0Total holdings of the Board of Directors 1,354 1,740 2,240 3,980 2,720 1,413 4,100 5,513

Executive CommitteeAlexander Hagemann, Chief Executive Officer 725 3,115 2,065 5,180 1,000 2,045 13,560 15,605Kurt Ledermann, Chief Financial Officer 889 1,747 973 2,720 743 1,095 4,653 5,748Jean-Michel Calleri (until 29 June 2013) 80 600 1,850 2,450Ah Bee Goh, Chief Operating Officer 751 1,075 725 1,800 645 600 4,200 4,800Eduard Hadorn, Executive Vice President, Power Magnetics division 649 1,293 725 2,018 543 1,000 4,200 5,200Guido Schlegelmilch, Executive Vice President, EMC division 186 375 550 925 80 125 1,550 1,675Total holdings of the Executive Committee 3,200 7,605 5,038 12,643 3,091 5,465 30,013 35,478

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

Risk assessmentThe Board of Directors of Schaffner Holding AG evaluates the risks to the Group through systematic risk identification and analysis. Risk management measures are formulated on this ba-sis and their implementation and results are continually moni-tored. The Group uses a risk management system which is de-signed for the timely detection, evaluation and mitigation of risks.

93

The Board of Directors proposes to the Annual General Meet-ing to allocate retained earnings as follows:

In CHF ’000 2012/13 2011/12

Net profit for the period 1,536 1,726Earnings brought forward 14,564 12,690Change in reserve for treasury shares 419 148Retained earnings available for distribution 16,519 14,564Allocation to general legal reserve 0 0Earnings carried forward 16,519 14,564

The Board of Directors will also propose to the Annual General Meeting to allocate share premium (the reserve for additional paid-in capital) as follows:

In CHF ’000 2012/13 2011/12 2

Distributable share premium reserve brought forward 0 0Transfer from share premium account to distributable share premium reserve 2,840 2,221Distribution of CHF 4.50 (prior year: CHF 3.50) per share entitled to dividends, exempt from Swiss anticipatory tax – 2,840 – 2,221Distributable share premium reserve carried forward 0 0

Total number of shares outstanding 635,940 635,940Number of treasury shares – 4,811 – 5,858Number of shares entitled to dividends1 631,129 630,0821 Shares entitled to dividends are those shares not held by the Company or one of its subsidiaries.2 Amounts approved by last year's Annual General Meeting.

94

Proposal for the appropriation of retained earnings

To the General Meeting ofSchaffner Holding AG, LuterbachAs statutory auditor, we have audited the financial statements of Schaffner Holding AG, which comprise the balance sheet, in-come statement and notes (pages 89 to 93) for the year ended 30 September 2013.

Board of Directors’ responsibilityThe 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 re-sponsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of finan-cial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further respon-sible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the cir-cumstances.

Auditor’s responsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in ac-cordance 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 evi-dence about the amounts and disclosures in the financial state-ments. The procedures selected depend on the auditor’s judg-ment, 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 pur-pose 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 reason-ableness 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 appropri-ate to provide a basis for our audit opinion.

OpinionIn our opinion, the financial statements for the year ended 30 September 2013 comply with Swiss law and the company’s ar-ticles of incorporation.

Report on other legal requirementsWe confirm that we meet the legal requirements on licensing ac-cording to the Auditor Oversight Act (AOA) and independ-ence (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 con-trol 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 availa-ble earnings complies with Swiss law and the company’s articles of incorporation. We recommend that the financial statements submitted to you be approved.

Berne, 6 December 2013

Ernst & Young Ltd

Bernadette Koch Philippe WengerLicensed audit expert Licensed audit expert (Auditor in charge)

95

Report of the statutory auditor on the company financial statements

ChinaSchaffner EMC Ltd. ShanghaiT20-3, No 565 Chuangye RoadPudong New AreaShanghai 201201 T +86 21 3813 9500F +86 21 3813 9501 / [email protected]

GermanySchaffner Deutschland GmbHSchoemperlenstrasse 12B76185 KarlsruheT +49 721 56910F +49 721 [email protected]

FinlandSchaffner OySauvonrinne 19 H08500 LohjaT +358 19 35 72 71F +358 19 32 66 [email protected]

FranceSchaffner EMC S.A.S.112, Quai de Bezons95103 ArgenteuilT +33 1 34 34 30 60F +33 1 39 47 02 [email protected]

ItalySchaffner EMC S.r.l.Via Galileo Galilei 4720092 Cinisello Balsamo (MI)T +39 02 66 04 30 45/47F +39 02 61 23 [email protected]

JapanSchaffner EMC K.K.7F Mitsui-Seimei sangenjaya Bldg.1-32-12, Kamiuma, Setagaya-ku154-0011 TokyoT +81 3 5712 3650F +81 3 5712 [email protected]

SwedenSchaffner EMC ABTurebergstorg 1, 6 19147 SollentunaT +46 8 5792 1121 / 22F +46 8 92 96 [email protected]

SwitzerlandSchaffner EMV AGNordstrasse 114542 LuterbachT +41 32 681 66 26F +41 32 681 66 [email protected]

SingaporeSchaffner EMC Pte Ltd.Blk 3015A Ubi Road 105-09 Kampong Ubi Industrial Estate408705 SingaporeT +65 6377 3283F +65 6377 [email protected]

SpainSchaffner EMC EspañaCalle Caléndula 93Miniparc III, Edificio EEl Soto de la MoralejaAlcobendas28109 MadridT +34 618 176 [email protected]

TaiwanSchaffner EMV Ltd.6th Floor, No 413Rui Guang RoadNeihu District114 Taipei CityT +886 2 8752 5050F +886 2 8751 [email protected]

ThailandSchaffner EMC Co. Ltd.Northern Region Industrial Estate67 Moo 4 Tambon Ban KlangAmphur Muangg P.O. Box 14Lamphun 51000T +66 53 58 11 04F +66 53 58 10 [email protected]

UKSchaffner Ltd.5 Ashville WayMolly Millars LaneWokinghamRG41 2PL BerkshireT +44 118 977 00 70F +44 118 979 29 [email protected]

USASchaffner EMC, Inc.52 Mayfield Avenue08837 Edison, NJT +1 732 225 9533F +1 732 225 [email protected]/us

Headquarters and global innovation and development center

SwitzerlandSchaffner GroupNordstrasse 114542 LuterbachT +41 32 681 66 26F +41 32 681 66 [email protected]

Sales and application centers

96

Selected addresses of the Schaffner Group

Important note regarding forward-looking statementsThis 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 word-ing. Such forward-looking statements reflect management’s current opinion and are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Schaffner Group to differ materially from those contained or implied in such statements. These include, but are not limited to, risks related to the success of and demand for the Group’s products, the potential for its products to become obsolete, the Group’s ability to protect its patents, the Group’s ability to develop and market new products quickly enough, the rapidly changing and competitive environ-

ment in which the Group operates, the regulatory environment, fluctuation in foreign exchange rates, the Group’s ability to gen-erate revenue and net profits, and its ability to carry out expan-sion 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 re-sults 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 under-take any obligation to update any forward-looking statements contained herein, whether as a result of new information, future events or otherwise.

Publication information

© Schaffner Holding AG, December 2013

Publication and production: Schaffner Holding AG, Luterbach

Concept and consulting: Communicators AG, Zurich

Translation: Martin Focken, North Bay, Ontario, Canada; CLS Communication AG, Glattbrugg-Zurich

Prepress: W4 Marketing AG, Zurich/Dresden

Publishingsystem: ns.publish by Multimedia Solutions AG, Zurich

Printing: Neidhart + Schön AG, Zurich

Photography: flamisch photography, Düsseldorf; GettyImages; Shutterstock

Schaffner Holding AG

Nordstrasse 11

4542 Luterbach, Switzerland

T +41 32 681 66 26

F +41 32 681 66 30

www.schaffner.com Sch

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Annual Report 2012/13

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